Lords amendments considered.
I must draw the House’s attention to the fact that privilege is involved in Lords amendments Nos. 132, 135, 147, 149, 150, 171 to 176, 188, 193, 194, 198, 199, 202 to 205, 239, 240 to 246 and 278. If the House agrees to these amendments, I shall ensure that the appropriate entry is made in the Journal.
Lords amendment: No. 1.
I beg to move, That this House agrees with the Lords in the said amendment.
With this it will be convenient to discuss Lords amendments Nos. 2 to 56, Lords amendment No. 57 and amendment (a) thereto, and Lords amendments Nos. 58 to 66, 120, 123, 133, 136, 137, 146, 153 to 155, 157 to 168, 170, 207 to 214, 223 and 228 to 230.
Today, we enter the final stages of this landmark Bill, which will transform the saving habits of millions of people in the country. Before we begin this final debate, I should like to pay tribute to my hon. and learned Friend the Minister of State, Department of Energy and Climate Change, the Member for North Warwickshire (Mr. O'Brien), to my hon. Friend the Member for Warwick and Leamington (Mr. Plaskitt) and to my noble Friend Lord McKenzie for all their stalwart work on the Bill. Thanks to their efforts, progress on this Bill has been characterised by a high degree of constructive dialogue between the Government, stakeholders and the Opposition. That consensual approach is clear in the vast majority of the amendments before us. I hope that, during this final debate, we will retain that consensus approach to a certain extent.
On the issue of qualifying earnings, we reached a broad consensus on the way forward because of the constructive and supportive approach taken by a number of our stakeholders. Among others, I should like to thank the CBI, the National Association of Pension Funds, the Association of British Insurers and the TUC as well as colleagues in both Houses for their contributions to the debate on this important area.
As I said, the Government have listened to the points that have been made in debate, and to our stakeholders. Amendments Nos. 21, 22, 57, 61 and related consequential amendments are designed to address concerns about the potential complexity of the band of earnings at the heart of the quality test.
Amendment No. 61 makes it clear that trustees can change scheme rules as a route to compliance, but they still need to obtain the employer’s consent to change those rules. In order to minimise the risk of levelling down, this power cannot be used to reduce contribution levels. Amendments Nos. 21 and 22 and related consequential amendments enable employers to use an annual pay period to smooth the impact of irregular payments to workers.
Amendment No. 57 allows employers who are confident that their workers are on course to receive the new minimum level of pension savings to certify that their arrangements meet the quality standard. That will increase clarity and certainty for employers, while ensuring that individuals’ savings remain protected. The detailed processes will reflect the principles agreed with stakeholders and will be set out in regulations and guidance.
The hon. Member for Eastbourne (Mr. Waterson) has tabled an amendment to amendment No. 57 that would remove the Government’s ability to repeal the process of certification in the future. All our stakeholders have agreed that a review in 2017 is appropriate. Removing proposed new subsection (9) would mean that, following the review, we would not be able to repeal this legislation if it was felt that certification was not effective or necessary from the perspective of either workers or employers.
Amendments Nos. 23, 24 and 25 ensure that the limits of the earnings band are reviewed annually in line with changes to average earnings, and uprated accordingly. This proposal was an Opposition amendment but we accept that it is consistent with Government policy, and that is why we have agreed to it this evening.
Amendments Nos. 5, 12 and 15 extend automatic enrolment to workplace personal pension schemes. We always intended that automatic enrolment would apply to workplace personal pensions but concern was expressed on Report in the Commons that they could fall within the scope of two European consumer directives and that that might have prevented automatic enrolment into the schemes. Happily, when the Bill was introduced into the other place and following discussions with the European Commission, we were pleased to be able to announce that that would not be the case. That puts provision by the insurance industry on a level playing field with other provision, and it was warmly greeted by all our stakeholders.
Amendments Nos. 28 to 32, 41 to 46 and 57 make technical changes to the scheme quality requirements to ensure that the widest range of schemes can qualify. Other amendments in this group are minor and technical in nature and are entirely consistent with the overarching policy. I therefore commend the amendments to the House.
It is a great pleasure to be debating the Pensions Bill again as it moves majestically towards the statute book. As the Minister kindly said, it is good to see the hon. and learned Member for North Warwickshire (Mr. O'Brien) in his place. He is clearly a sad person because he cannot keep away from pensions, despite his huge new responsibilities in the energy field. I suppose we will have him to thank if the lights do not start going out in a few years’ time.
I join the Minister in thanking all the stakeholders that have been part of the process. She listed some organisations, and even more have been involved. For the real enthusiast, there have been any number of seminars, get-togethers, conferences and events to try to get the thing right. The Opposition are not wholly convinced that there is not a series of unanswered questions, but those questions are for another day.
It is interesting that the Government still have what I might describe as a schizophrenic approach to saving for retirement. Only yesterday they announced—well, they quietly slipped through—a further £2.3 billion stealth tax on private pension pots. Of course, at the moment they are trying to give people in this country two different messages. One is that the problems that have got us here have included borrowing too much and saving too little. The other is that they are to provide a fiscal stimulus that they would like us all to take down to the shops immediately and spend.
We face a huge number of amendments from the Government and just a sprinkling from the Opposition—ones on which the Government were defeated in the Lords or that the Government were good enough to accept. To that extent, there will be a reasonably pre-festive season air about this evening. Having said that, the Bill is not in the same league as the Pensions Act 2004, to which there were more than 1,000 amendments, so perhaps things are getting better—even though we still have an awful lot of amendments on our plate this evening.
I pay tribute to my colleagues in the House of Lords. Lord Skelmersdale and Baroness Noakes made a huge contribution to improving the Bill in the Lords, sometimes with the co-operation of Lord McKenzie, the Minister in the Lords, and sometimes without. They have made some major changes and a lot of minor ones, some of which I will not necessarily have time to touch on this evening, but on the whole considerable improvements were made to the Bill. I also pay tribute to those who served on the Committee in this House. It was a model of amity, co-operation and consensus, as far as that goes.
It is worth mentioning a couple of issues before I go into the detail of the first group of amendments. We have been allocated three hours for five groups of many amendments. Life being what it is, the fifth group relates almost entirely to an issue that has not yet arisen in the House—regulation of buy-outs of pension funds. It would be a huge tragedy if we did not reach that group in the time that the Government have allocated to us this evening.
On the first group, I intend to be even more selective than the Minister in the amendments that I want to speak to. As she rightly said, there are many technical and minor amendments and I do not see any purpose in labouring them in any detail. The central issues are clear. They are mainly concerned with the concept of automatic enrolment. My party has been convinced on that matter in the pensions field for longer than any other party. Indeed, it was our policy before the last election. It is important to recognise that in many ways we are all slightly mesmerised by the architecture—the design—of personal accounts, but the more important issue is auto-enrolment. The top prize is to auto-enrol people into existing pension schemes that have much more generous provision than the overall 8 per cent. contribution envisaged for personal accounts. It is important to remind ourselves of that as we get into the detail of the amendments.
As I said, many of the amendments bring simplification, clarification or rationalisation to the original draft of the Bill, and I want to make some observations on some of the amendments before I talk to our amendment (a) to Lords amendment No. 57. The first issue principally revolves around Lords amendments Nos. 23, 24 and 25, which the Minister touched on. They were moved by Baroness Noakes and are designed to ensure that the Secretary of State does not in future let the value of the earnings threshold for personal accounts fall behind increases in the level of earnings generally.
There was one of those bizarre exchanges in the Lords in which the Minister, Lord McKenzie, was clear that it is, and was, the Government’s policy to uprate the earnings band in line with earnings. However, that was not in the Bill. As originally drafted, it appeared to give the Secretary of State carte blanche to decide how and when to revalue the band. Lord McKenzie talked about needing flexibility. He said:
“We always have this dilemma where we have a clear policy and objective and believe that uprating by earnings is the right way forward. However, given that we are setting down reforms for decades to come, there must be a strong argument in favour of flexibility.”—[Official Report, House of Lords, 23 June 2008; Vol. 702, c. 1267.]
I do not regard that as a dilemma. If the policy is clear, why does the legislation not follow it? In the event, that argument did not persuade Baroness Noakes or, indeed, their lordships, because it went to a vote and the Government were defeated. I thank the Minister of State for graciously accepting that the amendment should stand.
The main issue—and it is very important, for reasons that I shall describe—revolves around Lords amendment No. 57 and amendment (a). Amendment No. 57 allows for what is called self-certification in respect of the qualifying earnings rule. That is a complex but important matter. It is clear from the design of personal accounts—we accept this as a principle—that if one is introducing auto-enrolment either into an existing scheme or to personal accounts, there has to be a mechanism whereby it is proven that the terms of the existing scheme are at least as beneficial to the employees as personal accounts would be. All the evidence from organisations such as the National Association of Pension Funds is that existing schemes will overwhelmingly be much more generous in terms of the employer contribution than will personal accounts.
Perhaps this is more of a theoretical than a practical problem. However, it is clear that there has to be a test of some sort—the qualifying earnings test—and it has to strike a balance between two different things. One is, of course, to protect employees’ rights. That must be clear. The other is the real need for the test to be as easy, cheap and straightforward as possible for employers to operate. We do not need another complex regime—a third regime—sitting alongside PAYE and national insurance as an extra burden on employers.
I pay tribute to the industry’s working group, whose views I shall come to in a minute, because it has worked so hard with officials over many months to get the right answer. Indeed, I think that it is still working with them. The group includes organisations such as the Association of British Insurers, the CBI, the Institute of Chartered Accountants, the Society of Pension Consultants and the National Association of Pension Funds. Its concern, which is the same as ours, is that if the test is not simple, cheap and straightforward to operate, it could encourage the process of levelling down, whereby the introduction of personal accounts—apparently in 2012, which we might discuss later—would give an extra impetus to employers to close their existing defined benefit schemes and point their employees in the direction of the Government-backed personal accounts. We strongly believe that every possible measure should be taken to try to discourage that process, because otherwise there could be the nightmare scenario in which many people are disadvantaged by ending up with personal accounts rather than existing, and much more generous, company schemes. We share the concern that the test, as applied in practice, could assist the process of levelling down. I shall come to the views of those key stakeholders.
The current position could fairly be described as a work in progress. There have been discussions, and there were more discussions with the industry working group over the summer. The Government have moved somewhat by accepting some of the principles that would make the process simpler but, in fairness, there is still some way to go on the detail.
The next step, as I understand it, is the publication of detailed regulations on the qualifying earnings test. We and, indeed, the industry will look very closely at just how the regulations are drafted, and if we do not get the drafting right at the next attempt, an incoming Conservative Government would certainly wish to revisit it as a matter of urgency.
