Consideration of amendments on Report resumed on Clause 69.
52: Clause 69, page 37, line 42, leave out subsection (5)
The noble Baroness said: My Lords, Amendment No. 52 deletes Clause 69(5). In the group of amendments we were debating before the dinner break, we were addressing the specifics of the restrictions and limits which will be placed on contributions to personal accounts. This amendment is rather different. Under subsection (5) the Government have the power to repeal Clause 69 by order, and in so doing the Secretary of State would deprive the Government for all time of the ability to set contribution limits for personal accounts.
The Minister teased me in Committee because I normally take the stance that the Secretary of State should have as few powers as possible. I explained that we are concerned that the personal accounts scheme, through its financial muscle, will need to be kept focused on its core market, which is for those with no or inadequate pension savings. We do not want the personal accounts pension scheme to engage in mission creep, which it could easily do. Indeed, the attractions of trading up market, where pension products are already adequately provided by the market, might become irresistible to an organisation with millions of pounds earned in charges to spend on advertising and marketing.
We believe that a wise Government would always want to keep powers to keep the scope of the personal accounts scheme properly focused. The proper focus may well change over time and high limits might conceivably be set at some point in the distant future. However, the Government will not control the pension scheme, though they may have some controls over the trustee corporation, so they need to be able to influence key elements of its behaviour.
In Committee, the Minister at least said that he would think about the matter further, although I concede that he did not hold out much hope of a change of view. I have tabled the amendment again because he said in Committee that he would try to convince me of the reasonableness of the provision.
If the Minister is not able to accept the amendment, I hope that he will explain whether and to what extent the personal accounts scheme will be subject to competition law and could be restrained by the Office of Fair Trading or the Competition Commission if it abused its market position. Clearly, if effective competition regulation applied to the personal accounts scheme, some of the concerns would be ameliorated, but if the competition law aspect were not clear, or if there were a lack of jurisdiction, we would remain concerned. I am always open, as the Minister knows, to being convinced that something is reasonable. I beg to move.
My Lords, the noble Lord, Lord Oakeshott, makes my task a little easier. I am grateful for that. I am also grateful for the amendment, as it gives me an opportunity to explain fully again the Government’s position.
The amendment seeks to remove the power to repeal the contribution limit. The 2017 review will look at whether the contribution limit and transfers remain appropriate once the reforms have had a chance to bed in. However, as we have just debated, we should not pre-empt the outcome of that review. It is therefore important that the Secretary of State has the ability to amend the legislation if the review concluded that it was necessary—for example, if it found that the limit was hampering saving.
If we were to remove the Secretary of State’s ability to repeal Clause 69, the personal accounts scheme would then be required to operate a limit until a suitable opportunity to amend primary legislation arose. In that situation, we would need to find an alternative way of building in flexibility. That may, for example, mean that we would raise the limit substantially, but that would generate complexity around communications for the scheme trustees as they would have to continue to explain the provision and how breaches would be handled. Of course, if the review evidence indicates that the limits should remain, the Secretary of State is not required to use this power and the limits can remain or be adjusted as necessary.
I remind noble Lords that the Delegated Powers and Regulatory Reform Committee has scrutinised this power and decided that its use, under the circumstances that I have just described, is appropriate. I should also add that Parliament would be able to debate the exercise of the power, as it is subject to the affirmative procedure. I hope that the noble Baroness can accept my assurance that the Secretary of State would exercise this power only if the review conclusively found that it was appropriate. The noble Baroness asked me specifically about competition law and the market position. I am afraid that off the top of my head I cannot give an answer to that. I shall certainly follow up the point in writing. I understand the significance of the issue. I do not think that I shall receive helpful comment on that from my officials in the next few minutes so I promise to write. Notwithstanding that, I hope that I have said enough to encourage the noble Baroness not to press the amendment.
My Lords, I thank the Minister for that response. I should have given him notice that I intended to ask him about competition law. However, I await his written response on that point. Even if the noble Lord, Lord Oakeshott, does not understand the nature of the concerns about whether a lever should ever be given up unless there are adequate alternative levers available, I hope that the Minister does. That is the burden of my proposition. I look forward to seeing what the Minister has to say. I hope that his response will arrive in time for me to consider the position I shall adopt at Third Reading. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
53: After Clause 72, insert the following new Clause—
“Review of the pension scheme
(1) The Secretary of State shall lay before both Houses of Parliament a report five years after the establishment of a scheme under section 66.
(2) The Secretary of State must consider in the report—
(a) whether the maximum amount of contributions specified is appropriate; and (b) whether any further transfers into or out of the scheme should be allowed.”
The noble Lord said: My Lords, the Government’s and, to be fair—fairness being an issue to which we referred at length earlier—PADA’s present intention is to start personal accounts in 2012 and to review their operation, especially in regard to transfers in and out, in 2017. However, I can find literally no one in the pensions industry who really believes that it is conceivably possible to start them as early as 2012. Even if it were, I can find nothing in the Bill to say that any review will take place in 2017, nor that any review will cover the two subjects in subsection (2) of the new clause that I am promoting in the amendment.
We discussed this matter in Committee, when the Minister pointed out the plethora of information in the pensions arena which comes out of the department, from surveys of industry and from employers and employees. He mentioned the annual survey of hours and earnings from the ONS, the biennial employers’ pension provision survey, the survey of employers from the DWP and the annual survey of occupational pension schemes. None of these covers what I am after.
