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Pension Schemes Bill

Volume 585: debated on Tuesday 2 September 2014

Second Reading

I beg to move, That the Bill be now read a Second time.

It gives me great pleasure to move this Bill, alongside my right hon. Friend the Secretary of State for Work and Pensions and my hon. Friend the Financial Secretary to the Treasury, as the latest measure in our groundbreaking pension reforms. In the run-up to the Queen’s Speech, there was some suggestion that the Government had run out of steam. Indeed, the phrase was coined that this was a zombie Parliament. I have to say that, with not one but two items of pensions legislation in the Queen’s Speech—the Pension Schemes Bill and its sister Bill, the pensions tax Bill—we will be very busy over the remaining months of this Parliament taking the pensions system to a far better place. I can assure the House that there are no zombies at the Department for Work and Pensions.

The Pension Schemes Bill will improve the system in two ways: it will give people much greater flexibility on how and when they access their savings, and it will enable innovation in the pensions industry, to better meet the needs of businesses and individuals.

Before I run through the principal features of the Bill, I want to set out the context of the pensions reform that we have undertaken as a coalition Government in these past four years, because it is not possible to have an effective pensions system without an effective foundation. That is why the Pensions Act 2014, which introduces the new state pension, is so vital. A single, simple, decent pension, getting the vast majority of people clear of means-testing, provides a firm foundation for retirement saving. The reform was long overdue and it will transform the pensions landscape of this country.

The second crucial measure is the introduction of the triple lock, ensuring that for both today’s and tomorrow’s pensioners the long-term, decades-long decline in the value of the basic state pension has been halted. Under this coalition Government, the state pension is now a bigger share of the national average wage than at any stage in the past 20 years—a record of which we can all be proud. At current inflation rates, though new figures are due out shortly, we would anticipate that the triple lock will bite again this year, providing further protection to the nation’s pensioners.

Having established a firm and decent state pension foundation, the next stage in our reforms was to ensure mass membership of workplace pensions—again reversing decades of decline. I was delighted, therefore, that the most recent statistics showed that, for the first time in decades, we have significantly reversed the fall in membership of workplace pension schemes. The successful introduction of automatic enrolment, filling the many gaps in the policy left to us by the previous Government, has now seen 4 million people successfully enrolled into workplace pensions, with more being added with every passing week.

The Minister is rightly saying that this Bill is part of a series of measures the Government have undertaken to increase pensions for people. Is the number of people in the auto-enrolment process higher or lower than expected?

I am grateful to my hon. Friend for that question. The number is substantially higher. I had to apologise to the Select Committee in oral evidence recently that we had grossly underestimated the success of our policy. We had thought that the staying-in rates for workplace pensions might be as high as two thirds, but in reality the number of people who, having been automatically enrolled, are staying in is touching nine tenths. Even so, with each passing month, as new figures come out, the sceptics keep saying, “Oh, as we get to smaller firms, the opt-out rates will shoot up,” but we are certainly seeing no evidence of that so far. I think there is a sense that people knew that they needed a pension and knew the value of an employer contribution and tax relief, and when we remove the barriers for them they are delighted to accept it.

May I be very clear that both the Select Committee and the Opposition welcome auto-enrolment and are very glad that it has been so successful, because one of the good things the coalition Government did was carry on the policy legislated for by the previous Labour Government? Perhaps some credit should be paid to them.

The hon. Lady will be aware that there was a decade between the first stirrings of the Turner report and the implementation of automatic enrolment. She will also be aware that there is a risk—this is an important point and although I would not accuse the hon. Lady of doing this, perhaps it is relevant to her more partisan colleagues—of rewriting history on this issue. Had we implemented automatic enrolment as envisaged by the Opposition, it would have crashed and burned. Let me explain why I say that, because it is very important.

Had we auto-enrolled people into schemes without any prospect of a charge cap, they could have been exposed to something the Opposition call rip-off pension charges. When in government, the Opposition proposed no consumer protection on charges. Secondly, they would have auto-enrolled people the second their earnings were a pound above the threshold, so people would have been enrolled into pension schemes into which literally pennies were being put by employers and employees. That would have created derision and undermined auto-enrolment. Thirdly and crucially, auto-enrolment was envisaged without any reform of the state pension, so we would have had a state pension of about £5,000 a year and a means test of about £7,000 a year. Therefore, the first £2,000 a year of private saving would have been largely clawed back by means- testing. There would have been stories in the press of mis-selling and of people saying, “Why did I bother saving for a small pension?” I still remember a national newspaper journalist telling me that only when we reformed the state pension did we remove the fundamental objection to auto-enrolment for people on a low wage.

We would, therefore, have had rip-off charges, nugatory amounts going in and means-testing of savings; if we had not addressed those things, auto-enrolment would have failed. I believe that the coalition made that policy work and were right to do so.

As well as making sure that we have mass membership of workplace pensions, we have had to address a number of other crucial issues, including, as I have mentioned, scheme quality and ensuring that people do not face excessive charges. From next April, default funds for auto-enrolment schemes will be capped at 0.75%. Certain forms of charges over the coming years will be banned altogether. The so-called active member discounts, which mysteriously increase charges when someone is no longer an active member of a pension scheme, and commission charges and consultancy charges are all banned by this coalition Government. We are putting in place new measures to ensure quality governance of schemes—not just trust-based schemes but contract-based ones—with independent governance committees acting in the members’ interests for the first time.

This is a huge, positive agenda, but there are two big areas where further work is needed. The first is the move from defined benefit to defined contribution—a long-term, decades-long trend transferring risk from being wholly on the employer to being wholly on the individual. We remain concerned that that transference of risk causes problems for individuals and that we need to enable, encourage and foster risk-sharing models, and that is what this Bill does.

Secondly, what happens at the end? What happens when someone has accumulated a pension pot? What can they do with it? Again, the previous Government failed to address the fact that, all too often, people with a pension pot defaulted into an annuity with the provider they had already saved with and did not get the best value for money—they made a once-in-a-lifetime retirement choice that all too often resulted in poor value for money. That is why the Chancellor’s groundbreaking Budget announcements, which the Opposition are still fundamentally ambivalent about at best, were so important. They gave people freedom and choice in what to do when they have accumulated a pension pot. This Bill and the amendments that will follow provide for guaranteed independent guidance for people making those choices, which is something that far too many people do not have at present.

The Minister talks about poor value for money, but essentially is the problem not the private pensions market? A universal state scheme would be incredibly efficient, give much better value for money and could be underwritten by Government. Such a system would make it possible to have defined benefits as well as defined contributions, and would be infinitely better for everyone involved.

I always enjoy it when the hon. Gentleman intervenes to make that point. In a sense, he has been consistent: he simply thinks that we should tax people more to pay higher state pensions. That is an entirely credible left-wing position. It is not his party’s position.

Sharing future state pension rights between the state and the market is sensible risk sharing, which is relevant to the Bill, for the following practical reason. Although the hon. Gentleman may live in a world where Government promises are immutable, and where someone who is 25 is told by the Government, “Don’t worry: I will tax you a lot more to jack up the state pension, and in 40 years it will all be fine because you’ll get a fat state pension”, Governments—obviously not the present one—do rip up pension promises.

I do not think that individual citizens should rely wholly on something that is unfunded. That is what it would be, because such people are essentially hoping that their children and grandchildren will pay them a generous pension. However, by the time those people are pensioners, there will of course be many times more pensioners and many times—relatively—fewer workers. That is a very insecure basis on which to base retirement income.

We are making sure that there is a single, simple, decent state floor—to that extent, I agree with the hon. Gentleman—built on by the ownership of capital assets, an employer contribution, tax relief from the public purse and individual contributions invested in the productive wealth of the economy, so that as the economy grows pension wealth grows. There is therefore a capital right as well as a pension promise from the state, which is how I would want to share my risks.

I would like the opportunity to answer every point made by the Minister, but let me ask him one simple question. If the economy gets into very serious trouble and the private pensions market gets into a real financial crisis, as happened with the banks in 2008, what will happen then, without Government underwriting?

But the idea that if the economy does very badly tax-funded pensions are secure is implausible. If the economy does badly, public expenditure on benefits must rise, tax receipts will fall, the deficit will rise and the ability of the public purse to pay the generous state pensions wanted by the hon. Gentleman will fall. We need a strong economy come what may, and a strong economy will generate the money for state pensions and for private pensions.

I represent a significant number of providers in my constituency, including Legal and General, Partnership and Just Retirement, while Fidelity is also in this market to a degree. I am very concerned about the levy that is coming in to pay for the guidance, and about the difference between the £20 million that the Government have set aside to begin funding the guidance and the reality of what realistic guidance actually requires. If the Minister or I wanted an evaluation of our pensions for the purposes of a court—for divorce, for example—the amount of work required would cost about £2,000. There are 500,000 people waiting for and needing guidance. It will be £1 billion—

Order. The hon. Gentleman might be better off making his point in two interventions, because otherwise he will have made his speech, and I am sure that the Minister will not remember it all.

Let me make a start, and I will then be happy to give way again. To be clear, the £20 million is not an estimate of the annual recurring cost of providing guidance; it is a one-off, seedcorn, getting-the-thing-going fund. For example, if we need to set up websites, produce literature and create infrastructure, the £20 million will enable us to do so. That may involve organisations such as the Pensions Advisory Service and the Money Advice Service, and it may involve Government spending. The first point is that it is about getting things going; it is not our estimate of the recurring cost of guidance.

The second point is that there is clearly a world of difference between a guidance conversion to get people to base camp—enabling them to understand concepts and helping them to know where to go for further information and advice—and a sophisticated, individualised, tailored piece of independent financial advice recommending products. There is a whole spectrum, and the guidance is very much at not the “cheap”, which is the wrong word, but the budget end of that scale.

I assure my hon. Friend that we do not envisage a levy on the financial services industry to pay for full-blown, regulated, independent, tailored financial advice. The guidance will not be like that, but it will certainly be cost-efficient. Although we will honour the Chancellor’s pledge for face-to-face guidance when people want it, we anticipate that many people will want telephone conversations, websites and all the rest of it, much of which is substantially cheaper than the very expensive sort of advice he mentioned.

I will take advantage of your invitation, Mr Deputy Speaker. I am not suggesting anything other than that the guidance is incredibly important—frankly, it needs to be closer to advice than guidance in its scale if it is to ensure that people are properly equipped to make such very difficult and complex choices—but I am concerned by the suggestion that the levy will be directed at firms that will benefit, whereas we want a competitive market which highly entrepreneurial firms that can put together new products will enter to win business from people who have left their money sitting or have not moved it, and who take annuities from existing providers and the rest. There is a dichotomy there.

I do not think that my hon. Friend can intervene on an intervention, but I will give way to him in a moment if he so wishes.

I agree with my hon. Friend the Member for Reigate (Crispin Blunt) that we want to see innovation. The industry is talking about a decade of innovation, so although this system will be up and running next April, it is widely assumed that the market will develop and new markets will indeed be brought forward. I have seen no evidence that the envisaged level of levy will hamper entry into the market. As he well knows, the financial services industry is a big industry, and this is a huge opportunity. We are also talking about the auto-enrolment of between 8 million and 9 million new pension savers. These are huge additional sources of revenue for the pensions industry. Relative to that, the scale of the levy for the guidance is modest, so I think that I can reassure him about that issue of scale.

To move on to the substance of the Bill, I will make my remarks in two sections: the first on the pension schemes and the defined-ambition proposition, and the second on freedom and choice in pensions.

First, what is defined ambition? Essentially, it is a radical reshaping of pensions legislation to ensure that it remains relevant for future generations, and to reflect, recognise and, to quote the coalition agreement, “reinvigorate” innovation in consumer-focused product design in either shared-risk or, as we are calling them, defined-ambition pensions.

The Bill will introduce three categories of pension scheme based on the type of promise that they provide to savers during the saving phase about the benefits that will be available to people on retirement, including a new defined-ambition or shared-risk category of pension scheme. The Bill will enable collective benefits to operate in the UK, as they do successfully in many other countries. We have very much tried to focus on pension members’ experience of what their scheme offers. The new Bill will apply and refocus existing legislation in relation to the new terms.

The first category is for salary-related pension schemes—for example, traditional final or average-salary schemes—where the pension is specified in relation to the person’s salary. They have been in decline since the 1970s, and the majority of them are now closed to new members. They are often known as defined-benefit pension schemes, in which the employer bears the risks of longevity, investment returns and inflation.

The switch has been to the other extreme—schemes commonly known as defined-contribution or, more technically, money purchase schemes. The number of defined-contribution schemes established per year has generally increased since 2007, with 1,060 new schemes in 2013. Membership of such schemes increased by 15% to 2.7 million in 2013.

As you can clearly see, Mr Deputy Speaker, we have a binary model: people get either a money purchase or a non-money purchase benefit. Although both types of pension will be the right product for many people, is it right that the only future for pensions that is encouraged by our legislation is one in which either the individual consumer or the employer takes on all the risk? We do not believe so. Many employers have found the increasing costs of longevity and investment risk too heavy to bear, but if defined-contribution schemes are the only alternative, outcomes for savers will be less certain and more volatile than for earlier generations, making it much harder for future generations of savers to plan for later life.

Consumer trust in the pensions industry is low. As I have said, we can protect people against the risks of high charges or poor governance, but our research has shown time and again that many individuals want more stability and certainty. They want to know something about what their savings will give them and have some protection from the worst vagaries of the market. That is why the Bill provides new definitions for private pensions, including the new defined-ambition category of pension scheme, and for collective benefits.

The new shared-risk definition describes a middle ground between the more polarised money purchase and non-money purchase definitions. It will create a distinctive space to encourage innovation in pension design, and it will provide more certainty for individuals than defined-contribution schemes by sharing risks among employers, employees and third parties.

The collective benefit definition will enable a new form of risk pooling among scheme members that is able to provide greater stability in outcomes for members. Collective pension schemes are often recognised internationally as high quality, and it is only right that the United Kingdom should have access to pensions viewed as being among the world’s best. We also have the advantage of providing protections at the outset that address issues to which the more mature schemes overseas are now turning their attention.

We have engaged extensively with stakeholders across the pensions industry and found that there is an appetite for legislation that allows greater risk sharing and risk pooling. There are employers who will welcome the greater flexibility to create pension schemes that suit the needs of their work force. Pension providers want the flexibility to design and offer pensions that provide greater certainty. Individuals value the option to have greater certainty than that provided by DC pension schemes, as well as the greater stability that collective schemes may provide.

I am pleased to share with the House the warm welcome that the proposals have had. Age UK says that it

“welcomes the overall intention of the Bill”.

The National Association of Pension Funds says that it has

“long supported enabling greater risk-sharing in pensions arrangements”

and welcomes the creation of a framework that enables greater innovation and risk sharing. The TUC says that it has long supported collective pensions

“as a means of improving the income available to workers in retirement. The legislation will bring the UK into line with countries such as the Netherlands, Denmark and Canada where such schemes already operate.”

I welcome the fact that the Opposition have sort of, vaguely-ish welcomed our proposals. The more stability and consistency we have on pensions, the better, because pensions are not just for Christmas but are a long-term business. The fact that there is a degree of common ground in this area is entirely welcome.

On behalf of my constituents in Northumberland, I wholeheartedly welcome this reform, which has been massively welcomed by those who currently have a pension. However, how will the Government ensure that most small and medium-sized enterprises offer defined-ambition pensions? There is a degree of concern, which is legitimately held, that the safer defined-contribution pensions, in which there is little or no risk, will continue to be offered, thereby reducing the impact of the defined-ambition pension. What are the incentives?

