Pensions Bill

Public Bill Committee, 1 February 2007.

David Taylor (Labour, North West Leicestershire)

Good morning, and welcome to the seventh sitting of this Committee.

Clause 14

Andrew Selous (Conservative, South West Bedfordshire)

Good morning, Mr. Taylor. I welcome you back to the Chair.

We have come to part 2 of the Bill, which deals with the complex issue of contracting out. This clause deals with the conversion of guaranteed minimum pensions. It might be helpful if I set the scene as to how we have arrived at the need for these provisions. In 1978 it was established that where employees contracted out of the state earnings-related pension scheme, employers had to provide a defined-benefit scheme, and a guaranteed minimum pension that at least equalled the SERPS that they would have earned had they not been contracted out. Hence the contracted-out rebate, in effect a reduction in national insurance contributions paid by contracted-out employers and employees, was introduced. The rebate is set regularly by the Government on the advice of the Government Actuary’s Department, and is supposed to reflect the cost of providing the benefits that have been forgone.

However, it does not always do so; the Government have not accepted in full the most recent advice from The Government Actuary’s Department. I assume, therefore, that the Minister accepts that the rebate no longer reflects the actual cost of providing the forgone benefits, as was originally envisaged.

Following the Pensions Act 1995, contracted-out salary-related schemes do not have to provide guaranteed minimum pensions in respect of benefits accrued after 1997, but they do have to provide them for benefits accrued between 1978 and 1997. The new requirement is to provide benefits broadly equivalent to or better than something called the reference scheme test. The main features of that, for a defined-benefit scheme, are that it should provide for pensions to be paid at normal pension age of 65 and to continue for life; it should have an accrual rate of 1/80 up to a maximum of 40 years; it should define qualifying earnings as 90 per cent. of the employee’s earnings between the lower earnings limit and the upper earnings limit; and it should provide for a widow’s or widower’s pension at the rate of one half if the member dies after the age of 65 or one half of the pension rights already accrued if the member dies before the age of 65.

The Pickering report in 2002 recommended simplification of contracting out, and the pensions Green Paper of December that year proposed, among other things, that schemes should be permitted to convert the GMP use to the simpler reference scheme test benefits of equivalent value.

The Pensions Act 2004 rather ducked the issue of converting GMPs into scheme benefits. However, the Government belatedly introduced a new clause allowing pension schemes to modify members’ accrued rights, provided that that is done on the basis of actuarial equivalence.

Clause 14 would allow contracting-out defined-benefit schemes to convert GMPs into scheme benefits, but only if they meet certain conditions. Those conditions include the actuarial equivalence of the value of members’ conversion benefits with those possessed pre-conversion. We are promised regulations setting out how actuarial equivalence is to be determined; can the Minister tell us whether draft regulations are yet available? There should be no reduction of pensions in payment; conversion benefits should not include money purchase benefits; survivor’s benefit is to be provided; the agreement of the scheme’s sponsor is to be obtained; and the members and survivors and Her Majesty’s Revenue and Customs are to be informed. Can the Minister confirm that even where all members in a scheme do not convert to GMPs, trustees will be allowed to do so for individuals, provided that those individuals consent?

It will be for the pensions regulator to enforce the law in that area, but when does the Minister expect the provision to take effect? It is suggested in the Library brief that it will not happen before 2009 because, as we have found out on a number of occasions in the Committee, the Department’s computers cannot be programmed to do the job before then—another case of the computer saying no.

It would be valuable for the Committee to consider the views of outside bodies on the clause. The Engineering Employers’ Federation, which has followed the Bill carefully, describes it as “a useful provision” and

“one for which the EEF has been arguing for a number of years.”

It goes on to say:

“However, the EEF considers that there needs to be greater clarity about the requirement to notify members about a proposed conversion, as this may prove to be impossible for some deferred members whose current address may be unknown, and about what is meant by the requirement to ‘consult’ the earner in advance.”

That is a practical problem, and we are grateful to outside bodies such as the EEF for identifying it. Will the Minister address it?

A briefing provided by the Association of Consulting Actuaries makes the point that the provisions of the clause are supposed to ease administration costs. It states that

“the cost of running good existing occupational pension schemes must be significantly reduced if the wave of scheme closures”

in recent years is to be checked. Rather worryingly, the ACA goes on to suggest that the clause will not deliver savings, because of EU legislation. It states that the clause

“appears to allow conversion into normal scheme benefits to take place only if benefits are levelled up to avoid sex discrimination.”

Will the Minister comment on what appears to be another serious issue drawn to our attention?

The ACA goes on to suggest a number of methods to reduce the costs of the scheme. One is to restore the contracted-out rebate to the level recommended by the Government Actuary to meet the costs of replacing the state benefits forgone. As it points out,

“the 2007/12 rebates set by Government are an effective tax on providing a defined benefit scheme.”

Can the Minister confirm that he is reconsidering that?

Subject to the various points that I have raised, and of course to the Minister’s answers to them, we do not oppose the provisions in the clause.

James Plaskitt (Labour, Warwick and Leamington)

I welcome you to the Chair, Mr. Taylor.

The hon. Member for South-West Bedfordshire has helpfully introduced the clause and explained the purposes behind it. It is one of the Bill’s private pension simplification measures and is designed to remove some of the complexity that, as the hon. Gentleman said, has built up over time. It is a long clause, but we believe that it will achieve a straightforward and desirable end—reducing the administrative burdens on schemes and making it easier for their members to understand what they are entitled to. It is a reform that implements a recommendation of the Pickering review.

It will help the Committee if I provide a brief history and make some points in addition to those already contributed. The schemes involved are those that were contracted out of the state earnings-related pension scheme for all or part of the period 1978 to 1997. In order to contract out, people running those schemes had to ensure that the benefits offered were at least as good as the statutory minimum—the guaranteed minimum pension. However, a two-tier system developed over time and the GMP and the scheme excess now have different rules applying to different parts. That is too complex. GMP conversion will allow schemes to move to one set of rules. The clause will allow, but not require, the schemes to convert the GMPs of all or some of their members as long as actuarial equivalence is maintained.

Angela Smith (Labour, Sheffield, Hillsborough)

The hon. Member for South-West Bedfordshire mentioned the helpful comments of EEF. I wonder which other organisations commented on the complexity of the issue and whether the shape of the clause was altered in any way because of that consultation.

James Plaskitt (Labour, Warwick and Leamington)

I thank my hon. Friend for that point. Over time, as the two-tier system has evolved, there has been considerable representation from across the industry urging us to achieve the simplification. As she knows and as I said, when Pickering looked at the issue during his review, he recommended such changes. What has been composed here is very broadly welcomed by the industry, subject to one or two caveats, which may have been raised earlier but to which I will come shortly.

I will explain the most significant provisions, beginning with those designed to protect the members’ interests during the conversion exercise. First, as I said, the scheme must maintain actuarial equivalence, which means, put simply, that at the date of conversion the value of the scheme benefits being offered must be the same as, or better than, the value of the GMP being given up. Then, if the scheme converts a pension already in payment, the amount of that pension immediately after the conversion must be no lower than the pension currently in payment. The clause provides trustees with power to amend their scheme rules, if necessary, to allow for the GMP conversion.

The power has two restrictions. First, the scheme must continue to have a defined-benefit structure—it cannot change the basis of the scheme to defined contribution. Secondly, at present, where the member dies, his or her surviving spouse or civil partner can inherit a part of the deceased member’s GMP; the position of a survivor after conversion must be broadly the same as it would be if the scheme had not converted the GMP.

Sally Keeble (Labour, Northampton North)

I have some problems hearing—I wonder whether my hon. Friend could speak up a little?

James Plaskitt (Labour, Warwick and Leamington)

I will do my best.

All the provisions protect the member. In addition, the clause requires the employer to consent to GMP conversion, because it might be necessary for the benefits in the scheme to be rounded up to achieve a sensible converted benefit.

Sally Keeble (Labour, Northampton North)

I wonder if I might just—

James Plaskitt (Labour, Warwick and Leamington)

Am I doing any better?

Sally Keeble (Labour, Northampton North)

I thought that my hon. Friend was going to talk a bit more about spouses. Is there anything—which, I am sorry, I should know—that will ensure the proportions that the surviving spouse or civil partner will get?

James Plaskitt (Labour, Warwick and Leamington)

Some of the issues that my hon. Friend is raising are covered by the clause. I think that the rules surrounding actuarial equivalence address some of her points, but others are covered by subsequent clauses, which we have yet to reach. I hope that her questions will be answered then.

Finally—I am just working my way through the main provisions of the clause—at present, when a person retires, the state earnings-related pension scheme entitlement based on earnings before April 1997 is reduced by the amount of their total GMP entitlement. Known as the contracted-out deduction, the reduction is made to reflect the fact that the person has paid a reduced level of national insurance contributions and thus prevents double provision. The clause allows a person who has had their GMP converted to be treated as if they still had the GMP, for the purposes of reducing the state pension. It allows for a notional contracted-out deduction to be made from the person’s SERPS entitlement to reflect the lower rate of national insurance contributions paid by the member.

The hon. Member for South-West Bedfordshire asked about an issue that was raised by the EEF, namely the meaning of “consult”. Schemes must explain the GMP conversion proposals to affected members, so that they understand what it will mean for them and can raise queries or points of concern before the conversion proceeds. Scheme trustees have a duty under trust law to act in the best interests of all members, so we would expect them to consider any points raised by a consultation exercise in deciding whether GMP conversions should proceed as proposed, proceed with revisions, or not proceed at all. There are no plans to introduce detailed legislation prescribing how each scheme should carry out consultation, as that would be unduly restrictive.

The hon. Gentleman also asked—this has also been raised by the EEF—what happens if the scheme has lost contact with some members and therefore cannot consult them. Under proposed new section 24E(3), the draft legislation requires the scheme trustees to “take all reasonable steps”. Sometimes, deferred members fail to update the address details held by a former pension scheme when they move. Schemes therefore cannot be confident that their address databases for deferred members are always entirely accurate. We accept that it would be impractical and uneconomic for schemes to have to set about tracing all members who may have moved house after leaving the scheme. If correspondence is returned from the last known mailing address, the details of the individual case will determine what constitutes further “reasonable steps”.

The hon. Gentleman asked about costs. Our view is that when the provisions are implemented, they are liable to ensure annual administrative cost reductions for schemes, because there will no longer be two sets of rights to administer. We estimate that scheme savings could be around £15 million a year.

Andrew Selous (Conservative, South West Bedfordshire)

The Minister might be coming on to this in the course of his remarks. The ACA made a point about the impact of EU sex discrimination legislation. I should be grateful if he would respond to that.

James Plaskitt (Labour, Warwick and Leamington)

That will apply across the board; it is not specifically related to this measure. Schemes will incur some up-front costs on a one-off basis in making GMP conversions, but in the longer run they will make annual savings. We are taking on board the point that the hon. Gentleman just made.

The hon. Gentleman asked about the timing of the regulations and the introduction of the change. We aim to have draft regulations ready for consultation this summer. The plan is to seek to implement them in April 2009. I hope that I have dealt with the hon. Gentleman’s points.

Clause 15

James Purnell (Labour, Stalybridge and Hyde)

I beg to move amendment No. 51, in clause 15, page 18, line 36, at end insert—

‘(1A) The Secretary of State may (whether before, or on or after, the abolition date) by regulations amend, repeal or revoke any protected rights provisions.’.

David Taylor (Labour, North West Leicestershire)

With this it will be convenient to discuss the following: Government amendments Nos. 52 to 55.

Amendment No. 6, in schedule 4, page 43, line 11, leave out paragraph 8.

Government amendment No. 59.

Amendment No. 7, in schedule 7, page 66, line 27, at end insert—

‘Section 28.’.