Personal accounts will be the largest pension scheme to hit this country ever and it would be misleading to think that every jot and tittle of setting them up will be covered by either the Bill’s clauses or the regulations that flow from it. It would also be misleading to state that another pensions Bill will not be needed some time in the next Parliament. To do its job properly, Parliament needs to be informed of the surveys conducted and the decisions flowing from them before the introduction of such a Bill. It does not require a lot of information from scattered sources to achieve that.
In Committee, the Minister was unable to give a definitive answer about whether the existing reports and surveys to which I have just referred will include the matters mentioned in subsection (2) of the proposed new clause in my Amendment No. 53; that is,
“whether the maximum amount of contributions specified is appropriate; and … whether any further transfers into or out of the scheme should be allowed”.
I accept that this might also cover trivial commutation, on which the noble Baroness waxed fairly lyrical just before the dinner break. On that basis alone the amendment is worthy of consideration.
As regards when the report I am requesting should be made, the House will note that there are five years between the planned introduction of personal accounts and the Secretary of State’s intended consideration of these matters. Given that personal accounts may or may not start in 2012, it is only logical that Parliament is informed of the Government’s decisions and the rationale for those decisions five years later. It is intentional that I have not put the dates 2012 and 2017 in the amendment. I beg to move.
My Lords, I am very grateful to the noble Lord, Lord Skelmersdale, because he has given me an opportunity, as it may have occurred to other noble Lords to do, to add things to the shopping list of items under review. This is a splendid opportunity, although I do not doubt that this really should have been moved as an amendment to an amendment.
I want to raise an issue that I raised in Committee. I have done further work on it and have had further discussions. In most DC schemes, employers are contributing around 6 per cent to 7 per cent on the whole range of earnings from zero to the higher rate of tax or some agreed ceiling. In personal accounts, the employer is contributing half of that, only 3 per cent; I am not arguing with that and I understand where we are coming from on that. It is only contributing 3 per cent if someone is on half median earnings of £11,000—my putative hairdresser—because the first £5,000 or so is exempt because it is below the LEL. Effectively, the employer is contributing, on average, only 1.5 per cent at half median earnings for a woman compared to the 6 per cent or 7 per cent it is on average contributing if that person were working, for example, for a major company where they were possibly doing the same job.
I raised that issue in Committee, and there was some sympathy for what I was trying to achieve. The people who most need these pensions—low paid women—are going to have quite small pots with low levels of contribution, which means that they will remain entangled for much longer than we would wish in judgments about the benefits system, whether it pays to save and the like. The easiest way to spring women—particularly women who enter the scheme before the age of 50 or so—out of the income-related benefit trap is for their pot to be sufficiently large that it springs them out of the pension credit savings element, so that they enjoy a 100 per cent return on their annuity or their pension, rather than, say, 60 per cent, which would otherwise be the case.
The question is whether this is feasible at this time. I was challenged by my noble friend and by the previous Minister for Pensions, Mike O’Brien—to whom I pay tribute; I am sure that Rosie Winterton will do a splendid job but Mike will be much missed—to see what the view of industry was on this. I talked to the Federation of Small Businesses and the EEF and, through e-mail, with the CBI, which was less interested as this is essentially a small employers’ issue. They were concerned that small businesses would not be ready to go for an arrangement in which if someone who is already in the pension scheme chose to contribute for the first element below LEL the employer must match it. That is similar to the arrangement that has been devised for young people between 16 and 22; if they choose to contribute, the employer must match it. I was seeking to do something similar.
For many women, that may not be necessary, because they may have a husband or partner whose financial arrangements are such that they would not wish to make that contribution. But—particularly for single women, or those who possibly are cohabiting but who have independent financial arrangements, who are on very modest earnings—the only way, if they enter a personal account fairly late in life, to spring them free of benefit is to increase the size of the pot. The best way of doing that is, if they choose, for them to contribute below the first £5,000, below the LEL, if they are already in the scheme, and the employer then must match it.
The Federation of Small Businesses and the EEF were entirely sympathetic with what I was seeking to achieve. They were obviously worried about putting too much burden on business in the early days of establishing a scheme. I hope that I am not attributing views to them that they would not accept, but they agreed that it would be perfectly acceptable to ask that this be considered as part of the review five years after the scheme was established to see whether, at that point, such a move would be acceptable to business and industry. In the meanwhile, they would encourage small employers to go down that route on a voluntary basis.
I thought that this was a perfectly reasonable way forward, but I would like my noble friend to acknowledge that when we have that review in, we hope, 2017, such a proposal will indeed be one of the items on the agenda, to give lower paid people, particularly women, the best possible chance of springing themselves free of IRB and having an option to build a decent enough pot with consent. I thank the noble Lord, Lord Skelmersdale, for giving me this opportunity and I hope that a proposal that the review should include consideration of this issue, in consultation with the industry—by which time the scheme will have bedded down and so on—will be a way forward to help women escape the benefits trap.
My Lords, I congratulate the noble Baroness on her ingenuity. No one is better than her at spotting a Christmas tree to start hanging things on. As an opposition spokesman who may well be an opposition spokesman in a few years, although Governments may change, I am always sympathetic to or in favour of a report every five years or so. A maximum amount of contributions is perfectly understandable. Perhaps the noble Lord, Lord Skelmersdale, would clarify for me the implication of,
“whether any further transfers into or out of the scheme should be allowed”.
Is the implication of that question that transfers should be stopped completely, or is it an open question? Subject to that, the amendment seems to be sensible.