I turn to the concessions that the Government made on the subject in the House of Lords in early November. In a letter, Lord McKenzie cited the efforts of the stakeholder group led by the ABI, conceded that there should be a self-certification procedure, which we welcome, and said that
“employers will not be required to make retrospective reconciliation payments if contributions unexpectedly fall short, unless the detriment to an individual exceeds certain de-minimis levels”,
and that the levels will be set in a way to stop detriment to particular individuals. That was a major step forward, because the Government undertook what Lord McKenzie described in his letter as
“a departure from the policy of an individualised test”.
“In developing this approach we have sought ways to increase clarity and certainty for employers going forward, without opening up the risk that some individuals find themselves regularly or materially losing out”
and he talked about getting the balance right. The Opposition still think that, despite all the best efforts, the balance is not quite right, but I am prepared to concede that everyone is doing their best to try to reach the right answer.
In its briefing for this debate, the CBI expressed the concern to which I have referred: that the original test, as drafted, could contribute to levelling down. It also said how important self-certification is. The self-certification point has now been conceded, and that is important. However, the CBI goes on to say that
“employers and pensions industry professionals alike were very concerned about maintaining high quality existing provision in the face of an impractical qualifying test that defines pay in a way that does not meet the current market standard. The costs associated with complying with this definition would provide an incentive to level down into Personal Accounts.”
That is the nub of the issue. What was originally proposed departed from the standard current industry practice, so it needed to be tackled urgently. The CBI continues:
“The self-certification approach ensures firms need not take on significant administrative costs, without affecting the levels of contribution made to their scheme…We strongly support amendments to introduce self-certification, which is a robust but less burdensome approach.
In addition, we acknowledge the move to annual reconciliation as a major—and very welcome—step toward simplification.”
The Association of British Insurers, which has been leading on all the issues relating to the earnings test, had this to say in its press release of 6 November:
“we, along with other industry groups, remain concerned that the wording of the key amendment to the Pensions Bill on self-certification may not achieve these aims”—
that is, the aims of simplicity and so on. The association goes on:
“The current drafting of the amendment adds considerably to the administrative burden for employers and risks discouraging them from continuing to provide pensions to their employees that have higher contributions than the level set for personal accounts.”
It says that it hopes that the issue can be resolved and makes it clear that it is prepared to carry on working with the Government on these matters. That is encouraging.
I look to the Minister for an absolute assurance that, just because the Bill is passing into law any time soon, she and her Department will not lose interest in the nitty-gritty work that still needs to be done on the qualifying earnings test. As the Minister pointed out, my amendment (a) would remove subsection (9) of the new clause in Lords amendment No. 57. It is important that we make that stand, because it seems to me that the current position is as follows. By dint of a lot of hard work by officials and stakeholders, we have made significant progress. Further progress needs to be made on the regulations, and I hope that it will build on the discussions that have already happened.
I am totally bemused by why the Government now want to put into the legislation what is effectively a proposal to go back to square one some time in the future. We are deeply suspicious of that proposal. We see no need for the power in proposed subsection (9), which enables the Secretary of State to repeal the whole new clause by order.
We will talk at some point about the question of a review after five years of personal accounts, but if something cataclysmic occurred in the context of personal accounts and of the qualifying earnings test and how it applies, I am sure that the Government of the day would wish to get to the bottom of the problem through primary legislation. That would be fair enough. I commend amendment (a) to the House, and subject to any further comments from the Minister on the issue, we will press it to a Division.
The final issue—I appreciate that to some extent I am cherry-picking the really important issues from this huge number of amendments, which are not of our making, as I explained—is one that the Minister has already touched on, which concerns auto-enrolment into workplace personal pensions, or WPPs. That was a major concern during the passage of the Bill in our House and is a matter of huge worry to organisations such as the ABI. In fairness, there is a great deal of consensus about it. I remember having private discussions with the then Minister, the hon. and learned Member for North Warwickshire, on how it could be sorted out. Lord McKenzie recently emphasised the importance of doing so:
“Workplace personal pensions are an important and growing part of the pensions market. Membership of workplace personal pensions is around 47 per cent of current private sector pension membership, which represents about 3.3 million employees, involving total contributions of £6.7 billion a year.”—[Official Report, House of Lords, 17 June 2008; Vol. 702, c. 957.]
He said that it had always been the Government’s intention to include WPPs within the scope of this legislation, but there were concerns from a legal point of view that they would fall foul of the European directives on distance marketing and unfair commercial practices.
In our discussions with bodies such as the ABI—I am sure that there were similar parallel discussions with Ministers—they were very worried that if some clarity were not sought and obtained as a matter of urgency, that could stop in its tracks the healthy growth in WPPs throughout the British workplace. The good news is that the European Commission has now confirmed in writing that it takes the same view as the Government, and this group of amendments reflects that positive outcome. Let us hope that that exchange of letters with the Commission is enough to ensure that there is no future legal challenge on this issue. As far it goes, it is good news for those who were concerned about the Bill’s unintended effect on WPPs. It now seems clear that WPPs can be used to discharge the duty on employers to operate an automatic enrolment system. I very much welcome that, as does, I am sure, everybody involved.
Those are our concerns arising out of this group of amendments. I have argued for amendment (a). Let me leave the House with this thought, which is again to emphasise the huge importance of automatic enrolment in this legislation and for the future of British pensions. That is so much the case that a few days ago the ABI issued a statement asking for it to be dealt with in the pre-Budget report; I am afraid that it was disappointed. It says in its press release:
“Automatic enrolment into workplace pensions, which is due to begin in 2013, should be brought forward and introduced as soon as possible. If it were to start in 2010, it could lead to additional long-term savings in excess of £500 million by 2012.”
Earlier today, I spoke at the ABI’s savers conference, where that proposal was again made. At the end of its press release, it says:
“The Government has a golden opportunity to boost workplace pension saving by enabling automatic enrolment now. The pensions industry, employers and the rest of the private sector is ready to deliver auto-enrolment as soon as the green light is given.”
It would be interesting to have some indication from the Minister as to whether that forms any part of the Government’s thinking. Beyond that, I have nothing to add, and I look forward to any further comments that the Minister might have.
I join others in congratulating those in the other place on all their hard work. I especially congratulate my colleagues, Lord Oakeshott, Lord Kirkwood and Lord Thomas, and hon. Members here on the work they have done on a mammoth Bill, which is now coming to a close.
In her opening remarks, the Minister rightly commented on how, during the passage of the Bill, we have maintained a broad consensus, which is important for stability and long-term development. This group of amendments— 101 are included, the majority of which the Government introduced—shows that many of the issues and concerns raised during the Bill’s consideration here and in the other place have been listened to, and I welcome that.
As the hon. Member for Eastbourne (Mr. Waterson) said, auto-enrolment is the key to the success of the scheme. We are talking about between 4 million and 7 million people being enrolled, and upwards of £170 billion being invested. That is investment of a size and order considerably larger than what has been achieved in other pension schemes. It is a mammoth task, and ensuring that auto-enrolment is made straightforward and effective is going to be the key to the success of the scheme.
Amendments Nos. 9, 10, 11, 13 and 14 clarify the fact that re-enrolment will not apply if a job holder stops saving or opts out within a prescribed period before re-enrolment is due. The amendments set out the timings in more detail. Although we see their necessity, I say to the Minister that we do not want to go down the New Zealand route. It has seen a 30 per cent. drop-out rate on the quick saver scheme. Auto-enrolment is crucial to the Bill’s success and we need to ensure that the Government support employers as much as possible to ensure that re-enrolment is a consistent policy.
I agree with the hon. Member for Eastbourne about auto-enrolment for workplace pension schemes. That element was missing from the pre-Budget report statement yesterday, and I hope that the Minister, when she responds, will give us some idea of when, or if, the Government are considering bringing the date forward. Given the amount of work that has to be undertaken to set up the scheme, the more of the other things that we can get done earlier, and the more we can encourage people in existing schemes to auto-enrol, the better.
I am pleased that the Minister has said that she accepts amendments Nos. 23, 24 and 25, which deal with the value of the earnings threshold and ensure that it does not fall behind the increases in the level of earnings. That is critical to the success of the Bill and to ensuring that people have a pension commensurate with what they need to live on when they retire. We know what has happened to the state pension. The Government have not given a commitment to restore the earnings link by a set date, and as a result many pensioners are in poverty or are having to apply for pension credit. If we are to have a scheme, it is far more preferable to ensure that it keeps up to date with increases in earnings. That is critical. I hope that the Minister will say when she is going to restore the earnings link to the state pension. That measure could have been introduced in the pre-Budget report.
I congratulate the Government on what they have done in amendments Nos. 5, 7, 13, 16, 21, 30, 31, 55 and 134 to permit workplace personal pensions to be used for auto-enrolment. When the Bill was discussed earlier in this House, the major concern was that the auto-enrolment of workplace pensions could have been outlawed by two EU directives. Again, I am grateful for the work that the Department has done to ensure that that is not the case and that the auto-enrolment of workplace pension schemes can continue.
We support the Conservatives in their amendment (a), which stands in the name of the hon. Member for Eastbourne, to Lords amendment No. 57. We are grateful that the Government accepted Lords amendment No. 57, because it is vital that existing schemes and the duties placed on employers are made as easy as possible. Having a self-certification scheme that does not set unnecessary conditions is critical to the retention of those existing schemes. We have made the point all along that we did not want the Bill to be used as a levelling-down exercise for existing pension schemes, and the amendment would at least ensure a mechanism that would enable employers to comply with their duties satisfactorily. However, the Minister said that she had agreed with stakeholders that there was going to be a review in 2017.
I accept that. However, in the other place, Baroness Noakes questioned the need to allow the Secretary of State automatically to sweep the provision away. She did not receive a satisfactory answer, so I hope that the Minister will give us one today. Our view is that if such a major change—one that could affect existing pension schemes—is to be contemplated, it should be the subject of primary legislation. So far, the Government have taken all the various groups with them—stakeholders and the parties in this place. I would not want the change made possible by Lords amendment No. 57 as drafted to be made, so I hope that the Minister will reconsider her position. It is not a pressing issue—the Government will not fall if amendment (a) is accepted and it will not materially change the workings of the Bill—but in the long term, people would be given the satisfaction of being listened to.
Lords amendment No. 159 deals with the director of a corporate body not counting as a worker. Again, that seems to be a sensible amendment and we support it.
I, too, welcome the Minister to her new role. Picking up a complicated Bill after Committee, Report and Third Reading cannot be the easiest thing to do. However, as other hon. Members have said, there has been constructive engagement among all the parties—the parties in this House and stakeholders outside—on the way forward for these measures, as well as broad cross-party support, because we need to increase pension saving across the nation. It is therefore reassuring that that engagement has continued.