James Purnell (Labour, Stalybridge and Hyde)

It is a pleasure to welcome you to our morning sitting, Mr. Taylor.

The amendments will, I hope, help to allay the concerns about the treatment of contracted-out rights that have already been built up when contracting out is abolished for defined contribution schemes. Government amendments Nos. 51 to 55 insert a power to abolish or vary the rules on protected rights. This is the only area in which the Government are introducing a substantive amendment after Second Reading. Government amendment No. 59 is a separate, minor technical amendment, to correct a reference in schedule 4 to a section title in the Pension Schemes Act 1993.

Before I discuss the detail of the amendments, it may be helpful to explain a little about contracting out and protected rights. The amendments and clause 15 only relate to defined-contribution schemes, which are also known as money purchase schemes. We have already examined defined-benefit schemes.

As we have already seen, contracting out allows people to opt out of the state second pension by saving in a private pension scheme instead. People who choose to do so on a defined-contribution basis receive a rebate of their national insurance contributions. That rebate, together with any associated tax relief, is invested in the person’s pension scheme. That amount and any investment return are known as protected rights.

By contracting out, the person has forgone some or all of their rights in the state second pension scheme, so certain rules have traditionally applied to protected rights. Those rules are, first, that protected rights are invested only in certain specified products; secondly, that they are only transferred to schemes that are contracted out; thirdly, that annuities purchased with the protected rights must be calculated on a unisex basis, and fourthly, that the protected rights have to provide for a survivor benefit if a scheme member is married or a civil partner at the time that an annuity is purchased.

We recognise that those rules can complicate scheme administration and that they do not provide the flexibility for scheme members when they are choosing their annuity. By dictating that there must be a unisex annuity, we are restricting people’s ability to choose and they may have to make a choice that is not appropriate for them; that situation can apply for women as well as for men. The complexity in scheme administration is caused by the fact that the rules on protected rights do not apply to any other pension rights that are held in that person’s pension pot, so that protected rights must be tracked separately in order for providers to comply with the legislation. We recognise, therefore, that the removal of those rules would simplify the schemes for members.

We consulted on this issue in significant detail, and we had a unanimous response from the industry, which strongly supported the removal of those rules. However, we did not receive any responses from people who represented women’s interests in particular, and we therefore wanted to obtain further information from them before tabling the amendment.

Following that further round of discussions, we thought that the appropriate way of introducing this measure was in the context of the joint Department for Work and Pensions/Treasury review of the open market option for annuities. That joint review was announced in the pre-Budget report last November and one of its central aims is to ensure that people make informed choices about their annuity type and fully understand the consequences of their choice. The review will include specific consideration of the impact of removing the requirement to take out a dual-life annuity with protected rights, as well as more general consideration of the question of joint life annuities, including how partners can make appropriate choices for themselves both as individuals and as a couple; a number of suggestions have already been made as to how that can be achieved.

That review of the open market option for annuities is expected to report towards the end of the year. Therefore, amendments Nos. 51 to 55 would provide a power to abolish or vary, by regulations, the rules on protected rights following the outcome of the review. We intend to introduce regulations, once we have fully explored the potential impact of removing the rule about survivor benefits in the light of the conclusions reached by the review. Of course, we will come back to Parliament with those regulations, as any regulations made under this power will be subject to affirmative resolution and therefore they must be debated by Members of both Houses.

I hope that the Committee agrees with our considered approach. Our amendments will allow action on the rules applying to protected rights to be taken at the right time and are based on the evidence. The amendments agree in principle with amendments Nos. 6 and 7, tabled by the hon. Member for South-West Bedfordshire. So his party agrees with us about the need to make the change; we are just proposing that it should be done in the context of the wider changes on annuities, which might come forward as part of that. I look forward to the debate and I shall be interested to see whether he wants to press his amendments.

Andrew Selous (Conservative, South West Bedfordshire)

I think that I am reasonably reassured by what the Minister had to say. We were lobbied by the Association of British Insurers over contracted-out rights—also known as protected rights. The ABI feels strongly that those should be simplified further because, as it put it,

“the current rules add unnecessary complexity and cost for consumers”.

At the moment, the part of a person’s pension fund relating to protected rights has to be used in a particular way—often differently from the rest of the fund. For example, protected rights money must be used to buy an annuity based on unisex rates. When the policyholder is married or in a civil partnership, a joint life annuity must be bought.

The ABI says that

“individuals should be able to use the whole of their pension pot—non protected rights and protected rights alike—in the same way”.

It says that that will supply simplicity as well as reduce costs for consumers and providers. It would no longer be necessary to track protected and non-protected rights benefits separately. Crucially, it would also allow consumers to decide what sort of annuity is most appropriate for their own personal circumstances. The Minister said that he has been consulting on that matter, which is why he has introduced the amendments before us, rather than incorporating the provisions in the Bill as presented on Second Reading

On Second Reading, the Secretary of State said that he intended

“to take powers to enable us to remove the complex rules governing rights accrued in contracted-out defined contribution schemes, following the outcome of the review of the open market option for annuities that we expect to be completed by the end of the year.”—[Official Report, 16 January 2007; Vol. 455, c. 668.]

I am grateful to the Minister for providing the Committee with further information on that review.

As far as I can determine, the Government amendments would give them powers by regulation to simplify the current position in the way that the ABI is urging. Prior to seeing the Government’s amendments, of course, we tabled amendments Nos. 6 and 7 to schedules 4 and 7 respectively. They would remove the proposed amended requirements relating to protected rights and add to the list of repeals section 28 of the Pension Schemes Act 1993, which provides for the way in which protected rights must be used.

In a sense, our amendments merely force the pace of the Government’s apparent intentions. The Minister has confirmed those intentions, so I shall not press amendments Nos. 6 and 7.

Sally Keeble (Labour, Northampton North)

I am grateful for the opportunity to ask some questions because this clause is extremely technical. I suspect that it will fly below many people’s radar but have a massive impact on widows, in particular, but also on civil partners, who are dependent on the main breadwinner for their pension rights. That is partly why I have raised survivors’ rights previously.

I think back to the problems of widow’s SERPS when women found out much later on that what they had assumed to be a secure income for their retirement was not, because the provisions that protected its value had been changed. There were issues about the information and the amount of time that they had. I am mindful that the Government were taken to the ombudsman by a number of MPs, including me, because our constituents had not received the information. I am pleased that the new regulations will be by affirmative resolution, as that will make us focus our attention on them. I hope that there will be very good consultation with the women’s groups as well as with the pensions industry, because although the pensions industry might understand the figures, the women’s organisations understand the human consequences of the calculations.

I hope that careful provision will be made, or that requirements will be placed on providers, to ensure that the right information is given to people when they make their pension arrangements. The information should focus on what will happen to their survivors—spouses or civil partners—so that they can make informed choices and do not find, part-way down the line when they are still working or are into their retirement, that they will not receive what they thought they would or, when the main breadwinner dies, that the survivor’s income is catastrophically changed.

I had some questions about clause 14, but I will take them up separately with the Minister. When we were dealing only with widow’s SERPS it was a very different society; now we have to ensure that the provisions are consistent for widows, widowers and civil partners. I trust that those matters will have been properly attended to so that the regulations are fit for purpose when they are introduced.

James Purnell (Labour, Stalybridge and Hyde)

I am happy to respond to what my hon. Friend rightly said is a debate on important decisions. I reassure her that the aim of the open market review and the changes proposed is to help women and men to make better choices for themselves as individuals and as a couple, not to remove from consideration the importance of thinking about financial support for their partner. There is a bigger prize than protected rights to be achieved through the open market review, which is why the Equal Opportunities Commission is content with that approach.

Some women will not want to purchase a unisex annuity because the provision that they and their partner have means that the best financial arrangement will be for them to purchase an annuity for themselves, as individuals. The right approach is to consider what can be done to ensure that couples make effective choices. A number of suggestions have already been made; the EOC is interested in whether there can be a signed waiver, so that someone who is purchasing a single-life annuity has to show that they have consulted their partner. It would be possible to do that when the relationship is registered, although it may not be so easy if people are cohabiting, but the law may be able to cope with that situation. Other suggestions have been made, for example, people being automatically assumed to be purchasing a joint annuity unless they make an active choice not to do so.

The Government and the women’s groups mentioned by my hon. Friend, which have provided us with an excellent briefing on the subject, understand the human implications and the figures. The women’s groups are happy that the big prize should be informed choice for people to make decisions for themselves as individuals and as a couple. The provisions that the amendment would remove are very inflexible as they would require people to do something that may not be appropriate in their financial circumstances.

In conclusion, it is worth saying that the ABI will also be involved in the open market review. We have also written to the Joint Committee on Human Rights, which is content with our approach on taking this power and having the affirmative resolution later. This is the right way to take the decision—in a staged way. The bigger issue is the overall one of when people choose their annuities, and I hope that that reassures both my hon. Friend the Member for Northampton North—and the Opposition Front Benchers, whom I therefore urge to withdraw their amendments.

David Laws (Liberal Democrat, Yeovil)

I beg to move amendment No. 37, in clause 15, page 19, line 16, at end add—

‘(10) The Secretary of State must lay before Parliament no later than 31st December 2007 a report setting out how additional revenues from increasing National Insurance Contributions collected from abolishing contracting-out will be used to improve pension provision.’.

David Taylor (Labour, North West Leicestershire)

With this it will be convenient to discuss the following: Clause stand part.

That schedule 4 be the Fourth schedule to the Bill.

New clause 3—Review of the abolition of contracting-out for defined contribution pensions schemes—

‘(1) The Secretary of State shall make a statement to Parliament in each financial year after 6th April 2010 on the use of the revenue that would previously have been assigned to contracted-out rebates for defined contribution schemes.

(2) For the purposes of subsection (1) above, the statement shall cover the extent to which the revenue is assigned to promoting saving.’.

David Laws (Liberal Democrat, Yeovil)

I welcome you to the Chair again this morning, Mr. Taylor. Clause 15, as most members of the Committee might acknowledge, is important not only in its own right but for the potential development of future pension policy, as it involves a significant change: the abolition of contracting-out for defined-contribution pension schemes. Amendment no. 37 asks the Secretary of State to lay a report before Parliament by the end of this year, setting out how the additional revenues from increasing national insurance contributions—collected through the abolition of contracting-out and other DC schemes—will be used to improve pension provision.

As I understand it, new clause 3, in the name of the hon. Members for Eastbourne and for South-West Bedfordshire, seeks to raise similar issues and is designed to provoke a debate about how the Government intend both to use the savings that have been made through this change and to underpin private saving in the future. There has been quite extensive debate about this among private providers in the pension arena, and significant debates both in the context of the Pensions Commission’s own report and in the Select Committee on Work and Pensions. The hon. Member for Weston-super-Mare was an active participant there and might want to make some comments on this issue.

Before touching on the substantive debate, it will be useful to get clarification on a couple of issues of detail. We have already touched on one in Committee—the costs involved in this particular change. When the Work and Pensions Committee was debating that issue a few months back, it did so on the basis of rather higher figures than the Government now seem to have for the value and yield from getting rid of the DC rebates. The figures that the Department for Work and Pensions was using for the cost of these rebates in 2003-04 seemed significantly higher than the figures being used now. The figures that were being used for 2003-04 had it that the rebate was costing £0.5 billion a year for the occupational DC schemes and £3.1 billion for personal pensions, giving a total of £3.6 billion. Some members of the Work and Pensions Committee were using figures of £4 or £5 billion in the context of the hearing, which I assume is from a previous year.

Now, the figures that the Government have supplied as part of the Bill’s regulatory impact assessment use far lower numbers. The cost of the DC rebate is given as £1.9 billion for the years 2008 through to 2011 in cash terms, while declining gently in real terms from a similar starting point. It appears, then, that the amount of money that we are talking about has roughly halved over the last few years. It would be useful to clarify whether there is a high degree of confidence in the figures that have been used and to ask Ministers to state the reasons for the big decline in the past few years. Does that simply come from the growing lack of attractiveness of the DC rebate—the point that the hon. Member for Weston-super-Mare is about to make?