I am grateful to my hon. Friend for raising that important point about the potential market and demand for such schemes. We have undertaken research not only among consumers but among employers. We have found that about a quarter of employers say that they would be interested in providing shared-risk schemes and that another quarter are waiting to see. To be honest, if I were surveyed at this point, I would probably be in the waiting-to-see quarter because the legislation is yet to go through and the regulations that this framework Bill provides for have yet to be tabled. Understandably, firms are not queuing up to declare for this form of pension provision.

On the whole, such schemes are unlikely to be provided by SMEs. In general, we anticipate that just as with final salary and DB pensions, it is larger employers who will tend to go for shared-risk schemes—not exclusively, but largely. The reason is that, beyond the bare legal minimum of auto-enrolment, providing a workplace pension is not a legal requirement but an option. It tends to be larger employers who see pension provision as part of a package, perhaps including a company car or a workplace crèche, and who offer additional benefits. A risk-sharing scheme is, to my mind, a fringe benefit. However, it is a very valuable benefit where the employer says, “I want to do more for my employees than the legal minimum.”

My hon. Friend the Member for Hexham (Guy Opperman) asked what the incentive is. Although the best pension schemes may have gone, the best employers have not. There are therefore good employers out there who want to do more than the bare legal minimum. They will find that their employees want a pension scheme that reduces the risks and uncertainties of this very uncertain world. They will therefore find that this is an attractive part of their package.

Once the schemes are up and running, small employers may well choose to join them. We will probably need scale before we get to that stage. I am guessing that larger employers will use them first, but once there is the infrastructure—a regulatory regime or governance regime—one can imagine a scenario in which smaller employers would join.

The Minister has just mentioned the regulatory regime. Has he given any thought to how we will regulate the new defined-ambition, shared-risk schemes? Presumably, if a defined-contribution scheme adds a small promise, it will trip over into being a defined-ambition scheme. The regulation would therefore move from the Financial Conduct Authority to the Pensions Regulator, and it could drop back again. Does it not look as though we need one pensions regulator to make it all make sense?

I am grateful to my hon. Friend. That is an issue that the Work and Pensions Committee, of which he is a member, has raised in relation to the appropriate regulatory regime. It is fair to say that in drawing up the regulations and guidance for the Bill, the number of times we have had to ask ourselves which regulator it is that does which bit and to ensure that what the FCA does mirrors what the Pensions Regulator does has added to the complexity of the process. When I gave evidence to the Select Committee a little while ago, I said that this was not the time to start reforming the regulators. That remains my view. My hon. Friend will be aware that the FCA has only just been created out of the ashes of the Financial Services Authority. This precise point is not the right time for yet another regulatory reform. However, the experience of the last 12 months has made me more sympathetic to the view that the eventual destination might well be a single regulator.

My hon. Friend also raises the regulation of DA and collective DC schemes. It is clear that what we need is good governance. Arguably, one of the problems of the Dutch experience, as it has been described to us, is that the schemes were described as DB to the members and DC to the employers. One of those two descriptions was not true. We have to ensure that we have good governance and transparent communication. Because of issues of intergenerational fairness and so on, the rules of the scheme—who gets what when things go wrong and who benefits when things go well—have to be transparent. We therefore need a clear, although not excessive, regulatory framework.

What I have described so far is the Pension Schemes Bill as we originally envisaged it, which deals with risk sharing. Obviously, that is the fruit of several years’ worth of consultation papers and extensive engagement with stakeholders in the pensions industry. I would like to place on the record my appreciation to the many working groups that the Department has run, including the defined ambition working groups of Andrew Vaughn of the Association of Consulting Actuaries, and to all the experts who have given their time to help us draw up the various models. We are very grateful to them.

The second half of the Bill relates to the Chancellor’s freedom and choice in pensions agenda. It may be that other right hon. and hon. Members regularly have people walk up to them in the street, shake their hand and thank them for Government policy. It has been a relatively novel experience for me, but I have genuinely had people walk up to me, shake my hand and thank me for this policy because it gives them back control over their own money. It says not that the Government know best but that the individual, with the right support and guidance, should be in the best place to make their own choices about their own money. The Government are committed to giving people freedom and choice in how they use their pension savings.

Budget 2014 announced radical new flexibilities in how and when people may access their pension arrangements. We undertook a 13-week consultation, and the response to it was published in July. Draft tax clauses for technical comment were published in August. The momentum is gathering. This Bill, along with the taxation of pensions Bill, will mean that from April 2015, individuals from the age of 55 will be able to access pensions flexibility if they wish to, subject to their marginal rate of income tax, rather than the current 55% tax charge.

This Bill will make the required changes to pensions legislation, including a guidance guarantee. That means that everyone with a defined-contribution pension arrangement will be offered free, impartial guidance so that they are clear about the range of options available to them on retirement. There will also be a duty on providers and schemes to ensure that they make people aware of their right to guidance and signpost them to this service.

The taxation of pensions Bill will legislate for the required tax regime changes. The Government will continue to allow members of private sector DB schemes the freedom to transfer to other types of scheme. In the majority of cases, it will continue to be in the best interests of the individual to remain in their DB scheme. That is why two additional safeguards will be introduced to protect individuals and schemes. First, there will be a new requirement for individuals transferring out of a DB scheme to take advice—with a capital A—from a financial adviser before a transfer can be accepted. Secondly, there will be new guidance for trustees of defined-benefit schemes on using their existing powers to delay transfer payments and taking account of scheme funding levels when deciding transfer values. To protect the Exchequer and taxpayers, however, transfers will not, other than in very limited circumstances, be allowed from unfunded public service DB schemes to schemes with DC arrangements.

I want to pick up on two final issues that relate to how the freedom will work in practice. The first was raised in oral questions yesterday and relates to the position of schemes with exit fees. The uncharitable side of me would say that one or two of my answers yesterday were misrepresented in the Twittersphere, as I think it is called. The charitable side of me would say that my comments were misunderstood. Let me be absolutely clear about where we stand on schemes with exit fees.

First, despite Opposition attempts to hype this up and overstate the case, the number of schemes with exit fees is very much in the minority. In other words, our 2013 pensions and charges landscape survey found that more than five in six trust-based schemes, and nine out of 10 employers with contract-based schemes, had no exit fees. We must therefore be clear that exit fees are exceptional.

Secondly—I am generally talking about legacy schemes here—we are already considering charges, and a legacy audit is being undertaken of old and high-charging schemes. That is due to report by December and will provide additional information about existing fees. At the moment, we do not have full information with which to form policy, but the Government are working with the pensions industry to understand how common exit fees are, how large they are, and the terms under which they operate. Crucially, once the evidence is clearer, the Government will be able to decide whether additional measures are required to protect savers. At the moment we are gathering information, but we are determined to ensure that savers are protected. I hope that is helpful.

The compatibility of the two halves of the Bill has been mentioned. On the one hand we are giving people freedom and flexibility, and on the other we are bringing forward a framework within which people might be members of a pension scheme all their life, through working age and well into retirement. We must obviously ensure that those two things gel, and I assure the House that they do.

All our reforms are about putting the saver first and addressing people’s desire for greater certainty about income in both the savings and the pay-out phase—the accumulation and decumulation phase. In a defined ambition scheme, more than one type of benefit arrangement is likely to make up the overall pension pot or income stream. We expect people with defined contribution arrangements within a defined ambition scheme to be able to access those arrangements in line with new budget flexibilities. Members of DC schemes that offer collective benefits will be able to cash out their collective benefits if they so choose. If they remain within the scheme, it is likely that they will receive a pension income for life, since that is how we envisage collective benefits being set up. People will not have to make decisions on how to access their savings; decisions on how to pay out scheme benefits will be made by scheme fiduciaries.

These schemes will offer an option—that is the crucial point: the freedom and choice agenda—for those who wish the scheme to pay them a pension income for life. Either way, the individual will have choice over what to do with their savings. Together with the amendments that will follow shortly, the Bill will set out a legislative framework that will mean greater choice and flexibility for future private pensions, tailored to the needs of employers and individual savers.

This Parliament has seen little short of a pensions revolution: radical state pension reform providing a firm foundation; mass membership of workplace pensions through the effective implementation of automatic enrolment; quality standard charge caps; and a war on rip-off pension charges. Now in this Bill there are two new strands to our reforms: enabling and facilitating risk-sharing pension models rather than the extremes of risk that would otherwise be the case, and new freedoms for individuals to know best what to do with their money. At the end of this Parliament, we will truly have transformed the pensions landscape. That is a record of which this coalition Government can be proud, and I commend the Bill to the House.

It was striking to hear the Minister refer to a “revolution” and a “war”—not terms one usually associates with Liberal politicians. Clearly, the excitement of pensions has overwhelmed his Liberal temper.

This is the third pensions Bill of this Parliament, and I note that the Minister spent the first 15 minutes of his half-hour speech talking about the first and second pensions Bills, and the fourth one still to come. There is no doubt that much has changed in the pensions landscape, but let me first pick up the Minister on some of the things that he suggested. He painted a picture of a pension policy—a revolution, indeed—that is coherent in every respect and said that the first pensions Bill begat the second, the second begat the third, and of course the fourth is still to come. There is, however, another way to look at aspects of the Government’s pension policy, and I ask the Minister to reflect on these points.

The Minister referred to auto-enrolment. As is characteristic of him, he took all the credit, leaving aside the fact that—as was pointed out by my hon. Friend the Member for Aberdeen South (Dame Anne Begg), the Chair of the Work and Pensions Committee—auto-enrolment emerged out of the Turner commission and the consensus built by the last Labour Government, and was rightly taken on by the Pensions Minister. Leaving aside that lack of generosity in the Minister’s reflections on auto-enrolment, there is a more fundamental point. The Turner consensus, which the Labour Government built and the Minister has continued, operated on the assumption of pensions being complex, long-term and difficult to navigate for anyone other than a financial professional. That necessitated a default-based approach whereby individuals employed without a pension were defaulted into a pension scheme. They did not exercise a choice to go into a pension scheme; they were defaulted into a good pension.

That was the Turner commission’s judgment and the consensus taken on by the last Labour Government, and indeed the Minister. However, the Government’s policy on budget reforms is predicated on a different approach and the assumption that at the point of retirement, when individuals come to turn their pension pot into an income—the whole point of a pension is to get as great a pension income as possible—they will be able to navigate that jungle of financial products successfully and maximise their retirement income. There is surely a tension between those two aspects of pension policy, and the Government’s approach to building up a pension pot and to turning a pension pot into retirement income.

That tension must be reflected on by the House, not because the Government’s policy for retirement income stage is necessarily wrong, but because there is a tension between the two poles of policy. If auto-enrolment policy was correct to assume that individuals need to be guided, helped and encouraged into better pension decisions, why do we no longer think that is the case at retirement? That is absent from the Government’s pension policy. The Minister would have us believe that everything fits together neatly, but it does not in that regard.

The shadow Minister’s point would be stronger if in the past when people purchased annuities that had been done with the correct annuities and financial advice being given. We know, however, that 80% of people were buying the wrong annuities. At least in the model now coming in, there will be some compulsory advice, which is a step forward from what existed previously.

The hon. Gentleman is a doughty fighter for better pensions and I respect that, but I ask him to reflect on what he has just said. The annuities market was broken because people did not shop around. They found annuities confusing and complex, and they defaulted into the option offered by their insurance company. Why do we think that that behaviour will suddenly change in a system that continues to be predicated on individuals making a choice?

I will give way to the hon. Gentleman in a moment. Let me make the point again in case it has been misunderstood by Government Members. The annuities market was broken because individuals did not exercise choice effectively. Why do the Government believe that individuals will now exercise choice effectively in a complicated marketplace? That is presumably why the Government put such emphasis on the guidance guarantee. They are right to do that because if this scheme is to work effectively, guidance must be of the highest quality. The hon. Member for Warrington South (David Mowat) mentioned advice, but this is not advice; it is guidance. There is a significant difference and the Government must reflect on that.

I am grateful to the hon. Gentleman for allowing me to intervene before the Secretary of State, but he is dancing on the head of a pin because he has not indicated whether he approves or disapproves of this measure, which I take implies implicit approval. Does he agree with my constituent whom I met barely a month ago and who said:

“I am delighted with these reforms. It’s my money. I saved it. Why do I have to give it away in annuities and charges for low returns?”

I have become a little confused about the Opposition’s position, so perhaps the hon. Gentleman could clear something up. I was listening carefully to what he said. There was confusion when the Budget announcement was made, but finally the shadow Secretary of State said the Opposition supported the proposal. From what the shadow Minister has said today, however, it sounds like they do not support it and now neither support nor oppose it. Will he clarify their position? Do they support the idea of people choosing what to do with their own money when they come to buy their annuity?

Given that Labour in opposition led the way in calling for reform of the annuities market, we welcome greater flexibility. However, because the Government have not yet introduced legislation, we do not know what the guidance guarantee will amount to, so surely any sensible Opposition doing their job would probe the Government on these points. That seems to be our constitutional role.

The constituent of the hon. Member for Hexham (Guy Opperman) is right that the annuities market did not work. I am asking the hon. Gentleman, who unfairly accuses me of dancing on the head of a pin, and others to reflect on the following point: if the annuities market did not work because individuals did not exercise the open market choices they were offered, how can we expect these reforms to be more successful, if the guidance is not cast iron of the highest quality and as expansive as possible? He looks puzzled, but it is a straightforward point, and it goes to the heart of the tension in the Government’s pensions policy. The building up of pension pots is based on a default opt-in, with choice exercised only if an individual chooses to opt out of the pension scheme the Government have put them in; yet it is suddenly suggested that, on retirement, individuals alone can get best value for money in what is a complex market known for mis-selling.

I will make a little more progress and then let in hon. Members from all parts of the Government Benches.

The Minister glosses over the tension in Government policy, suggesting that everything is coherent, but I strongly believe that that is not the case. He spent 15 minutes talking about things other than this pensions Bill, in which, more widely, the Government are attempting—we welcome the attempt, not least because we have been arguing for it—to pool and share risk long term across generations. In doing so, they are reflecting a developing political consensus around the importance of sharing risk as widely as possible in the pension sphere. The corollary is that the bigger the pension scheme—appropriately governed—the greater the returns to scheme members. Put simply, the bigger the pension scheme—appropriately governed to share risk as widely as possible—the larger the pensions for people in those schemes. I think that there is a developing consensus that that is a good thing, and in so far as it promotes collective defined contributions, the Bill is welcome.

Will the hon. Gentleman clarify the evolution of the Opposition’s thinking? In government, six months before the last general election, the Labour DWP produced a report rejecting CDCs. When did they change their mind?

I would like to take all the credit, of course— having not been in the previous Parliament—but in my opinion and that of the Opposition Front-Bench team, there is a very good case for encouraging collective provision. Politics involves evolution. I am kinder at times than the Minister, so I will not give him chapter and verse about how he has chased our tail on pensions policy, but whatever the origins of the policy, surely the point is to get the best possible outcomes.

The Minister alluded to other parts of the pension scheme in the Bill. Its provisions reflect the knock-on consequences of the flexibilities at retirement announced by the Government, evidenced by the fact that this is being shared between the Treasury and the DWP. It redefines the type of workplace schemes that can be set up so that a third form of scheme—neither DB nor individual DC—can be created. It also prevents the transfer out of most public service defined-benefits schemes, except to other DB schemes, which makes sense given the basis on which these Treasury-funded schemes proceed.

Currently, on the insolvency of an employer, the Pensions Regulator can employ an independent trustee from a register that it maintains. Conversely, when it uses its general powers of appointment to replace a trustee found not to be fit and proper, it does so using flexible procurement panels. The Government’s response allows the alignment of both procedures on the second, which seems to make sense. And of course the Bill will allow the Secretary of State to make payments into the Remploy pension scheme. These are all sensible policies supported by the Opposition.