However, I would like to echo the concerns that have been expressed. If there has been one disagreement among the political parties, it is the prospect of those of our fellow citizens who have a better pension scheme than that which will be offered under the Bill finding their scheme being levelled down. Once the provisions come into force, there will clearly be a temptation for employers to look again at what they offer and to contemplate having all their employees—or at least all their new employees—on a scheme that complies with the standards of the Bill, rather than on the scheme currently in place.
I sincerely hope that the Minister will take into account the concerns that have been raised about having a self-certification scheme, so that there will not be any payroll issues relating to the administrative costs of the new measures. My particular worry, given the debate so far, is that the Minister wants to be able to strike out what is good in the Bill by ministerial decree, rather than through further debate in the House. Employers want reassurance on this issue, and will not want to think that the self-certification provision can be taken out by ministerial decree, because that will add to the de minimis situation. We need to hear some good reasons why the Government’s way forward is a good one, because the sanctions for employers who do not fully comply and co-operate include imprisonment.
Yesterday, we heard about the seriousness of the economic situation facing the country, and the Bill will add further pressure for employers, who will also face a national insurance increase around the time the Bill comes into effect. The pressures on them will be considerable, and the maximum reassurance that the House and the Minister can offer will be appreciated. I look forward to hearing her arguments, which might be in agreement with Conservative arguments.
First, I thank the hon. Members for Eastbourne (Mr. Waterson), for Rochdale (Paul Rowen) and for Bromsgrove (Miss Kirkbride)—I know that the hon. Lady was also on the Committee—for their points about consensus, which has been an important part of our debates.
The hon. Member for Rochdale spoke about earnings upratings. We have certainly made clear our commitment to introducing an earnings uprating of the basic state pension. Our objective, subject to affordability and the fiscal position, is to do that in 2012, but we want to do it by the end of the next Parliament at the latest. We will make a statement on the precise date at the beginning of the next Parliament. I assure the hon. Member for Eastbourne that we will not lose interest in this issue just because the Bill is passing into its final stages. I look forward to having many discussions with him and his colleagues in the coming months and years about the various regulations and about the detail of issues such as qualifying earnings.
As both hon. Gentlemen said, we have had discussions with the European Commission about bringing forward workplace personal pensions. We are well aware that the industry wants to proceed with automatic enrolment before the planned introduction of the duties from 2012, but the relationship between the employer duty and automatic enrolment makes it difficult to do that outside of bringing in the general scheme. However, we are keen to find ways of helping employers and providers to increase participation in personal pensions today and to make the transition from active joining to automatic enrolment, under the employer duty, as soon as possible. There will be many more discussions on this issue, but there will be firm encouragement for people to participate in the schemes.
I hope to persuade the Opposition to withdraw their amendment. I hope also that the hon. Member for Rochdale will take note of the points that stakeholders have made on certification in what has been a constructive process. We have agreed to review the effectiveness of the certification procedure in 2017. As hon. Members have said, it is designed to make it easier for employers to cope with the new arrangements for workplace pension saving, using their existing provision. We hope that that will go some way towards reducing the risk of levelling down, but there is a possibility of certification leading to unintended consequences for the employer or employee. We must make sure that individuals do not routinely save at levels below those recommended by the Pensions Commission. Also, employers might become more inclined to use the quality standard without certification, thereby making the procedure redundant.
It would be absurd for the House to rule out, at this stage, the possibility of removing certification if there were widespread consensus in 2017, through a review, that that needed to be done. It would not be appropriate then to have to wait for more primary legislation. I urge the Opposition to withdraw their amendment. There are good reasons why we have made the changes that their amendment would completely undermine.
Does not the Minister see that having that sword of Damocles hanging over their heads might make employers, especially rogue employers and those who are less keen to comply with what the Government want to do, more inclined to go for the lowest common denominator pension scheme?
No, I do not think that is the case. The certification procedure has been agreed with stakeholders, and employers were keen on having it to reduce the burden on them, so I do not see why the possibility of it being removed would have that effect. This is about ensuring that people make the right contribution. I honestly believe that we should have the ability to remove certification if necessary.
Lords amendment agreed to.
Lords amendments Nos. 2 to 56 agreed to.
After Clause 25
Lords amendment: No. 57.
Amendment proposed: (a) thereto—[Mr. Waterson.]
Question put, That the amendment to the Lords amendment be made:—
Lords amendment No. 57 agreed to.
Lords amendments Nos. 58 to 66 agreed to.
Effect of failure to comply
Lords amendment: No. 67.
With this we may discuss Lords amendments Nos. 68 to 119, 121, 122, 124 to 132, 134, 135, 138, 156, 169, 201, 222, 235, 280 and 288.
The Bill introduces an effective and proportionate compliance regime that is vital to the success of our reforms. The amendments strengthen the regime in several key areas, and respond to concerns raised earlier in the Bill’s passage.
Lords amendment No. 95 would enable the regulator to require employers to pay interest on unpaid contributions, which would help to ensure that members did not lose out because of contributions not made on time. In Committee in the House of Commons, concerns were expressed about a small minority of employers who might be tempted to try to induce their workers to opt out of scheme membership. Those concerns were shared by several stakeholders, such as the TUC, the Equality and Human Rights Commission and Age Concern. Lords amendment No. 135 would prohibit such behaviour, while Lords amendment No. 132 allows the pensions ombudsman to investigate complaints relating to a jobholder opting out of a pension scheme.
We have also closed two possible loopholes in the proposed criminal offence of wilful failure to comply. Lords amendments Nos. 112 and 113 introduce a criminal offence for individuals who may be responsible for such failure to comply within bodies corporate, unincorporated associations and partnerships.
Lords amendments Nos. 105 and 108 make it clear that the effect of a notice issued by the regulator—for example, a compliance notice—will be suspended until any review of, or appeal against, the notice is completed. Lords amendment No. 201 gives the regulator greater flexibility to delegate the functions associated with the compliance regime, so that it can fulfil its new role in the most efficient and cost-effective way.
The remaining Lords amendments were introduced for technical reasons, or to clarify drafting. For instance, Lords amendments Nos. 69 to 75 and 80 would ensure that the regulator could exercise his powers in relation to a jobholder’s previous employers.
The Bill sets out an effective regulatory regime to underpin the reforms. The Lords amendments have strengthened and improved that regime, ensuring the best possible level of protection and fair treatment for both workers and employers, and I commend them to the House.
As the Minister said, the Lords have tabled a great many amendments to the compliance regime. Some are minor, but a number are fairly important. I pay tribute to Lord Skelmersdale and Lady Noakes, who did a good deal of hard work on many of them. Much of that work involved trying to dilute the Government’s affection for introducing punitive measures in almost all areas if they think they can get away with it.
Because much of the detailed work and the heavy lifting has already been done in the House of Lords, I intend—with no disrespect to their Lordships—to speak fairly briefly on this group of amendments. I think it fair to say that the issue of enforcement of compliance was always going to pose a substantial challenge to the legislation, particularly in regard to micro-employers. The new regime for personal accounts and auto-enrolment will apply to the fish and chip shop, the hairdresser and the small car workshop—in theory, they will all be subject to these provisions—and I suspect that the pensions regulator, to whom falls the task of enforcement across the board, will spend a disproportionate amount of his resources on pursuing many smaller employers rather than very large companies.
There will clearly be a temptation, at the very least, for smaller employers to try to persuade their employees not to become involved in personal accounts. They might offer a larger Christmas bonus or a cash payment as a quid pro quo. If one thing emerges with crystal clearness from all the seminars, conferences and research of the past two or three years, it is the depth of financial illiteracy among many people in the country when it comes to how pensions work, how much they need to contribute and how much they will receive in retirement from a particular level of contributions. There will be a real risk of that ignorance being used against their best interests, especially in the case of small employers.
It is worth reminding ourselves that the target audience for personal accounts consists of people in lower-paid work, who may well be working for small companies and have no existing pension provision. When I saw the Government’s original proposals—here I refer particularly to Lords amendment No. 135—I was surprised to note that they originally had no intention of providing for an offence of inducement to opt out of personal accounts. I seem to remember raising the issue at one of those seminars some time ago—they all seem to blend into one another.
The Minister is fortunate to come so fresh to the issue. I raised it because it seemed odd to leave it out if we were trying to achieve an holistic approach to how personal accounts would work and how employers and employees were going to comply with them.
What makes it potentially a huge issue that might strike at the very foundation of personal accounts is the issue of the interaction with means-tested benefits. We all know of the excellent work carried out by the Pensions Policy Institute some time ago that identified certain at-risk groups: people who were at significant risk of either being no better off by being auto-enrolled into personal accounts or, in some cases, being worse off as a result, including people who had started saving later, or who were renting accommodation in retirement. For us, this has always been a huge concern. At the moment, 45 per cent. or so of pensioners retire subject to means-tested benefits, and that proportion will increase inexorably over the coming years if something is not done.
Take-up is a massive issue. Yesterday the Government modestly increased pension credit, but that is no help at all to the 1.8 million or so people who are entitled to pension credit but never get round to claiming it. The Treasury’s fundamental assumption when pension credit was introduced was that 1.4 million people would never get round to claiming it. There is a problem here that will not go away.
When we raised the issue—insistently—earlier, Ministers were dismissive about what we had to say. Their basic attitude could be summed up as, “You’re letting the side down, you’re rocking the boat—the real prize in personal accounts is the millions of people who don’t have any provision at the moment and will now start saving for their retirement.” I do not disagree for a moment with that being the prize, but part of the price for that prize should not be an element of rough justice towards people in the at-risk groups who may well end up worse off because of the loss of means-tested benefits.
Whoever is in power when the chickens come home to roost will certainly not want another mis-selling scandal, where a lot of people turn round to the Government of the day and say, “Well you auto-enrolled me into personal accounts, and as a result I’m worse off.” For the official Opposition this has always been a potential deal breaker when it came to consensus.
I am delighted, of course, that, after a lot of pressure from us, Ministers finally relented. This was two or three Secretaries of State ago; they come and they go. A process was started which has been ongoing, pulling together stakeholders and looking first at trying to identify the size of the problem and then at some of the possible solutions. The Pensim 2 model in the Department is used wherever possible, although it was not until fairly recently that that even took account of housing benefit, which makes such a huge difference to many in the at-risk groups.
I am pleased that Ministers finally relented and that the process has been ongoing for some time now; I think what is billed as the final seminar is taking place next week. A report of some sort will then be produced; whether it will produce any solutions is, of course, another matter. It is certainly an exercise that needs to be conducted. For us it has always been clear that if this problem cannot be addressed, there is a real danger that personal accounts simply will not work. That is a debate for another day, but once we have the data and the conclusions of that exercise, what are the options in terms of trying to address the matter and reduce or eliminate the numbers of people in the at-risk groups?