John Penrose (Conservative, Weston-Super-Mare)

Indeed, I hope that the Minister will clarify that for us. Given the eroding attractiveness of the rebates for both defined-contribution and defined-benefit schemes, one reason why it is costing the Government significantly less could simply be that more and more people are contracting back into the Government scheme. That may mean that the Government are saving money by reducing the amount of money that they are paying out for the rebates, but at the same time they are having to pay out a good deal more on the other side of the equation in the contracted-in element of the scheme. If those numbers do not balance, it will leave a big hole. I am sure that the Minister will want to reassure us on that.

David Laws (Liberal Democrat, Yeovil)

The hon. Gentleman makes an excellent point, which relates to another issue that I want to come to in just a moment.

Another issue that the Minister could clarify and which is slightly more complicated is what the financial consequences of abolishing the defined-contribution rebates will be. We have some DWP estimates of that, which date back to 2006. At that stage the Government were using a much higher estimate for the potential savings from the rebate. They were using a figure of much more like £4 billion and then they had some projections for what the additional state second pension cost would be of ending the rebates,but therefore opting more people into the state second pension. They had a line which showed the savings from getting rid of the opted-out rebates and a separate line escalating rapidly over time that reflected the costs of providing the state second pension. That cost rose by 2050 so that the cost of the state second pension provision was greater than the saving from the rebate. It would be useful to have some new figures on that. I assume that these are now out of date and inaccurate in respect of the rebate savings. It would be useful to know the latest estimates for the rebate savings, which presumably are reflected in the regulatory impact assessment, and also what the state second pension projections are and how they have changed.

It would also be useful if the Minister would tell us at some stage what the net present value to the taxpayer and the Exchequer of the changes will be. He may not have those figures with him now, but they would be useful for a later debate. There is a significant dispute about what these moneys should be used for. Part of the argument is that although the Government are getting some of the benefit now of not having the rebate, they are taking on a big future commitment by increasing the state second pension expenditure.

There are other complications because there is the money on the existing Exchequer tax relief which will not have to be paid out. Therefore if we are to have a sensible discussion about this and how any money should be used, we should try to get an assessment of the net present value of this change. Will it end up as a greater burden because we are opting people back into a more expensive state second pension, or will we save money because we are getting the value of these rebates, which look as though they will save more money in cash terms for the Exchequer until about 2050? That calculation, which may be complex, is necessary to inform any sensible debate about what we should be doing as a consequences of these changes.

The hon. Members for Weston-super-Mare and for South-West Bedfordshire mentioned the fact that we are going to stick with the existing DC rebates until the year when the earnings link is restored. Sadly, we do not yet know when that will be. It could be 2012, but it could be 2013, 2014 or 2015. I assume that the Minister will confirm that the scrapping of the DC rebates could be as late as 2015. If I have got that wrong, I hope that he will take the opportunity to put it on the record. It is an undesirable aspect of the uncertainty that the Government have created on the earnings link that there will also be uncertainty about the change to the rebates.

James Purnell (Labour, Stalybridge and Hyde)

On that point, we will keep the timing of the next quinquennial review under consideration. As the name suggests, they happen every five years, so it will be due by 2012, but an earlier review is an option. I hope that that helps the hon. Gentleman.

David Laws (Liberal Democrat, Yeovil)

I am grateful to the Minister for that intervention. I am not sure whether he was saying that he will review existing rebate levels or that he is willing to review the possibility of the DC rebates continuing and the timing of their phase-out. I thought that the Government’s position was that the rebates are to be scrapped in the year when the basic state pension is linked to earnings again and that that will be sometime between 2012 and 2015. I therefore assume—I am sorry if I have got this wrong—that there is a lack of clarity on the timing of the scrapping of the rebates.

James Purnell (Labour, Stalybridge and Hyde)

I do not accept the hon. Gentleman’s premise on our policy. Our objective is to restore the link in 2012 and our policy is that the rebate will also be abolished then. We have had a long debate on that, which I do not propose to reopen. The quinquennial review is a separate thing and sets the level of the rebate. The next one is due by 2012 but, as I said, there is always the option of doing it earlier.

David Laws (Liberal Democrat, Yeovil)

Mr. Taylor, I am sure that I will get into trouble with you if I revisit our debate on the timing of the earnings link to too great an extent. However, the Minister has confirmed what I was concerned about: that if the earnings link is delayed, the provisions of the clause will be delayed with it. That is not particularly desirable. The reason why I wanted to establish that is the one given by the hon. Member for Weston-super-Mare. We know—it is set out clearly in the final report of the Pensions Commission—that the Government have not accepted the Government Actuary’s Department’s recommendations of the level at which the rebate for DC schemes should be set.

There is a useful table, figure 11, on page 25 of the commission’s final report. It compares the Government Actuary Department’s recommendations for the rebate levels for DC schemes in 2007-08 with the rebate that the Government are going to apply. Particularly for older groups, there is a big mismatch between the rebate and the level that the GAD was recommending as the break-even level for people either in their own personal schemes on a DC basis or taking state second pensions benefits. For somebody aged 60, the GAD recommendation for the rebate was 13.4 per cent., and the rebate that will be applied is only 7.4 per cent. For somebody aged 50 the GAD recommendation was 9.4 per cent. and the actual rebate 7.4 per cent. Helpfully, next to that table the commission spelt out that the implication was that

“unless individuals aged over 44 in APPs and 48 in money purchase schemes receive higher investment returns than assumed by GAD, the contracting-out rebate will not replace foregone S2P benefits.”

That is a bit of a concern and raises the question whether, at worst, there is an element of misrepresentation or mis-selling going on and whether people might in the future challenge the Government’s setting of the rebates at such a low level. The issue is particularly relevant because the Government seem to be saying, “This whole DC rebate thing isn’t really working. People have much more of an interest in just opting in to the state second pension.” Yet people will still be able to make that mistake for five, or maybe six, seven or eight years. Why have the Government decided to set the rebates at those levels? What information will be given to people, particularly those in the vulnerable groups, about the risks of not opting in to the state second pension? Why have the Government decided to maintain this slightly dangerous situation for a number of years?

Those are our preliminary statistical concerns. The bigger debate is on what the defined-contribution rebate saving should be used for. During the Work and Pensions Committee hearing, three or four different claims were made on the rebates. Although the level of rebate that people fought over to use for their own purposes has now shrunk by perhaps 50 per cent., it is quite a lot of money. A couple of billion pounds, even by my standards, is a lot of money, so it is worth asking ourselves what should happen to it.

Paragraph 4.14 of the regulatory impact assessment says:

“Against this background, contracting out for DC schemes will no longer offer the stimulus to private pension saving that the Government seeks.”

There seems to be some thinking that the DC rebates were designed to offer a stimulus to private saving, and perhaps that is an indication that that should happen in future. That was contested by Alison O’Connell of the Pensions Policy Institute, as the hon. Member for Weston-super-Mare will know, because he was involved in a lot of the questioning when she gave evidence to the Select Committee. She said:

“Contracting out was not ever intended to be as an encouragement for funded provision; it was intended to protect the existing Defined Benefit schemes when SERPS was set up”,

and as the Minister will know, the PPI was suggesting that there was therefore no rational need to put aside the DC rebate to encourage future saving. For some time the PPI has been suggesting reinvesting it in the first tier, on the basis that that might be a better foundation for encouraging saving.

James Purnell (Labour, Stalybridge and Hyde)

Is the hon. Gentleman therefore disagreeing with the view of the Pensions Commission that we should keep the DB rebate so as to preserve final salary schemes?

David Laws (Liberal Democrat, Yeovil)

The Minister will know that our view is that in future, while respecting accrued rights, we should not have a state second pension. We want a good foundation basic state pension set at a higher level than the present one. Then we want to provide a basis for people to save on top of that. It stands to reason that if we do not have a state second pension, we will not have an opt-out system, because there will be nothing to opt out of. However, in the context of the Government’s policy there are three or four views as to how the money from the DC rebates should be used. The Pensions Policy Institute was taking one of them—that the money should be invested in first-tier provision. I know that that is not the Government’s view, and I shall comment on that in a second.

If that was the first view, the second was put by a number of economists who gave evidence to the Work and Pensions Committee. They argued that it would be foolish to use any of the money to incentivise saving or improve the first tier, on the basis that all that was happening was that the Government were acquiring an obligation to spend on the state second pension, and swapping that for rebates that were designed to be an alternative to the state second pension. If that view is right—this is why I asked my slightly geekish question about the net present value of what the Government are doing—the net present value of what the Government are doing will be close to zero, because the state second pension obligations that they are acquiring will be offset by savings from the rebate. It will be interesting to know whether that is the case.

The third set of arguments seems to date back to the Government’s view, set out in the regulatory impact assessment, that the rebates are there to encourage private saving. One could argue that the more one encourages private saving in the context of first-tier provision—first-tier saving or saving through having a decent first tier—the less potential there is to end up with a large number of people on means-tested benefits, so that there is some moderation of the demands on the taxpayer of the future.

That position seems to have been taken by both the Pensions Commission and the Secretary of State. The second report of the Pensions Commission indicated:

“Additional government cash flow generated from these changes should be used to increase government’s contribution to national saving: this requires either the pay down of debt, the diversion of the money into a national ‘buffer fund’, or its use to promote individual funded savings”—

for example,

“by measures to ensure the success of the”

national pensions savings scheme.

That seems to be the view that the Secretary of State has bought on behalf of the Government—perhaps not the entire Government, but certainly the Department for Work and Pensions. The Secretary of State was questioned on the issue before the Select Committee on 7 June. He said of the money that would be realised as a consequence of getting rid of the DC rebates:

“It creates extra revenue essentially for the National Insurance fund. Essentially that is how it works. What Turner said was that it would be rational and sensible to use some of that to embed and support a new pensions saving culture”.

He went on to say that a new mechanism of tax relief for the personal accounts was

“one potential way in which that investment, that saving...from scrapping the DC rebate, can be reinvested in promoting and encouraging and embedding the savings culture, and I think that would be an entirely sensible thing to do”,

and that

“the savings that are generated from the DC rebate”

could be used

“to support the introduction of the personal cap system.”

The Secretary of State made his position extremely clear in answer to question 304, which was whether he saw himself as making a bid for the £5 billion being realised by the abolition of the DC rebate to be used in the pension system. The Secretary of State very clearly said yes. He does not want the Chancellor of the Exchequer to nab all the money from the DC rebate, although it may be too late. He was hoping to capture some of that to incentivise personal accounts.

James Purnell (Labour, Stalybridge and Hyde)

Just to correct any misunderstanding that the hon. Gentleman may be causing by his remarks, that is exactly what we have done through the personal accounts policy, which will attract tax relief in the way that he, I am sure, understands. As he said in his previous supposition, the measure is broadly neutral. There is not a pot of money to be spent, but it needs to be taken into account when looking at tax reliefs overall. It is not part of direct pension expenditure.

David Laws (Liberal Democrat, Yeovil)

I am grateful to the Minister for clarifying that, but I think that he is having that both ways. He is saying, first, that there is no money from the change, because one set of liabilities is being taken on to offset the money coming in, but he also appears to be saying that he has spent some of that money on the 1 per cent. tax relief, which will be there in the personal accounts. I am not clear whether the cost of all the changes, including the 1 per cent. that the Government are putting into the personal accounts, is zero, or whether the Government accept that there is some saving that they have already used on the personal accounts. I thought that the implication of what the Secretary of State was saying and of what the Pensions Commission was recommending was that, even on top of the things that were being done through the personal account tax incentives, there was the possibility of some additional incentives to encourage personal accounts. For example, such incentives might relate to the tax relief or to help on additional costs for smaller firms staying in the personal accounts, or might be designed to incentivise personal accounts versus other savings products. That was certainly the impression. The industry and a lot of people who are interested in the issue have been under the impression that the Department had not closed the door on using the money saved on the DC rebates for some new initiative.

