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Pensions Bill

moved Amendment No. 113G: 113G: Clause 70, page 34, line 33, at end insert ““and initially based on an annual management charge of no more than 0.3% per annum”” The noble Baroness said: This amendment adds to paragraph (d) of Clause 70(2) a rider designed to ensure that a personal account scheme will be set up with initial costs of not more than 0.3 per cent. This is a probing amendment, moved more in hope than expectation, in order to get the Government to put on the record the current position on costs and charges. The Pensions Commission, much to the surprise of the financial services industry, said that personal accounts could be delivered for a 0.3 per cent annual charge. The Government, in their 2006 White Paper, Personal Accounts: A New Way to Save, said at paragraph 4.5: "““Our analysis indicates that in the long term it would be possible to run personal accounts at a charge of, or possibly even below, the 0.3 per cent level. In the short term, charges will be comparable with the Commission’s estimate when this is adjusted to take account of the likely need to finance the scheme over a shorter timescale, and the need for a compliance regime””." What are the Government’s estimates of the cost of a personal accounts scheme when expressed in annual percentage charge terms? The Government clearly had some figures available in December 2006. I assume that they are updating those, so could we have the updated view? In particular, the December White Paper went on to refer to 0.5 per cent as the initial figure. Is that still the figure for charges in the early years or might it go even higher? My noble friend Lord Skelmersdale has already referred to that, as some people are talking about higher figures. As the charge levels have a large impact on the net return in retirement, the Minister will be aware that this is an important area. Will the Minister say what assumptions will be made about the period over which the scheme needs to be financed? The paragraph from the December 2006 White Paper that I quoted a moment ago referred to the Government adjusting the Pensions Commission’s costs to take account of the likely need to finance over a shorter timescale. Perhaps he will put on the record what that timescale is, what amortisation period the Government are assuming and what interest rate they are using. I shall be looking to the Minister to provide some more detailed analysis of the approach to and quantum of costs. On our fourth Committee day, we had a brief discussion about the evolution of the personal accounts scheme in the context of whether PADA would deliver the scheme on time. We will be returning to that issue on Report but today I am concentrating on the costs of the scheme in both absolute and relative terms. I have not been able to trace much information about costs, although the emerging smoke signals are that it is proving to be expensive. PADA is spending £36 million in this financial year, having spent £13 million up to the end of the last financial year. That is £49 million and we are still a long way from 2012. We do not know what that is being spent on, but there are stories of armies of management consultants moving in in large quantities by the day. That fills us with some dread of what the total bill will be. Mr Tim Jones, the chief executive of PADA, gave evidence to the Work and Pensions Select Committee in another place on 7 July. Almost the only specific thing that he said was that the operational costs of the early years were large. I expect the capital costs will also be pretty huge, but it is possible that those costs will be translated into annual costs by PFI-type service contracts. A prior information notice was issued last month in connection with a procurement exercise, but I noted that the cost boxes were left blank. Unless the Minister can point me to some information on costs, we might have to conclude that we are in an even worse situation on this Bill than we were when we debated the Identity Cards Bill. The Minister may recall that the paucity of information available then led to a requirement being introduced into that Bill for six-monthly cost reports to Parliament, but we had much more information then about the costs of identity cards than we have been given to date on personal accounts. I am not yet going to be defeatist on this subject because I hope that the Minister will be able to give us some information on cost levels in absolute terms and in terms of the annualised rate of cost per member. I hope that the Minister will be prepared to share with the Committee, for example, the membership assumptions on which cost percentages are based and say whether there are trigger points at which step changes in costs occur, especially as the number of potential members in the personal accounts scheme has shifted to a lower level since the emphasis of this project shifted towards auto-enrolment and away from personal accounts—well, not away from them, but incorporating a significant auto-enrolment element. I know that the Minister will be told by his officials to hide behind commercial confidentiality, but I would like him to reflect carefully on whether that is the correct thing for him to do. The evidence given by Mr Tim Jones on the shape of the procurement and what we see from the prior information notice and its accompanying discussion note suggest that there will be multiple contracts for different elements of the scheme of personal accounts, so giving aggregate cost data—and that is all that I am asking for at this stage—cannot possibly compromise individual procurements. Will the Minister say what role the DWP is playing? It is all very well setting up a quango to do the detailed design and procurement, but if things go wrong the mess will end up on the Government’s doorstep. Do the Government have firm control over what is happening? What oversight processes are in place? For example, how often are progress reports, including costs estimates, submitted to Ministers? The Committee will be concerned that this is not another runaway project in the making, so what can the Minister say to reassure us on that? Lastly, will the Minister say something about the charging for compliance costs, which clearly have to be taken into account when arriving at the overall cost levels? When we discussed this on an earlier day in Committee, the Minister raised the prospect of the levy being used to cover compliance costs because of the difficulty of separating out work on compliance with this Bill and the other work of the regulator. Can he expand on that? As he will know, the corporate sector, which has to suffer the high levy payments, will be resistant to any suggestion that its levy should be used to cover anything else. I said earlier that this is a probing amendment, but I should say to the Minister that we regard this as an important topic, so I hope that he will be able to reply with specifics, not simply fine words. I beg to move.