Why does it matter so much at the moment? At one point, Ministers were saying that this would not be a problem until 2020 or even later, when people would start to realise that personal accounts had not been a great thing into which to be auto-enrolled. I disagreed with that; I still do. In the run-up to 2012, if that is the start date of personal accounts, people will be writing stories in the press—particularly the financial press—about people who are worse of as a result of being auto-enrolled. Indeed, some have already been writing such stories. If those stories are written, the unscrupulous employer will use them to help to persuade employees in small firms, in particular, that they do not need to be involved with personal accounts.
We know that there is a huge element of irrationality about people’s approaches to pension provision—an unwillingness to engage with the real issues and what the best solution is for them in the long run. We could end up with the nightmare scenario whereby the wrong people allow themselves to be auto-enrolled and end up worse off or no better off as a result, and the wrong people are persuaded to opt out when it would be very much in their interests to join, particularly relatively young people in the work force. This is why the issue of inducement to opt out has always been, for us, very important.
I have no quibble at all with this and related amendments; it is excellent that the matter has been addressed. There will now be an offence of inducement to opt out, which I imagine will be used sparingly by the regulator, but it is there, and it should be publicised as widely as possible. We are very supportive of the measure, and indeed of all the other improvements to the Bill, many of them to the credit of the Conservative Opposition in the House of Lords. Without further ado, I register our broad support for this group of amendments.
If auto-enrolment is the key to the success of the Bill, ensuring that there is proper compliance will determine whether it delivers what it promises. As the Minister said, the TUC, Age Concern and others expressed concerns about this issue, and the amendments deal with many of those concerns. We are talking about a vast number of employers. As the hon. Member for Eastbourne (Mr. Waterson) said, we are concerned not with the large companies who have personnel departments that are used to organising such things, but with the local hairdresser or chip shop owner. Ensuring that they are delivering, and that there is a regime in place to deal with that, is essential.
Another question raised by the TUC was who would do the work on compliance. The pensions regulator is involved, but what steps is the Minister taking to ensure that it is adequately resourced? Has the Department given any thought yet to what additional resources it will need to carry out the compliance role? As well as the measures in the Bill dealing with compliance, what steps will she take in the run-up to 2012 to make sure that such small employers are aware of their obligations and that there is a range of training and materials available to support them in that role? Many of the employers who will be introducing personal pension schemes will not have experience of doing this in the past. That will be a vast change. I am disappointed that the need for face-to-face interviews for people over 50 was not accepted, because making people aware of the advice available to them and what they are entitled to is important.
On Lords amendments Nos. 105 and 108, I am again grateful that the Government have listened and have taken notice of the other place’s Constitution Committee, which I understand wrote to the Government in June expressing concern at the discretion afforded to the regulator, who could choose whether or not to suspend the effect of a notice while someone is seeking a review. Those two amendments are sensible. It is important to have clarity on this issue.
I thank the hon. Members for Eastbourne (Mr. Waterson) and for Rochdale (Paul Rowen) for their support for the amendments. The hon. Member for Rochdale raised a couple of points that I wish to address.
The costs will depend on the detail of the operational design of the compliance regime, but officials at the regulator are developing cost estimates both for provision of the compliance regime by the regulator and for perhaps delegating or contracting out elements of the regime, which is permitted under the Pensions Act 2004. That will inform the regulator’s decision about how to deliver the service.
On the wider issue of funding, the pension regulator’s extended role will clearly be central to the success of the reforms. We are committed to supporting the regulator in that. We have said that set-up costs for the compliance regime will be funded by way of grant in aid, and we are considering how ongoing compliance costs would be funded.
It is important that we work with small employers to ensure they are aware of what their obligations will be, and the Government certainly intend to make sure that there is consistent and coherent information to support the introduction of the reforms by helping to raise awareness.
I take on board the disappointment expressed on issues to do with personal advice to each individual. We want to make sure that the information that people need is targeted, so it is relevant to individual circumstances.
I commend the amendments to the House.
Lords amendment agreed to.
Lords amendments Nos. 68 to 138 agreed to [some with Special Entry].
Power to establish a pension scheme
Lords amendment: No. 139.
The Pensions Commission proposed the establishment of a low-cost, simple pension scheme for low to moderate earners currently without access to a pension. The creation of the personal accounts scheme will enable all employers to fulfil their new pension duties.
Lords amendment No. 139 is an Opposition amendment that we have accepted. It establishes a duty on the Secretary of State to set up the pension scheme, rather than a power to do so. Associated minor and technical amendments Nos. 140 to 145 will ensure that the legislation works correctly and clearly. The delivery authority will establish the personal accounts scheme—a task of considerable complexity. Amendments Nos. 151 and 282 will allow the delivery authority to appoint as executive members individuals on secondment or loan from other organisations. That will enable the authority to recruit the best people—strong leaders with expertise and specialist skills in a variety of areas.
Amendment No. 281 ensures that appropriate changes in relation to the personal accounts delivery authority are made to the Pensions Act 2007 once this Bill is enacted. The trustee corporation will be a sole corporate trustee, with initial appointments made by the Secretary of State in line with guidance on public appointments issued by the Office of the Commissioner for Public Appointments.
Amendment No. 236 requires the Secretary of State to consult the chair of the trustee corporation prior to making any appointments to the corporation in the initial period. This was always the intention, but we listened to the Opposition’s points, which is why we have introduced the amendment. Members of the trustee corporation will be public servants, and therefore subject to the time limits on tenure of office provided in the OCPA guidance. To that end, amendment No. 237 increases the maximum term of appointment from four to five years to align it with the guidance. Amendment No. 238 allows the corporation to delegate a function, within the scope of the order and rules, to any member of staff. This amendment ensures that the trustee corporation has flexibility within its remit in terms of staffing.
Amendments Nos. 149 and 150 and 239 and 240 clarify that any loans provided by the Secretary of State to either the authority or the trustee corporation should at least cover the cost of Government borrowing. That firmly establishes in the Bill our intention that the funding for setting up and operating the scheme should be delivered at nil cost to taxpayers. The amendments will also ensure that any financial assistance that the Secretary of State might provide will be consistent with the general rules on Government lending.
The hon. Member for Eastbourne (Mr. Waterson) has tabled an amendment to amendment No. 150 that would require loans to the delivery authority to be paid at commercial rates. We have been clear that we have no intention of unfairly subsidising the authority or the scheme. However, the scheme will be in the unique position of performing a public service obligation to accept all eligible employees irrespective of the cost of doing so. That will be essential in ensuring that everyone has a scheme into which they can be automatically enrolled. In the long term, the scheme’s scale will enable it to act in that way while offering low charges to members, but in the short term it could add to the burdens of establishing the scheme. We will understand the issue more once the procurement process reveals the actual cost of establishing the scheme. However, before then we cannot accept an amendment that locks the scheme into a fixed period of repayment or to commercial loan rates without knowing whether that would undermine our aim of delivering a low-cost scheme available to all.
We are committed to a review of some aspects of the personal account scheme in 2017, and amendment No. 147 places that requirement in the Bill. This will be an independent review of those features of the personal accounts scheme that are designed to focus it on the target market of moderate to low earners, specifically the annual contribution limit and the prohibition of pension fund transfers. Again, the Opposition made that proposal, and we have accepted it following debate.
The majority of these amendments are minor, while others strengthen the Government’s commitment to ensuring that more people are able to save for their retirement. With the exception of the Opposition amendment, which I think was tabled yesterday, I commend the amendments to the House.
Again, the Minister is correct to say that a number of these Lords amendments are minor drafting and technical ones. I do not intend to bang on through every single one of them, but I wish to pick out the ones that are important from our perspective—in particular, our proposed amendment (a) to Lords amendment No. 150.
The Minister rightly said that Lords amendment No. 139 was an Opposition amendment, giving the Secretary of State the obligation, rather than just the power, to set up personal accounts. We are all slightly bemused as to why the Secretary of State wanted to give himself wriggle room in respect of not setting up personal accounts. Although there are arguments to be had on the architecture and design of those accounts, it seemed to us eccentric, to say the least, that there should not be such an obligation, and I am delighted that the amendment has been accepted by the Government.
The next big issue for Conservatives concerns Lords amendment No. 150 and related amendments. They deal with the public subsidy or level playing field argument, which is familiar to those of us who were fortunate enough to be selected to serve on the Public Bill Committee. As the Minister has said, the procurement process for personal accounts is still in its early stages. We are talking about a brand new design that will perhaps have to deal with 1 million employers and several million new employees, and will involve a major IT contract, leaving aside any other design considerations. It is perhaps an eccentricity of the procurement process that it will be part way through before the personal accounts delivery authority knows exactly how much it will all cost. There are clearly some i’s to dot and some t’s to cross, because the authority does not yet know, and will not know for some time, how much the scheme will cost, how many customers it will have and how many customers will be left after two or three months, when people who have been auto-enrolled suddenly realise that their pay packet is a bit light and head for the exit.
In those circumstances, I concede that it is difficult for PADA to work out its costs, let alone its unit costs. It has always been our approach that this project should not attract any public subsidy, so that there is a proper level playing field between personal accounts—the new kid on the block—and existing provision. We are obsessed with the problem of potential levelling down. We do not see any reason for any provision in the legislation that would appear to give even the hint of an unfair advantage to personal accounts over existing and competing pension provision.
Something that has crept into the ministerial rhetoric relatively recently—I do not remember it ever featuring in our debate in this Chamber or in Committee, although I am happy to be challenged on that—is the phrase “public service obligation”. An attempt is being made to apply it to PADA and its successor, the trustee corporation. Of course, we are familiar with the concept of PSO, perhaps the best and most familiar example of which is the Royal Mail. The basis of its PSO, and therefore of the zillions of pounds that the organisation receives in public subsidy every year, is that I could post a letter today and the Royal Mail would guarantee to deliver it to the far north of Scotland or to anywhere else in the country quite soon; it would perhaps not nowadays be able to deliver my letter the next day. That is a true public service obligation. We do not think—my colleagues in the Lords made this abundantly clear—that there is any justification for applying that concept to PADA or the trustee corporation.
That is, in part, the thrust of my amendment (a) to Lords amendment No. 150, which makes it clear that any loan should be repaid at a commercial rate over a period of 10 years. At different times in the debates, we have also tried to make it clear that there should be no basis on which PADA or its successor receive anything by way of grant or subsidy; they should not receive anything but a repayable commercial loan.
The PSO justification or excuse is of recent vintage. No mention was made of possible subsidy in the Turner report, which is where this all started, or in the December 2006 White Paper. We are concerned not only about the possibility of unfair competition with existing provision, but about whether we are seeing the beginning of a worry on the part of those who are charged with making personal accounts work that they cannot deliver at 0.3 per cent.—that figure is no longer referred to by anybody—or even at 0.5 per cent. without significant subsidy.