That is the third option, the others being that the money is to be found in the pensions or that there is not really any money here at all. The third is that there is some money, but it should be used to incentivise saving in the personal accounts. The other, sub-view of the private savings incentives, was expressed very well by Mr. Waddingham of the Association of Consulting Actuaries, who gave some very good evidence to the Work and Pensions Committee on 17 May. In the context of levelling down, he set out his views and concerns about personal accounts and what was then called the national pension savings scheme. He said:

“NPSS is a good idea for broadening the scope of pension provision because there were always many employees who were never pensioned. What I am saying is that NPSS can in no way be an adequate replacement for those many millions of people in current occupational pension schemes, who are doing rather better at the moment, but the next generation will do very much worse in retirement terms.”

Later, he discussed his anxiety that although some bigger employers with a significant commitment to pensions may stick with their pension schemes, their DB schemes or their DC schemes, which are more generous, there is a risk, which it seems intuitively sensible to consider, that as the personal accounts are set up, many employers who are under greater financial pressure and have lower contributions to their pension schemes than the very high rates at the top of the market, or people who have DB schemes and discover that they are hugely under water, may decide to trade down to the personal account level, which would imply much lower contributions and carry an enormously higher risk.

We have not discussed the issue of the huge transfer of risk from the state, as the second pension provider, and employers, as major providers of second pensions, to individuals, many of whom will be very poorly qualified to manage that risk.

In the context of the DC rebate, Mr. Waddingham told the Select Committee:

“It would be much more beneficial, I think, to use some of that rebate to offer the good employers, say, a 1 per cent. reduction in their National Insurance if they were willing to introduce risk-sharing schemes to which they were contributing, say, 10 per cent.”

In other words, Mr. Waddingham was suggesting that some of the money should be used to give employers who are providing good second pensions an incentive to keep going rather than letting them fall to the minimum set by the Government for personal accounts. That is at least worth considering, because many employers who have acquired huge pension obligations over the past few years have not kept up with the implications of increasing life expectancy, and there is a great risk of them trading down to the personal account levels. We understand that the Government are introducing personal account pensions at a low level to avoid placing too big a burden on employers and employees, but the total amount going into the personal accounts will be very low in relation to the types of scheme to which we aspire.

Let us consider the issue in the context of the MPs’ pension scheme, which has a 27.8 per cent. employer contribution, against 3 per cent. for the personal account, which has a 10 per cent. employee contribution as against 4 per cent., which is about 4 per cent. going in from the taxpayer directly through our own pay, versus 1 per cent. in the personal accounts. We have a pension scheme that pumps about 40 per cent. of our average salary each year into a very good, defined-benefit pension. The personal account pensions, which will have much more money going into them anyway because the target audience is lower-paid people, will have much smaller elements of people’s overall income.

I am not sure that I would want savings from the DC rebates to go into advantaging personal accounts versus other forms of employer provision. If we gave incentives only to personal accounts rather than to other employer schemes, we would risk encouraging that levelling-down process. However, the Government might have good reason to be seriously concerned that many of the excellent employer schemes that we have had in this country over the past few decades will continue to be lost. They might want to think of imaginative ways in which to help good-quality employers keep good-quality schemes.

Sally Keeble (Labour, Northampton North)

Does the hon. Gentleman have any comments on the importance of auto-enrolment? A couple of my local employers, who opened up the books on their pension schemes, said that the big problem with their company schemes was that younger people would not enrol and that, therefore, their liabilities became top-heavy. Auto-enrolment is critical in providing incentives and making the schemes work.

David Laws (Liberal Democrat, Yeovil)

I agree with the hon. Lady that auto-enrolment is very important in bringing in people who have not been involved in pension schemes in the past, provided that we are not mis-selling to them because of the means-testing implications. However, that would take us into an even more extensive debate that probably would test your patience, Mr. Taylor.

James Purnell (Labour, Stalybridge and Hyde)

Is the hon. Gentleman saying that automatic enrolment is not possible in a world in which there is any means-testing at all?

David Laws (Liberal Democrat, Yeovil)

No, I am certainly not saying that. Even the PPI’s policy proposals on pensions could leave a small number of people—probably less than 10 per cent.—on means-testing during retirement. I am saying that a personal account system would be extremely dangerous if as many as half the population were to end up on means-tested benefits, especially if we do not have a proper system of advice, which becomes more difficult as the number of people in the category increases. But no doubt we will come on to that later.

We have aired some of the concerns about that issue.

Sally Keeble (Labour, Northampton North)

The hon. Gentleman seems to be suggesting that the Government should support company schemes, which are good, but which are currently unviable and likely to close. Why should the Government do that when auto-enrolment is the critical issue in making such schemes work?

David Laws (Liberal Democrat, Yeovil)

I am grateful to the hon. Lady for that point. I want to make it clear that I am certainly not inviting employers to keep open unsustainable schemes. The private sector has moved far more rapidly than the public sector in demonstrating how such schemes can be made affordable. Some good defined-benefit schemes in my constituency have made all sorts of imaginative changes. For example, some have shared the risk of longer life expectancy in order to keep the schemes going in the existing form, which employers value for providing the certainty of a final salary scheme and better levels of contribution.

We all know that when defined-benefit schemes close down and defined-contribution schemes open up there is usually an enormous disparity in the employer contribution. Even some of the best employers in my area, who had contribution rates of about 16 per cent. under their DB schemes, are cutting them to more like 7 per cent. under their DC schemes. That is the context in which we are having this debate. We will want to ensure that, as a consequence of the changes being made, we do not end up losing or undermining the very good employer schemes of recent years. That is why I think that some of the proposals put to the Work and Pensions Committee are at least worth considering. I hope that my comments will prompt some clarification on the details from the Minister and some discussion of the different savings options.

Andrew Selous (Conservative, South West Bedfordshire)

The hon. Gentleman was right in saying that there is a strong similarity between his amendment No. 37 and the official Opposition’s new clause 3; they essentially cover the same territory.

We went over quite a lot of the background of contracted-out rebates earlier this morning. Like the hon. Gentleman, I shall focus on the fact that in the regulatory impact assessment that was published in May last year, the Government confidently asserted that the abolition of contracting out for defined-contribution schemes would

“lead to an immediate cash-flow benefit from the rebate of around £4 billion in 2012/13, rising to £5.1 billion by 2050”.

That raises a major accounting issue. Figure 8.6 on page 100 of the latest regulatory impact assessment shows that the Government have slashed that amount. For both 2008 and 2009, the figure is £1.8 billion; for 2010, £1.7 billion, and for 2011, £1.6 billion. Slightly bizarrely, there is a figure of zero for the years between 2012 and 2050. Perhaps the Minister will comment on that.

The important point made by the ABI and other industry bodies is that contracted-out rebates are a major incentive for private pension saving. Not only does that system encourage people to save for their retirement but it reduces through pre-funding the state’s future pension liabilities. As well as being fair and equitable, it makes enormous sense for any saving to be ploughed back into the pension system. In theory, the money that is saved by scrapping contracting out could be used to increase the state pension or to hold down the future cost of pension provision. The Pensions Commission favoured the latter option, saying that there was a

“good argument that the extra tax revenue...should not be used to fund current pensions”.

The commission felt that the revenue should instead be used to reduce long-term pension costs.

The hon. Member for Yeovil has quoted extensively from the evidence of the Work and Pensions Committee and he is absolutely right to have done so. In its recent report, the Committee said that it

“believes that the Government should be explicit about how it intends to use the increased revenue arising from the abolition of contracting out for Defined Contribution schemes.”

The Secretary of State has undertaken that any savings should be used in one of the ways that I have described. In his evidence to the Work and Pensions Committee on 7 June 2006, he said that

“it would be entirely legitimate and sensible to use the savings that are generated from the DC rebate to support the introduction of the personal cap system.”

I shall be grateful if the Minister will confirm whether that is still the Government’s stated position. Assuming that the Government have not retreated, will he also explain in detail how he intends to utilise that significant saving for the benefit of the whole pension system?

As the hon. Member for Yeovil has helpfully set out, there is a wide range of options for the use of that money. It could, for example, provide additional support for employers, especially smaller employers. It could incentivise them to offer contributions above the default level. When we debate the relevant provisions, we will have a great deal to say about the dangers of levelling down existing pension provision as a side effect of the introduction of personal accounts.

Some of the money could be used to improve public awareness and understanding of the need to save and the incentives that are available. That point was also made by the Pensions Commission. In any event, proposed new clause 3 would require the Secretary of State to report to Parliament every financial year on how the Government have used the revenue saved by the abolition of contracting out.

Roger Gale (Conservative, North Thanet)

I remind the Committee that with this we are discussing the following:

Clause stand part.

That schedule 4 be the Fourth schedule to the Bill.

New clause 3—Review of the abolition of contracting-out for defined contribution pensions schemes—

‘(1) The Secretary of State shall make a statement to Parliament in each financial year after 6th April 2010 on the use of the revenue that would previously have been assigned to contracted-out rebates for defined contribution schemes.

(2) For the purposes of subsection (1) above, the statement shall cover the extent to which the revenue is assigned to promoting saving.’.

Andrew Selous (Conservative, South West Bedfordshire)

Welcome back, Mr. Gale. As I was saying, new clause 3 would require the Secretary of State to report to Parliament every financial year on how the Government have used the revenue saved by abolishing contracting out and, in particular, how that money has been used to encourage a culture of savings in this country. Amendment No. 37, tabled by the Liberal Democrats, is along much the same lines. I am happy to endorse much of what the hon. Member for Yeovil has said. New clause 3 is essentially a probing amendment. We will listen to what the Minister has to say in response.

Before I conclude, I should just like to reiterate my plea to the Minister for a clear explanation of how the contracting-out rebate figure moved within the space of under a year from £4 billion down to £1.6 billion. Were a company listed on the stock exchange to come out with such a massive variation in financial forecast it could have its shares suspended and the directors would probably be hauled before the stock exchange board to account for themselves. I am sure that all members of the Committee are waiting with bated breath to hear what explanation the Minister can give us on that point.

James Purnell (Labour, Stalybridge and Hyde)

Thank you, Mr. Gale. It is a pleasure to serve under your chairmanship this afternoon. I hope that I can answer the points raised by the hon. Members for South-West Bedfordshire and for Yeovil to their satisfaction. We have had accusations of mis-selling and of companies being suspended on the basis of these figures. The rather more prosaic truth is that the figures on which we base our assumptions change, so the resulting projections change. I will seek to explain that; if the hon. Gentleman remains unconvinced, I am sure that he will press his amendments ruthlessly.

The core of the debate is the abolition of contracting out for defined-contribution schemes, which we announced in the White Paper in May. That was one of the key recommendations of the Turner Commission. In principle the view is shared across both Opposition parties—[Interruption.] I am getting a nod of assent from the hon. Member for Yeovil. He said earlier that he did not think that tax relief made any difference to overall pension saving. I think that was the implication of what he was saying. We look forward to his seminar on that subject.

Andrew Selous (Conservative, South West Bedfordshire)

I thought we had that this morning.

James Purnell (Labour, Stalybridge and Hyde)

It is hard to know when one is not in a seminar with him. Life is one long seminar.

We took the approach of abolishing contracting out because we essentially agree with the Pensions Commission that it was making decisions for people too complex. The system was understood by few people, especially in defined-contribution schemes, and overall, rather than helping to support saving for a pension, it may have been discouraging it. Clause 15 and schedule 4 seek to achieve this abolition, and amendments that we have already agreed provide a regulation-making power to remove or vary the rules on protective rights.

