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Occupational Pensions

Volume 470: debated on Monday 7 January 2008

2. What steps his Department is taking to encourage employers to provide access to an occupational pension scheme for employees. (175867)

The Pensions Bill, having its Second Reading today, will introduce a requirement on all employers automatically to enrol workers who are eligible into a qualifying workplace pension scheme. Our estimates indicate that that will result in up to 9 million people newly participating or saving more in workplace schemes, with total pension contributions increasing by up to £10 billion.

Is not the key to the success of the Government’s proposals an obligation on employers to match, or make significant contributions towards, the sum paid by the employee or worker? Is it not that which creates a strong incentive for the employee to save?

My hon. Friend is absolutely right. Under our Bill, employers will for the first time be required to contribute to workers’ pensions. The employee will contribute 4 per cent., the employer 3 per cent., and the tax system about 1 per cent. We estimate that more than 1 million workers who are already saving will see their employer’s contribution raised as a result, and millions more who have no occupational pension scheme will get the benefit of an employer’s contribution. Overall, annual pension contributions from employees and employers are estimated to increase by about £10 billion by 2015.

Since 1997, almost 2 million fewer workers are in final salary schemes. How will Ministers ensure that personal accounts do not lead to more employers quitting schemes into which they are paying contributions of 14 per cent., in favour of personal accounts, into which they need pay only 3 per cent.?

The figure that the hon. Gentleman gives is wrong. I understand that it came out last week in a press release from Conservative Front Benchers which was inaccurate. As I understand it, they double-counted the figures. When the BBC did its own research, it realised that the figures that the Conservatives had given out were entirely wrong.

We need to ensure that there is no levelling down, and that is why in the Pensions Bill we have introduced a number of conditions for personal accounts, which will ensure that people do not transfer in and out of them. There is a restriction of £3,500 on annual contributions. Also, 86 per cent. of employers have indicated to us that they are likely to maintain or increase the contribution that they make to their employees’ pension schemes. The Pensions Bill should therefore bring about a significant improvement to the pensions situation.

While I welcome my hon. and learned Friend’s statement and the introduction of personal accounts, I am concerned that the proposed banding of contributions will discriminate against part-time workers, many of whom hold more than one part-time job, and most of whom are women. Will he look again at the possibility of allowing employer contributions on all earnings up to the £33,540 ceiling, and also at an option for employee contributions on the first £5,035?

We have had a very broad consultation on those matters, and we looked at the issue of part-time workers—an issue that has caused me great concern. We tried to find a way to assist part-time workers much more effectively. So far, it has proved very difficult to ensure that employers can register what are, in some cases, quite small jobs. We have not been able to find a way around that, but I am open to suggestions on how we might do that. I remain concerned about the issue that my hon. Friend raises.

For the new personal accounts to be successful, those on lower than average earnings will need to be persuaded that it is in their interests to invest in the new pensions. If they are not so persuaded, there is a danger that they will opt out, and that the whole system, and the benefits that it is supposed to bring, will collapse. The Pensions Minister himself said today that there was an issue in that respect; what can he say today to allay fears that those on lower than average earnings may opt out, and that the system may be fundamentally weakened?

I can reassure the hon. Gentleman that unlike the previous Conservative Government—who, pound for pound, took away all savings from those who saved, so that they did not benefit—we have introduced a savings credit, which enables those with savings to benefit, even if they are on pension credit. The Pensions Commission has made it clear that people have to save more. For the vast majority, the downsides of not saving outweigh the risk of saving that the hon. Gentleman identifies.

It is very difficult to predict which people will be in the group that the hon. Gentleman identifies. Those with pension pots of under £16,000 would have the benefit of trivial commutation. Those with pension pots of over £16,000 could get 25 per cent. back, so they would benefit from saving. Some of the suggested solutions are enormously expensive. None of them has been favoured by the hon. Gentleman’s party, as far as I am aware, although I heard a rather odd suggestion from the hon. Member for Epsom and Ewell (Chris Grayling) that everyone who made a contribution and did not benefit should have their contributions refunded—a suggestion about which, I suspect, the pensions industry would be very unhappy.

I warmly welcome what my hon. Friend has done to promote occupational pension schemes, but what reassurance can he offer my constituents who worked, often for many years, for BUSM and contributed to its pension scheme, only to be left high and dry when much of the firm went bankrupt and the remnants were sold on to other firms? Will he meet me to discuss their position?

I would be happy to meet my right hon. Friend. As I understand it, when the business went down, the assets were passed from one company to another, and there are difficulties in getting the trustees to bring together the required information. However, I would be happy to meet my right hon. Friend and see whether there are ways in which we can help. If the company is in the position in which I think it is, the Pension Protection Fund would probably be able to provide help in due course, but I do not want to be categorical about that until I have had a discussion with her.

Did the Minister hear the chief executive of the personal accounts delivery authority on Radio 4 on 29 December, when he declined to commit himself to a 2012 start date for personal accounts? Does he agree that such a delay would be very worrying, and is he totally confident that the scheme will begin on schedule in 2012?

We intend it to begin in 2012, and the chief executive has been informed that that is what we intend.