My Lords, as noble Lords will be aware, we have committed to having a review in 2017 of two of the measures that will focus the personal accounts scheme on its target market. We have stated on a number of occasions that the review will focus on the annual contribution limit and the transfer ban and I willingly restate our commitment to such a review.
The noble Lord, Lord Oakeshott, asked about the transfer ban. The purpose of that component of the review is to address whether the proposed restriction on transfers in and out should be lifted, ameliorated in any way or retained.
This review will consider these policies and gauge whether they have been effective in focusing the scheme on its target market, without detriment either to the scheme and/or its members. The amendment tabled by the noble Lord, Lord Skelmersdale, would require the Secretary of State to lay a report on these two measures before Parliament five years after the scheme is established. We, of course, agree with the spirit of the amendment, as we have committed to undertake such a review. However, we would like to consider the wording in more detail.
For example, the amendment may commit the Secretary of State to a review before 2017, as it links the review to the establishment of the scheme rather than to when it starts to operate. In practice, the scheme will have to be formally established before it becomes fully operational. Various tasks will need to be undertaken by the trustee before the scheme can operate as a scheme for accepting pension contributions and investing them. As I have said, we have sympathy with the aim of the amendment and I am happy to commit to returning to it—we will have a busy Third Reading—once we have had an opportunity to ensure that the amendment fully meets the intent. I hope that that will satisfy the noble Lord.
My noble friend Lady Hollis presses a further issue. She asks for the review to deal with the ability of people who have qualifying earnings to be auto-enrolled into a scheme or voluntarily pay contributions from “pound zero”. That will bring in an employer contribution. She outlined her discussions with the EEF and others on this matter. We have always envisaged that the 2017 review would specifically deal with the features of the scheme that are intended to protect the market, the contributions limit and transfers. It will be an independent review that is carried out separately from the Government’s ongoing assessment of the reforms. Nevertheless, as we are taking this amendment away anyway, we will reflect on what my noble friend said.
My Lords, I understand that and am grateful for my noble friend’s input. I cannot give a commitment that what we come back with will include that provision but I am sure that in any event there will be other, ongoing ways to assess these issues. Fundamentally, we agree with the spirit of the amendment but, for the reasons that I have explained, the wording does not particularly fit the Bill. However, we shall see whether we can achieve what we both want.
My Lords, in a previous existence, a noble friend of mine used the expression “gobsmacked”. That probably describes my attitude at this moment. I am of course delighted with the Minister’s response to the amendment.
Perhaps I may say to the noble Baroness, Lady Hollis, that proposed new subsection (2) of my amendment does not preclude the Secretary of State from putting anything else that he wants into the report, and it may well be that what the noble Baroness would like to see will be very appropriate and ripe for consideration at that time—namely, five years later.
I accept the Minister’s criticism that the amendment refers to the establishment of personal accounts rather than their operation. The question then is: what is meant by the “operative date”? He said several times in Committee that the operation will be phased in, so when he puts his mind to a possible government amendment on this subject he may like to consider that point. However, as I said, I am extremely pleased with the Minister’s response and I have great delight in seeking to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 1 [The trustee corporation]:
54: Schedule 1, page 75, line 11, at end insert—
“( ) The Secretary of State shall consult the chair of the corporation before appointing any other members of the corporation under sub-paragraph (1)(a).”
The noble Baroness said: My Lords, Amendment No. 54 amends paragraph 1 of Schedule 1. Under paragraph 1, the Secretary of State will make the first appointments of members of the trustee corporation and, indeed, he will be able to continue to make appointments for an undefined “initial period”. My amendment would require the Secretary of State to consult the chair of the corporation before making these appointments. That means, of course, that the Secretary of State’s first appointment would need to be the member who is to be the chairman of the corporation.
We debated a similar amendment in Committee and I was so surprised at the Minister’s response that I tabled this amendment, which is slightly different, so that the Minister can have another go at explaining to the House the role of the chairman of the trustee corporation. He told us that the chairman of the trustee corporation would be no different from any other member. Perhaps I may quote the Minister from the Hansard for 2 July. He said that,
“all members of the trustee corporation will have an equal voice and equal weight in decision-making ... The chair does not have a greater say than other members, a distinction from the role of chair that one would often see”.
He went on:
“I offer a distinction between someone whose job it is to chair the board, to ensure that meetings are conducted properly and so on, and a chairman of an organisation who might have some responsibility for the strategic direction of that organisation and a leadership role. That is not the role that we see for the chair of the trustee corporation; we believe they should act collectively”.—[Official Report, 2/7/08; cols. 305-06.]
I simply cannot see how an effective organisation can be forged on the basis of collectivism. Of course, every member will have an equal vote in decisions—if it is ever necessary to resort to voting—but in any organisation there has to be some strategic direction and leadership. The trustee corporation cannot be a vacuum from which leadership has been expelled; it simply will not work.
I am not approaching this from a private sector board perspective, although it is certainly true that in the private sector you will never find a chairman specified in the way that appears to be envisaged by the Government. I looked at the appointment pages of the Sunday newspapers that we had at home at the weekend, when there was the usual clutch of public sector board appointments, including some for chairmen. Each of them referred, in only slightly varying language, to strategy and leadership.
Another feature of these advertisements for chairmen was the need to forge a special relationship with the chief executive—usually one of guiding and challenging. This is an important aspect of the role of the chairman in all organisations with which I have worked, in all sectors. I assume that the trustee corporation will have a chief executive. Who, in the Government’s view, is to take the lead responsibility for both supporting that individual and for appraising his or her performance? These things may need a collective view—for example, if a change has to be made—but they do not emerge spontaneously. They have to be led.