There has been interest in the effect of abolishing contracting out on the national insurance rebate, so it is important that we should be able to discuss that now. We have already covered the fact that the abolition of contracting out would mean that more people build up rights in the state second pension, and that takes the form that we were discussing earlier. Therefore, the first answer to the question put by the hon. Member for Yeovil is that it will be broadly financially neutral. People who withdraw from contracting out are building up future rights in the state second pension and therefore those are set at a broadly actuarially neutral basis. That is the point that the hon. Member for Weston-super-Mare was making.

Some of the debate, which has been based on the assumption that there was a huge saving here is incorrect, because any reduction in the cost of the contracted-out rebate is paid for later through increases in S2P obligations. The way that this will operate in practice is that from the date of abolition, contracting out will cease to be available for schemes that contract out on a defined-contribution basis. The members of such schemes will begin to build up state second pension. Contracting out will continue to be allowed for schemes that contract out on a defined-benefit basis. That is the answer that I tried to give the hon. Member for Yeovil on the quinquennial review, but there were two slightly separate points. One was our proposal for twinning the date for the earnings link with that for abolishing contracting out for DC. The other is when the next quinquennial review will happen. That continues to be relevant, even if we abolish defined-contribution contracting out, because that review will set the terms for defined—benefit contracting out. So, that process continues to be relevant and those issues are quite separate.

David Laws (Liberal Democrat, Yeovil)

Has the Minister considered the practical issues of having such uncertainty about when contracted-out rebates will end as a result of uncertainty over the earnings link? Is he worried that life will be made a lot less certain than it ought to be for the schemes involved?

James Purnell (Labour, Stalybridge and Hyde)

I think that we are giving people the appropriate level of certainty by saying that our objective is to do this in 2012. As we previously established, our policy on this is much clearer than the hon. Gentleman’s, or that of the official Opposition. We are legislating to give people a clear timetable, and that applies here as well.

New clause 3 and amendment No. 37 are both concerned with how the putative revenue that would otherwise have been used for the contracted-out rebate is to be allocated in future. I have tried to explain that there are no actual savings there, as the change is, broadly, intended to be actuarially neutral. Without wanting to go into excessive detail, the abolition of the defined-contribution rebate reduces cost in the short term, but there is a broadly equivalent increase in future spending on the state second pension. Thus, changes to the rebate are not a real saving in the sense that it could be used to fund other expenditure.

The hon. Member for South-West Bedfordshire—and, I think, the hon. Member for Yeovil—asked why the figures on contracting out had changed. The reason is that the assumptions on which the projections are made have also changed, as the regulatory impact assessment set out in some detail. Perhaps they have been able to read that as well. The estimates in the White Paper were based on the 2005 pre-Budget report, which used the data available in autumn 2005. To have consistency within the document, all of the figures used within its cost projections were from that same period.

In publishing the latest White Paper, we have been able to look at how the numbers were changing; in particular, at new evidence of the numbers of people contracting back into the state second pension. A number of major schemes had contracted people back in, which, with the effects of the review that we have put in place, meant a significant downward effect on the number of people who had contracted out. As a consequence, the forecasted cost of the contracted-out rebate, based on real figures, had also fallen significantly. So, there is no great mystery about how that happened. It is a significant change, but one that reflects a big change in people’s behaviour. People are contracting out less; partly because of specific changes and also because there is a growing view that contracting out is too complicated, and people find that a disincentive to save rather than an incentive.

Andrew Selous (Conservative, South West Bedfordshire)

I am grateful to the Minister for trying to explain how this came about, but some fairly big question marks are left in my mind. The Minister is saying that between autumn 2005 and the end of 2006, the projections—on what was, after all, a pretty static pension scheme with no massive changes in that time—changed to the extent that the figures altered by £2.4 billion. That is a huge change, so could the Minister say a little more about those changed assumptions? Is he worried that his officials are suddenly going to come to him with other massively changed assumptions within the next six months or so? That could alter the figures even further.

James Purnell (Labour, Stalybridge and Hyde)

The hon. Gentleman’s premise is that there was a stable pension population, but that is wrong. The figures actually reflect a significant change in the number of people contracting out. Her Majesty’s Revenue and Customs collected data from providers running exercises to contract their members back into S2P, which became available in January 2006. The data showed that about 200,000 people contracted back in every year from 2003-04 to 2006-07, a total of 800,000 people, which will reduce the cost of the rebate in 2010 and 2011 by about £1 billion. There were some significant changes; they were not forecasting changes but actual changes.

David Laws (Liberal Democrat, Yeovil)

I am grateful to the Minister for that clarification. Will he put on record the number of people who were contracted out at the first date cited by the hon. Member for South-West Bedfordshire and the total number contracted out on the basis of the new estimate?

James Purnell (Labour, Stalybridge and Hyde)

I am happy to write to the hon. Gentleman with that information. I hope that I have explained why the figures changed. There is no great mystery to them.

The second thrust of the debate was about what, if there is some money, it will be used for, and the hon. Member for Yeovil advanced four theories. There are two separate matters: first, the cost of pension benefits and pensions, which is set out in the White Paper; and, secondly, tax relief. The two are taken separately in respect of policy and how the figures are explained in the White Paper.

The way we set out our expenditure means that it does not include the contracted- out rebate in terms of the GDP figures that the hon. Member for Yeovil quoted. Nor does it include the increase in tax relief which will come from personal accounts. Personal accounts will drive an increase in the number of people saving through a company or a personal pension. That in itself will lead to an increase in tax relief. The Turner Commission’s recommendation that tax relief should be available to encourage people to save is exactly what our policy will implement.

David Laws (Liberal Democrat, Yeovil)

I am grateful to the Minister for his customary patience in giving way to me. He said that the net cost of the policy was zero for the reasons that he set out. Did that estimate include the cost of tax relief on personal accounts? If it did—or even if it did not—does he have an estimate of the cost of that new tax relief?

James Purnell (Labour, Stalybridge and Hyde)

No and no is the answer to the hon. Gentleman. The change to the contracted-out rebate is actuarially neutral and therefore broadly cost-neutral because there is a direct correlation between people opting back in to the state second pension and there being more state second pension costs in the future. The cost of extra tax relief on personal accounts is not included in the GDP figures that he quoted earlier. It demonstrates my point, that we have to consider affordability within the benefits system. Tax relief policy is set by the Treasury and is accounted for separately from these procedures. If our policy is a success, it will increase the number of people saving in a pension and therefore the overall cost of tax relief.

Nigel Waterson (Conservative, Eastbourne)

Can the Minister explain how the first of those sets of figures is affected by the gap between the current basis of the contracted-out rebate and what it would be if the Government had followed the Government Actuary’s recommendations?

James Purnell (Labour, Stalybridge and Hyde)

I do not have those figures off the top of my head, as they do not relate to our policy. We considered the recommendations and put in place our own policy based on conclusions from the quinquennial review. I am sure that the hon. Gentleman can elucidate on those figures if he wants to. I hope that I have answered his question. There are no savings; that was the economists’ version in the Work and Pensions Committee. There are tax relief implications from the introduction of personal accounts, but they are done separately. There is not a huge pot of money that we should hypothetically be parcelling out among our favourite good causes.

David Laws (Liberal Democrat, Yeovil)

Again, I am grateful to the Minister for being both patient and clear, but how does he tally that with the Secretary of State’s statement to the Select Committee on Work and Pensions about the £4 billion or £5 billion that would be freed up by the change? The Secretary of State clearly said that he was making a bid to keep that money within the pension system.

James Purnell (Labour, Stalybridge and Hyde)

It is clearly consistent with what the Secretary of State said. The money pays down the National Insurance fund, which is in the quote. There should be tax relief for personal accounts, which is what is going to happen. My point was that those two, as an accounting issue, are done separately, one within the benefits system—the figures that we set out in the White Paper. There is then the issue of overall tax relief and its affordability, which is a matter for the Treasury, although of course we work closely together on it. I hope that that answers the Opposition’s general enquiry.

The hon. Member for Yeovil made a specific point about risk sharing, which is worth touching on briefly. People say that there is a transfer of risk from companies to individuals and, indeed, from the state to individuals. To an extent that is true, insofar as we are encouraging extra personal responsibility. We are asking individuals to make provision for themselves, but that statement is worth qualifying. There are a number of ways in which we are trying to help people with those risks. I want to trot through three.

First, personal accounts will help people to manage risk, because they will be pooled in an organisation that is governed on their behalf and has a genuine critical mass of investment, which would, one would hope, give it greater security. Also, the organisation will be lifestyling the investments for them, managing the security of the investments according to their age profiles. Compared to a situation in which people made the investments entirely by themselves, with their own investments in the stock market subject to fluctuation, then the risk is being managed.

The second point is that, because of automatic enrolment, there will be more people involved in company pension schemes than there would otherwise be. So, in that sense, that also moderates the general trend.

Thirdly, we are interested in encouraging risk sharing between companies and individuals. There is a growing discussion in the financial services industry and among people who run company pension schemes about whether it is possible to bring back some risk-sharing hybrid schemes. That has been mentioned, as has risk sharing with particular parts of pension provision—for example, life assurance could be provided by the company. We are interested in looking at that because, if it is true that finance directors increasingly want to moderate the risk on the balance sheet, a halfway house between transferring it completely to the individual and keeping it on the balance sheet may be some kind of risk sharing. That is one of the things that our regulatory review is keen to look at.

John Penrose (Conservative, Weston-Super-Mare)

Will the Minister make it clear that he disagrees with some outside commentators, who seem to make the point that defined-benefit schemes are some sort of gold standard and inherently better than defined-contribution schemes? I think that he is making that point, or it seems to be underlying what he is saying. Certainly based on the information that we received in Select Committee, the differential is mainly based on different levels of contributions; if one puts less into either sort of scheme, one gets less out.

Also, providing the market risk is managed as he described, there is another significant element of risk, which there is not for a defined-contribution scheme. That risk is regulatory change over the course of someone’s working life. The degree of regulatory change and, therefore, the risk of having one’s supposed benefits eroded through law changes, here and elsewhere, are much less in the case of a defined-contribution scheme than in other options.

James Purnell (Labour, Stalybridge and Hyde)

That is why the Pensions Commission recommended personal accounts, which it wanted people to know was their individual pot. They would have a mixture of provision, with state provision subject to those political risks, but moderated by accounts that were a person’s own property and subject to another type of risk—investment risk. From an individual’s as well as a country’s point of view, sharing those risks is good. The portfolio of risk consists of a mixture of political and stock-market risk, with some people wanting their company to stand behind their pension, too.

However, I am obviously not regulated under the Financial Services Act 1986 to give people financial advice. They must decide which kind of scheme is most appropriate to them and the risk that they want to take. That is a rather pedantic way of saying that different types of scheme have different risks and advantages, and people need to decide what is right for them.

The hon. Member for Yeovil also asked whether there was a risk of mis-sellng—one of his favourite words—because of the changes to the rebate. I hope that I can reassure him. It is for individuals to decide what sort of pension provision is best in their circumstances; the information that they get at the point of sale, through regulated financial advice, is a key part of their doing so. However, they may want to review annually the advantages and disadvantages of contracting out. The Financial Services Authority will keep a close eye on that. My officials are working closely with the FSA on the consumer information on contracting out that it provides.

David Laws (Liberal Democrat, Yeovil)

Is that really good enough? The Minister says that this is a matter for individuals and their advisers in the context of the Government’s rejection of advice from the Government Actuary’s Department about the level of rebate that is appropriate in order for people to be sensibly contracted out. Surely there is a mis-selling risk, because the Government are ignoring that advice.