The principal case for the Bill, however, as the Minister set out, is the recognition of the case for collective pension saving. There appears to be some appetite among the public for this kind of risk sharing. Research undertaken recently by the Institute for Public Policy Research suggested as much when it found that collective pensions were the most popular option across different income levels, life stages and ages. That makes sense given that pensions are a form of collective insurance against poverty and indignity in old age. On that basis, the debate that the Bill generates is welcome.

The Minister described how the pensions landscape had changed. DB is no longer as popular as it once was; employers do not want to take on the risks of defined-benefits schemes; and increasingly we live in a world of individual defined contribution, where the risk is entirely on the individual saver and depends on the performance of the stock market. As he suggested, finding a way to share risk is a good thing, but let me point out several aspects on which the Bill is silent—aspects that are central if collective pensions are to succeed.

The first aspect—as far as I am aware, the Minister was silent on this—is the awareness that cross-generational collective pensions can, in extreme circumstances, involve a reduction in pensions in payment. This is not something that the UK is culturally and historically attuned to. In a cross-generational collective pension fund, the smoothing of risk and reward between different generations can mean, in extreme circumstances, that the pensions being paid to pensioners are cut. That is something with which our politics is not familiar and an important point about defined-contribution collective pensions that has to be considered.

The second important point is that governance is even more important in collective pension schemes of this kind than it is in other forms of pension. Managing a rolling pension fund—one that brings together the savings of teenagers, pensioners and every generation in between and that demands that each cohort is treated equally—requires substantial technical expertise. The prize, if a fund is managed correctly, can be bigger pensions, but that demands governance of the highest quality, yet the Bill is silent on governance. The Minister mentioned it in the round, but he did not talk about the governance that he wishes to see or that, more importantly, the Bill puts in place for these pension schemes. And the Bill is silent despite the Government saying in their response to the consultation document, “Reshaping workplace pensions for future generations”:

“Collective schemes are complex and can be opaque… This necessitates strong standards of communication and governance. We intend collective schemes to be overseen by experienced fiduciaries acting on behalf of members, taking decisions at scheme level and removing the need for individuals to make difficult choices over fund allocations and retirement income products”—

not a philosophy the Government are adopting at the point of retirement via their Budget reforms. What has happened to their intention that governance be undertaken by experienced fiduciaries?

I am reminded of the fankle that the Government have got themselves into over the governance of individual defined-contribution pensions. I will not give chapter and verse now, because it would not be appropriate, but the independent governance committees that the Government intend to set up for individual defined-contribution pensions—the Minister referred to them—are neither independent, nor governance. They will be in the hands of the insurance company. The mistake that the Government appear to have made over individual defined-contribution pensions, they are now making with respect to collective defined-contribution pensions.

There is nothing in the Bill about the standards of governance that CDC pension schemes will have to meet. Everything is left to secondary legislation. I say to the Secretary of State and the Minister—who asked about the attitude of the Opposition—that so much of pensions legislation under this Government has been left to secondary legislation, making it difficult for the whole House accurately to understand the consequences and outcomes of any one pension Bill or policy.

As regards collective pensions and the second aspect of the Government’s silence—on governance—the Opposition believe that the Government should follow our lead and require the schemes to have trustees and to be based on a legal duty to prioritise the interests of savers above all others. Failure to require all schemes to have trustees—this is crucial—means that some collective DC schemes will be run by trustees and others by private firms seeking to maximise their short-term returns. That is surely not in the spirit of the collective pensions on which the Minister wishes to build. Given the complexity of managing collective, inter-generational, risk-sharing pension schemes, the highest level of governance is critical, and I urge the Government to say explicitly—either today or as the Bill goes forward—what the governance criteria and rules will be.

Beyond governance, a third crucial aspect of collective pensions remains unexamined by the Bill. The Government have left entirely to secondary legislation the question of what kind of collective pensions they wish to promote. The Minister suggests that collective DC is one sort of pension scheme, but it is not: there are different forms of collective defined contribution, so clarity about which form the Government wish to see would be useful for all parties as we examine the proposals.

Broadly, there are two kinds of collective pensions that the Government might wish to promote. One is a form of collective DC that sets a target income for each saver and a probability of the target income being met on retirement—a 95% probability, say, of that target being realised. This form of collective DC demands significant assets in reserve so as to make the probability realistic. Given the substantial assets that any scheme would need to materialise, that is what we might call a heavy form of collective DC pensions.

There is also, however, a lighter form of collective DC, which is more intra-generational than inter-generational—involving risk sharing among a particular cohort rather than between generations. That lighter form of DC collective pensions is also to be welcomed, as it would bring the advantage of scaling and pooling within a generation. Fundamentally, too—I am not sure the Minister mentioned this—the great advantage of collective pensions is that they avoid the real difficulty of having to make the decision on the spot on retirement for the rest of one’s retirement. That does not happen under either the heavier or lighter form of collective DC, as a form of draw-down applies. The pension fund never ends; it continues, so a form of draw-down is possible. As I said, an on-the-spot, once-in-a-lifetime decision about retirement income might apply under the Bill.

The Government have not stated which form of collective DC they wish to see materialise from the Bill. As with governance, the Bill is entirely silent on those points. Everything is left to secondary legislation once again, and I see a pattern when it comes to pensions legislation under this Government. They bring forward a Second Reading, take a Bill into Committee and then leave so much of the fundamental detail to subsequent secondary legislation. I am not sure that that is a sensible way to proceed if we want to make substantial and good legislation. Those are some of the issues on which I would like to gain further clarity from the Government.

The Minister spent some time talking about the budget reforms, and we have heard contributions and interventions from Front Benchers about them. The Government are silent on the issues of flexibility and the interaction with auto-enrolment pension saving. They claim that all those aspects fit together very well, but I have suggested that there is a fundamental difference in approach in the spheres of building up the pension pot, auto-enrolment and turning the pension pot into retirement income.

The three tests that the Opposition have set for these reforms are sensible. We must know first what the guidance guarantee amounts to—a fundamental point on which we still have no clarity. We expect perhaps an amendment or amendments to provide clarity on the guidance guarantee. We should remember that the Chancellor promised advice, not guidance, in his Budget statement. There is a fundamental difference between the two, and the Minister subsequently clarified that guidance rather than financial advice will be provided. We await with bated breath the details of the guidance guarantee. Without top-quality guidance, the potential for successful flexibilities will be much reduced.

Secondly, we need to know how the budget reforms will impact on the pension pots and retirement income of low and middle earners. That is important. One of the weaknesses of individual DC, from which the Minister is trying to move way, is that 10 years from any individual’s retirement, the pension fund has to move assets into low-yielding bonds to avoid any risks so close to the retirement age. There is less risk, but less return. The danger of the Government’s flexibility provisions on retirement is the interaction with pension fund asset management. It now becomes the norm that individuals will cash in their pension pot at 55, 56 or 57, which means that at the age of 45, 46 or 47 the pension fund will have to move into low-risk, low-yielding assets, reducing the pension pot when cashed in on retirement.

I understand the hon. Gentleman’s point, but is there not a reverse problem when someone wants to keep their pension savings pot until long after the normal retirement age, so they would not want to move over to low-risk returns at 55 but leave it until 65 or later? The position is more complex than the hon. Gentleman suggests.

I am rarely accused of making pensions less complex, so I shall take the hon. Gentleman’s comment as a compliment. I take his point, however; there are lots of unanswered questions about how income draw-down will work. The potential impact of the reforms on the asset management of individuals’ pension pots is crucial.

Thirdly, the interaction of the budget reforms with social care, for example, is an important issue. How do the Government view the position on the ability of local authorities, for example, to say that a pension pot is a realisable asset that can be brought inside the capital disregard for social care and other benefits? That is a significant question to which we still have no answers. The Opposition have lots of opinions, as the Minister says, but if the Government take so long to explain how any of their policies will work, it is no wonder that we spend a lot of time asking questions.

I have highlighted important issues and pointed to substantial unanswered questions about governance, about how the reforms will interact with the budget flexibilities and, more widely, about how a Government committed to automatic enrolment of individuals into pension saving can be equally committed to an individually focused policy for turning pension pots into retirement income.

Let me make some final observations. The Minister did not mention the National Employment Savings Trust and that is no surprise, because he has promised that the restrictions on NEST will be lifted, but since July 2013 we have heard nothing on when they will disappear. That is important because, if we are thinking about collective defined-contribution pensions, NEST is a trusted pension provider backed by the Government that could offer such pensions. In doing so, just as it has in the auto-enrolment sphere, it could constrain the pensions industry and drive up standards and quality, so that the products that the Minister, I and everyone would like to see delivered are delivered by the industry. Therefore, the restrictions on NEST are a problem. The Minister has indicated that he will lift them. Can we have some clarity on when they will be lifted, especially since they pertain to the Bill’s objectives?

More narrowly, technical drafting may prevent someone from transferring their pension pot to a CDC scheme unless they were an “earner” and their current employer was an employer in relation to the CDC scheme. I know it is a technical issue, but there would appear to be no good reason why a workplace CDC scheme should not be able to take in pots from any source if the person willing to transfer in thinks that they receive a good valuation for their contribution. For longevity risk, investment risk and lower costs reasons, an individual may prefer a steady income from CDC instead of draw-down or annuity.

More widely, the Bill contains no measures that will help to promote the scale which most independent observers believe is necessary for CDC pensions, and workplace pensions in general, to be as efficient as possible. The Opposition have long argued for measures to promote scale and we would like to see such measures in the Bill. The House of Commons briefing note on the Bill states on page 1:

“certain conditions such as large scale and strong governance, appear necessary for it”—

that is, CDC—

“to operate successfully.”

The Bill promises, offers and evidences neither. The Government have work to do to make the Bill as substantial as it should be in contributing to the developing consensus that collective-scale pensions are better. We welcome the Government’s approach while reserving our right as the Opposition to continue to press them, even when the Front-Bench team do not like it, on the lack of detail therein.

I paraphrase the Minister when I say that it is probably fair to say that like holy matrimony pensions reform is probably best entered into—or not entered into—advisedly, soberly and discreetly. For good reason the final year of a Parliament is often not the best time to embark on radical reform in the sector. It simply becomes all too easy for political adversaries wilfully to misrepresent some far-reaching proposals. Yet there is no disguising that the notion of pensioners being able to unlock their life savings during an uncertain retirement is a revolutionary change, and one I support.

As deficit reduction remains more straightforward to explain than achieve, these pension reforms also allow for some considerable fiscal loosening. Once implemented the proposals will release a vast dollop of cash for those over the age of 55 to pump into the economy, rather than being forced to buy an annuity at a woefully uncompetitive rate. Make no mistake—this is not an unintended consequence of the proposals. The Red Book to last spring’s Budget made it clear that the reforms anticipate a boost to aggregate pensioners’ spending to the tune of £320 million in 2015-16, rising to over £1 billion in 2018-19.

Is it not fundamental that, given the failures of annuities, the Government provide extra flexibility? Fundamentally, they are doing one thing: trusting people with their own money.

I confess that I wholeheartedly support the Treasury’s belief in the principle of freedom to which my hon. Friend refers. It is right that we as Conservatives trust those who have worked hard and saved throughout their adult life to make their own decisions on their savings. Nevertheless, we must accept that the generous tax relief that attaches to private pension savings has always been predicated on the basis that, by providing for their old age, pension savers will not be a drain on the state. It will become ever more difficult to justify reliefs at the generous levels we have all been used to over the past few decades if the compulsion that goes with annuities or restrictions on access to savings is consigned to history.

I am also pleased that the coalition has consulted a little more widely on these plans, albeit somewhat belatedly. One hopes that some technical issues will be ironed out, but I wanted at this stage to make some more general observations. The Government have been commendably vigorous in reforming the pensions system since 2010. As the Minister pointed out, we are already on the third pensions Bill and he already has another in his sights. Eligibility for a state pension will only kick in at a later age. That has to be the right move forward. The earnings-related element of the pension has been abolished. We now have a system of automatic enrolment for employees. Many of these reforms have been undertaken for one simple reason: we could not go on as we had. Our understanding of retirement has changed beyond all recognition and comprehension since the state pension was introduced in 1909. Life expectancy then was lower, so there was no point in continuing the pretence that the state could adequately sustain decent incomes for generations that will now live for 20 or 30 years after retirement.

If the emphasis is now firmly on self-reliance and the ever greater involvement of private providers, the most crucial ingredient will be trust. If the law is essentially to compel citizens via auto-enrolment to hand over an unspent surplus of their hard-earned cash to what they may regard as the unqualified or incompetent, there is little incentive for anyone to save. Central to addressing all this must be a pensions industry in which there is universal public confidence and which willingly recognises a collective responsibility. As we know, we are a hell of a long way from that point. The regulator, encouraged by the Government, now needs urgently to engender a culture among the major institutions in the sector akin to that prevailing among the leading banks during the 1970s.

Does the hon. Gentleman share my concern that the move to individualism will potentially shoot away the concept behind annuities, which effectively provide group insurance for life expectancy? Therefore, is he concerned about annuities having a bad name? Will the industry get its act together to provide the right kind of insurance products to substitute for annuities?

I do share some of those concerns. I agreed to a certain extent with the Opposition spokesman’s points about the tension that exists. There is a tension, perhaps an understandable tension, between the drive towards individualism, which as a Conservative I support, and elements of the collective nature of pensions that have hitherto been in place.

Unfortunately it is clear that confidence in the pensions industry has not recovered after the debacle of Equitable Life, with investment in a residential property seen as the more reliable bet to all too many of those planning their retirement. That applies to virtually everyone of my generation and I suspect to many younger voters, too.

If we are to reduce reliance on the state, we might also reflect on the sobering fact that, earlier this year, the Financial Conduct Authority found the average pension pot to be a mere £17,700. For all the promotion of pensions, no amount of legislation will overcome the fact that far too many of our fellow countrymen are too poor to save adequately for their retirement. I fear that will only become truer for younger generations who find an ever-increasing portion of salary dedicated to servicing high rents or mortgages based on inflated house prices.

I should like to touch on coherence across Government pensions policy, which was referred to earlier by the Opposition. On the one hand, the Government are trying to create a new regime which places much greater trust in the individual to manage their own retirement funds, yet on the other their new system of automatic enrolment for employees suggests they have limited faith—let us put it that way—that people will take sufficient responsibility for saving in the years preceding their retirement. Similarly, while there is an implicit understanding that the state will no longer be able to provide citizens with adequate incomes in retirement, the Government have made a costly commitment to the so-called “triple lock” which guarantees that the state pension will increase in line with wages, prices or 2.5%, whichever happens in any one year to be highest.

In short, the messages to the electorate on pensions remain mixed to the point of confusion. I am not being critical of the Government in this regard, because this is a very complicated area and there are those almost inherent tensions in the pensions system which have been referred to earlier, but it would be helpful if the Minister restated in his winding-up speech the basic principles that underpin Government thinking in this vital area.

As I have suggested, as a Conservative I instinctively welcome the notion that people who have saved and planned their finances carefully should be free to spend their retirement funds as they see fit. It is exciting to see the Treasury and the DWP inject the principles of trust and self-responsibility back into the heart of Government policy. Nevertheless, it would also be wise for the Government to examine whether such policies alleviate or potentially increase the burden on the state.

In this regard, I ask the Minister what examination he has conducted into the system in Australia. Some 20 years ago, the Government there made similar decisions to those now being made here on annuities. However, I understand that the Australian Government are now considering reversing that decision after their Murray review, examining their financial system, found that roughly half of those retiring take money out as a lump sum with a quarter of that group exhausting their funds by the age of 70. In addition, many had got themselves into debt in the years preceding retirement in anticipation of using the lump sum on retirement to pay off those accumulated debts, rather than using it for living expenses in retirement. What safeguards do we have in place to avoid such an undesirable outcome?