The point about the Secretary of State consulting the chairman about other appointments to the corporation is that the board has to be one that the chairman believes he can chair effectively. That is a judgment about people. The formation of the trustee corporation is critical to the success of personal accounts. The people who are assembled are crucial in their own right. However, above and beyond that is the ability of the chairman to bring those individuals together to cohere into a whole that is bigger than the parts. That is what I see as leadership and what I see as essential to the trustee corporation. The chairman is not there to keep the attendance records and to ensure that the agenda is processed in time for lunch.
Of course, I hope that the Minister will accept this modest amendment. If he does not feel able to do so, I hope that he will set the record straight on how the trustee corporation will work in language that anyone used to a boardroom in any sector will recognise. I hope that the Government will want to recruit a person of real substance and experience for this role. What the Minister says today may dictate whether or not that is achievable. I beg to move.
My Lords, I support the amendment. I am grateful to the noble Baroness for reminding us of the nonsense to which we were treated by the Minister in Committee. I find this quite extraordinary. I am not just saying that as someone who has quite a lot of private sector experience; I also refer to how public sector bodies work. For example, at the Pension Protection Fund, we meet the people, the chairman, the chief executive. What is the difference? What is the problem? Even if we call it primus inter pares—the idea that the chair is no different in any way from the rest of the board members, even if they have a vote—it is just basic good manners that the Secretary of State should consult the chair before making the other appointments. I cannot understand why this is being resisted. It does not seem to apply even to other DWP-sponsored bodies that we deal with. I just hope that the Minister might say, “Actually, we have got it wrong, let’s just do it”.
My Lords, don’t rub it in! I guess my response can be summed up as, “It’s a fair cop”. I stand chided for a less than complete description of what we see the chair of the organisation doing. A fair point has been made that we need to be clear on how we see that role and how it will develop. We need to discuss it fully.
I am happy to agree with the spirit of the amendment. I have some small concerns about the drafting. The amendment would make it unclear whether a group of inaugural members could be appointed along with the inaugural chair or whether, instead, establishing the corporation would require two appointment rounds. Also, if the chair had resigned, the plain words of the amendment would be at odds with the fact that there would be no chair to consult. I believe that those are just narrow, technical doubts, but it is important that we have clarity. However, we shall add this to the list of Third Reading items and enshrine the fact that the chair should be consulted. I hope that that moves us on.
55: Schedule 1, page 77, line 8, leave out “four” and insert “five”
The noble Lord said: My Lords, I shall speak also to Amendment No. 57. I am sure that noble Lords will remember our debates in Committee about the trustee corporation. In particular, we had an interesting debate on the period for which a person can be appointed to be a member of the trustee corporation. We agreed to take away the valid points made by the noble Baroness, Lady Noakes, and the noble Lord, Lord Oakeshott, about the value of experience and continuity in such positions. After consideration, we believe that it is sensible to increase the maximum period of tenure to two terms of five years, rather than two terms of four.
Amendment No. 55 means that, although we are extending the maximum limit, it will remain in line with the principles in the code of practice of the Office of the Commissioner for Public Appointments, which suggests that it is in the public interest to limit the length of appointments made by Ministers to be no longer than a total of 10 years.
On Amendment No. 57, while the corporation will comprise the nine to 15 individuals who make up the sole corporate trustee, the corporation will, of course, need to employ staff to carry out the day-to-day running of the scheme. At this stage, it is simply not possible to know how the trustee corporation will want to staff itself and who the best candidates for the various roles will be. It is possible, especially in the early years, that industry experts may be interested in joining the corporation to assist in its set-up but that they would want to do this on a short-term secondment basis, rather than as formal employees. We want to ensure that the trustee corporation has the flexibility to appoint the best possible people for the job. Amendment No. 57 enables the trustee corporation to delegate functions to all members of staff, not just employees. Many, if not all, senior positions are likely to include delegated functions.
Finally, I reiterate that the trustee corporation is required to act in the best interests of members. This means that, regardless of whether an employee or secondee, the trustee will still have to consider the appropriateness of any delegation and ensure that proper controls are put in place. This amendment will not dilute that responsibility in any way.
I thank noble Lords again for their compelling contributions in Committee and I hope that these amendments address the concerns that they raised then. I beg to move.
56: Schedule 1, page 78, line 8, at end insert—
“( ) The trustee corporation must establish a committee in order to keep under review the question whether the corporation’s internal financial controls secure the proper conduct of its financial affairs.”
The noble Baroness said: My Lords, Amendment No. 56 amends paragraph 9 of Schedule 1 so that the trustee has to form a committee to oversee the corporation’s internal financial controls. In ordinary parlance, this is an audit committee.
The Bill deals with two quangos. The Personal Accounts Delivery Authority, to which we will be coming soon, is required to set up a committee of non-executives to oversee PADA’s internal financial controls. That is in Clause 82. The trustee corporation, which will also be a quango, has no such requirement.
At one level, I have no problem with not specifying audit committees in legislation. It is only in Bills introduced in the past 10 years that the Government have specified committees like that for PADA. There is an EU directive which now mandates audit committees for certain types of company and the Government have wisely decided not to legislate for that but to leave it to the infinitely more flexible mechanism of the FSA’s rule book. But I believe that organisations which handle large amounts of money and valuable assets—that is certainly what the trustee corporation will be doing in bucket loads, I should think—will have effective oversight of their financial controls and management.