I imagine that the Minister would say in her defence that any such subsidy would have to pass the relevant EU rules on state aid, as may well be the case, but our view is that we do not want to go there at all. Her comments echo, almost uncannily, those of Lord McKenzie in the other place. He spoke about
“the Government’s intention that the personal accounts scheme will be self-financing in the long term, through charges on members, and delivered at nil cost to taxpayers.”
He went on to say:
“One possible source of financing for these costs could be borrowing”.—[Official Report, House of Lords, 2 July 2008; Vol. 703, c. 343.]
Even so, we are not happy with that as a possibility. Even at an early stage, the corporation will be pulling in significant contributions from its members. There is a clear consensus that personal accounts should wash their own face within a reasonable period, although there might be arguments as to how long that period will be. Crucially, it depends on the consultation, which recently ended, as to the charging structure for personal accounts; I can see that that might affect the period for repayment and so on. We are adamant that any such subventions should be made by way of a proper loan involving a period for repayment and a commercial rate of interest. I hope that I have made it abundantly clear that we reject the suggestion that the personal service obligation applies in this instance. As I said, there was never any suggestion, until recently, that it would apply to personal accounts.
The other issue that I wish to discuss for a few minutes is Lords amendment No. 147 and related amendments to do with the review. It has been fairly clear almost from the outset in dealing with the legislation that Ministers were intending—as, indeed, they still are—to have a review of the operation of personal accounts five years after the start date. Of course, that prompts the question whether 2012 will be the start date. I understand that it remains the firm view of the Minister and of Mr. Tim Jones, the chief executive of PADA, that personal accounts will start in 2012. There is to be an element of the phasing in of personal accounts—we do not want a terminal 5 moment, so I suppose we will start with the short-haul flights and work our way upwards. Of course, that worked really well in the context of terminal 5.
Lord McKenzie wrote a letter dated 6 November to my colleague, Lord Skelmersdale, in which he made the point about the review. He said:
“We have publicly committed to review in 2017 two of our key measures designed to minimise the impact of the personal accounts scheme on the existing pensions market—the ban on transfers and contribution limits.”
He also makes the point that there will be a person appointed by the Secretary of State—I am not sure exactly what sort of “person” the Minister has in mind—who would prepare the report and have a duty to lay a copy of it before both Houses of Parliament. We do not have any problem with that, although I hope it is not churlish to say that if there is an election in 2010 and we are fortunate enough to win it, we will probably have a review then and there, just to see whether everything is going to plan.
The review needs to be as wide as possible. I am pleased that it will look at ways of retaining a barrier between personal accounts and existing provision. We have always favoured putting the £3,600 annual contribution cap on the face of the Bill. We have never understood why Ministers, despite declaring that that was their firm intention, have always resisted putting it in the Bill. That is the policy, and we think that it should be applied. Equally, transfers in and out of personal accounts and lump sum payments in would not be permissible. That would be the case for all sorts of reasons, including not just helping to maintain existing provision, but helping Mr. Jones and his colleagues at PADA for whom simplicity is the key word in preparing for the start date in 2012.
I hope that, as part of the review, a serious body of work will be carried out—it certainly will be if the Conservatives are in government—on the effects of personal accounts, even in their early days, on levelling down and on existing provision. I do not think that there will be a big bang effect immediately, but there may well be a period of attrition of existing provision in favour of personal accounts. For example, new employees joining a company may find that the existing scheme is closed to them and that they are pointed towards personal accounts. I hope that such a trend will not occur, but if it does, I hope that the Government of the day will take urgent action to deal with it.
The massive issue of means-testing is being examined, as I suggested in an earlier debate, and we need to continue to examine it right up to the starting date for personal accounts. It should be monitored regularly. We are keen on a review. If it happens in 2017, as the Bill provides, so be it, but it may well come earlier, depending on the electoral cycle.
Broadly speaking, we are content with the amendments, save that we have tabled amendment (a) to amendment No. 150.
I welcome the Minister’s acceptance of Lords amendments Nos. 139 to 145. I certainly could not understand at the time why the Government could not commit themselves to using the word “shall” instead of “may” when it came to setting up a scheme. It would call into question what we had all been spending all this time doing if we were not going have a scheme in the end, so that is a sensible move by the Government. I also welcome the Government’s acceptance of amendment No. 147, because in Committee we pressed for a review with a time frame. I am glad that that has been agreed.
On amendment No. 150, we made it clear in Committee that conditions should be set down. However, unlike the Conservatives, we were not opposed to the Government making grants. Indeed, that has been done to enable the setting up of PADA, and we do not oppose it obtaining loans. The original wording in the Bill was that the Secretary of State may give financial assistance to the authority, which may or may not include interest. I am grateful that in the other place Lord McKenzie realised that PADA, as a public body, has a job to do in setting up a delivery authority before it hands over to a set of trustees. It will have to build up funds over several years. Therefore, it is proper that, if need be and subject to Treasury rules, it is given a loan to enable it to carry out that job. It is also proper that if that loan is to be repaid, it should be repaid under normal conditions for a public body. If the Minister wanted to transfer that arrangement to the trustees when the scheme was up and running, that would be a different matter, but given that PADA is a delivery authority, it is right and proper for the Government to be able to lend it money and for it to be paid back at normal public service rates.
On that point, we disagree with the Conservatives and their amendment (a). PADA will be no different from the Post Office or other public body that carries out a public duty.
I thank the hon. Members for Eastbourne (Mr. Waterson) and for Rochdale (Paul Rowen) for their general welcome for these amendments.
On the 2017 review, our commitment is to commission a review of just two of the features of personal accounts—the annual contribution limit and the prohibition of transfers to and from the scheme. We think that a focused review will be the most straightforward way to meet our commitments in those areas, focusing on the impact of the policies on employers, the pension industry and individual behaviour. The review would examine outcomes in the light of the wider debate on existing pension saving. However, it would be too early after 2012 to commit to a wider review of the reforms, given the phasing in of some features and the long-term nature of pension saving.
With regard to the amendment tabled by the hon. Member for Eastbourne, I stress again that we have no intention of unfairly advantaging the scheme, and we have not discounted the possibility of commercial rate loans. However, in the light of the unique task that we are giving the scheme, and ahead of knowing more about its costs through the procurement process, it is vital that we retain flexibility in how it is funded. Like any other scheme, personal accounts will be targeted on a particular segment of the market. The scheme will also have a public service obligation to accept all eligible employees, irrespective of whether they are loss-making to the scheme.
In the long term, we are confident that the scheme can do that while delivering low costs to members and being self-financing, but in the short term those obligations will add to the challenge of establishing a low-cost scheme. If that is the case, it would be reasonable for the Government to consider whether it was in the public interest to compensate the scheme in some way for the burdens placed on it. Indeed, European state aid rules, whose explicit purpose is to prevent anti-competitive behaviour, recognise that there may be cases in which it is right to compensate a body for performing a public service obligation. These rules are very explicit: it is possible only for the state to recognise the cost of imposing a public service obligation, and it is not possible to go any further. In other words, it is only possible to ensure that the personal account scheme is not disadvantaged by its public service obligations. Therefore, not only do we not want to subsidise the scheme unfairly, but it would be illegal for us to do so. I hope that, with this reassurance, the hon. Gentleman will agree not to press his amendment.
May I probe the Minister further? At what point did the Department decide that the scheme should have a public service obligation? It was not in Turner or in the White Paper, or even in this House. It must have been somewhere between this House and the other place.
Obviously, in the ongoing discussions about the development of the scheme it has been important to ensure that we consider all aspects of the funding. However, as I have said, our view is that we should maintain flexibility in this matter and that is why we do not agree with amendment (a).
Lords amendment agreed to.
Lords amendments Nos. 140 to 151 agreed to [some with Special Entry].
Stakeholder pension schemes
Lords amendment: No. 152.
With this it will be convenient to discuss Lords amendments Nos. 171 to 177, 200, Lords amendment No. 202 and amendments (a) and (b) thereto, Lords amendment No. 203 and amendments (a) and (b) thereto, and Lords amendments Nos. 204 to 206, 215, 216, 219 to 221, 227, 232 to 234, 241 to 246, 279, 283, 284 and 287.
The amendments in this group cover a wide range of issues relating to the state and private pension systems. First, on fuel poverty, amendments Nos. 204 and 219 allow the sharing of information about pension credit recipients with energy companies to help energy suppliers provide assistance to poorer pensioners. The regulations that will govern that sharing of information will be subject to full parliamentary scrutiny.
Amendments Nos. 205 and 206 and related amendments in the group will help those who were forced to flee Nazi Germany as children under the Kindertransport arrangements. I pay tribute to the Minister of State, Department for Work and Pensions, my right hon. Friend the Member for Harrow, East (Mr. McNulty) and my right hon. Friend the Secretary of State for their tenacious efforts over many years to champion this worthwhile cause. In particular, my right hon. Friend the Minister of State championed the cause on behalf of his constituent, Hermann Hirschberger. The amendments remove a technicality of British insurance that could reduce or remove the German state pension of a Kindertransportee. It has not been easy to find a solution within UK legislation, but I am pleased that we have managed to do so.
Amendment No. 202 and related amendments are designed to help people who face potential disadvantage because of gaps in their national insurance record. Their cause has been championed by my right hon. and noble Friend Baroness Hollis and I pay tribute to her for all her work campaigning on the issue. I know that the cause has also been supported by a number of hon. Members in this House.
The amendments mean that individuals who are eligible to purchase class 3 national insurance contributions will be able to buy up to six additional years for any tax years from 1975. The offer applies to those who reach state pension age between April 2008 and April 2015 and to those who have 20 qualifying years taking into account full years of home responsibilities protection. The amendments have been warmly welcomed by the many stakeholders who have taken an interest in the issue.
As previously announced, and confirmed in the pre-Budget report, the price of class 3 national insurance contributions has been increased to ensure cost neutrality and to reflect the additional value of the contributions after the Government’s pension reforms take effect in April 2010.
The Minister mentioned that the price of class 3 has gone up from about £8 to about £12. Will she break down how much of that increase would have happened anyway as class 3 is now worth more because there are fewer qualifying years post-2010? How much of the increase is due to the revenue neutrality of the amendment? How much would the increase have been without Baroness Hollis’s amendment and how much of it is because of that amendment?
I am not entirely clear about how the division would occur. If I can find out further information, I shall write to the hon. Gentleman. The two have been put together in order to meet the requirements of the Baroness Hollis amendment, if we can call it that, and the changes to which he referred.
The proposals made by the hon. Member for Northavon (Steve Webb) would amend the Bill to permit a much larger group of pensioners to buy additional years. The costs of extending the rules by removing the 20-year de minimis for those reaching state pension age between April 2008 and 2015 would be at least £3 billion. If we were to take that back to 2004, the total cost would be about £5 billion. That cost would increase for every further year. The benefits gained by people living overseas with a limited connection to the UK would far outweigh the benefits to the women in the UK whom the hon. Gentleman is keen to help. That is why we cannot accept his amendments.