Turning to guidance, I have received constituency representations from an industry specialist who is concerned that the new pensions “guidance guarantee” has the potential to create widespread confusion among consumers and damage to regulated financial advisers. The Treasury has announced that under the new regime everyone will be provided with free guidance from bodies such as the Pensions Advisory Service and the Money Advice Service. The cost of this will apparently be borne by a levy on regulated firms. Not only will the new levy add cost to the operations of independent financial advisers, but they will essentially be funding a service that stands to undermine their own offering since many customers will now take the view that it is not worth paying for that independent advice. This in itself is not a problem for the consumer. However, financial advisers currently already operate in a very strict regulatory environment, whereas the guidance guarantee will set out generic options, such as whether an individual should consider an annuity or income drawdown, rather than specific recommendations. There is a danger, therefore, that many pensioners will see broad guidance as an inexpensive substitute for tailored, quality advice. My correspondent therefore recommends either that the Government’s delivery partners remove any suggestion that they will be providing advice rather than simply general guidance, or else that policy is delivered through regulated, private sector firms, perhaps through a voucher system, which would offer consumers the kind of helpful, impartial and personalised advice that they need.

Finally, I should like to say a few words on unintended consequences. It has been clear for some time that the annuity system was not designed to fund the kind of long retirements we have seen as a result of improved life expectancies. However, there are implications for the health of the wider economy if we turn our backs on annuities in ever greater numbers. The vast majority of annuity money is invested in bonds, a crucial source of alternative finance for businesses beyond the traditional banking system. This helps spread risk in the system by ensuring that problems in the banking system, such as those we saw emerge in 2008, do not completely turn off the tap of finance to the wider economy. Currently, those saving in defined-contribution pension schemes buy approximately £11 billion of annuities per annum, with around £7 billion flowing to firms through corporate bond purchases as a result. What consideration has the Minister given to a collapse in such purchases should there be a sudden drop in the sale of annuities, which might well happen as a result of these changes? While I expect this will be offset in part by a fresh flow of money from those pensioners who decide to reinvest their lump sums, this cannot be guaranteed and, as I have suggested, my fear is that, without sufficient trust in the markets, property and the rental income received from it will prove a very attractive destination for this cash. An unbalancing of the property market as a result would not be a desirable outcome of these changes.

While I should appreciate the Minister’s response to all the issues I have raised today, I would like to finish my contribution by reiterating my admiration for the boldness of the coalition in trying to tackle a pensions system that clearly is not functioning well for the majority of our fellow Britons.

It is a pleasure to follow the hon. Member for Cities of London and Westminster (Mark Field). A number of the companies that would be affected by these reforms are in his constituency.

One of the issues around pensions is complexity. The coalition Government, following on from what Labour had started with the Turner consensus, were beginning to simplify things and make them more understandable and to make pensions something that younger people talked about, as well as people who had already reached pension age and therefore had a direct interest in the money they were receiving each week or month. However, my concern about the more recent proposed changes both in the Budget proposals and this Bill is that they are adding more complexity back into the system and making it even more confusing for consumers. While it may on the surface be a great thing that there is going to be pension liberalisation and that people will not automatically have to buy an annuity, there are also certain risks in that.

The hon. Member for Cities of London and Westminster mentioned some of the concerns, as did the shadow Minister. If people found pensions too confusing and did not always know with surety that they were buying the best product, how will making even more products available and taking away some of the constraints on what they can choose make things easier for them? There are fairly major dangers of mis-selling and of products being offered that are not fit for purpose unless the governance is right and the regulation is correct. That is a very real fear, and I certainly have that fear about the changes that would allow people to access their pension pot more easily at an earlier age without putting any constraints on how it might be invested. The hon. Gentleman made the point that, in building up that pot, most have enjoyed tax relief on their subscriptions, and the understanding was that that tax relief was to encourage them to make sure they had retirement savings. However, if they turn their retirement savings into just savings, why would those savings get an extra allowance in the form of tax relief? Future Governments might be tempted to look at that whole area of tax relief.

The Minister said that we had a binary model at the moment, and he is absolutely right. We have either defined-contributions schemes or defined-benefits schemes. The Bill will introduce an extra layer. If we ask people whether they would like to share the risk, they will say yes. Even companies might think it a good idea, but it is open to question whether companies will take advantage of the provisions in the Bill to set up a defined-ambition scheme. The Minister said that there was an appetite for this kind of reform, but I am not so sure that people are clamouring at his door—or at anyone else’s—saying that they are desperate to have collective, defined-contribution schemes. I concede that, from a consumer point of view, the members might want such schemes, but it will be the employers, not the members, who will be setting up the pension funds and schemes.

The Minister admitted earlier that it was unlikely that those affected by the legislation would be small and medium-sized enterprises, and that it was more likely to affect bigger companies. We know, however, from the roll-out of auto-enrolment that most of the bigger companies are already enrolled in the auto-enrolment scheme, and that the SMEs have still to enrol. They are the ones that have more choice, because they are having to set up the scheme from scratch. Perhaps this legislation has come a bit too late for the people who wanted to take advantage of this offer. I am still puzzled as to who the Minister envisages taking advantage of it. Perhaps he will tell us when he winds up the debate.

I am still not 100% sure how all this will fit in with auto-enrolment. I am still unclear as to how it will work in practice. I also do not understand how, in a scheme with collective risk, we can work out what people would get if they wanted to take their pension pot with them under the liberalisation arrangements. I am not clear how the two would fit together, although I have raised these matters with the Minister in the past.

There is an inherent tension between the different parts of the pensions system, and it has been introduced by the Government, even though they were on the right track and things were going quite well. The Minister was quite dismissive when I suggested he pay tribute to the last Government for accepting the Turner recommendations and for legislating for auto-enrolment. He suggested that that had not been good enough and that his Government had done all sorts of other things, but what we did was part of the process. He said that there had been no reform of the state pension, even though that had been part of the Turner proposals that the last Government were introducing, but who can say what another Labour Government might have done?

Other matters that the Minister mentioned had been recommended by the Select Committee. I would love to take credit for those recommendations on behalf of the Committee, and I would like to think that they have had some influence on the Minister, particularly with regard to protecting consumers from high costs and charges. I hope that any other Government would have made a similarly sensible decision, so let us not suggest that only the coalition could possibly have introduced such measures, given that they did not fit in with the consensus that had been built up. So far, so good: things were getting simpler and easier to understand, but the proposals in the Budget threw everything up into the air again.

It was interesting to hear what the Minister said about the need for a single regulator. The Select Committee has made that proposal on a number of occasions. The Minister’s admission that he is coming round to that view, and that he had not wanted to introduce the proposal because the Government had only just set up the Financial Conduct Authority, suggests that the last reform of the regulator was perhaps a bit botched. As a result, we cannot get what we need—namely, a separate regulator. There is absolutely no doubt that if we go ahead with defined-ambition schemes and collective defined-contributions schemes, it will be imperative that people know who is regulating which bits of their pension. This is an incredibly complex area, but it is important for people to know who they can complain to.

Governance will be an important matter, and I, too, was dismayed to discover that there were no details of it in the Bill. My hon. Friend the shadow Minister said that those details would be introduced through secondary legislation. Governance is important in all pension schemes, but it is even more important in this instance. The fact that there are no details for Parliament to scrutinise is particularly worrying.

Another matter that I find particularly worrying is the absence from the Bill of information on the guidance guarantee. I had expected such details to be in the Bill by now but they are not, which worries me even more because the Government are obviously still working them out. My concern is about this coming later in amendments. We are already on Second Reading and I worry whether it will be worked out properly by the time the Bill goes into Committee for proper scrutiny. I wonder what the difficulties are—I suspect there are a lot, as a result.

As a result of all that, the Bill is vague, in an area that does not need to be or should not be vague—it is too important for that. Although the principle of defined ambition or collective defined contribution schemes is a good one, and I think we would all welcome the sharing of risk, it is hard to see who is going to be supplying these products and who will sign up to them, because at the moment it is much easier for people to understand the binary model, of which the Minister was critical.

I received a communication from the Law Society of Scotland, which has some concerns and questions about the Bill. I wonder whether I might mention them now, so that by the time the Minister sums up he might have some replies. I do not know how difficult the questions are but I will go through them, as the LSS has obviously sought clarification on certain points. Is it the intention that shared-risk schemes will cover existing schemes or only new ones? That should be an easy enough question for the Minister to answer. The definition of a pensions promise in the context of shared-risk schemes refers to factors “other than longevity”, so does that mean that these promises with an element of longevity are exempt, or does the promise have to be entirely based on longevity? Guaranteed annuity options or rates are based on longevity but also on factors such as long-term gilt yields. Is it the intention that the annuity quotes are included under the definition of a pensions promise? The definition of shared-risk schemes talks about promises made

“at a time before the benefit comes into payment”.

Does “come into payment” mean when an annuity is set up or when the first payment is made? Would third party promises include an arrangement whereby the insurer, as opposed to the scheme, made the promise? If the LSS is asking those questions, I suspect they may be ones that others also want answered.

Most of the briefings we received from various organisations and companies were generally supportive of the principle of defined ambition, but we all accepted and agreed on the principle of universal credit, and look where that has got us. The Government should not necessarily say, “Oh well, everybody supports it in principle, so everything is all right.” It is part of the role of a Select Committee to look at this. I know the Minister will be appearing before us at some point—perhaps he does not know this yet—certainly before November, to talk about the progress on auto-enrolment. One key thing for both the Government and the Select Committee is the success of auto-enrolment; it has to succeed simply because it is too big and too important for it not to do so. At that time I hope he will be able to answer some of the questions I have raised about the interplay between auto-enrolment, defined ambition and the changes introduced by the Treasury on pensions liberalisation, as well as the other questions we will have. I look forward to the Minister’s appearance before us in due course.

It is a pleasure to speak in this debate and welcome the many positive measures in the Bill, which will substantially improve the pensions landscape in the UK—not before time, perhaps. I wish to touch on the two main areas that the debate is focused on: the introduction of the defined-ambition or shared-risk scheme, and the move to get flexibility at retirement age and the guidance that that involves.

We should pay tribute to the Minister for the fact that we have defined ambition in a piece of legislation; it has been almost a one-man dream for most of this Parliament, and perhaps we all thought it would not quite make it, but here it is in the Bill. If I appear generous in my praise for my coalition colleague, let me say that it was a brave thing for any politician to try to define a promise. We have all struggled with this: when is a promise not a promise? We know now that a promise is not a promise when it is an ambition. I think we were tortuously trying to work out in this Bill how to say what constitutes a complete pension promise and where something is not quite a promise but an aspiration, a hint, a suggestion or something more than a hope. I think that the Bill’s definition just about gets there, but I am not totally sure, without trying to work it through in various scenarios, that I can work out when a full pensions promise perhaps becomes a partial promise. That goes to the nub of the matter.

When we try to get into the detail of how we regulate these things and move them forward, we find how much of a promise or how much certainty or expectation can be created to allow one of these schemes to become a shared-risk scheme rather than a defined-benefits scheme or something that is no more meaningful than an existing defined-contributions scheme. Working out exactly what a good employer who is trying to be generous and helpful to their staff can say without falling foul of some of these rules will be hard. I assume that what we are trying to do is to say that under a defined-benefits scheme, if a person finishes their role on £30,000 a year, they will get a £20,000 a year pension. That is clearly a defined benefit. I suspect that what we are trying to say under defined ambition is that if a person finishes their role on £30,000 a year, and investment returns and longevity are just about what we expect, we think that we will be able to give them £20,000 a year. But if those assumptions are a bit out, we might have to put in a bit more money ourselves and they will get £18,000 rather £20,000. I suspect that that is the sort of promise we are trying to achieve with a shared-risk scheme.

It is not clear exactly how we can set the parameters. For example, when can £20,000 become £10,000? If there is a higher investment return, contributions can be reduced and we may still think that we can get £20,000. I think that we will just end up dropping back into regulatory uncertainty and all the issues that we have had on defined-benefits schemes. A lot of work needs to be done to get these schemes out in the market. We need to understand exactly how much risk the employer is running and how much certainty the individual gets; otherwise we are left with the difficult situation the Minister alluded to, where one side thinks it is an actual promise and the other side thinks it is a kind of hope. It probably means that whoever regulates these new shared-risk schemes will have an incredibly important role. In some ways, it will be even more difficult for trustees to administer defined-benefits schemes. I sense we will need a very competent and focused regulator looking at these things.

As I said in my intervention, it is a little difficult to see where the line will be drawn between defined benefit and defined ambition and between defined ambition, defined contributions plus and pure defined contributions. I suspect that before these things get into full speed, we will need one regulator doing all those things. If a scheme makes a bit of a promise and then withdraws it, does it drop out from being a defined ambition and become something else?

My hon. Friend raises some excellent points. He does not specifically mention governance, which could make the thing slightly more complex because there is a third leg to the stool between the employer and employee. The explanatory notes talk about comparisons with schemes in other countries and use the expression “when governed appropriately” when talking about what schemes can provide. Has he any comments about the governance situation?

Yes. I have not been totally clear. I was alluding to the fact that these schemes will be even harder for trustees. I meant the trustees who try to govern these schemes. If we have a scheme that is giving a clear promise, we can create a set of assumptions. We will know how much funding we will need on top of our investment returns and longevity predictions. We will at least have some fixed parameters, so we can then define the contributions. If we even vary what we are promising to pay, we would have to take a really educated decision and say, “Shall we vary the promise down from £20,000 to £18,000, put up the contributions or a bit of both? Will it all be all right again in five years?” That will become quite difficult for trustees, and we will then really need the regulator to be able to check that trustees are capable and competent at dealing with shifting sands in these calculations.

I did not respond properly to the hon. Gentleman when he intervened on me on this matter. Broadly speaking, it would not change which regulator was involved if there was or was not a bit of a promise. The Pensions Regulator deals with occupational workplace defined-benefits and defined-contributions pensions. The Financial Conduct Authority deals with group personal pensions and similar. Essentially, that is the division rather than whether there is or is not a promise.

That is a helpful clarification, but we have still had the bizarre situation in which the Pensions Regulator is responsible for auto-enrolment even though most of the schemes into which people are enrolled are not regulated by the Pensions Regulator. I sense that we are introducing further uncertainty into what schemes there are and people need to understand exactly what is going on.

Trying to create a new form of pension that can try to stop the bleed away from defined benefits is the right direction in which to travel. If we are to have a credible pensions industry, we need to ensure that people can have certainty or at least confidence that if they keep paying into their pension funds with their employers at the rate that they are they will have some idea what they will get rather than a vague hope that they might at some point get something suitable. That is the thing that does most discredit to the pensions industry. People end up getting so much less than they thought they would, despite what they thought they were paying and would be entitled to, that they decide the whole thing is not worth doing at all.

That question takes us to a fundamental part of pensions policy. We are spending a lot of taxpayers’ money on tax relief for pensions and if we end up with just a glorified savings vehicle with no direct link to pensions, we must wonder whether we will be distorting the investment market quite horribly. We need a clear and confident link, so that people know that the money they are putting away is meant to get a retirement income that they are happy with and is not just a super-glorified pre-tax income ISA, which I fear we might be drifting towards.

The Work and Pensions Committee considered the principle of collective schemes briefly in our inquiry on a pension governance a couple of years ago. The idea that we can somehow share risk between the generations, smoothing things out so that if there is a market crash just before someone expects to retire they do not suddenly have their pension income destroyed in a way that they cannot possibly recover from—clearly, that can be smoothed out by reducing the risk profile of investments, as is done now—looks to be a perfectly sensible and attractive way forward. I am a little intrigued about how we can go from having none of those schemes to having them in place, having enough people in them and having enough confidence that people will continue to join them to ensure that the intergenerational thing can work. Some European countries have had such schemes for 60 years and we can see how they work, but the question is how we go from zero to having three generations of people without the first lot thinking that they are taking all the risk for no advantage, although perhaps if their grandchildren join it might all be okay. I am sure that the industry will work out how to devise schemes in a way that will get people involved.