I tabled this amendment for our Committee stage and I had expected the Minister to tell the Committee that it was the Government’s policy that there should be an audit committee and that they would require one somehow. But the Minister did not do that. He told the Committee that it was premature to determine whether there should be an audit committee and that the Government would prefer not to tie this down specifically. The Minister did not want to tie the hands of the board of the trustee corporation. We do not believe that there could be any possible justification for not forming an audit committee, and the board really should not be given any option.
The Minister said that he would go away and consider the point, but as he has not tabled an amendment, I have retabled my amendment in order to see whether the Government have in fact returned to the straight and narrow path in respect of audit committees. I beg to move.
My Lords, noble Lords may recall that in Committee we discussed the arrangements for the trustee corporation that will manage the day-to-day running of the personal accounts scheme. In particular, we debated whether there will be a committee with responsibility for reviewing the corporation’s internal financial controls.
It may help if I remind the House that the corporation will be established as a non-departmental public body and its sole function will be to run the scheme in the best interests of its members, within the order and rules. As part of its work in designing and establishing the personal accounts scheme, the Personal Accounts Delivery Authority will assist with and advise on the practicalities of establishing the trustee corporation. Once the trustee exists, the delivery authority will help the corporation set itself up and facilitate the handover process.
At this early stage, we do not know exactly what the assurance and internal control arrangements for the trustee corporation will be. In Committee, I said that it was probable that the trustee corporation will have an audit committee. If that was interpreted as equivocation, let me be clearer. I can reassure the noble Baroness that the authority has advised me that the intention is that the trustee corporation will establish an internal controls committee reflecting best practice in corporate governance. The Bill allows for such a committee through the provisions in paragraph 9 of Schedule 1.
I hope that the noble Baroness will accept my assurances that there will be a committee with responsibility for reviewing the corporation’s internal financial controls and that her amendment is unnecessary. If I need to be clearer, I will endeavour to be so at a second attempt.
My Lords, I thank the noble Lord, Lord Oakeshott, for his support on this and on other recent amendments. I thank the Minister for being so clear on this occasion about what he intended to say the last time but did not quite manage to get out. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
57: Schedule 1, page 80, line 19, after “employee” insert “or other member of staff”
On Question, amendment agreed to.
58: Schedule 1, page 80, line 42, leave out “and” and insert—
“( ) any information the Secretary of State directs relating to the financial position of any pension scheme established under section 66 for which the trustee corporation acts as trustee, and”
The noble Baroness said: My Lords, I shall speak also to Amendment No. 61. These amendments concern financial reporting of the personal accounts pension scheme. In Committee we debated the financial relationship between the trustee corporation and the personal accounts pension scheme and whether there would be a clear dividing line between the two. Since then the Minister has helpfully shared with me the emerging thinking on how the two bodies will operate. As I understand it, the current view is that the pension scheme will receive contributions and invest the proceeds and will pay charges to the trustee corporation. All of the other financial transactions—largely costs—will be captured in the trustee corporation.
I should say that this arrangement is unlike what I understand to be private sector pension practice where there is a corporate pension trustee that is a largely dormant body with all the transactions going through the pension scheme, but I do not express a view on the arrangements that the Government are setting up. I can see that with the possible front-loading of costs, it has optical advantages if they are kept separate from the pension scheme. On the other hand, the costs properly belong to the personal accounts pension scheme, and it would be undesirable if at some later date, for example, the trustee corporation were wound up without all of its costs having been passed on to the pension scheme.
However, the concern that I am focusing on with these amendments is the more basic one of transparency. Since the contributions and investments will be shown in one set of accounts, those of the pension scheme, and the costs will be captured elsewhere, in the trustee corporation, it will not be possible to form a view on what is happening to the personal accounts scheme overall unless those two sets of accounts and any reports are brought together.
Amendment No. 58 amends paragraph 17 of Schedule 1, which deals with the annual report of the trustee corporation. Paragraph 17(2)(b) requires the annual report to contain information about the financial position of the trustee corporation. My amendment repeats that for any personal account pension scheme.
Amendment No. 61 amends paragraph 20 of Schedule 1. Sub-paragraph (6) requires the Secretary of State to lay the audited accounts of the trustee corporation before Parliament. There is no similar requirement for the accounts of the personal accounts pension scheme, so Amendment No. 61 requires them to be laid at the same time. The effect of the two amendments is that financial information about the pension corporation will always be accompanied by financial information about the personal accounts pension scheme as a whole, so that a proper picture of the whole can be seen.
In Committee, when we were debating the issue of audit committees, the Minister said:
“Although the two sets of accounts are separate, they are so closely linked that it is inconceivable that one can be looked at without an examination of the other”.
That is my point. He continued:
“I can say that the scheme members and Members of Parliament will see both sets of accounts”. —[Official Report, 2/7/08; col. 332.].
That sounds fine, but it is not what the Bill says. The Bill has specific provisions about the accounts of the trustee corporation but nothing whatever about those of the pension scheme, which is why I have tabled the amendments to see whether we can make some progress on achieving that transparency. I beg to move.
My Lords, I am grateful for the amendment because it gives us the chance to try to produce some clarity on the issue. Before I turn to the specific amendment, I remind the House that the sole function of the trustee corporation is to be the trustee of the personal accounts pension scheme and to run the scheme in the best interest of members, subject to the order and rules. As we have discussed, the trustee corporation is to be set up as an NDPB.