James Purnell (Labour, Stalybridge and Hyde)

As I say, it is for individuals to make those decisions. The hon. Gentleman sometimes talks as though it will be the Government making the decisions rather than the individual. The individual takes out a pension—regulated by the FSA—and it is the individual’s decision. In practice, some providers have chosen to contract their members back into S2P. It is because of the difficulty of making those decisions that we think that contracted-out DC schemes, with the extra complexity that they introduce, should be abolished.

I hope that I have answered the points that hon. Members have made—

David Laws (Liberal Democrat, Yeovil)

Will the Minister give way one last time?

James Purnell (Labour, Stalybridge and Hyde)

Obviously not.

David Laws (Liberal Democrat, Yeovil)

This really is my last intervention, and I know that the Minister will want to have a chance to respond directly to it rather than just listening to my short summing-up speech. Is it the Government’s policy on personal accounts on the one hand and other employer schemes, including DB schemes, on the other to achieve neutrality—the Government are not seeking to incentivise employers to take up one scheme rather than the other—or do the Government intend to tilt the playing field either towards encouraging employers to make their own provision, as in the past, or towards personal accounts?

James Purnell (Labour, Stalybridge and Hyde)

I think that the tax relief on each will be broadly equivalent. However, we do want to encourage employers to continue to provide company pension schemes, or to start to do so. The range of measures set out in the December White Paper is designed to do exactly that. We are not proposing extra tax relief above and beyond that which already exists to do that, but, like all parties, we want to encourage people to provide company pension schemes. As I told the hon. Member for Weston-super-Mare, we are not making a value judgment between the two.

The aim of all the provisions in the schedule and the clause is to ensure a smooth and ordered end to contracted-out DC schemes. That will bring to an end an element of pension regulation that has been an increasing source of complexity for both providers and individuals, and I urge hon. Members not to press amendment No. 37 and new clause 3.

Andrew Selous (Conservative, South West Bedfordshire)

I am grateful to the Minister. Our debate has shown the benefit of repeated interventions in drawing out further information from him. If I have missed the assumptions in the Government’s latest regulatory impact assessment of which the Minister spoke, I apologise. I tried to look at it as carefully as possible.

James Purnell (Labour, Stalybridge and Hyde)

I am sorry; it is the RIA to the White Paper.

Andrew Selous (Conservative, South West Bedfordshire)

I am grateful for the Minister’s correction. He has rather more officials working on his behalf than the hon. Members for Eastbourne and for Yeovil and I have researchers, but I am none the less grateful. The debate has been useful in explaining the huge change in the figures.

David Laws (Liberal Democrat, Yeovil)

I am grateful to the Minister for his reply and for accepting my interventions. I promise the Committee that I shall try to put my contributions on a fast track for the rest of the afternoon.

The debate has been useful and the Minister’s answers have been candid and direct. I shall sum up where we are and where there are still problems. He said that there is a clear timetable for getting rid of the contracted-out rebate. His idea of a clear timetable is slightly different from mine, because his allows for the opted-out rebates to be abolished in any of four years. He gave us an insight into the decline—pretty much the collapse—of defined-contribution schemes in a short period. He has kindly said that he will put in writing the number of people who were in DC schemes and what that number has come down to.

James Purnell (Labour, Stalybridge and Hyde)

It is important to say that it is not the defined-contribution schemes that have collapsed but those that are contracted out. People are still contributing to their pensions, but they are in the state second pension system rather than contracted out.

David Laws (Liberal Democrat, Yeovil)

I am grateful for that clarification. It has perhaps been a collapse in the attractiveness of remaining contracted out. In that regard, I remain concerned about the Government’s determination to ignore the potential mis-selling of the level of contracted-out rebates. We all know that that is uncertain by the nature of DC schemes, but the Government should not say that it is simply an issue for advisers and individuals. The Pensions Commission has shown that the Government chose to ignore the advice of the Government Actuary’s Department, and it set out the implication of that in black and white terms in its final report: that

“unless individuals aged over 44 in APPs and 48 in money purchase schemes receive higher investment returns than assumed by GAD, the contracting-out rebate will not replace foregone S2P benefits.”

The Government chose to ignore the GAD’s advice and to allow people who decide not to go back into the S2P to risk losing out, which creates a dangerous position. The Government ought to consider whether to give further advice to people in that position to ensure that there is no possibility of our being back here in 10 years with a case of serious mis-selling. People would have a strong case to argue.

The Minister mentioned the missing £5 billion, or £4 billion—it is now down to £2 billion—and plumped for what I describe as the economist’s case: that it is a zero-sum game because the rebates will offset the extra S2P obligations. In fact, he went a bit further and said that the Government have coughed up tax relief on personal accounts, although he did not give us a figure. It would be useful to get one on the record. Also, the contracted-out rebates are not compensating properly for the state second pension, so if there is any value in what the Government are doing it might be that they are taking on board an additional cost, which is set against a saving. The Minister has been clear about that, but it seems at least moderately to contrast with the Secretary of State’s acceptance of the fact that there was a pot of £4 billion or £5 billion that he was desperate to get his hands on. Other people who have also been desperate to get their hands on it will be disappointed to know that they are not allowed to and that the amount has shrivelled so much.

The issue of Government incentives in relation to personal accounts and company schemes, including DB schemes, will be dealt with to a greater extent when the personal accounts come in. However, there is widespread, legitimate concern that there could be a levelling-down process that will accelerate the decline in the contributions made by many companies. The Government need to give some thought to the extent of the regulatory changes that they could introduce to make it easier for DB and other good employer schemes to remain in existence. The Minister indicated that the Government have an open mind on that issue and are willing to examine changes that could facilitate more affordable schemes.

There is also an issue about whether the Government will take a completely neutral attitude on whether employers will opt for personal accounts or for DB or other schemes. I hope that the Government would be, at the very least, neutral on that matter, and that, if anything, they would acknowledge that those employers who choose the non-personal account schemes will be taking on very large costs and burdens. Furthermore, the Government should consider what they can do, through legislation and other means, to ensure that those schemes do not disappear in the years ahead.

Having aired those concerns reasonably extensively, I will not press amendment No. 37 to a Division. I beg to ask leave to withdraw the amendment.

Schedule 4

Clause 16

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 89, in clause 16, page 19, line 36, at end insert—

‘(4B) Upon becoming aware of a matter of dispute, the specified person, or trustees or managers if appropriate, should acknowledge receipt and advise the person or persons with an interest in the scheme, in writing, of the existence of the Pensions Advisory Service and the assistance it can provide in relation to the dispute resolution.’.

Before dealing with the meat of the amendment, perhaps I may make a general point. Although the basic provisions in clause 16 for dispute resolution arrangements make for fascinating reading, as far as I can determine they are pretty uncontroversial. Outside bodies seem perfectly happy with them, so who am I to say any different?

The only amendment that we have tabled is at the behest of the Pensions Advisory Service, which erupted on to the scene at the end of last week with this wording. The Minister may be able to tell me something different, but it seems to me that PAS is making an eminently sensible, workmanlike and practicable suggestion. For those members of the Committee who are not aware of PAS, it is an independent organisation, but it is funded by grant in aid from the Department for Work and Pensions. Speaking as a constituency MP, I believe that it does excellent work in trying to resolve a lot of complaints, problems and concerns that individuals have about pensions issues. Indeed, in its briefing note PAS says:

“In the period April 2005 to March 2006...88% of the complaints”—

that is 88% of the complaints referred to them—“were resolved” and no further action was required by any other body. That is extremely impressive; it presumably makes matters much less stressful for the individuals involved, and presumably also saves a great deal of money.

According to PAS, the proposed amendment would allow pension schemes to adopt a one-stage IDRP—for the uninitiated, that is an internal dispute resolution procedure—and if schemes take that route, members may not become aware of the existence of PAS until after the completion of the IDRP. PAS says:

“It is our experience that the resolution of disputes is more effectively done before completion of the IDRP, and often before the procedure has been invoked. We are therefore concerned that the unintended consequence of the amendment as it currently reads would be an increase in unresolved disputes which in turn would increase the level of submissions to the relevant ombudsman services.”

It goes on to discuss its independence and its standing within the industry, in terms of its contribution to dispute resolution.

PAS goes on to say that the management of complaints

“would be made more efficient if a requirement were introduced that all written complaints had to be acknowledged.”

That sounds axiomatic, but perhaps it is not. The PAS also said:

“We would suggest the earlier involvement of TPAS in situations of disputes would have the effect of reducing the number of cases which require the formal deliberations of the IDRP and reduce the number of applications to the Pensions Ombudsman.”

That seemed perfectly sensible, so I tabled the amendment with alacrity. On every Bill Committee that I have ever served on, one Opposition amendment has always been accepted and this amendment, like the golden rivet in a ship, might be it.

David Laws (Liberal Democrat, Yeovil)

I promised brevity on the previous clause and that is what I shall deliver now. We also support the amendment, but the hon. Gentleman got in there first—he obviously reads his e-mails more rapidly than I do. He put the case extremely well. We support the amendment, and hope that he is right that the Under-Secretary will accept it and that it will be one of those home runs that we have on every Bill.

James Plaskitt (Labour, Warwick and Leamington)

I thank the hon. Member for Eastbourne for the amendment and for speaking with such alacrity in support of it.

Before I deal with the amendment it might help to say a few words about the purpose of the clause. The clause amends the provisions relating to the resolution of disputes. Occupational pension schemes are currently required to operate a formal two-stage process for dealing with disputes between individuals and trustees. However, the process is rather prescriptive and is bound by rigid time limits. Although the process works well in many larger schemes, we wanted to give schemes the opportunity to adopt something simpler and more flexible. The change that we propose also follows recommendations that came from the Pickering report.

We legislated in the Pensions Act 2004 to enable schemes to simplify their dispute resolution arrangements, by allowing them to adopt either a one or a two stage-procedure. However, the measure was not commenced, because doubts were raised by pension schemes and their advisers about the extent to which the provisions would allow trustees to delegate decisions on disputes. It is common practice for trustee boards to delegate such decisions, often to a dedicated sub-committee, and that is perfectly reasonable and sensible. We therefore decided that it would be sensible to put the matter beyond doubt at the earliest opportunity. That is the main purpose of the clause. The clause makes it clear that a decision on a dispute does not need to be made by the full trustee board. The decision must, however, be made by one or more of the trustees and cannot be delegated outside the trustee body. That is a small but sensible provision that will enable schemes to adopt simpler and cheaper dispute resolution arrangements, if they prefer to do so.

I agree that the Pensions Advisory Service does valuable work. I also know that the assistance and support that it provides is greatly appreciated. The hon. Gentleman is quite right to refer to the 88 per cent. success rate in resolutions and the 68,000 referrals that were made to the service last year. Under the current two-stage arrangements, the scheme member will be told about the Pensions Advisory Service with the decision on the first stage. The member will then have the opportunity to talk to the service before the matter is reconsidered by the trustees.

The current requirement is based in secondary legislation. It is neither necessary nor appropriate to deal with the issue in such detail in the Bill. As I have said, the main purpose of the changes set out in the clause is to make things simpler and easier for schemes to implement, and to make the legislation less prescriptive. Requiring every scheme to acknowledge every application in writing, as the amendment proposes, might be counter to that aim. It may be that a dispute arising from a misunderstanding or miscommunication can be resolved quickly and easily and that an acknowledgment would serve no useful purpose. I am also conscious that in December we published a simplification plan in which we committed to reducing the burden proposed by existing regulations as well as to minimising burdens flowing from any new regulations. In considering any new regulatory requirement, we have to measure it against the aims and targets set out in the Department’s simplification plan and consider it in the light of our current deregulatory review.