Let me turn to greater flexibility in the pension world. I can see that if we say that we do not think people are sufficiently engaged with pensions to join a scheme we must ask how we can be confident that they are sufficiently engaged to make even more difficult choices when they retire about what they want to do. There is a big difference. I might not be too bothered about pensions when I am 30, as I might have more pressing things to think about such as buying a house, paying for my children or sorting out other stuff, but perhaps when I am closer to retirement age and thinking about what my income will be in six months’ time, a year’s time or perhaps even a little further away, I will probably be much more engaged in the best choices for me and will perhaps be more inclined to go out and look at the various options.

One issue that we have had until this point has been that the option has been to have some kind of annuity that is lower than I would like. If I try to shop around, I find differing levels of things I do not like. That is not a great motivation to go shopping. If I know that I am not going to want to buy any of the things I am offered but I have to, I might as well just default to the first thing I get. There does not seem to be any advantage to shopping around.

Does the hon. Gentleman agree that often when there is too much choice people are paralysed and end up grabbing at the first thing that comes along rather than the thing which is best?

Yes. Some data suggest that the optimum number of choices is four. If there are 20 choices in a mobile phone shop, people walk out without buying one. If there are not enough, they do not ever have a phone. We need enough choice to see a difference, but not so much that we are completely baffled by our options.

I think that we are hoping that the market will innovate certain things that will mean it will not be a choice of annuity into which we will opt for life that will give the same amount for the rest of our lives or some kind of draw-down in which we keep spending our pots and hoping that they will last. I suspect that we will end up with people taking some kind of fixed guaranteed income, so that no matter how long they live they will have the quality of life that they want, but they might be able to choose to use some of the rest of their money to fund travelling in early retirement, paying off the mortgage or doing something for their children or grandchildren. Perhaps we could have an annuity that varies, which is higher at the start, dips and then goes up at the end when people need care fees.

I think that we are hoping that most people with a small or medium pension pot will not be faced with a blizzard of hugely complicated financial products, but that there will be options that they can match to their personal choice for their retirement. That is where high-level guidance is important.

People need to understand that there are different things out there for them to look at. I suggest that they do not just immediately accept the annuity offer that their pension provider makes. They should at least think about what would suit their lifestyle, what their existing financial position is and what they and their spouse want to do. That is where guidance is very important. It is very different from financial advice, which might be, “Take out this annuity with this provider, on these terms.” I suspect there is no way to get such specific guidance, and we should never want such specific guidance. That would be a horribly expensive programme, which would only be appropriate for a relatively small band of people.

Those who retire with huge pension pots should already be taking such advice and can afford to pay for it. Those with small and medium pots will not have that advice and, I suspect, in many cases will not need to spend thousands of pounds getting advice; it would not be a worthwhile use of their money. It is people in the band in the middle who perhaps could really benefit from expensive financial advice. How we get that guidance to work, and when people receive that guidance, is very important.

I think that we shall see a move away from retirement at one’s 66th birthday, or another fixed date. People may gradually step down to working four, then three days a week. They will have small amounts of income coming in from different sources. Lifestyles will vary, and they will start varying, perhaps, in people’s mid-50s. Some people will work full time right into their 70s. Possibly, they will not want advice at the age of 65 and a half or 66; they will need to think, “Do I want my pension fund to start de-risking my investments now, at age 55, or would I rather they did that for part of my pension fund, so that I know that I will get something when I am 66 but I will keep some higher-risk investments to get a higher yield for a few more years?” When we make that guidance available, and when people can choose to receive it, will be a key aspect; otherwise, people will end up in a default fund that does not suit what they plan to do with their own hard-saved income.

It is clear that the change is a very positive step in the right direction. If people are responsible enough to save for their retirement, I cannot see them frittering the money away on the proverbial Lamborghini when they hit 66. This flexibility will give people the chance to have the retirement that they want without being ripped off by the annuity market.

Some of us had wrestled with the question of how we could fix the broken annuity market. I had come up with the suggestion of splitting the pension fund industry and the annuity market, which did not meet with much approval in the industry. But what the Government have done is far more radical. An annuity may be the right thing for many, many people; but for many, it will not. Now there will be no compulsion or expectation for people to take out an annuity when they hit retirement age. That has to be the right answer, and I fully welcome the Bill.

In noting the interesting points that the hon. Member for Amber Valley (Nigel Mills) raised, I particularly commend his colleague, the hon. Member for Cities of London and Westminster (Mark Field), for drawing to the attention of the House the fact that the average pension pot is just £17,700. That is a miserably small amount, and underlines the dire predicament that far too many pensioners face, and which the Bill does nothing significant to address.

The hon. Member for Amber Valley makes interesting points, and some valid points, about lifestyle changes as people get older, but they apply in the main to professionals and middle-class people. For a lot of working-class people who have worked in manual, low-paid service jobs for most of their lives, those choices do not exist in the same kind of way; I caution the hon. Gentleman about that.

I commend my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) for his expertise and very authoritative critique of the Bill, which I guess he will follow through in Committee.

The Government are introducing in this Bill the biggest reform to pension tax rules in nearly a century. Of course citizens, especially those with small pension pots, welcome the choice to take lump sums that may be more beneficial to them—by, for example, enabling them to pay off a mortgage or loan, or fund social care support—rather than eking out a living on what, for far too many, will be very small monthly payments. The kind of annuities that most people have are not inflation-indexed, so their value erodes every year. Most neither cover a partner nor offer protection against illness or infirmity. Most do not allow people to leave a legacy if they die young; nor do they let them benefit from good future investment returns or rising interest rates. For all those reasons, there has been widespread public frustration about the inflexibility of annuities, especially in the past few years of low interest rates and because, as people live longer, a retirement can be as long as 20 or 30 years. To buy an annuity 30 years ahead when savings could continue to accrue as investments makes less sense than previously.

So far, so good, as far as the Bill is concerned, but there are massive dangers as a result of destroying good annuities, which has been going on for a few decades and is bequeathing a real nightmare that the Government’s policies are nowhere near capable of addressing, let alone preventing. A rapidly ageing population is dumping a huge additional burden on the young, many of whom are leaving university with already massive debts thanks to the Government’s dysfunctional policies. Now they will be saddled with subsidising through their future taxes older people who are being encouraged to live for today, not to protect themselves for tomorrow. My right hon. Friend the shadow Chancellor was right to voice fears in March that widening choice away from annuities could mean individuals spending all their savings within a few years of retirement and then becoming dependent on the welfare state, at a significant cost to taxpayers. There is a serious prospect that pensioners who cash in their lump sums could be plunged into poverty, leaving future taxpayers to grapple with the consequences.

It is therefore incredibly important that pension reform is not carried out in isolation, although the Bill risks doing that, because it is one of many ways, albeit not the only one, in which we can give peace of mind to people planning for or approaching retirement. It is imperative that reform happens in the context of a comprehensive policy for retirement and ageing in the UK, especially with regard to health and social care for the elderly, on which my right hon. Friend the shadow Health Secretary has rightly insisted that we need whole-person care in what amounts to a national care service to complement the national health service. Mainly because of their obsession with cutting public spending, the Government continue to fail abysmally to face up to this huge challenge and duck the reality that there will have to be much more significant public support to deal with this urgent social need. They continue to pass the buck to future Governments and taxpayers, and to ensure that there is a future in which infirm and frail elderly citizens and their families see their savings and inheritances disappear as they are engulfed by horrendous care costs.

Our changing demographic profile means that baby boomers—people such as me who were born between 1945 and 1965—will form the big bulge in the active ageing category. That change presents immense problems, not least in preparing for the future. Ironically, as our society gets older, pensions should increasingly become a young person’s issue, because the ratio of workers to pensioners has started to tip towards crisis levels. In the next 50 years or so, the number of people over pension age will increase by more than half, and there will be only two people working for every one person in retirement, compared with four working people for every retired person today. A hundred years ago, there were 10 working people for every one person in retirement.

I remember only too well having to confront that serious situation when I was appointed Secretary of State for Work and Pensions in 2007. The cost implications for future generations of such increasing longevity are deeply alarming. People are expected to be active for longer in retirement and need the resources to fund that. I welcomed the Government’s delivery, through the Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2013, of measures that I introduced through the Pensions Act 2008, but I see no sign at all that they have any intention of taking the necessary decisive action to ensure that most people get decent pensions, whether private or public. They are certainly not doing that through the Bill. The decline in private sector occupational pension provision since the late 1960s is serious and, in the face of increasing costs, employers have been abandoning their defined-benefits—that is, final-salary—schemes, whose active membership numbers have fallen from 8 million in 1967, to 5 million in the 1980s and 1990s, to fewer than 3.5 million today.

There is a chronic problem of under-saving, with perhaps as many as 7 million people not saving enough to fulfil their aspirations in retirement, and some low earners not saving at all. The Bill does not tackle the problem, meaning a chasm will grow between the income that they need and what they actually receive in retirement. There are many reasons for people not saving. Many on low incomes or with broken working patterns do not have access to a workplace scheme. Some will be put off by the complexity of pensions while others will simply live for today. Others will lack confidence in pensions. The Bill does nothing to address that.

Of those of working age, around three quarters say that they will need more than the state pension to live on, yet only around 40% of those who have not yet retired are saving into a private pension; 60% are not. We must get to the point at which saving becomes the norm and a savings culture is embedded in society in general and in the young in particular. In that respect I welcome the Government’s decision to raise the level for tax-free ISAs and premium bonds, but such initiatives deal only with the tip of an iceberg; the Bill does absolutely nothing to deal with it.

Sixteen per cent—one in six—of 20 to 24-year-olds are saving for a pension, compared with about half of those aged over 35. Less than half of moderate to low earners with incomes from £5,000 to £35,000 are saving towards a pension, compared with three quarters of those earning more than £35,000. The requirement for automatic enrolment into a qualifying pension scheme introduces for the first time a bias towards saving, which is welcome. Evidence suggests that automatic enrolment is one of the most effective ways to combat people’s tendency not to act when faced with difficult financial decisions. It also has the greatest impact among groups where participation rates are the lowest. On the other hand, nobody should pretend that most such schemes will deliver the kind of living standards in retirement that people today expect. Most will not—and the Bill does not.

The plight of those who lost their pensions because of the collapse of their occupational pension schemes was both a national scandal and a personal tragedy for all the individuals concerned. Through the Pension Protection Fund, the previous Labour Government legislated to ensure that such a scandal could not be repeated in future: it safeguards more than 10 million people in eligible defined-benefits occupational pension schemes throughout the UK. We also established a more powerful Pensions Regulator. I was able to deliver late in 2007, through the financial assistance scheme, a fair and just settlement for 140,000 people who were robbed of their occupational pensions as a result of employer insolvency before the Pension Protection Fund was created. All those affected received 80% of their expected core pension.

When Labour came to government, many women were prevented from building a state pension entitlement in their own right. Our Labour Government made significant headway, legislating for a simpler, fairer and more generous state pension system, so that about 75% of women who retired in 2010 received a full basic state pension like men. As a result, by 2025 more than 95% of men and women will retire with a full basic state pension. This Government have also made improvements, but there are still anomalies they have not resolved, especially for women today in their late 50s. The Bill does not address that and there is no sign that it will do so.

In 1997, carers were similarly mistreated by a system predicated on a 19th-century view of working lives and social relationships; millions were without access to occupational pensions; and the mis-selling of private pensions, overseen by the previous Conservative Government, was a national scandal. Meanwhile, the exceptional equity returns of the 1980s and 1990s allowed many defined-benefits schemes to ignore the rapid rise in the underlying cost of their pension promises.

That was compounded by botched policy such as the minimum funding requirement introduced by the current Leader of the House, then the Minister responsible, which failed to encourage employers to fund their pension schemes properly. In the 1980s and 1990s, many firms, despite rising liabilities, took the decision to take contributions holidays, believing that a bullish equity market would be a long-term trend. The Conservative Government believed that too—indeed, they encouraged it, as demonstrated by Nigel Lawson’s decision effectively to cap pension fund surpluses in 1986. As the Pensions Commission noted:

“The deep dip in contributions seen in the period 1988-91...almost certainly reflects the impact of this policy.”

I am listening with interest, as I always do, to the experienced right hon. Gentleman. I understand many of the points he is making, and, as a pensioner myself, I have some sympathy with them. However, I wonder whether he has sympathy with me, in that when he paints a picture of all that has gone wrong, would he include in that picture the work done by the former Chancellor of the Exchequer who later became Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), in taxing the private sector pension schemes almost to the point of destruction? Does he agree in retrospect that that was not the cleverest move?

I have great respect for the hon. Gentleman despite our big political differences. I anticipated this question, he might be intrigued to know, and I looked into it. In fact, he is entirely wrong and that Tory charge is entirely misplaced. Let me explain why. The stock market fall reduced the basic market value of pension scheme assets by some £250 billion between 1999 and 2002. The effect of the package of tax changes for which he and the Conservatives seek to pin the blame on our Government and Chancellor was entirely marginal. The problems that occurred in the new century were due to the stock market downturn, not the tax change, which was minuscule compared with pension fund turnover. Let me remind him that in 2007 the respected and extremely independently minded economics commentator Anatole Kaletsky wrote in The Times:

“How could the removal”—

by the Chancellor, that is—

“of a £5 billion annual subsidy suddenly reduce a pensions industry with more than £1,000 billion in assets from the ‘healthiest in the world’ to one that was nearly bankrupt? The answer is that it couldn’t and it didn’t.”

That rather puts into perspective the hon. Gentleman’s impudent and irrational question.

It was no Tory utopia in pension holidays in the 1980s; it was a Tory fool’s paradise, with the Government behaving irresponsibly, recklessly and complacently in encouraging employer pension holidays. I quote from the 2004 Pensions Commission report:

“When the fool’s paradise came to an end...companies adjusted rapidly, closing”


“schemes to new members. A reduction in the generosity of the DB pensions promises which existed by the mid-1990s was inevitable.”

So the Tory party bears a heavy responsibility for the closure of defined-benefits schemes and the shift towards defined contribution, and this Bill nowhere near compensates for that.

To be fair, though, this was not a UK-only phenomenon, and certainly not one brought about by changes made by the previous Labour Government—very far from it. Accelerated further by record demographic changes, it was a worldwide phenomenon—a product of the neo-liberal orthodoxy gripping Governments from the era of Margaret Thatcher and Ronald Reagan. Sadly, this Government remain in the grip of that, and the Minister’s former Liberal party colleague, John Maynard Keynes, would be turning in his grave to see a Liberal Democrat participating in it. In the US, for example, the number of defined-benefit schemes halved in less than 30 years, while defined-contribution schemes tripled. Australia, also worshipping neoliberalism, saw an 80% reduction in the number of workers covered by defined-benefit schemes from the 1980s.

Whereas this Bill does very little, if anything at all, to tackle pensioner poverty, Labour led the way in responding to the challenges that our pension system faces. First, we tackled pensioner poverty. In 1997, some 2.7 million pensioners were living in poverty, many facing the indignity of living on as little as £69 a week, as I am sure you will recall, Mr Deputy Speaker.

Thanks to the pension credit, winter fuel payments and a 9% real-terms increase in the basic state pension, we lifted more than 2 million pensioners out of absolute poverty. The measures in the Pensions Act 2008 took protection even further, with a new settlement for women and carers and a restoration of the earnings link that had been removed by the Conservatives in 1980.