Before I go further, perhaps I might revert to the discussion we had about the draft pro forma accounts and stress, as I did at our meeting, that they were illustrative to give an indication of how the flows could be shown in accounting terms. Clearly, the delivery authority is responsible for designing the scheme and no final decision has been taken, so quite where the flows and costs will end up is still an open question. The purpose was to try to start a discussion on that.
My Lords, I certainly agree with the second point. As an NDPB, the trustee corporation will be required to publish an annual report and its accounts, setting out what it has spent on running the scheme. Those will have to be independently audited by the National Audit Office and laid before Parliament. As an occupational pension scheme, the scheme is required to produce an annual report and scheme accounts.
Amendment No. 58 would empower the Secretary of State to direct that the NDPB accounts must contain information about the financial position of the scheme. Amendment No. 61 would require the audited accounts of the scheme to be laid before Parliament. Schedule 1 already contains provision for the Secretary of State to direct the trustee corporation to include information in the annual report. That power refers to information relating to the financial position of the trustee corporation or any other matter. That power would therefore already allow the Secretary of State to direct that the report must include information related to the scheme—for example, if PADA recommends, after detailed consideration, that this is appropriate. Therefore, Amendment No. 58 would simply duplicate existing provision.
I explained in Committee that the requirement for an auditor's statement about all contributions to the personal account scheme would be very costly and difficult to compile, due to the sheer number of employers and members participating in the scheme. I think that we agreed on that and that we need alternative assurance arrangements based on the principles of openness, accountability and probity. There will be two sets of accounts. Although the two sets of accounts are technically separate, they are so closely linked, as we have identified, that it is inconceivable that one could be looked at without examination of the other. The financial position of the scheme will be clear from that package of accounts. Whether the scheme accounts and the NDPB accounts are presented in the same document is a detail yet to be decided. I hope I can reassure the noble Baroness again that both sets of accounts will be publicly available. This means that scheme members and Members of Parliament will definitely be able to have both sets of accounts before them. I hope that that is the reassurance that she is looking for.
My Lords, the Minister said that, when considering the information that would be included in the annual report of the trustee corporation, the Government were going to wait for what PADA recommended. I was making a point about parliamentary accountability, on which PADA is not an expert. It might be an expert on very many things to do with setting up a personal accounts pension scheme, but I would not expect the information flows to Parliament to be within its competence. I would expect it to be within the competence of the Minister’s officials, so I would have expected him to give me a clearer assurance. Will he do that today?
My Lords, I hope that I have given as clear an assurance as I can that both sets of accounts, whether they are part of the same document or separate, will be laid before Parliament.
On the question of what PADA may recommend, obviously it could offer advice to the Secretary of State on a range of issues, particularly the ones that might need to be identified. That does not negate the issue that I have tried to identify; there will be two sets of accounts that are inextricably linked, and you need to see both to make sense of the arrangements. Both those accounts will be available to Parliament.
Again, my Lords, I am talking not about the accounts but about the annual report. The Minister said that my amendment was unnecessary because there was already a power in paragraph 17 of Schedule 1, which I accept, but he did not go on to say whether the annual report would contain information about the personal accounts pension scheme as opposed to the trustee corporation. That is the assurance that I seek. I understand that the power is there; my question is whether it will be used.
My Lords, the power would and should be used. I qualify that by saying only that the whole design of the scheme and all the arrangements that surround it are still being developed, but I see no reason why it should not be as the noble Baroness wishes. No one is trying to hide anything here—she is looking askance at me. We need to ensure that there is transparency, which is clearly the objective here. Indeed, to do otherwise would in a sense be quite impossible, given the information from the scheme that would need to be available to members in any event.
My Lords, that is not entirely the satisfactory conclusion that I had hoped I would get to these amendments. The Minister might like to look again at what he has said and whether he can improve on it in relation to the annual report. Instead of seeking acceptance of my amendments, I sought positive assurances that these perfectly reasonable information requirements would flow without any intermediation by PADA. I did not quite get that, but I got a lot. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
59: Schedule 1, page 81, line 10, leave out sub-paragraph (2) and insert—
“( ) The assistance may take the form of—
(a) loans subject to repayment with interest at a commercial rate, or(b) guarantees or indemnities issued on commercial terms.( ) Interest is at a commercial rate if it is at least equal to the rate set by the Treasury under section 5 of the National Loans Act 1968 (c. 13) for an equivalent loan.”
The noble Baroness said: My Lords, we come to a slightly more difficult area. In moving Amendment No. 59, I will also speak to Amendments Nos. 60 and 64. These amendments concern the costs of personal accounts and whether those costs should be subsidised.
Amendment No. 59 amends paragraph 18 of Schedule 1 and replaces sub-paragraph (2), which says that the Secretary of State can give financial assistance to the trustee corporation in any way he likes. This is clearly intended to cover the possibility of subsidy to the trustee corporation. My replacement sub-paragraph would allow financial assistance only on commercial terms. The noble Lord, Lord Oakeshott, said in Committee that “commercial terms” was rather difficult in the context of political funding. I defer to his experience on that rarefied subject but, to meet his point, I have extended my amendment to use the National Loans Act formulation of interest rates as the threshold for a commercial rate.