The remaining measures in the group are designed to help simplify our complex pension system. Let me start with state second pensions. The Pensions Act 2007 introduced measures to replace an incredibly complex structure with a much simpler flat-rate amount. The Bill goes a step further and contains measures to simplify the past by consolidating accruals to state second pensions. Amendments Nos. 171 to 176 and 241 to 246 achieve that. They also smooth the consolidation when it applies to those who have been contracted out prior to 1997 and clarify the status of work the Government Actuary will undertake to achieve that simplification.
Let me move on to contracted out pensions more generally. The Pensions Act 2007 contains provisions to abolish contracting out on a defined contribution basis and removes most of the rules concerning the use of protected rights already accrued at the point of abolition. Amendments Nos. 177, 215 and 284 complete that work by removing the survivor benefit rule so that once contracting out on a defined contribution basis ceases there will be no requirements on individuals regarding past protected rights.
Amendments Nos. 152 and 279 remove unnecessary provisions in the Welfare Reform and Pensions Act 1999. Amendment No. 200 corrects a technical error in the Pensions Act 2004. Finally, amendments Nos. 216, 234 and 287 relate to work in progress, in conjunction with the Law Commission, to consolidate private pension legislation.
In summary, the amendments in the group support the Government’s simplification agenda and, importantly, they also make the system fairer. I commend the amendments to the House.
I, too, join the Minister in welcoming the Kindertransport provisions, in particular, and pay tribute to the group of MPs whom she mentioned who were instrumental in bringing those provisions on to the statute book.
I would like to concentrate on the so-called Baroness Hollis amendment. I also pay tribute to her and to the others who have campaigned on the issue. The amendment will make a welcome difference to a defined group of women who will be able to buy back an extra six years to improve their basic state pension—quite considerably in some cases.
The Government tell us that the measure will be cost-neutral. As has been noted already, there will be an increase in the cost of the class 3 national insurance contribution to reflect the increasingly significant value of those contributions, given the reduced number of qualifying years needed for a full state pension. We understand from Lord McKenzie of Luton, the Minister’s colleague in the other place, that around 110,000 people are expected to benefit from the package. So far, so good.
I noted with interest that Lord McKenzie also pointed out that the true actuarial value of a week’s class 3 national insurance contribution is around £45. It is worth making the point that, even though the cost has gone up from £8 last week to £12.05 now, that is still pretty good value for the whole category of men and women who will benefit. That does not include everyone, but the people who will benefit should look to take advantage of the offer.
However, my attention was drawn to some comments on the proposals from Ros Altmann, who is a very respected commentator on pensions issues. Indeed, I believe that she is a former adviser to HM Treasury on pensions matters. For some of the time, she has perhaps been a thorn in this Government’s side, but many people would say that she has done sterling service for pensioners generally.
Ros Altmann welcomes the fact that the extra years can be bought back and points out that this is not just the women’s pensions issue that it is sometimes called. It is important to put on the record that men who were carers or disabled will also be able to benefit. She points out that it is not a free offer: those pensioners or people about to come to pension age who wish to take it up will be paying slightly more for the privilege. However, she also says that the offer is aimed at a quite narrowly defined group of people—specifically, those who already have 20 years of national insurance contributions. Only they will be able to buy back the extra six years, so the offer emphatically does not apply to all women. I know that that is the subject of the amendments from the hon. Member for Northavon (Steve Webb), to which I shall come shortly. It is also worth making it clear that people who retired before April 2008 cannot buy any extra state pension entitlement at all. Any existing pensioners who retired before April 2008 who may think that this is good news need to know that it is not an offer for them.
I have some questions for the Minister, and some of them were asked by my colleagues in the other place. I am not exactly clear what the answers are, so I would be grateful if she tried to address these points when she comes to reply. If she is not able to do that, perhaps she will write to me with the information, but I should be grateful for an answer if that is at all possible.
First, I should like an assurance that the increased revenue that the Government will get from the increased cost of class 3 national insurance contributions will be no more than the extra payments made. I ask that because if, through the extra costs that they are charging pensioners, the Government gain more revenue than they pay out, this would be a revenue-raising measure. I am not suggesting for a moment that that is the Government’s intention, but I should be grateful for some clarity that the extra revenue raised will be paid out.
Secondly, have the Government made any estimate of how much pension credit may be saved as a result of these provisions? If they believe that there will be a reduction in pension credit, has the Department considered the possibility of incorrect targeting? I ask that because, of course, the group of people who would lose out on pension credit entitlement should not be the ones who take up the offer in this set of amendments.
Thirdly, will the Minister give the House more information on the information campaign that the Department intends to launch on this matter? As has already been established, there are groups of people who clearly will benefit, and others who should not take advantage of the offer. We know that pensions already mystify a lot of people. It was suggested in the other place that the national insurance recording system could be looked at so that those identified by Pension Service officials as likely or certain to benefit from this offer—the 110,000 people to whom the Minister’s colleague in the other place referred—could be written to.
While I am on the subject of those 110,000 people, will the Minister confirm that that is indeed the figure? I noted that Baroness Hollis said in the other place on 29 October:
“My Lords, something like 550,000 women could benefit”—[Official Report, House of Lords, 29 October 2008; Vol. 704, c. 1597.]
Perhaps the Minister could also explain the difference between the figures of 550,000 and 110,000.
Will the Minister tell the House who will run the information campaign? Is it intended to be the Pension Service, or will it be a joint campaign with Age Concern, Help the Aged and the other organisations with which the Department often works in partnership? These are important issues: if the offer is not to confuse people further, they will need help to understand what is a very complex area. Indeed, Ros Altmann has suggested that people should consult an independent financial adviser or go to a citizens advice bureau or the Pensions Advisory Service. She makes the point that it might be best for people to wait until just before retirement before they make a decision, as their situation is likely to be clearer then. She also sounds a warning note to those women who may qualify for a full pension by virtue of their husbands’ contributions. That point needs to be borne in mind as well.
I turn now to the amendments tabled by the hon. Member for Northavon. In my speech so far, I have alluded already to a number of his concerns, and specifically to the groups of people who are not covered by the offer. We need to be clear about that. I have looked at his proposals, and I understand where he is coming from. I have general sympathy for the point that he wants to flag up to the House, but the cost—between £3 billion and £5 billion—is pretty high, as the Minister has said already. We need to be clear about what new money would be raised through taxation or what expenditure would be forgone to meet that pretty substantial financial commitment. The Minister in the other place said that the price tag for what the hon. Gentleman was seeking was “very substantial” and, indeed, “unaffordable”.
I turn now to the issue of sharing data on pension credit details with energy companies. We in the official Opposition support data sharing, because we realise that many people in the country are greatly worried by the serious nature of their fuel bills. We want to do all we can. We want the Department to play its part in relieving fuel poverty, which will dominate many of our constituents’ minds this winter in particular. We therefore welcome the move to ensure that the relevant vulnerable groups are able to benefit from the social tariffs that the energy companies are offering.
However, the data sharing needs to be subject to two specific considerations. First, it must be done with the agreement of the pensioners concerned. The release of data about a pensioner or any other benefit recipient is the release of personal and private information, and all citizens should have a right to know that it will not be divulged to third parties without their express agreement.
I noted with concern that in the other place, Lord McKenzie of Luton said about the agreement of pensioners to data sharing:
“A potential opt-out is being considered and worked through”.—[Official Report, House of Lords, 17 July 2008; Vol. 703, c. 1393.]
He was referring to an opt-out for pensioners who did not want their details to be passed on to the energy companies. The word “potential” worries me greatly. Can the Minister give us some clarity about that? Can she tell us in clear language that if a pensioner does not want their details passed on to an energy company, that will not happen?
The second concern is hardly a surprising one. The official Opposition want to see robust safeguards to protect the security of the data that are transferred. There has sadly been a catalogue of lost Government data in recent years, going back to earlier this year when the child benefit data were lost. Sadly, we know from questions asked by my hon. Friend the Member for Welwyn Hatfield (Grant Shapps) that virtually every Government Department has lost often fairly significant amounts of personal data.
I therefore again have a couple of specific questions for the Minister. Can she give us some assurance that if data are on memory sticks and laptops they will not be taken out of DWP or energy company offices? That is how many leaks seem to arise. Can we have an assurance that the data will be encrypted so that if laptops or memory sticks are stolen or lost, at least there is some chance that it will not be possible to read the information? The Minister said that the matter would be subject to full parliamentary scrutiny. Well, I and probably others in the House would like to see a bit of that full scrutiny now, and we look forward to hearing what the Minister has to say. I would appreciate some answers now; I do not want to be told that the issues will be dealt with in regulations. The matter is before the whole House and it would be good to have some reassurances.
I should like to ask the Minister about the pensioners and others whose data will not be passed on to the energy companies. I am a little confused about amendment No. 204 because it refers purely to passing on the details of those who are currently receiving pension credit. Yet in the other place reference was made to those receiving pension credit over the age of 70. Obviously there are pensioners under the age of 70 who are in receipt of pension credit, so why are they being left out? Does the Department have any plans to leave out that group of vulnerable pensioners, who feel the cold as much as those over 70?
What about those who are entitled to pension credit but do not claim it? The Department has details of those people; it knows who they are. I know that it tries hard to contact them, but as my hon. Friend the Member for Eastbourne (Mr. Waterson) has just told the House, about 1.8 million people who are entitled to it do not receive pension credit—roughly a third of all those who are entitled to it.
More generally, what are the Department’s longer-term plans in this area? Does it intend to extend data sharing to all those in fuel poverty or on other benefits? Is it the intention to offer a social tariff to those on specific benefits? If the intention is to tie the offer of a social tariff to those on a benefit, has the Department undertaken any research into benefit traps and work disincentives? If eligibility for a social tariff is withdrawn when someone gets into work, they may not want to start work until the winter is over because they would have to pay higher fuel bills.
I have asked a number of questions on important issues. I apologise in advance to the Minister. I know that she is new to the Bill, but these important matters—eligibility, the Baroness Hollis issue and data sharing—are of great concern to all our constituents.
I pay tribute to those hon. Members, including the Secretary of State, who raised the issue of Kindertransport. I understand that it involves only 150 people, but it is important for them and it is good to see that an amendment will restore some of their rights.
Like the hon. Member for South-West Bedfordshire (Andrew Selous), I welcome Lords amendments Nos. 202, 203 and 228, which have been referred to as the Baroness Hollis amendments. They go a long way to right a considerable wrong. Lord McKenzie reckoned that there were 550,000 people in this category, 90 per cent. of whom were women. I welcome the fact that the amendments will allow individuals who reach state pension age between 6 April this year and 5 April 2015 to buy an additional six years of voluntary class 3 national insurance contributions, provided they already have 20 qualifying years on their national insurance record.