We also took decisive action to tackle the loss of confidence in the private pensions market. One reason for that loss of confidence was the pensions mis-selling scandal that our previous Labour Government inherited. In 1997, less than 2% of pensions mis-selling cases had been satisfactorily resolved; by the end of 2002, under Labour, more than 99% of consumers with mis-selling claims had been compensated, with total compensation reaching £11 billion. That £11 billion was the bill for Tory incompetence and Tory injustice over pensions mis-selling.

I make these points because they are an essential background to this Bill, whose implementation will itself raise important problems. A key one is that people might spend all their pension savings at the point of retirement, dooming themselves to poverty later in life. Having saved into a pension fund, received tax relief for many years and reached retirement with a pot of money, they might be tempted to just blow the lot all at once—perhaps on the Minister’s Lamborghini—meaning they would never have the benefit of extra income as they get older. If that happens, the tax relief they received will not have funded a pension; the employer contributions they may have received along the way will just end up funding immediate consumption, rather than providing a long-term income.

We know that some people will do that; we do not know how many and we hope that the number will be relatively low. The Government assume that very few will do so, but a survey by the respected pensions expert Ros Altmann—whom the Government appointed in July as their business champion for older workers—suggests that currently about 7% say they would spend it all. The truth is that it is impossible to accurately predict this. I expect that people with small sums would be most likely to spend the whole lot, but that the tax system itself will act as a disincentive to others to take the money and run. However, if too many people do it—the rising cost of living will put pressure on them to do so—there will be increasing numbers in poverty in future, which will also be a drag on the whole economy as the baby boomers get older and have less and less money to spend.

The new flat-rate state pension mitigates some of the risk of people falling back on the state having spent all their pension savings, but there will still be about 20% of pensioners on means-tested benefits even after the new system starts. That is partly because many people will not receive the full state pension during the early years, and also because there are other means-tested benefits aside from pension credit. Those who do not own their own home would still be potentially entitled to means-tested benefits in retirement, via council tax benefit and, of course, housing benefit.

People might try to game the system by taking all their pension money and then recycling it into a new pension fund, getting more tax-free cash and another lot of tax relief. That would be of most benefit to those who are reasonably well off with high incomes in later life, and it could be costly in terms of extra Exchequer spending on tax relief.

The new system could cause great confusion for people. These points have been made by Members who have spoken before me. If people are suddenly faced with new choices at retirement, they may not know what to do and end up at the mercy of pushy salesmen selling unsuitable products. In the old system, people pretty much had to buy an annuity unless they had substantial amounts of pension savings—perhaps £100,000 or more, but certainly at least £50,000. That meant there was no choice to be made, and there was no guarantee of receiving a secure income for life: the annuity may have given people very little, it might have been the wrong type of annuity for them and usually had no inflation protection. That was partly because insurers did not treat customers fairly and were left to regulate themselves, without having to offer suitable products or good value, but with the chance of taking about 2% of each customer’s pension fund without their realising.

Few dispute that the old system clearly did not work for customers, and the Financial Conduct Authority and the Financial Services Consumer Panel uncovered some disgraceful practices that were very detrimental to consumers. I recognise the Minister’s sincerity in seeking to address some of those problems.

Annuities were not value for money. In fact, someone retiring last week with savings of £100,000 and the intention of buying a pension annuity that kept pace with inflation could expect to be paid only about £3,600 annually. Assuming they are 65 years old, they will need to live to the age of 93 to get their money back; 15 years ago, they would have received much more.

That was partly a market issue, and it should perhaps have been possible to reform the market without the draconian retreat from annuities that this Government are proposing in the Bill. Would it not have been possible to insist that insurers were obliged to treat customers fairly by ensuring that they would be liable if they did not carry out suitability checks to identify which type of annuity was best and if they did not offer a good rate? Would it not have been possible to reform the way annuities worked, and to allow more but not complete freedom?

What protections will be built into the new system to ensure that unsophisticated consumers are not left at the mercy of product providers offering poor product choices or higher risk products that people do not understand and on which they will end up losing significant sums? The FCA needs to be on top of that right from the start. Judging by past form, can we be confident of that? I have very serious doubts.

What will the Government do to ensure that people are given proper, impartial and professional help before they make their retirement decisions? Half an hour of free guidance will not be enough. Such guidance must be delivered by those who are qualified and can be relied on to ensure that people ask the right questions before they buy a product or make a decision that, for lots of them, will be a life-changing one.

Ideally, guidance to help people to make a financial plan should start to be given well before retirement. We have underestimated the complexity and confusion that people face compared with what was faced by their predecessors, who were simply in an annuity scheme that came and went with their working life. Although it might be hard for the very young to take such advice on board, would it not still be worth expanding some of the guidance for potential savers?

If the guidance is delivered by product providers, they are liable to entice their customers into poorer-value products. Experience shows that they will do whatever they can to try to keep customers’ money, or to give them poor value and make extra profit. The annuity market has worked poorly for years, with rising profits to insurers and reducing value for customers, who ultimately are pensioners. What will the Government do to ensure that the new products developed finally offer good value, and that charges are fair and terms reasonable? The Bill does not adequately address those questions.

Will the Government ensure that people get signposted to full advice as well as just guidance? In the new, more complex world, a much wider array of choices will be on offer and people need to understand them all. They also need to understand the tax implications of cashing in their pension fund, so the guidance must make that clear.

Why did the Government not consult on these radical measures before introducing them as a bombshell earlier this year? My view is that if they had done so, the industry lobby would have been so fierce that their introduction would have become too difficult. Only shock therapy will really wake up the industry.

Now that all or a substantial part of a person’s savings can be taken out on the day of retirement, a pension plan is more like a golden handshake for leaving work. Let us say that a person reaches their late 80s and finds that they are fast running out of money. Where is their safety net, except to fall back on the welfare state, which is certainly not the Chancellor’s favoured outcome, even for those already in desperate need? Choice is good but structured choice is better, especially when the issue at stake is people’s hard-earned futures.

We need a pension system that works not for the market, but for pensioners and taxpayers. According to the RSA, most people want to

“give their money away to someone whom they can trust will use it wisely to generate an income when they retire”.

We need a comprehensive private pension system. That is not something that exists in the UK, but it must exist in the future. That point is not addressed seriously by the Bill or any of the Government’s policies.

There has been a lot of talk about the Dutch model of mega-funds. In Holland and Denmark, people put money aside each year and receive a pension in retirement. That seems simple and it is. However, if a typical British pensioner and their Dutch counterpart each had the same amount saved, had the same life expectancy and retired on the same day, the pension that the Dutch saver received would be 50% higher than that of the British pensioner—that is half as much again. With the same amount of money saved, there is a huge increase in peace of mind and quality of life.

The Pension Schemes Bill will enable employers to offer collective defined-contribution schemes—versions of mega-funds—at their discretion, but few employers have expressed enthusiasm. According to the Minister, CDC schemes offer higher and more stable returns by pooling risk. Employees will all pay into one common pot, instead of braving market risks on their own, so that years where losses occur can be offset by those that see a profit.

The Government are right to legislate to permit collective defined-contribution pensions, but I urge Ministers not to over-hype the benefits. In principle, such schemes ought to be better for employers than traditional final salary schemes and better for workers than traditional defined-contribution schemes. In practice, they still suffer from market and actuarial risks. Ros Altmann points out that lower earners might subsidise higher earners and that younger members might subsidise older members. The new pension freedom provided for in the Bill to take most, if not all, of the pension pot in a lump sum might also mean that people will prefer pure defined-contribution schemes that they can access in retirement if they wish to, because collective defined-contribution schemes usually mean that people cannot just take the cash, which might well make them less attractive to members.

My challenge to the Minister is, rather than leaving the private pension system to market providers and their whims, to build a new system that works—a system with longevity that savers will understand and find confidence in. A lack of confidence in the Government’s approach to pensions is something that I imagine savers and I share.

There seems to be some ideological confusion within the Government about the structure of pension reform. On the one hand, the Bill allows pensioners to withdraw their savings in a lump sum at retirement, doing away with annuities, which may be flawed, but which are important for older people and especially for vulnerable people who need to ensure a continuous income stream. On the other hand, the Minister has championed the idea of allowing employers to offer Dutch-inspired collective defined-contribution schemes. It is the individual versus the collective—which is it? The two ideas are not entirely incompatible, but they are far from ideological bedfellows. The Chancellor’s plan has serious appeal to providers of pension products, who until now have been limited to annuities, but who will now diversify and probably profit hugely from the move, as they usually do, at the expense of pensioners. It would be interesting to know whether the Chancellor consulted his City friends ahead of the policy announcement.

As my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East argued, the biggest long-term issue with the end of compulsory annuitisation is efficiency. The returns for savers will be lower because pension funds will have to assume that an individual will exit the scheme at 55 and, 10 years before that exit date, will have to move the individual’s pension savings into low-risk, low-return assets—that is, bonds—to ensure that there is no possibility of a reduction in the size of the pension pot in the run-up to exit. That is known as a lifestyling investment strategy and it is standard.

Before the taxation of pensions Bill, the fundamental critique of individual DC pensions was that they prevented savers from getting the higher returns that come from pooled investment, where greater risks for greater rewards can be taken because there are enough assets to hedge against those risks. The Government now risk making the problem even worse by ensuring that the shift to low-risk, low-return assets takes place even earlier in the pensions savings cycle, at age 45 rather than 55 as now. While the Chancellor’s right hand further fragments and individualises pensions, the pensions Minister’s left hand legislates for collective defined-contribution pensions. Why should any employer move to that collective system when they can see the Treasury going down precisely the opposite route? I doubt, sadly, whether many will do so.

There are other issues such as the nature and provider of financial guidance, who foots the bill for it, and the impact on eligibility for means-tested benefits and social care. The issue of efficiency, however, is fundamental: greater freedom might come at the expense of bigger pension pots.

In conclusion, I have considerable concerns about the Bill, and do not think the Government are doing anything like enough to face up to the time bomb of our ageing society, and the required pensions and social care needed to underpin the new life rapidly overtaking us. The whole Government philosophy of leaving private pensions to the market, and saying to the citizens, “You are on your own”, has failed abysmally in the past, just as—sadly—I believe it will fail abysmally in the future, at terrible cost to us all.

I start with an apology to the House because I had to attend two Committees earlier so could not attend most of this debate. I refer Members to my declaration in the Register of Members’ Financial Interests. My company, John Hemming & Company Systems, provides software to financial services organisations, including those running pension schemes.

Essentially, we are discussing how we can give people security with the tax advantage of payments into pensions from employers over the years, so that they can retire in reasonable comfort and expect a good outcome. The difficulty with anything is always who underwrites the outcomes, and we have obviously had difficulties with defined-benefits schemes. Those have been difficult to maintain because of the swing that can occur with the finances; hence employers have lost enthusiasm globally for that. With technological changes and the fact that the employment market has been different, it has been possible to attract employees without necessarily offering them defined-benefits pensions. That is why it has tended to happen across the world; it is not necessarily because of the different political structures of different countries. The idea that this is an ideological solution is not true; it is a technological solution, and many of the economic shifts we have seen are technological rather than ideological. That has driven a lot of things in the employment market, which has gone on to drive issues in the pension market.

The right hon. Member for Neath (Mr Hain) said that had the industry got wind of such shifts, it would have lobbied like billy-oh to stop them happening. I would have thought that that was because the industry did not think that such things were in its interests, and not because they were not in the interests of pensioners. I find it rather strange that the argument that the annuities industry hates such measures is also an argument that they are bad for people who are now no longer trapped having to buy annuities. We have actuarial problems and the difficulty of managing risk. As somebody who buys and sells shares and bonds and so on, I deal with such things from time to time on my account or those of other people. It is a complex area, and there are issues of how cost-efficiently it can be managed for small schemes. Larger schemes generally get a better result because the people managing them are able to do so more effectively. There is a inherent difficulty, however, which are that these areas are complex and will need guidance.

What I look for from the Financial Conduct Authority and such bodies is that they hunt out on a day-to-day basis the people who are offering bad advice. There are obviously boiler shop operations that have gone on for years, with people saying, “Here is a Canadian share. It is a $5 dollar share, but to you $4.75”. As soon as we hear that we know it is a boiler shop operation. That is not proper share trading; it is just trying to con people into buying something that is basically useless on the assumption that there is a lot of money to be made. Even wealthy people can be trapped by that, as Bernie Madoff showed when he made off with lots of people’s money.

Unquestionably, there are those difficulties, and I worry sometimes that the regulatory process adds a lot of complication, rather than hunting out people who are basically committing fraud on a day-to-day basis. There are a few people whose business model is to con people, and there are good examples of Ponzi schemes throughout the world. These schemes will never go away because some people will always be persuaded to misuse their finances; the challenge for the regulatory authorities is to look for them, stop them operating on a large scale and offer sufficient guidance so that people understand that if it seems too good to be true, it probably is—that is always a good lesson.

There are things the Government can do that are already being done in some areas—for example, websites saying, “Slot in these figures, see what happens, work it all out and see the long-term consequences.” That could be done on an objective, trusted basis, giving people the information to make their own decisions. People retire in different circumstances: some will have a mortgage they want to get rid of, which would give them greater stability and make it much easier for them to manage things on a day-to-day basis. Having the flexibility to draw a large sum of money out of their pension fund at the start to pay down certain things would be a great advantage compared with being trapped in a particular scheme. I have encountered retired people who are in a financial mess, with debts in one place and assets in another, and they cannot handle it. We cannot design a system for people who are all the same because people are not all the same—they and their circumstances vary greatly in many different ways—so introducing a flexible system is a positive way forward. For that reason, I was pleased to hear this announcement.

There will always be priorities, and unquestionably we need to keep an eye on charges. Members like the right hon. Member for Neath believe the industry really does not want this flexibility because of the impact on its bottom line, but, at the end of the day, the money has to come from somewhere. The money invested comes out in dividends, charges, payments to pensions and that sort of stuff—no magic money can be created in the process—and if less money goes in charges to the industry, more money goes to people getting pensions, which has to be a positive thing.

I am pleased to support the Government’s proposals to introduce flexibility and move forward on what people accept is a damaged annuity market. Obviously, there is market risk, and interest rates have fallen so low that annuity rates are much lower too, which is depressing for people locked into a situation where they are forced to accept something that everyone says in the long term is of low value. I think, therefore, that the Government have got this right, and the Opposition, in criticising them, are getting it wrong, and I will support the Government on Second Reading.

I apologise to my right hon. Friend the Minister for missing some of his speech and to the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) for missing his. I had hoped to be here for both, but owing to the length of the urgent question and another engagement outside the House, I could not be. Nevertheless, I am delighted to be here in time to make a contribution.

On the Government’s legacy, as my right hon. Friend said, our pension reforms have been one of our key acts in government. We have done a huge amount to reform the pensions system we inherited and to implement auto-enrolment. The Chair of the Work and Pensions Select Committee, the hon. Member for Aberdeen South (Dame Anne Begg), gives the previous Government credit for auto-enrolment, but my right hon. Friend was right to talk about the practical changes we have made to make it work. He also made the powerful and important point that the take-up rate for smaller businesses during roll-out has exceeded expectations. A lot of people expected the rate to fall, but it should now be recognised that many people currently not saving for retirement see auto-enrolment as a key way of protecting themselves and their families in retirement.

The changes that my right hon. Friend the Chancellor announced in the Budget to give people control over their pension pots in retirement are also important and fit in with other reforms, such as raising the state retirement age, introducing the triple lock and uprating the state pension. We provided a state pension that is both fair and affordable in the long term. We made a change to pension tax relief, too, ensuring that it is both fair and affordable as well. The cumulative effect of those reforms is to ensure that people will save more towards their retirement, that more people will indeed save for it and that they will be rewarded for doing so. We are treating those who retire as grown-ups, able to manage their own money.