While the financial arrangements surrounding personal accounts seem set to remain a mystery for some time—we will return to that in a later amendment—it seems clear that the trustee corporation will incur expenditure in the early years which will not be matched by income from charges from members. The gap between income and outgoings will be particularly marked if the annual management charge method is adopted for charging on an exclusive basis. The trustee corporation will therefore need money to fund those costs until charges catch up with expenditure. We have no issue with that, but we believe that this money should be by way of loan and should bear a commercial rate of interest in order to avoid a covert subsidy being conferred on the personal accounts pension scheme.
Of even more concern to the insurance industry, which will have to compete with personal accounts, is the possibility of a subsidy being paid to the personal accounts pension scheme to support some of its activities on an ongoing basis. In Committee, the Minister revealed—I think, for the first time—the novel contention that the personal accounts scheme will have a public service obligation to accept members into the scheme whom the market finds commercially unviable. The Minister said that it could be reasonable for the Government to compensate the personal accounts scheme for that.
We do not accept that the personal accounts scheme involves any element of public service obligation. We accept that EU rules permit the subsidy of public service obligations, but they do not require such subsidy. Furthermore, we are far from clear on whether the personal accounts scheme would qualify as a public service organisation as it is quite unlike any of the public services that generally fall within this term. In the absence of competitively testing the level of subsidy, I believe that the Government would rightly struggle to justify any particular level of subsidy.
The Government have said that they want to encourage the continuation and expansion of existing workplace pensions and to encourage auto-enrolment into those schemes, which we have debated in the context of earlier amendments. The commercial pension providers will almost certainly accept a wider range of member, including those at the lower end of the income scale, those who change jobs more often and those who, inevitably therefore, lead to higher servicing costs. Is it fair that the Government could subsidise the personal accounts scheme for accepting such members, but not the alternative auto-enrolment methods of saving?
I went back to the Pensions Commission’s report and found no suggestion of subsidy. Its suggestion of charges of no more than 0.5 per cent and possibly 0.3 per cent was made in the full knowledge of the target group of members and their financial characteristics. More importantly, the Government’s White Paper published in December 2006, Personal Accounts: A New Way to Save, while suggesting that short-term costs might be higher than anticipated by the Pensions Commission, asserted at paragraph 4.8:
“The Government is confident that charges in the scheme can be radically lower than those currently offered to … our target group”.
There was no mention of subsidy or finance complying with state aid rules, to which the Minister referred in Committee.
We suspect that talk of subsidy has arisen only because the costing for personal accounts, about which we know absolutely nothing because of the Government’s obsessive secrecy, is showing that the task of delivering the scheme within the 0.5 per cent charging limit proposed by the Pensions Commission is proving difficult. Rather than own up to that and re-examine whether the PADA-led personal accounts scheme is viable in those terms, the Government are hiding behind hints of subsidy. We do not think that that is the right way to go.
Amendment No. 60 is related to paragraph 19 of Schedule 1 under which the,
“trustee corporation may make charges in connection with the exercise of its functions”.
My amendment says that it “shall” do so. The trustee corporation will incur costs and it needs income to cover them. The current drafting assumes that it might not need to make charges. Clearly, if it receives subsidy, it will not do so, but we need to ensure that the trustee corporation does make charges. That is what Amendment No. 60 seeks to do.
Amendment No. 64 deals with PADA’s costs and how they are to be financed. In Committee, the Minister invited me to see the DWP’s estimates as the basis of transparency of PADA’s costs, which I have done. PADA and costs are mentioned, but that is about all. We know that PADA has already been financed by grant-in-aid which will amount to £49 million by the end of this financial year. I do not believe that any accounts for PADA’s first year spend of £13 million have yet been made public; at least, I could not find them. We will clearly not find anything about this year’s £36 million until PADA’s accounts come out some time in the second half of next year. These delays are simply not conducive to transparency both for Parliament and for outside bodies which have an interest in what PADA spends taxpayers’ money on.
Amendment No. 64 requires the Secretary of State to lay a report before Parliament in advance of giving further grant-in-aid or indeed any other non-commercial method of funding to PADA. This goes beyond the technical process of supply via approved estimates, which is a largely meaningless formal parliamentary process since it would require the Secretary of State to give his reasons for subsidising PADA’s work. Unlike the trustee corporation, we accept that a level of subsidy of PADA’s activities might be necessary, and I conceded that in Committee. We recognise that some of its work is related to broader public policy development, and it would be reasonable for the Government to use taxpayers’ money for that. But most of its expenditure will relate to the delivery of an operational personal accounts pension scheme, which we do not consider should attract public subsidy. It would be difficult to formulate a “no public subsidy position for PADA’s work on personal accounts” rule in this Bill, as some of its activities are almost certainly mixed, so we have instead chosen transparency, which brings with it the possibility of early parliamentary scrutiny as an alternative route. I beg to move.
My Lords, more than I do myself, but I thank the noble Baroness. However, although I am flattered that my joke has been used to frame the amendment, I am afraid that I still think she is making rather a meal of this and that the amendment is unnecessarily restrictive because it takes away the flexibility necessary to establish a major undertaking of vital national importance. If I could somehow throw in the word “stakeholders”, I could be made a Minister. That is what I think and I do not support the amendment.
My Lords, with these amendments we turn to funding, an issue that was debated at length in Committee. The purpose behind Amendment No. 59 appears to be to restrict financial assistance to the trustee corporation to assistance on commercial terms, while Amendment No. 64 seeks to place a similar restriction on the funding of PADA unless the Secretary of State provides a report explaining his reasons for providing financial assistance on non-commercial terms. Amendment No. 60 would require the trustee corporation to charge for all its functions.