We will consider the issue carefully; I assure the Committee that we will give serious thought to how best to ensure that people are made aware of the services offered by the Pensions Advisory Service without imposing an unnecessary regulatory or administrative burden on schemes. I should add that if the clause comes into law, the secondary legislation will need to be amended. We shall consult at that point, which would be the more appropriate time to consider any basis of referral to the Pensions Advisory Service.

With those assurances, I have to tell the hon. Gentleman that this amendment is not his golden rivet. I ask him to withdraw it.

Nigel Waterson (Conservative, Eastbourne)

Perhaps I shall get lucky later. I am grateful to the Minister for that patient—indeed, painstaking—explanation of the provisions. I was not wholly wedded to putting the issue into the Bill, although I had a hankering to point out to my grandchildren that I had been the architect of section 16(4)(b) of the Pensions Act 2007. However, I am afraid that that is not to be. The Minister has assured us that the issue will be considered and consulted on in secondary legislation, and I am more than happy that that should be the case. I am delighted that the Minister is also impressed by the effectiveness and efficiency of the Pensions Advisory Service. I beg to ask leave to withdraw the amendment.

Clause 17

Nigel Waterson (Conservative, Eastbourne)

I shall not detain the Committee long, Mr. Gale. Somebody once said of President Calvin Coolidge that he looked at someone as if they had been a side dish that he had not ordered. That thought went through my mind as I saw your face, Mr. Gale, so I shall try to keep my contribution short.

Clause 17 and schedule 5 are designed to remove the requirement that the Secretary of State should approve actuarial guidance in certain cases. The current arrangement, set out neatly on page 82 of the regulatory impact assessment, is that when calculating pensions liabilities all actuaries are supposed to use agreed guidelines, to ensure consistency. For reasons beyond my comprehension, those are called either “guidance notes” or a “technical memorandum”.

Various bits of primary legislation require the Secretary of State to approve three of those guidance notes—although there are seven altogether; I do not know who approves the other four—and the one technical memorandum. I understand that the Institute of Actuaries in England and Wales and the Faculty of Actuaries in Scotland, which combine the roles of regulator and professional body, have always prepared those documents. Owing to their dual role and what might have been described or perceived as a conflict of interest, they were required to obtain the Secretary of State’s approval. That was said to be to maintain the public’s confidence, although I cannot imagine for the life of me that many members of the public are even aware that the things exist, let alone who prepares them.

In its 2005 report, the Morris review concluded that the Financial Reporting Council should establish a new regime to set actuarial standards and oversee the regulation of the profession. The Government have accepted the recommendation, and in turn the FRC has set up the Board for Actuarial Standards—oh to be a fly on the wall at its meetings! That is no doubt a relief to the Faculty of Actuaries and the Institute of Actuaries, which continue to have an important role as the professional bodies for their profession.

I understand that on 6 April this year the board will take over responsibility for the guidance notes and technical memorandums. At that stage, the FRC and the BAS become the UK’s independent regulator for corporate reporting and governance, and there is no longer a need for the Secretary of State to have a role. I am sure that that will come as a great relief to him, as he already has quite enough on his plate—the pensions crisis, the failure to tackle reform, the failing Child Support Agency. I could go on.

In a nutshell, the proposal seems to be uncontroversial and therefore we support it. Indeed, I am emboldened in that view by a Library note which tells me that the equivalent provisions in the Companies (Audit, Investigations and Community Enterprise) Act 2004 did not even merit discussion during its Committee stage.

James Plaskitt (Labour, Warwick and Leamington)

I shall now demonstrate that I share in the hon. Gentleman’s enthusiasm for the clause. I begin by cautioning him about praying in aid the late President Calvin Coolidge. He should remember that when that President died—in 1923, I believe—his death was reported to a dinner party, and the response was, “How could they tell?”

Nigel Waterson (Conservative, Eastbourne)

Dorothy Parker said that.

James Plaskitt (Labour, Warwick and Leamington)

Indeed, yes.

As the hon. Gentleman said, clause 17 and schedule 5 remove the Secretary of State’s role in approving actuarial guidance. This arises from one of the recommendations of the Morris review of the actuarial profession. Clause 17 introduces schedule 5, which amends nine references in legislation. It removes the requirement for the Secretary of State to approve prescribed actuarial guidance notes and, in other cases, it removes the power to make regulations to prescribe that the Secretary of State approve such guidance. The references can be found in the Bankruptcy (Scotland) Act 1985, the Insolvency Act 1986, the Pension Schemes Act 1993, the Pensions Act 1995 and the Pensions Act 2004.

Actuarial guidance is currently produced by the Institute of Actuaries in England and the Faculty of Actuaries in Scotland. It ensures that all actuaries calculate pension liabilities on a consistent basis. The Faculty and Institute of Actuaries is also the professional body for actuaries. In order to ensure that there is no conflict of interest between those roles, legislation requires certain actuarial guidance to be approved by the Secretary of State. However, following the Morris review, the actuarial profession is now subject to independent oversight by the Financial Reporting Council, which is the independent regulator for corporate reporting and governance.

The FRC will establish the Board for Actuarial Standards to set technical standards for actuaries and to oversee the prescribed actuarial guidance. The Faculty and Institute of Actuaries remains the professional body for actuaries. It is therefore no longer necessary or appropriate for the Secretary of State to approve actuarial guidance. I commend clause 17 and schedule 5 to the Committee.

Clause 18

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 81, in clause 18, page 20, line 31, leave out subsection (2).

Roger Gale (Conservative, North Thanet)

With this it will be convenient to discuss the following:

Clause stand part.

Amendment No. 8, in schedule 6, page 55, line 1, after ‘a’, insert ‘lay’.

Amendment No. 41, in schedule 6, page 55, line 1, leave out ‘chairman’ and insert

‘lay chair who is not perceived to have a conflict of interest with regard to the financial services industry, but is there to represent the views and look after the interests of scheme members and prospective scheme members,’.

Amendment No. 9, in schedule 6, page 55, line 2, after ‘members’, insert

‘(of which two shall be appointed to represent the interests of consumers)’.

Amendment No. 42, in schedule 6, page 55, line 2, after ‘ members’, insert

‘, of which at least two out of nine members will be non-executive consumer directors who represent scheme members and prospective scheme members and are recognised professionally by consumer groups,’.

Amendment No. 10, in schedule 6, page 55, line 3, leave out ‘or (3)’ and insert ‘, (3) or (3A)’.

Amendment No. 11, in schedule 6, page 55, line 8, at end insert—

‘(3A) Before appointing, or approving the appointment of, any member representing the interests of consumers for the purposes of sub-paragraph (1)(b), the Secretary of State must consult such organisations as appear to him to represent the interests of consumers.’.

Amendment No. 44, in schedule 6, page 55, line 8, at end insert—

‘(3A) Any consumer appointments for the purposes of sub-sub-paragraph (1)(b) must be discussed with consumer groups prior to appointment and the said consumer groups will have the right to comment on the said appointments.’.

Amendment No. 12, in schedule 6, page 55, line 11, at end insert—

‘1A Before appointing any member of the Authority under sub-paragraph 1(1) the Secretary of State must—

(a) conduct and open recruitment competition inviting applications from individuals with extensive knowledge, experience and expertise in the fields of pensions or financial marketing or both;

(b) consult organisations which appear to him to represent key groups of stakeholders;

(c) have regard to the desirability of appointing a group of members whose expertise collectively spans all aspects of occupational and personal pension provision and financial marketing.’.

Amendment No. 13, in schedule 6, page 55, line 11, at end insert—

‘1A In appointing members the Secretary of State shall have regard to the desirability of recruiting a group of members so that there is a balance as the Secretary of State considers appropriate between—

(a) members with knowledge and experience of consumers’ pension needs;

(b) members with knowledge and experience of employers’ involvement in pensions;

(c) members with knowledge and experience of pensions from the pension providers;

(d) members with knowledge and experience of pensions from the relevant regulators.’.

Amendment No. 15, in schedule 6, page 55, line 30, leave out ‘or other’.

Amendment No. 82, in schedule 6, page 56, line 26, leave out sub-paragraph (2).

Amendment No. 45, in schedule 6, page 59, line 7, at end insert—

‘(2) The Authority shall establish a committee for the purpose of representing scheme member and prospective scheme member interests, which shall be chaired by a consumer representative.’.

Amendment No. 14, in schedule 6, page 59, line 20, at end insert—

‘10A (1) The Authority must establish a committee for the purpose of representing the interests of scheme members and prospective scheme members.

(2) The chairman of the committee must be a consumer representative appointed under paragraphs 1(1)(b) and 1(3A).’.

That schedule 6 be the Sixth schedule to the Bill.

New clause 5—Application of Freedom of Information Act to Personal Accounts Delivery Authority—

‘(1) The Freedom of Information Act 2000 (c. 36) is amended as follows.

(2) In section 35 (formulation of government policy etc.) insert after subsection (2)—

“(2A) Information held by or provided by the Personal Accounts Delivery Authority is not to be regarded—

(a) for the purposes of subsection (1)(a), as relating to the formulation or development of government policy, or

(b) for the purposes of subsection (1)(b), as relating to Ministerial communications.”

(3) In section 36 (prejudice to effective conduct of public affairs) insert after subsection (2)—

“(2A) Information held by or provided by the Personal Accounts Delivery Authority is not be to regarded—

(a) for the purposes of subsection (2)(a), as relating to the maintenance of the convention of the collective responsibility of Ministers of the Crown, or

(b) for the purposes of subsection (2)(b), as relating to the free and frank provision of advice, or the free and frank exchange of views for the purposes of deliberation; or

(c) for the purposes of subsection (2)(c), as relating to the effective conduct of public affairs.”.’.

Nigel Waterson (Conservative, Eastbourne)

I feel quite weak, Mr. Gale, faced with such a large group of amendments and new clauses, but I shall try to rise to the occasion. Unfortunately, I cannot promise to be brief on this group, particularly as it includes clause stand part.

We have now moved on to the next important part of the Bill. It deals with the system for personal accounts. It is worth setting out a few parameters for the debate before I go through the various amendments and new clauses, particularly as it includes clause stand part.

I was interested, as all members of the Committee were, to receive the Minister’s letter of yesterday, which I thought had a hint of nervousness about it, and I shall explain why. Our suspicion has always been that the reaction of Ministers to this set of amendments would be that they were all matters for the next Bill, which will come up next year.

James Purnell (Labour, Stalybridge and Hyde)

They are.

Nigel Waterson (Conservative, Eastbourne)

The Minister says, right on cue, that they are. Well, we beg to disagree. Of course, there are areas of detail about personal accounts that it is inappropriate to go into here, Mr. Gale, as I am sure that you would be the first to remind us. However, we fear that there is a temptation into which Ministers are in danger of falling, and it is our job to help them not to fall into it. The temptation is to pass the legislation with a sigh of relief, then to pass the whole job over to some hot shots running the delivery authority and leave it to them to make all the difficult, tricky decisions. I would be the first to say that politicians are the last people we want running something like that in any detailed way. However, I think that it behoves us, particularly in view of the timeline involved with the reports, to nail down some clear ideas about the personal accounts system before we wave goodbye to the legislation.

As I said, I thought that the letter of 31 January betrayed a certain nervousness on the part of the Minister. In the second paragraph, it says that

“delivering and managing a major occupational pension scheme such as personal accounts... should not be a task for government.”

The answer to that, as I have tried to indicate, is yes and no. Of course, they are right, as the Minister goes on to say:

“We therefore propose to bring in experts to help develop and deliver the personal accounts scheme.”

He goes on to talk about the second pensions Bill later this year, and to stress the advisory nature of the delivery authority. That is all well and good, but to take one clear example before I move onto the weight of the amendments, he talks about

“advising on the design of the commercial strategy”.