At present a woman needs 39 years and a man needs 44 years of national insurance contributions to get the full state pension of £90.70. Clearly, the decision to lower that to 30 years for both is welcome; it will go a long way towards making sure that people get what they are entitled to. However, some anomalies remain. For example, if a woman retires before 2010 and buys the six additional years, that will restore only 2.5 per cent. of her weekly pension per year she buys back, while those who retire after that date will get back 3.3 per cent.
The amendment tabled by my hon. Friend the Member for Northavon (Steve Webb) is on a different issue, but the differential between those who will retire up to 2010 and those who will retire after 2010 seems to be yet another anomaly that has been built into the system. I suppose that when it is advantageous or disadvantageous to retire is a decision that bedevils the whole issue of pensions and pension credit. I hope that the Minister will look into it; it is important.
My hon. Friend the Member for Northavon will raise the issues that he has raised previously with further buy-backs. I agree with the hon. Member for South-West Bedfordshire that it would help if we knew what publicity programme the Department was planning on buy-back. As we said when we talked about personal accounts, it is important that people have information if they are going to spend money and then end up slightly worse off or only slightly better off. I hope that the Minister will reassure us that a proper process will be in place and that Citizens Advice or Age Concern, for example, will support people by providing that advice. She said that the scheme will be cost-neutral for the Government. The worst that could happen would be for a woman to enter into the arrangement and find that she is worse off.
Amendments Nos. 204 and 220 deal with data sharing. Again, I have to agree with the hon. Gentleman about the person involved agreeing to their data being shared. That needs to be made explicit before the data are handed over. We have issues about data sharing and data loss, not least within the Minister’s Department. Before we start handing out more data, we need to be clear what arrangements will be put in place. We also need the energy companies to enter into an agreement or code on how that data will be used.
The other issue, which has moved on a bit since the amendments were debated in the Lords, is that the Government have set in train a system of support for people with regard to energy and energy saving, although my hon. Friend the Member for Northavon says that it is complicated. It is restricted to people who receive pension credits. I wonder whether the Department should consider making the system available to a range of other people. I am sure all hon. Members want that support to be given widely because of the steep rises in energy bills that people have been experiencing in the past 12 months. If we are going to share data with energy companies, there is a wider issue to consider of what other data should be shared. If someone is disabled or on a particular benefit, we should ensure that consent is given.
I hope that the Minister can respond to those points. I look forward to hearing what my hon. Friend has to say. We are in complete sympathy with the issue that he wishes to raise, but it is difficult to support something when we do not have the full costs. Perhaps the Minister could write to us with more information on how she has arrived at the figures. I understand that my hon. Friend tabled questions but did not receive the figures until today. Whether we should go further might be a debate for another day, but it would help us to have the basis on which the Minister arrived at the figures.
As you might expect, Madam Deputy Speaker, I wish to confine my remarks to amendments (a) and (b) to Lords amendment No. 202 and the Northern Ireland equivalent, amendment No. 203, respectively.
As my hon. Friend the Member for Rochdale (Paul Rowen) says, it would be irresponsible to table an amendment with a view perhaps to dividing the House without having an idea of the costs. On 30 October I tabled a written parliamentary question for named day answer on 4 November asking what the cost of the amendments would be. As of lunchtime today, I had received no response. Therefore, I am rather surprised that the Minister was able to give the figure, as I asked for it a month ago and have not been given it. I had to table my amendments last week in ignorance, which is unsatisfactory. I hope that she accepts that.
I understood the Minister to say that the £3 billion—a large sum of money—relates to the relaxation of the 20-year rule. I do not know whether she has a separate figure for amendment (a). I will be happy to take an intervention at any point if she wants to clarify that.
Some issues of principle are at stake. The Government accepted Baroness Hollis’s amendments, and I pay tribute to her for her work. We are talking about a very restricted group of, generally, women. Many hon. Members will have heard the press coverage and thought, “Something very dramatic is going on. Lots of women will be entitled to buy back years.” The impression given was that the changes were given extensive coverage, but there was no mention on the day of the fact that the cost of class 3 was going up by about 50 per cent. Mysteriously, that fact never entered the discussion. As it turns out, it is not an unreasonable charge for the benefit that has been given, as the hon. Member for South-West Bedfordshire (Andrew Selous) said, but it would have been nice to have had a more balanced account of what was being done. Instead, we got the jam rather than the slight sting in the tail.
The package restricts the concessions to a narrow group and is of nil cost to the Exchequer. The amendments are probing. I want to know whether the Government will look again at the restrictions that they have applied, even if not to the extent that I propose. The first restriction is that women who have reached pension age by April this year, or will do so over the next few years, can buy back, but the die is cast for those who are 61, 62 or 63, as the hon. Gentleman said.
Having said that, in the unlikely event that anyone follows our proceedings, I would like to put on the record a brief commercial for the scheme whereby women who have already retired can still buy back. Women born between April 1938 and October 1944 can buy back missing years from 1967 to 2001-02 under the reinstatement of deficiency notice project. The deadline for some women is next March; for others, it is the year after. There is still a chance for women to buy back if they do not fall within the scope of the Lords amendments. I hope that as many women as possible will do that—and continue to send me commission as they do so.
The year 2008 is inevitably an arbitrary cut-off. Many women who retired a few years earlier with incomplete pensions feel aggrieved by that and write to me in large numbers. I am sure that they write to the Minister as well. Baroness Hollis said:
“I would like this to go further. Ideally, it would be back-dated for older women who had already reached state pension age.”—[Official Report, House of Lords, 29 October 2008; Vol. 704, c. 1590.]
My suggestion is very much in the spirit of what the Baroness was trying to do. It is entirely consistent with that.
Amendment (a) refers to 1978, which essentially means pretty much all retired women, which may be overdoing it, but I hope that the Government will over time look at the issue again. It is in the spirit of what used to be called new Labour—I do not know whether that exists any more. It is very much in the spirit of something for something. We are not asking for charity or a freebie. The women have incomplete records. Why? Generally because they have spent time in low-paid, part-time jobs not earning enough money, perhaps while bringing up a family. There is a raft of perfectly good reasons why women may not have complete pension records. To penalise them by saying that they cannot even now put money back into the system because it is too late—their chance has gone—is unfair.
The reason women in their early 60s and beyond are getting incomplete pensions is by and large because of pension rules written in the 1940s, yet we still apply that model and women are suffering today because of it. It is anachronistic and we could extend the scope of the arrangement. As it is, what we will have is essentially a two-tier retired population. Women who hit 60 now or over the next few years will potentially get a much more generous deal. Women who are now 61, 62 or 63 will for ever be the poor relative. That simply seems unfair.
The Minister said, “Ah well, but many of them are living overseas.” Good luck to them! I am astonished that the Government’s basis for not accepting an amendment that allows women to put money into the system and get something back out of it is that they do not live here any more. They paid all their contributions when they lived here. Why should they not choose where to live? They should not be discriminated against because they have chosen to go and live somewhere else. I was not aware that that was culpable morally in the Government’s eyes, but perhaps it is. We should extend the scope of the arrangement, perhaps not back as far as 1978, but to an interim period.
The second amendment, amendment (b), notes that we are going to restrict the concession to people who have already put 20 years or more into the scheme, and, again, I find that very odd. The hon. Member for South-West Bedfordshire will be familiar with the biblical verse:
“To those who already have, more will be given.”
I had not realised that it was Government policy, but it seems to be now. If one already has at least two thirds of a pension, because once the minimum period is 30 years, anyone with 20 years will get at least two thirds of a pension, and potentially much more, one will be able to pay more in; but the women who have put in 19, 18, 17 years or less, and are already scrimping and getting by on wholly inadequate pensions, will not be able to. The women who have already put in 20 years or more are, on average, more likely to be able to afford the extra years, but it will be a struggle for the women on smaller pensions. There will not be hordes of them, and I am astonished at the cost, because it will depend on take-up. Given how complicated the whole process is, I should be astonished if there was take-up on the scale that has been described, but those women are surely the priority, so why have the Government prioritised women with bigger pensions over those with smaller pensions? It seems to be entirely the wrong way round, and I hope that the Minister will explain the logic, if logic be the right word for the provision.
The women who suffer most through the pension system are those who have put in, perhaps, eight or nine years, and do not get any pension at all because they have not satisfied the 25 per cent. rule. It would be good if those women were able to benefit most by being able to make extra contributions and, actually, to receive a pension. Some of them do not, and they are precluded.
I was rather startled by Lord McKenzie’s comments on the matter, because, on the reason for 20 years, he said:
“That enables us to target help to those who have already made a significant contribution and are genuinely seeking to plug small gaps in their records.”—[Official Report, House of Lords, 29 October 2008; Vol. 704, c. 1589.]
What is not genuine about the woman with 15 years of contributions? In what sense is that not a genuine attempt to plug a gap, albeit not a small one? The crucial point is that many women have gaps in their records, but they have not spent their time backpacking around Australia, as I think someone mentioned. The odd one may have, but Government policy should not be framed around the assumption that women with incomplete pensions are backpackers. They, like anyone else, simply want to put in their own money and get something back for it. Something for something seems to me to be a good basis for Government policy.
By tabling these amendments, I have been able to get an answer to my parliamentary question, which I could not get by tabling a parliamentary question. We therefore now have an idea about the cost, and it is clearly very large. I shall not pursue my amendment, but I urge the Government both to look again at the very tight and restrictive way in which they have drawn the other amendments, and to think about whether something more generous might have been considered.
I thank the hon. Members for South-West Bedfordshire (Andrew Selous) and for Rochdale (Paul Rowen) for their support on the Kindertransport amendments. I shall try to deal very quickly with the points that have been made, but if anything is left out, I shall write to hon. Members.
On the issue of data security, we will ensure that the sharing of data will be in compliance with existing safeguards and will follow statutory and best practice guidance. [Interruption.] So, that’s okay, isn’t it? Clause 136 allows regulation-making powers to strengthen the legal safeguards of data that are shared by the Government and energy suppliers by creating a new offence for anyone who unlawfully discloses data. On the question of whether the Government will supply all details of pensioners to those private companies, our plans for data sharing involve sharing a minimum amount of data, and that is simply required to confirm that pensioners are in receipt of pension credit. Obviously, the aim is to ensure that energy suppliers are able to provide assistance directly to poorer pensioners, but we will ensure that appropriate safeguards are in place, including in respect of the opt-out. Legal safeguards are already in place through the Data Protection Act 1998 and the Human Rights Act 1998, meaning that access is restricted to the minimum amount of information that is necessary for the purpose. We are looking at ways to address the concerns of pensioners who want to opt out of the process, and we will keep the Opposition informed about that.