The work we have done so far is important, but I do not think the job is done. That is why the Bill is so important. We know that under defined-benefits schemes, those who worked knew that every year of their employment helped to build up a guaranteed pension income—a fraction of their final salary—thus providing certainty. In building up that guaranteed income, once the employee had made a contribution, the cost of providing the guarantee rested with the employer. If the investment return fell, the employers had to increase their contributions; if employees and pensions lived longer, the cost of the changes were again borne by the employer. In a way, of course, that guarantee sowed the seeds of the decline of defined-benefits contribution schemes, as it became increasingly expensive to provide that guarantee to employees. That accounts for the decline in DB schemes over a number of decades.

Under a defined-contributions scheme, it is of course the employee who bears the longevity risks in building up the pension pot. It is the employee who bears the investment risk, too. Certainty in retirement in return for a fixed contribution by the employee has been replaced by uncertainty, the cost of which is borne by employees.

The impact of the switch from DB to DC would have been mitigated if contribution rates had remained unchanged, but the impact of the transfer of risk has been compounded by the reduction in the level of contributions. The most recent Office for National Statistics figures I have seen show that the total contribution rate for DB schemes is 19.2%. The rate for DC schemes is under half that, at 9.4%. What does that mean in practice? As the Department’s own figures show, 11 million people between the age of 22 and state pension age will not save enough to deliver an adequate replacement income in retirement. Employees have thus seen a reduction in contributions to their pension schemes; they bear risks previously borne by their employer; and they bear uncertainty about the income they will enjoy in retirement.

Where does this Bill fit into that picture? Defined ambition can, through guarantees, help to provide greater certainty in retirement. I think the second area where these schemes can have merit is in maximising the return on pension contributions for members. The collective nature of defined-ambition schemes creates economies of scale on the costs of running a pension scheme, which should help to improve the overall returns for employees. Furthermore, the open-ended nature of a collective scheme can change the investment strategy of a fund. For an individual scheme, as the employee moves towards retirement, the fund’s objectives move from seeking capital growth towards locking in gains already made, providing greater certainty about the size of the member’s pension pot. An open-ended scheme and particularly a collective scheme should shift the investment strategy towards capital growth and away from simply locking in growth—a point to which I shall return in a minute.

The second area where defined ambition will help is through the use of guarantees to deliver more certain outcomes for employees. As I said, one of the merits of DB schemes for employees is that they guarantee an income. Depending on the scheme, people will know after a year’s service that they will have “banked” an 80th or a 60th or a 40th of a year’s salary or the salary on retirement. With a DC scheme, all people know, in effect, is that they have made contributions of X and made net investment gains of Y; and while the pensions statement will project a monthly income in retirement, it will be based on how much more they will contribute, the investment gains between now and retirement and the annuity rates at the point of retirement. The only thing known for certain about that projection is that it will be wrong.

The contrast between DC and DB schemes is stark; the question is whether we can bridge the gap between the certainty of DB and the uncertainty of DC. The Government’s vision of DA or shared-risk schemes is, to quote the Government response to the consultation,

“to secure a guarantee on the income that will be received in retirement, that builds up gradually during the savings period”.

There is a great deal of merit in that. The employee has visibility and certainty of income in retirement. That is one of the great assets of DB schemes. That helps people to see how much they will have in retirement and, crucially, helps them plan for retirement. However, the crucial distinction is that, in defined-ambition schemes, the employer’s contribution is fixed. Therefore, if the income is guaranteed, the cost of that guarantee must be borne by the scheme members.

I would like to understand a bit more what the Financial Secretary expects those guarantees to look like and how he expects them to be financed. What proportion of the pension does he expect to be guaranteed? Presumably, in the same way that insurance companies have to provide solvency reserves for the guarantees that they issue, defined-ambition schemes will need to provide reserves to fund the guarantees.

I think it will be the case that the higher the guaranteed element, the greater the shift in asset allocation away from risk seeking and capital growth towards capital protection—in effect the challenge facing individual DC schemes but on a collective basis. Who will design the rules for determining the reserves to be held against the guarantees? Will it be the Pensions Regulator or the Prudential Regulation Authority? Will it depend on whether the scheme is trust or contract-based?

I believe that these measures create opportunities for a new model of pension scheme. That model will smooth some of the rough edges of the transition from DB to DC schemes. It should help to reduce the risk for employees. However, it is not without its challenges. For it to work effectively, schemes will need to reach a critical mass in terms of membership to enable the economies of scale to work their way through and to ensure that there is a sufficient flow of people coming into and out of the scheme—that there are new members and those new members balance the number of members ceasing to be active members. The formula that drives the payouts from the scheme will need to be carefully thought through to ensure intergenerational fairness, so that younger members are not subsidising pensioners.

In the Netherlands, schemes have been established on a sectoral basis reflecting the social model there. That helps to deliver the critical mass needed for the schemes to obtain economies of scale and smooth investment returns. How does my right hon. Friend the Minister think schemes in the UK will achieve that scale? Does he envisage that schemes will be built on a sectoral basis, or does he envisage some master scheme being set up that will be open to all businesses?

I am enjoying my hon. Friend’s characteristically well-informed speech. To reassure him on industry schemes, when we visited the Netherlands to look at how the system is run there, we came across the Dutch tulip growers scheme. I can reassure him that we do not have such narrow definitions in mind.

I am not sure that tulips and the Netherlands are necessarily an appropriate model. One of the earliest financial crashes was in the price of tulip bulbs, so it may not be a model to follow. However, the point about sectoral and non-sectoral schemes is important. Other countries have had success where they have had a social model—a relationship between employers and employees—that we do not necessarily see in the UK. There will be questions about how to encourage more employers to come together to create these schemes. Perhaps there is a role for insurers in that regard.

Although these schemes aim to boost returns and offset some of the impact of under-saving, we need to do more to help people save more towards retirement. Auto-enrolment will help to ensure that more people are saving, but as I pointed out earlier, the DWP’s figures estimated that some 11 million people would not save enough to meet the recommended replacement income for retirement. If we look at contribution rates to pension schemes in other countries, we will see that the 8% auto-enrolment rate lags behind the rate in other countries that have established innovative pension schemes. In Australia, the contribution rate to the Super scheme is heading towards 12%, and in the Netherlands—the Minister mentioned the Netherlands, so I feel at liberty to talk about it—the contribution rate to the scheme is over 20%, which is significantly higher. We have some way to go before we match those contribution levels.

I think it would be wrong to contemplate increasing contribution rates before the roll-out of auto-enrolment has been completed, but we should not ignore the fact that people are not saving enough towards their retirement and we need to find ways to help people to build higher contributions. There are ways in which we can do that. We have not done enough to draw on the insights from behavioural economics and initiatives such as Save More Tomorrow, which has been adopted in some parts of the United States, which encourage people to increase their contribution rates when their pay rises, making a commitment today to secure increased contributions in the future. I think we can look at the way in which fiscal incentives encourage those on low incomes to save more towards their retirement, and I certainly think we can support people to make better choices on retirement. That is a significant area that we need to focus on, and it is the last point I want to touch on in my speech.

As I said at the start, we have introduced a series of radical reforms to the pensions system over the past four and a half years. However, to make the most of the freedoms that we need, we must make sure people have the necessary support to make the right choices both when they are building up their pension pot and when they choose to use it. That is why I am very supportive of the guidance guarantee. I know the Government are going to introduce amendments to this Bill, either in Committee or on Report, to introduce the guidance guarantee, and it is an important part of the package of legislation, but we must also think about how we can encourage the industry to go further to provide better guidance both before the point of retirement and afterwards. The decisions we make at the point of retirement are ones we would want to come to as individuals to revisit later on.

We need to find a service that will help those who feel they cannot afford independent financial advice without crowding out independent financial advisers, and we need to give people support to think about draw-down, annuities and the other products that are out there, to help them maximise their income over their retirement, and also to think, while they are saving, about what sort of lifestyle they want in retirement. Too often, people do not think about what they aspire to in retirement. They tend to shape their retirement around how much they have saved, rather than thinking before they retire, “This is what I would like to do. These are the holidays I’d like to have. This is the sort of lifestyle I’d like.” We need to give people more support in that regard.

I also believe we should be harnessing technology to draw together details of people’s savings—not just their pensions, but their individual savings accounts and bank savings—to end the complicating fragmentation of data. That should encourage people to look at the totality of their financial assets and use that information to engage with their retirement planning.

The one asset my hon. Friend did not mention is the house a person owns, which I suspect people will, as years go on, increasingly have to consider using for their own retirement, rather than passing that on to their children, as perhaps we all hope to do at the moment.

My hon. Friend makes an important point and he is right to pick up on that omission. When we think about retirement, we should be thinking not just about pensions, but about a person’s income in retirement. Some of that will take the form of state pension; some will be interest on savings accounts; and some may come through work—depending on what age we retire at, and how we phase in our retirement. Certainly housing is a valuable asset, too, and very good work is being done by a number of organisations to look at how housing can be used, but we are still some way off having something that people will recognise as a good way to use their housing assets. As I say that, I feel a letter coming on from my former colleague Nigel Lawson on this point, but there is more work to be done in respect of how people view housing as an asset and how they can utilise that asset in retirement to supplement their income. We need to build out from the guidance guarantee, and more work will need to be done on that in the coming months.

I want to mention a point that has been raised with me and that I will probably talk about in more detail when the complementary tax Bill to this comes through later in the year: we must think about what sort of outcomes we expect people to see in retirement. My right hon. Friend the Minister for Pensions referred to a decade of innovation, but he will recollect that when we introduced reforms to liberalise the open market option, and to make that more of the default, there were some unforeseen challenges from that, and we have seen some of the consequences and the report published by the Financial Services Consumer Panel. I do think there is a responsibility on industry, the Government and the regulator to do some thinking about what good looks like under the new reforms and how we can help shape that post-retirement market. That would form an important part of the work.

I commend the Government on this comprehensive package of pension reforms. They will form a key part of our legacy, and they are an important way of expressing what we have achieved as a Government in setting down long-term foundations to help people to take more responsibility for their savings in retirement, to help them to save more in their retirement and to give them the freedom and choice that they need in their retirement. The Bill is part of that package, and I look forward to seeing how the schemes develop to help to provide people with more certainty in regard to their future pension incomes, when all they have seen up to now is increased uncertainty.

It is a pleasure to wind up this relatively short but interesting and important debate. Despite points of difference and disagreement, it has provided some thoughtful and wide-ranging speeches from both sides of the House, proving that it is quality, not quantity, that counts. Two excellent examples were provided by my hon. Friend the Member for Aberdeen South (Dame Anne Begg) and my right hon. Friend the Member for Neath (Mr Hain).

My hon. Friend the Member for Aberdeen South made an important point about complexity and expressed her fear that increasing complexity as a result of the Government’s changes to pensions might hamper efforts to get younger people to engage with their pensions. She also rightly highlighted the increased risk of mis-selling that could result from any such complexity. I shall come back to that issue later. She also highlighted the importance of governance in relation to the collective defined-contributions schemes that are being introduced by the Bill. She was right to say that there was no obvious reason to omit those governance arrangements from the Bill and to leave them instead to be dealt with in secondary legislation. It is difficult to understand why the Bill is vague on that point, and I hope that the Financial Secretary to the Treasury will be able to illuminate the House further on that when he responds to the debate.

My right hon. Friend the Member for Neath, who is not in his place at the moment, made a powerful contribution to the debate, in which he set out the challenges posed by a rapidly ageing population. They are one reason why so much attention has been focused on pension arrangements. He also noted the challenges posed by the greater need for adult social care that results from a rapidly ageing population, the interplay between those changes, and the increasing burden on the present younger generation and future generations. He talked about our expectation of what those burdens would be like in the coming years. He was right to give us an historical perspective, particularly in relation to mis-selling during the years before 1997.

Pensions are an important issue for people. They worry about their retirement and their personal social care needs, and about whether they will be able to cope with those needs as and when they arise. They also worry about whether they will be able to leave anything behind for their children. As people live longer, it is more important than ever that they should make the best possible choices for themselves. As legislators, politicians need to ensure that the range of options available to people and the breadth of the arrangements they can make for their retirement are fit for purpose, especially as we are all living much longer. That poses great challenges for us all.

In that context, the Bill’s establishment of collective defined-contributions schemes—CDC schemes—is a welcome step in increasing the range of options available to people as they plan for their retirement. We will therefore not oppose the Bill on Second Reading, although there are areas in which we might seek to extend or strengthen it in Committee or on Report.

As I said, we support CDCs in principle. In sharing risk, they have the potential to give people a more adequate and reliable retirement income than individual defined-contributions schemes, because, unlike those schemes, CDCs can pool risk across and between generations. Given the difficulties and anxiety that many people feel about their living standards at the moment, we want to support working people who are struggling to set money aside for the future. We need to ensure that they have access to pension schemes that they can trust to give good value for money and a decent income in retirement.

CDCs are also well supported by the public. Research by the Institute for Public Policy Research carried out at the end of 2013 found that there was strong public support for a collective pension. It was the most popular of the options the IPPR tested and it appealed across those with different income levels, life stages and ages. If CDCs are to be well taken up and succeed, strong governance arrangements clearly need to be in place—that point was made by my hon. Friend the Member for Aberdeen South. As my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) said, the Bill is currently silent on governance arrangements for CDCs. The highest standards of governance are needed for schemes that are even more opaque than defined-contributions schemes because they have to manage pooled assets and conduct smoothing.

The silence in the Bill occurs despite the Government’s consultation “Reshaping workplace pensions for future generations”, which stated:

“Collective schemes are complex and can be opaque—because of the indirect relationship between contributions and benefits. This necessitates strong standards of communication and governance. We intend collective schemes to be overseen by experienced fiduciaries acting on behalf of members, taking decisions at scheme level and removing the need for individuals to make difficult choices over fund allocations and retirement income products.”

Failure to require all schemes to have trustees means that we will potentially have some CDCs run by trustees and others offered by private firms that seek to maximise their short-term returns.

The Minister will know that we have consistently argued that all workplace pension schemes must be run by trustees and have a legal duty to prioritise savers’ interests. Governance arrangements remain an issue for other defined-contributions schemes, which make up the majority of what is available. The Government could have taken more steps in the Bill to strengthen the governance of those schemes. The Government have declined to impose trustee boards, but have instead opted to require independent governance committees. We are concerned that they will be neither independent, nor governing in nature. In any event, IGCs contain serious conflicts of interest, so we will argue in Committee that the Government should instead follow Labour’s lead and require all pension schemes to have trustees and a legal duty to prioritise the interests of savers above all others.

Another issue discussed in the debate, which the Opposition will continue to press the Government on in Committee, is scale. The issue was raised by one Government Member and the Minister did engage with it when the point was made about whether small and medium-sized enterprises might be able to introduce CDCs or whether this would be the preserve of larger employers. He rightly said that it was going to depend primarily on scale and how popular these schemes end up being. The Bill, however, contains no measures that will help promote the scale which most independent observers believe is necessary for CDCs, and workplace pensions in general, to do the best they can for employees. We have long argued that measures to promote scale are vital to ensure the best possible outcomes for savers. So the Government could, for example, require that automatic transfers default into aggregators and the criteria necessary for qualifying as an aggregator should include scale. One or more of those schemes which met the qualifying criteria to be aggregators under our approach may then opt to be a CDC pension scheme.

As my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East noted, the House of Commons briefing note on the Bill also says that

“certain conditions, such as large scale and strong governance, appear necessary for—


“to operate successfully.”

Three-quarters of respondents to the consultation prior to the Bill thought that Government intervention would be needed to create the scale necessary for schemes to offer guarantees. We will look in detail at issues around scale and governance when the Bill is considered in Committee.