Let me begin by reassuring the noble Baroness that the Government have no intention of unfairly advantaging the personal accounts scheme either through the way they fund the Personal Accounts Delivery Authority or if they provide funding to the trustee corporation. The principle that personal accounts should complement not replace existing provision is one that has run throughout the development of our reforms and one that we will continue to follow as we develop the scheme’s funding strategy. At the same time, it should be recognised that we are asking the scheme to operate under restrictions that do not apply to other schemes in the market. In particular the scheme will have a public service obligation—I disagree with the position taken by the noble Baroness on that—to admit anyone eligible to join irrespective of whether the costs of taking them on will be covered by the revenues they bring into the scheme. It will have a public service obligation because it will have to accept any employer who wants to use it to fulfil their auto-enrolment duty by using the personal accounts scheme and it will have to accept any qualifying employee. Unlike any other scheme that can turn business away, the personal accounts scheme cannot do so, regardless of its commercial viability.
The scheme will also be focused specifically on the employers of low to medium earners not provided for by the existing market because they are considered to be uneconomic. In the long term we believe that the scale of the scheme means that it will be able to manage these commercial disadvantages while delivering low charges to members and being self-financing. But before it has achieved that scale, these requirements will make it more challenging to bridge the mismatch that will inevitably occur between costs and revenues in the scheme’s early years.
Ultimately, this could mean that the scheme has to offer a short-term level of charges that undermines our aims to provide low-cost pension provision and to build the scale that it needs to be viable in the longer term. To prevent this, it is reasonable for the Government to consider whether it could be in the public interest to compensate the scheme and its members for the burdens of the real commercial disadvantages, to which I have referred, to be placed upon it.
But let me be very clear that this is not a statement of intent; no decisions have yet been taken on the best way to fund the establishment of personal accounts. Such decisions cannot be taken until near the end of the commercial process when we will better understand its costs. For this reason it is essential that we retain flexibility on how the scheme should be funded.
However, I hope the House will be reassured that if the Government felt funding on a non-commercial basis was necessary, they would have to show that this was consistent with European state aid rules. This means that our approach would be rigorously tested by the European Commission to ensure that any funding was both necessary and provided the scheme with no unfair advantage. So not only do we not want to unfairly subsidise the scheme, it would be unlawful for us to do so. In addition, if the Government were to provide state aid it would be a matter of public record that the Commission had approved the aid, along with its reasons for why there was no unfair subsidy or anti-competitive element in our approach.
Amendment No. 59 would also prevent the Government giving grants to the trustee corporation. In its role as an NDPB, the trustee corporation may be asked to provide advice or information to the Secretary of State to ensure that we and Parliament can assess the success of our public policy aims. A similar burden is not placed on other occupational pension schemes. As this activity would not directly benefit members, it would be unfair for the trustee corporation to pass these costs on to members through the personal accounts charging regime. We would not, therefore, want to fetter our ability to make grants when appropriate.
Amendment No. 60 uses “shall” rather than “may” in relation to whether the trustee corporation will level charges. The trustee corporation is intended to be independent from government when acting as the sole trustee of the personal accounts scheme. It is therefore right that it should retain some discretion over these matters so long as it operates within the parameters that we have set publicly, including that it be self-financing, and receives no unfair advantage through the way it is funded. However, a permissive power is all that is needed for the trustee corporation to meet these requirements.
I recognise the noble Baroness’s legitimate interest in the issues of unfair subsidy, charging and parliamentary scrutiny, and I know we will have a debate at our next sitting around the issue of costs generally for the scheme. However, I hope I have been able to reassure her—I fear I have not—that we do not want and would not be able to provide an unfair subsidy. Therefore, as the noble Lord, Lord Oakeshott, said, these proposals are unduly and unfairly restrictive.
My Lords, it is a pity that we will end our deliberations today on a less happy note than we have achieved for much of Report to date. We remain concerned that the Government even talk the language of subsidy. The Minister said that it will not be unfair and that it will be subject to rules and so on but, if we go back, the Pensions Commission knew about the financial facts of the scheme it was proposing and it did not mention subsidy. The Government knew the facts when they published their policy in two White Papers in 2006 but they did not mention subsidy; I have checked.
We gave our support to the personal accounts scheme on the basis that there was not subsidy. There are some things that may well challenge the consensus that exists on personal accounts. I will put it no higher at this stage but the Minister should be aware that this is one of the things that might provide a dividing line in what we can accept for personal accounts.
It would not be appropriate for me to divide the House because I have already said that I shall not. However, we regard this as an important issue; perhaps it is more important in the context of my party’s policy towards continuing support for personal accounts if this talk of subsidy remains in the Government’s language. It is not part of our concept of personal accounts and we would always resist it.
My Lords, is the noble Baroness saying that that judgment arises from her belief that there is not a public service obligation? Alternatively, if she accepted that there was a public service obligation, would she then accept at least the potential for subsidy to be appropriate, subject to all the restrictions we have identified?
My Lords, I think the record will show that I said I did not accept that there was a public service obligation and that I did not think that the Government could establish it. Our position is that there should be no subsidy for personal accounts. Whatever language is used to reach that position does not much matter—it is a fairly basic position.
We have to leave it at that. As I said, this is not the way I would have liked to finish today’s proceedings but it is important that we make our initial view clear. We have not been persuaded. With that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 60 and 61 not moved.]
Clause 78 [Principles]:
[Amendments Nos. 62 and 63 not moved.]
Clause 80 [Finance]:
[Amendment No. 64 not moved.]