On Baroness Hollis’s amendment and the question of writing to people who could benefit, we will work with colleagues at Her Majesty’s Revenue and Customs over the coming months to consider the best way of publicising the scheme. We can also do things with, perhaps, Age Concern, Help the Aged and so on, and I know that Baroness Hollis has been looking at some of those issues.
The difference between the figures of 110,000 and 550,000 relates to the people who might be eligible to make an application, and the people whom we feel would benefit from making a claim. We arrived at the take-up figure of 20 per cent. based on previous exercises.
On the issue of increased costs and pension credit, overall, as I have previously said, the package was cost-neutral and the costs were net of income-related benefits, including pension credit. Returning to data sharing, I should say that the Fuel Poverty Advisory Group advocated such data sharing, and we will work with organisations to ensure that we get it right.
I am still a little confused about the difference between the figures of 550,000 and 110,000. If I understood the Minister correctly, she said that she thought that the take-up would be 20 per cent. of the 550,000 people who could benefit. I am a little bit concerned about that, because she would miss out a group of 400,000-plus people, whom I think she says could benefit, but, it seems, will be left out.
It was a reference to the fact that some people could be eligible for the six-year extension, but it may not be considered to be in all their interests. We arrived at the 20 per cent. figure based on that and on previous exercises. Obviously, it is for individuals to decide whether they feel that they would benefit, but we estimate that we will end up with a figure of about 20 per cent.
I am sorry that the hon. Member for Northavon (Steve Webb) feels that his parliamentary question has not been answered, and I shall have another look at it. I asked officials to look today at the £3 billion and £2 billion issue in order to respond to his points. However, it is very difficult to go back—right back—to 1978 and calculate the increased costs. In effect, we have given the minimum estimated cost, going back only to 2004. If we went back a further period, as I think his question asked us to, the cost would, indeed, be higher. I shall try to get as accurate a figure as I can, but I wanted to give him a minimum figure this evening.
In view of the time, I shall not reiterate my previous arguments. I understand the hon. Gentleman’s points, but we estimate that the cost of accepting his amendment would be at least £5 billion, and we want to target help where it is most needed. Our amendments have been widely welcomed, so I am afraid that I must reject his amendment and commend the others to the House.
Lords amendment agreed to.
Lords amendments Nos. 153 to 177 agreed to [some with Special Entry].
Activation of pension compensation sharing
Lords amendment: No. 178.
As we are in the final stage of the debate, I should like briefly to thank my officials in the Department for all the hard work that they have put into the Bill. They have tried to maintain an open dialogue with members of the Opposition and stakeholders, and I pay tribute to their extremely hard work. They have supported not only us in this House, but my noble Friend Lord McKenzie in the other place.
This final group of amendments has been introduced to strengthen the operation of the Pension Protection Fund, the financial assistance scheme and the pensions regulator. Amendments Nos. 178 to 187 and related amendments make sure that the provisions relating to the sharing of compensation on divorce, dissolution of a civil partnership or annulment work correctly. Amendments Nos. 188, 192 and 193 ensure that the Pension Protection Fund can recover costs when dealing with sharing orders.
Amendment No. 260 and related amendments follow from an issue raised by my hon. Friends the Members for Preston (Mr. Hendrick) and for South Ribble (Mr. Borrow)—that of lump-sum payments of PPF compensation for the terminally ill. That was an important campaign, and I thank my hon. Friends for what they have achieved. Amendment No. 260 would allow members with future rights to PPF compensation who have a progressive disease, from which their death may reasonably be expected in the following six months, to access a lump sum equal to two years’ worth of the compensation that they could expect on reaching their normal retirement age.
I turn to the financial assistance scheme. Amendments Nos. 194, 196 and 217 seek to allow schemes that were not previously eligible—particularly small schemes such as that operated by Desmond and Sons—to qualify for the FAS. Government amendments Nos. 194, 196 and 217 would enable us to bring forward regulations to allow those schemes into the FAS by making exceptions to the current requirement that pension schemes must have started to wind up before 6 April 2005 to qualify for the FAS. My hon. Friend the Member for Foyle (Mark Durkan) has done a lot of campaigning on behalf of his constituents who worked for Desmond and Sons.
This group also contains a number of technical amendments that allow us to protect scheme assets, for example. Amendment No. 278 relates to the anti-avoidance powers of the pensions regulator. Hon. Members will be aware that earlier this year, the Government consulted on proposals to make proportionate changes to those powers, to deal with new risks that have emerged in the market. Subsequently, the Government tabled amendments that would include a new alternative test for the regulator’s power to issue contribution notices.
Our stakeholders, including the CBI, the British Venture Capital Association and the National Association of Pension Funds, agree that we have made enormous progress in developing this legislation through the amendments in this group, striking the right balance between protecting members’ benefits and minimising the impact on routine business. In summary, all the amendments are designed to help the PPF, the FAS and the regulator function effectively and continue to build confidence in pensions. I commend the amendments to the House.
I shall try to tailor my remarks, because although this is an important group of amendments, which deals with some important issues, we are subject to time constraints—which, of course, were imposed by the Government.
I join the Minister in thanking everybody who made going through this process such a huge amount of fun. There is no physical similarity, but the Minister slightly reminds me of Marshal Blücher arriving in the early evening of the battle of Waterloo, just in time to bayonet the wounded. The Minister has arrived in the nick of time and is here to take the victory parade, as it were.
Lords amendment No. 198 and related amendments are about the important issue of buy-outs. It is hugely important to get that issue right. Initially, I am afraid, the Government got it horribly wrong. Our position has always been clear: yes, the business models for buy-outs of pension funds have run ahead of the legislation and the regulation, so something needed to be done. However, we did not need to throw out the baby with the bathwater. For some people in some pension funds, a properly regulated and financed buy-out would give an element of security that they would not otherwise have—and, incidentally, would allow the sponsoring company to get on with its core business instead of spending all its time worrying about running the pension fund. That is our position, and we have never wavered from it.
Initially, when the Minister’s predecessor approached me about the potential concerns about the issue, I said that we were happy to give our general support, subject to seeing the detailed legislation. The then Minister made a statement in April about his intentions, thereby stopping any unsuitable deals in their tracks. With the permission of the Attorney-General, he made it clear that the provision would be retrospective, and we had no difficulty with that.
We parted company with the Government when they introduced in the Lords a wide regulation-making power to deal with the issue, without putting any detail in the Bill. That caused huge debates in the House of Lords. The Government forced it through before the summer. However, I am pleased to say that during the summer, wisdom prevailed; organisations such as the CBI, the British Venture Capital Association and others made it clear that if the Government were not careful, and overdid things, they could jeopardise genuine turnaround situations and legitimate business models that give the security to which I referred earlier.
In the event, that argument was won; the Government staged a more or less graceful climbdown. Huge thanks must go to my colleagues Lord Skelmersdale and Baroness Noakes in the Lords. The Government tabled a series of detailed amendments for discussion and debate, including more sensible defences, a new alternative test for the use of the contribution notice power, a list of factors to guide the regulator and a code of practice. The proof of that particular pudding will be very much in the eating, but we have now reached a more sensible solution to a problem that was perhaps being overstated. Now we may have the powers just about right; I hope that they will be used with considerable discretion, care and caution.
I am not saying that the pensions regulator is like the police, who always want more powers, but we need to be careful about simply giving more and more powers to the regulator if that is likely to upset the delicate balance in situations where a rescue could be staged, and if it is likely to tip companies that could have been rescued, along with their pension schemes, into the arms of the PPF. Now we have the “reasonably foreseeable” test and other details that are broadly satisfactory. In its brief for this debate, the CBI said that it
“worked with government to develop effective, targeted powers sought by the Pensions Regulator to properly regulate non-insured pensions buy-outs, while having a limited effect on the normal course of business for the vast majority of employers that sponsor a defined benefit scheme.”
That is absolutely right; indeed, the business models may well change further over time and it is important that we keep monitoring them as they do.
Let me refer briefly to amendment No. 256. The lump sum from the PPF for progressive illness when death is likely within six months is an important provision. Amendment No. 194 and others concern the financial assistance scheme. I will not dwell on the long and painful process of getting the Government to face up to their responsibilities following the ombudsman’s report, but we welcome the extension of the FAS to schemes that were previously excluded.
Another point about the FAS as regards payments for those with illnesses concerns the test being applied to people expected to die within five years. The ubiquitous Dr. Ros Altmann points out:
“By definition, if some have an 80 per cent. chance of living beyond 5 years, then 20 per cent. of them may well die in less than that time”
and therefore be excluded from assistance. She argues for more discretion. I hope that the Government will have another look at that in the light of the representations made by Dr. Altmann and no doubt others.
These will be my valedictory few sentences on this Bill. On amendment No. 197, I pay tribute to Lord Fowler, who spoke very clearly on the issue of annuitisation. Our position is well known. We do not see why we should be the only country on the face of the planet that has compulsory annuitisation. This week at the ABI conference, I was heartened that Otto Thoreson made supportive remarks about scrapping compulsory annuitisation. We recently urged the Government at least to loosen the rules temporarily during the turmoil in the markets, but they were unwilling to do so. In the long term, this must be addressed, and if this Government will not do so, then we will.
I, too, thank the officials at the DWP, who have supplied us with a lot of helpful information.
I should like to concentrate on three aspects of the amendments. We welcome amendments Nos. 194, 195, 196, 197 and 217, which bring schemes that fall outside the financial assistance scheme and the pension compensation scheme into the FAS. There are probably only a small number of people who were employees where an employer was experiencing insolvency after 6 April 2005 but delayed winding up. We are glad that that provision has been inserted into the Bill.
We welcome the amendment that allows payments to people who are terminally ill—that is very sensible. We welcome the series of amendments that deal with divorce where one party is a member of more than one scheme, which mean that the courts will be able to make share orders relating to each individual scheme. Those are sensible provisions. As the hon. Member for Eastbourne (Mr. Waterson) said, no doubt Ros Altmann will continue to have a lot more to say about this.
Like the hon. Gentleman, we are disappointed with the Government’s stance on annuitisation. That will be a debate for another day, because the issue is not going to go away.
I would like to take this opportunity to thank parliamentary counsel for all the work that they have done on the Bill. I understand that the hon. Member for Eastbourne (Mr. Waterson) once feared “death by seminar”. I hope that he has not felt that tonight’s debate was “death by amendment”. However, the number of amendments before us, although large, reflected the approach of consensual policy reform. I hope that we will continue in that vein and achieve that consensus in order to effect positive change to transform the British savings system for the future.
Lords amendment agreed to.
Lords amendments Nos. 179 to 289 agreed to [some with Special Entry].