We will also look at the National Employment Savings Trust, which is a trusted body for providing workplace pension schemes. It could potentially offer retirement income products or CDC and in doing so help constrain the industry and ensure that it provides decent products to all savers. However, to do so most efficiently, it would need to have its restrictions lifted. As was mentioned earlier, the Government said in July 2013 that they would legislate to lift the restrictions as soon as possible, but they have not yet done so. It would be helpful if the Minister told us whether that is something that will be taken forward by the Government, and when it will be discussed in Committee.

The second part of the debate dealt with the new arrangements around flexibility. As my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East stated at the outset, we have supported greater flexibility in relation to pension arrangements, but we have set out three tests for the new flexibility. First, is there robust advice for people who are saving for their retirement? Secondly, is the system fair to those on middle and lower incomes who want a secure retirement income? Thirdly, are the Government sure that the changes will not result in extra costs to the state either through social care or by increasing housing benefit bills?

In relation to the first test, the expectation is that the Government will propose an amendment to the draft Bill around the guidance guarantee. As it has not yet been published, it is not clear whether it will be robust enough. It would be helpful if the Minister gave additional information to the House now so that we are not waiting until the Bill reaches Committee before we know what is happening about guidance.

As many Members noted, guidance will have to be well thought through and reflect the practical steps that people take as they move towards retirement. To be effective in practice, guidance will need to include a discussion of the effects of drawdown on the individual’s tax situation. It will also need to explain the consequences of decisions regarding the different forms of saving on the extent to which local authorities can seek to recover sums for long-term care. The Government’s response to the consultation “Freedom and Choice in Pensions” indicates that drawdown is likely to be treated similarly to annuities in that income and not capital is assessed. Again, that is something that we will have to look at and examine further in Committee.

Some specific questions arise as well. For example, if guidance is a single event, how will it assist an individual seeking the necessary later event, perhaps 20 years later, of switching from a drawdown product to an annuity? Draw-down products are likely to be insufficient on their own for savers and individuals will need to insure against longevity risk to ensure that they do not run out of money during their retirement. Will there be a requirement for products to include a regular review of when the optimal moment for switching to an annuity should occur?

We have had a number of debates, both on the Floor of the House and in Committee, around the issue of advice and guidance and the very clear difference that there is between the two. There is a fear among many Members across the House that guidance on pension changes alone might not be enough to help people make the best possible choice. Ultimately, the course that the Government choose will have to be carefully scrutinised and reviewed. As I have said, this matter is of great interest to Members on both sides of the House.

Will the hon. Lady make her position clear? Is she saying that what should be offered to every person retiring is regulated advice?

No, we have not called for regulated advice, but I am sure that the hon. Gentleman will agree that these are big decisions for people. We must ensure that what the Government envisage will be up to the job of ensuring that they have all the information they need before then to make the best possible choice. As I have said, we have had a number of debates on this subject and the Government have given us some idea of the guidance they envisage, but I think we will have to return to these issues in Committee to ensure that that guidance is as robust as it can possibly be.

I am grateful to the hon. Lady for giving way, as she is being very generous. If she does not want to see regulated advice given, what is she looking for?

To the extent that we have this debate about advice and guidance, I am sure that the hon. Gentleman will recall that it was the Chancellor who said in his Budget speech that advice would be provided to people about making their decisions. We then moved quickly into the world of guidance and the two are, as I am sure the hon. Gentleman will acknowledge, very different. That is why we are concerned that the guidance on offer will not be quite as good as we might expect if advice were on offer. That is why it will be important that Members on both sides of the House stress test the final package that the Government come up with.

The TUC has rightly questioned whether guidance on its own is sufficient. It states:

“Independent guidance is clearly better than that provided by company sales teams, but half an hour of the best possible advice will not equip people for what could be thirty years of managing their pension pot… Expecting the market to deliver retirement income solutions that work for the great majority is unrealistic. The annuities market was broken, but what we need is the same careful consideration of policy, consumer preference and evidence that led to pensions auto-enrolment.”

It is clear that a number of very complex factors will play against each other, with some inherent tensions that were noted by Members on both sides of the House in their speeches. It is important that we stress test the measures properly in Committee.

The Bill introduces a number of measures that we support, and as I have highlighted, there are some issues on which we think that the Bill could be strengthened. We look forward to picking up those issues with the Minister in Committee.

It is a great pleasure to respond to this Second Reading debate. As we have heard, it has perhaps been shorter than it might have been, but none the less I thank all those who have contributed to it from the Back Benches: my hon. Friend the Member for Cities of London and Westminster (Mark Field), the hon. Member for Aberdeen South (Dame Anne Begg), who is the Chair of the Select Committee, my hon. Friend the Member for Amber Valley (Nigel Mills), the right hon. Member for Neath (Mr Hain), my hon. Friend the Member for Birmingham, Yardley (John Hemming) and my hon. Friend the Member for Fareham (Mr Hoban), who takes a very close interest in these matters. By and large it has been a thoughtful and constructive debate and the most heated areas of controversy have been when we have considered the pensions records of previous Governments.

I reiterate the points made by my hon. Friend the Member for Fareham and my right hon. Friend the Minister for Pensions about this Government’s proud record on pension reform. We have implemented the triple lock, which has meant that pensions are uprated by earnings, prices or 2.5%, whichever is highest. That means that the full rate of the basic state pension is £440 a year higher in 2014-15 than if it had been uprated by earnings since the start of this Parliament. We have introduced auto-enrolment. I acknowledge the point that has been made that the previous Government intended to introduce it in the end, but as my right hon. Friend the Minister for Pensions set out, we as a Government have taken a number of steps to make the policy workable and successful. The number of those who will benefit and who are benefiting from that is considerable. The introduction of the single-tier pension has made our state pension simpler and clearer. The single-tier pension has enabled us to go forward with some of the reforms that we are discussing today which will allow greater pension flexibility.

The debate today and the debate on the Bill has essentially focused on two areas: first, defined ambition in terms of risk sharing, and secondly, pensions flexibility —particularly, in the context of the Bill, on issues related to the guidance guarantee. Let me turn first to the case for defined ambition, which, as we have heard, is to find a middle way—greater flexibility within our pension system, which has traditionally been somewhat binary, with defined-contributions schemes and defined-benefits schemes but nothing really in between. The Bill redefines the framework to recognise explicitly the middle ground and encourage provision of shared-risk pensions where risks are shared more equitably between employers and employees. Let me respond to the various points and questions that have been raised in respect of that area.

My hon. Friend the Member for Fareham asked to what extent and how defined-ambition schemes are guaranteed. The Bill does not prescribe benefit design and that is intentional. Our consultation presented a number of ways in which that could be done and our measure is intended to encourage a variety of designs. So there is no one set answer; indeed, one could argue that that is the point. In response to my hon. Friend’s question about guarantees and the cost to the individual, it is not always the case that the member bears the cost of the guarantee. Some employers may choose to stand behind the promise. Capital requirements and scheme funding requirements already apply to pension vehicles and will continue to apply to schemes called defined ambition in respect of the promises.

A number of contributors to the debate, including the shadow Pensions Minister, asked to what extent there is an indication that there is employer interest in defined ambition. DWP research found that more than a quarter of employers are already interested in offering a pension involving greater risk sharing between members and employers. Over half of employers—52%—said that they would like to set up a scheme where the employer pays fixed contributions and where there is more certainty for the employee, such as DC plus. The response to our “Reshaping workplace pensions for future generations” consultation also demonstrated a strong desire from unions for collective models.

In terms of that demand, the DWP has had discussions with interested employers, but I am sure the House will understand that employers will want to see the detail and communicate with their work force. We do not want to pre-empt those processes, but we believe that the addition of a defined ambition of risk sharing to our pension framework is advantageous.

On inter-generational risk sharing and whether a risk transfer is desirable, we do not want to disallow all inter-generational risk sharing within schemes offering collective benefits, but we want to ensure that it is open and transparent. That is a lesson that we have learned from the way in which such schemes have operated in other jurisdictions.

On governance of collective defined-ambition schemes, we will use governance powers from the Pensions Act 2014 and make regulations using those powers. On issues around making decisions about retirement income in collectives, we want to create innovation. We do not want to constrain or prevent part of the market, and insurance firms or schemes that are not occupational schemes, from offering such scheme. Of course it would always be a fiduciary making a decision about the retirement income, but the measures in the Bill provide for requirements around the specific features of collectives.

We heard questions about collective investment strategies and the risk of an over-cautious strategy, so it is worth highlighting the example of a New Brunswick scheme that is required to operate with a 97.5% probability that base benefits will not reduce. The scheme has 40% investment in assets and 20% investment in real estate and other assets, so the probability requirement has not led to an over-cautious investment strategy.

The hon. Member for Aberdeen South cited several questions that have been raised by the Law Society of Scotland. Shared-risk schemes will cover existing and new schemes. If a scheme shares longevity risk, it will be a defined-ambition scheme. She asked about the definition of a promise made during the savings period, as well as whether a promise made at

“times before the benefit comes into payment”

relates to when the annuity is set up or the repayment is made. The intention is that a promise made at a time before the benefit comes into payment describes a promise made by a scheme during the savings phase, rather than a separate promise made at retirement. She also asked whether a third-party promise would include an arrangement whereby the promise is made by an insurer, rather than the scheme, and the answer is yes. If she wishes to raise further queries on behalf of the Law Society of Scotland, we will be happy to respond to them.

Let me turn to the freedoms that the Chancellor set out in the Budget, which will be implemented by this Bill and the pensions taxation Bill that I am sure we all look forward to debating in the not-too-distant future. Although Labour Members appeared to reserve their judgment about whether they support the policy, the tone of the contributions of Labour Front and Back Benchers suggested that they were far from enthusiastic about the reforms announced in the Budget, to put it mildly. This was not just the questioning and scrutiny that any Opposition would undertake; it seemed to me that, philosophically, the Labour party was uncomfortable with the reforms.

The shadow Pensions Minister asked whether flexibility and guidance would address inertia in the annuities market, but prior to the Budget announcements, consumers were not incentivised to shop around for annuities. They will have more options and more reasons to engage with the market as a result of greater flexibility, and access to impartial, good-quality guidance will be key to having better informed and more empowered consumers. They will be equipped to look for products that work for them, and the decumulation market, including the annuities market, will be incentivised to respond to the demands of more empowered consumers and will have the freedom to do so.

It is sometimes said that people simply will not be able to make good choices, but leaving aside concerns that that view is somewhat patronising, I argue that the existing system restricts choice at the point of retirement, and the Government do not believe that that is right. The Government recognise that with more choices at retirement, consumers’ decisions will become more complex, so we have introduced the guidance guarantee to help consumers to understand their options.

The shadow Pensions Minister referred to the apparent contradiction between auto-enrolment, which is predicated on inertia, and the Turner proposals and giving greater choice to savers. It is always right that people save and that we put in place a regime that encourages saving, but when savers reach retirement it is right that they have the opportunity to engage and have a full range of choices available to them. We believe that it is sensible to set out the detailed technical requirements in secondary legislation, which will allow time for consultation and to respond to evolving risks in the market.

The right hon. Member for Neath said that flexibility will result in people spending all their money at once, which is risky, but those people who have worked hard all their lives should be free to decide how to use their savings. At present the system allows those with the smallest and largest pension pots complete flexibility, but restricts those in the middle of the distribution who have worked hard and saved all their lives. The Government do not dictate how people spend their other money, so why should they do so for pension savings? However, we recognise that people do need support in making these decisions and that is why we are introducing the guidance guarantee.

Many of the large number of people in the middle, as the Minister puts it, will be looking forward to retiring in 2015 and 2016. How clear is he that they understand the implications that will face them in six or seven months’ time that did not face previous generations?

That is why we are bringing in the guidance guarantee. That is why we want to ensure that people can make informed decisions. That is what drives everything we are doing here and that will be an important part of the Bill. My hon. Friend the Member for Cities of London and Westminster asked whether the guidance would undermine or replace financial advice. The Government intend that the guidance will be a critical first step for consumers at the point of retirement. It will be designed to help consumers navigate the options available and it is not intended to replicate the services of professional financial advisers. The Government expect that many consumers will go on to seek further advice and will ensure that the guidance equips consumers to choose the advisory service that suits their needs.

The guidance service will not stray into areas such as specific product or provider recommendations, which would be better handled by an authorised independent financial adviser. Guidance will signpost consumers to other sources of guidance and advice as appropriate, including professional financial advice. The Government expect that many consumers will go on to seek further advice and will ensure that the guidance equips consumers to choose the advisory service that suits their needs.

The Government believe that it is right that those firms that are likely to benefit from better informed consumers who are more confident about engaging with the financial services industry should help to fund the service. The FCA has proposed that advisers should be included in the cohort of firms paying the guidance levy, as they stand to gain from the better informed consumers who understand how regulated advice can help and protect them in their retirement needs. It is also worth pointing out that the FCA has committed to a proportionate approach. The levy will reflect the size of the firm and the nature and extent of its business.

My hon. Friend the Member for Cities of London and Westminster asked about the Australians’ system and to what extent they were looking to reverse their move to end the obligation to annuitise. The interim report from the Murray review suggests that a variety of different policy options should be considered to improve the Australian retirement income system. These options include maintaining the current system where individuals have access to their pension savings as they wish but with improved provision of financial advice and removal of impediments to product development. As for whether annuities are dead under the new regime, we do not believe so. The Government are clear that annuities will remain the right choice for many at some point during their retirement and believe that many people will still value the security of an annuity.

The right hon. Member for Neath asked how the FCA will protect consumers through regulation. The FCA has a statutory objective to protect consumers. It requires pension companies to comply with its rules and principles, including the principle of treating customers fairly. In creating the FCA, the Government gave it new powers in relation to financial products that it can use to restrict features or products or to prescribe how products must be sold.

I was asked whether the guidance will ensure that people understand the tax implications of flexibility. Guidance will cover the tax implications of accessing pensions in different ways in retirement. This is covered in the standards for guidance on which the FCA is currently consulting. As for whether the guidance will be delivered by qualified people, the FCA is currently consulting on the standards that providers of guidance will need to meet, one of which is that they are suitably trained and qualified.

The hon. Member for Birmingham, Ladywood (Shabana Mahmood) and the right hon. Member for Neath asked about flexibility increasing welfare and social care spending. We do not expect the impact to be significant in the context of the steps that this Government have taken to improve the sustainability of pensions spending. For example, regarding the changes to the state pension age and reforms to public service pensions, the estimated net impact of the Government’s key pension policy is a saving of about £17 billion in 2030 in today’s terms.

My hon. Friend the Member for Cities of London and Westminster asked me to explain the principles behind the Government’s pension reforms. We are putting the interests of savers first, but we also believe that people should be free to make their own choice about how to use their savings. Individuals who have worked hard and saved responsibly throughout their adult lives should be trusted to make their own decisions with their pension savings. The reforms announced in the Budget will deliver this, and it is an important part of the Bill. I commend the Bill to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Pension Schemes Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Pension Schemes Bill:


(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 6 November 2014.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

(7) Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Dr Thérèse Coffey.)

Question agreed to.

Pension Schemes Bill (Money)

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Pension Schemes Bill, it is expedient to authorise the payment out of money provided by Parliament of:

(1) any expenditure incurred under or by virtue of the Act by a Minister of the Crown;


(2) any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Dr Thérèse Coffey.)

Question agreed to.

Pension Schemes Bill (Ways and Means)

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Pension Schemes Bill, it is expedient to authorise:

(1) the imposition of charges for the purpose of meeting expenses incurred by–

(a) persons involved in giving pensions guidance, and

(b) persons having oversight of the giving of pensions guidance; and

(2) the payment of sums into the Consolidated Fund.—(Dr Thérèse Coffey.)

Question agreed to.