As I have made clear in more than one speech, the Opposition hope that personal accounts will be a success, not only because they are the right approach to take to such a massive change in our systems, but because we may be the ones to inherit their implementation. We think that personal accounts have got to have the right shape, in a very general sense. I do not want the Minister to get too worried; we do not want to be too prescriptive, but we need to feel that the system is going to work. If it fails, and the accounts are not sufficiently attractive to the target audience—we shall come later to issues about whether the target group has changed—we want to do what we can to try to put that right now.

James Purnell (Labour, Stalybridge and Hyde)

I want to correct any impression that we were nervous; it is more that we were confused by the number of amendments, given that we think that they pertain to the White Paper consultation and the next potential Bill. I refer the hon. Gentleman to clause 19(2), which makes it clear that this is all about advice on

“proposals by the Secretary of State”.

There will not be an organisation taking decisions; there will be an organisation advising the Secretary of State. That is the hon. Gentleman’s grab handle if he is worried about our falling off the cliff and giving it all to another body to make the decisions. They will be decisions by the Secretary of State, not by the authority.

Nigel Waterson (Conservative, Eastbourne)

I take the Minister’s point, but I would say two things. First, the body itself will probably benefit from some sort of steer from the Committee as to what shape personal accounts might have. Secondly, contrary to what some members of the Committee may believe, I do not wake up in the morning and dream up all the amendments and the concerns that we wish to express. I do occasionally, but on the shape of personal accounts, an awful lot of the amendments, if not most of them, are driven by the industry—the very people who will have to make them work. Therefore, when I am speaking, it might not really be me at all; it might be the very people whom the Minster wants to enlist to make personal accounts a success.

I now turn to annexe A—rather bizarrely, there is no annexe B—to the Minister’s letter, in which he says:

“The Delivery Authority will be led by a Chair and Chief Executive with the right skills and expertise...supported by appropriate legal, commercial operational, business and financial expertise.”

That is the kind of issue that we want to explore in more detail. Crucially, he moves on to marketing and communications. We think that marketing is a crucial part of selling personal accounts; people will have to want to buy them. I will also talk about that in more detail.

The annexe to the Minister’s letter then refers to the role of the personal accounts board, which

“will be responsible for the management, rather than the delivery, of the personal accounts scheme.”

That is an important distinction. We are concerned that the delivery authority should be set up. Although in law the authority and the board are separate entities, we are worried that the Government want to see one morph into the other. Each requires a wholly different skills set for the introduction and delivery of the concept. The Minister recognises that by saying:

“There is a clear distinction between the work of the Delivery Authority and the personal accounts board.”

We want to underline that in these debates.

I shall assist the Committee by pointing out that clause 18, along with schedule 6, is about pay and rations, as it were, or the nuts and bolts. Clause 19 is about the wider issues—the purpose and scope of personal accounts, the authority’s relationship with its successor body and the definition of success or failure. There I fear that we may bump up against the limits of consensus, but we will see where the discussion takes us.

I shall move rapidly on to the large group of amendments, beginning with amendment No. 81, which is a probing amendment that will allow me to raise a couple of concerns. Subsection (2) makes it clear that:

“The Authority is not to be regarded as the servant or agent of the Crown”

and therefore does not enjoy Crown immunity or any claims. That raises an important issue, which arises in the context of the European Court proceedings that have just been concluded against the Government and the High Court proceedings that have been brought by pensioners’ groups, which are due to be heard on 7 February.

Whoever the Government are and however the architecture ends up, there should be distance between the Government and issues such as investment policy. I do not think that the Government should be in the business dealing with that sort of thing; they should be in the business of minimising as far as possible the political risk. I should therefore like to probe the Minister as to what the Government have in mind on the question of Crown privilege. It is right that Crown privilege should not apply, but does the Minister envisage claims against the authority? If so, what sort of claims does he envisage?

Let me move on. A cluster of amendments have been fomented, encouraged and supplied by Which?, formerly the Consumers Association, and have its seal of good housekeeping. The hon. Member for Yeovil occupies an interesting parallel dimension, because in most if not all cases, his amendments are identical to mine. I take it as praise indeed.

The first set of amendments includes amendment No. 8, which is ours, and amendment No. 41, which is the hon. Gentleman’s. Amendment No. 8 would put “lay” in schedule 6. Its purpose is to ensure that all chairs do not have any perceived conflict of interest with regard to the financial services industry, and that they look after the interests and represent the views of scheme members and of prospective scheme members. It is a probing amendment. “Lay” is a difficult word, and some definitions in other legislation are not directly comparable. However, it is important that the Minister understands our drift. The theme of many of the twinned amendments is to ensure that the interests of consumers and of potential consumers are at the heart of the way in which the authority undertakes its business.

Likewise, amendments Nos. 9 and 42 are again Conservative and Liberal Democrat. The Bill does not state that there should be mandatory consumer representation on the delivery authority. Which? is keen to ensure that there is a focus on the best deal for scheme members and for prospective scheme members. The amendments call for two mandatory non-executive consumer directors who would be recognised in a professional capacity by those stakeholder consumer groups that have an active interest in the subject. Which? has been energetic in attending many of those marvellous seminars, discussing with us—and, I am sure, other parties—its concerns as time has gone on. Emma Higginson, in particular, has been extremely helpful in briefing on the concerns that it and its members have.

David Laws (Liberal Democrat, Yeovil)

Does the hon. Gentleman agree that amendment No. 82 removes a paragraph that allows the Secretary of State to pay pensions, allowances or gratuities to the chairman and the non-executive members of the authority at his discretion?

Nigel Waterson (Conservative, Eastbourne)

That is a helpful intervention for which I am most grateful, and the hon. Gentleman is right. This is a probing amendment, because I am a bit puzzled as to why the delivery authority, which will have a short existence, should be in the business of paying pensions, allowances or gratuities—I do not know what that would mean. Would the members be given a couple of quid in their hands for turning up to a meeting? Paragraph 4(1) reasonably makes it clear that they should get remuneration and allowances. That is perfectly proper and is to be expected. However, I am not entirely convinced about where pensions, allowances and gratuities would come in.

Amendment No. 14 exactly parallels amendment No. 45 from the Liberal Democrats. That, I understand; it is about representing the interests of scheme members in a committee.

I think that the last issue that I need to deal with in this group is new clause 5, which concerns freedom of information. The Personal Accounts Delivery Authority will be subject to the Freedom of Information Act 2000, but the Act exempts information relating to the formulation of Government policy and the free and frank provision of advice. Those provisions are intended to protect the confidentiality of advice given by officials to Ministers and internal discussions within Government. However, we would want to underline the fact that the delivery authority will be independent from Government, not part of it, and I am sure that the Minister will be eager to say that, too. We are supported by the Association of British Insurers, among others, in thinking that it is important to make it clear that the advice tendered by the delivery authority about the best way to run personal accounts should be freely available to the public and the industry, so that everybody can judge the value of its recommendations and assess any final decisions taken by the Secretary of State on the basis of that advice.

Although I am always open to criticisms of my drafting, I think that the new clause achieves that purpose. It is designed to ensure that members of the public and others are able to make applications under the 2000 Act in respect of the delivery authority, and that there will not be any bar to that on the basis set out in the clause.

I hope that I have dealt adequately with the new clause and all the amendments, even those that were not tabled by my party, and I hope that there is something in there that the Minister might accept.

Roger Gale (Conservative, North Thanet)

I have no desire to curtail the right of any hon. Member to make whatever in-order comment he or she wishes. However, it has not escaped my notice that the provenance of some of the amendments seems to be remarkably similar. It is therefore likely that the arguments might be remarkably similar, so in order to expedite matters I should be grateful if hon. Members would eschew repetition.

David Laws (Liberal Democrat, Yeovil)

I am grateful not only for that advice, Mr. Gale, but for the fact that you did not look me directly in the eye when giving it. It is clearly designed for all members of the Committee. I did not, as you know, speak to clause 17 because the passport for that seemed to be having a joke about Calvin Coolidge. As I did not have one, I felt it was not appropriate for me to contribute. However, I agree that these amendments look rather similar. We are discussing a shadow delivery authority and have eight amendments shadowing each other—probably, I fear, in the wrong direction from my perspective, but arguably so closely that we will not split hairs.

Amendment No. 8, as you rightly say, Mr. Gale, shadows amendment No. 41, amendment No. 9 shadows amendment No. 42, amendment no. 11 shadows amendment no. 44 and amendment No. 14 shadows amendment No. 45. They all come from Which? so the hon. Member for Eastbourne and I will be happy for it to have the full credit for them. It is quite right to say that I have, essentially, been able to contract out the selling of these fine amendments to the hon. Gentleman, who has done a magnificent job in setting them out.

All I really need add, then, is that these amendments clearly demonstrate the importance of this body having consumer interests at its heart and not just being a sort of industry-Government fix. I need add nothing else.

James Purnell (Labour, Stalybridge and Hyde)

Now there is a practice that we should continue in future, Mr. Gale; but I do not want to give you advice, as I am surely not allowed to do so. I am tempted to agree with the spirit behind all these amendments, and leave it at that. We do, however, have a disagreement of substance on the one about freedom of information, so I shall come to that. Yet people would feel short-changed if we did not set out, on the record, a little response to the desire for our thinking to be teased out. So, I will go through the amendments as requested.

First, when the delivery authority takes on its next incarnation—if Parliament is willing to give us another Bill next year—then it will, we hope, move from being an advisory body to a genuine delivery authority. At that stage it will be important for this House to make it clear that the delivery authority should have genuine independence—both on investments and operationally—and the ability to recruit the skills that it needs. Personally, I think that an important point within that will be for us to establish clearly that it should make investment decisions on behalf of its members and with their interests at heart, rather than under political direction. That will be an important precedent to set.

However, that is not the delivery authority that we are discussing today. As I said earlier, the one under discussion is one that is advising the Secretary of State on the proposals that he will be making. So, the bedrock of parliamentary accountability here—and the answer to the questions set out by the hon. Member for Eastbourne at the start of his speech—is that it will not be going off to make a whole bunch of decisions for which Parliament cannot hold it to account. It will be advising the Secretary of State, whom Parliament can hold accountable during this period of its operation in exactly the normal way.

On the detail of process in the amendments, I also want to echo what has been said about Which? and the important role that it has played throughout the process of developing these policies, while representing in particular the interests of consumers and members. Which? has much influenced our proposals, and all parties have welcomed that. Its central point—that members and consumers should be absolutely at the heart of personal accounts—is right, and we indeed intend to reflect that in our proposals following the White Paper that we published in December.

An open question in the White Paper asks people to come forward with suggestions on how members should be represented, involved and consulted. We have a genuinely clear and open mind on that area, and are keen to have suggestions; we look forward to what the Work and Pensions Committee says on that as well. In making personal accounts work, it will be important both that the criterion for the authority’s decision making is clearly established to be the interests of its members—as it is their pensions that we are talking about—and that the members themselves feel confident that they have appropriate representation and influence over the decisions being made on their behalf.

We will be discussing those items in the light of the response that we get to our consultation, which bore in mind the work of the Work and Pensions Committee. We will publish our response to that Committee, which hon. Members will have a chance to scrutinise over the next few months. Those are the general issues that we will be able to discuss, but the amendments that we are talking about today—to which I now want to turn—are much more specific.

Clause 18 establishes a Personal Accounts Delivery Authority, which we want to give independent advice to Government while using the professional expertise and knowledge that exist in the private sector. The establishment of such an authority has generally been welcomed by stakeholders, both those in financial services and representatives of consumers and trade unions. I am pleased to see that the Opposition parties also support the principle of having a delivery authority.

Schedule 6 covers the membership, proceedings and organisational parameters within which the delivery authority must operate. We envisage the authority operating on the basis of a small board, with executive and non-executive members, supported by staff and specialist committees. Initially, under the provisions set out in the Bill, the delivery authority will provide advice, supporting the Government in understanding the operational and commercial implications of policy options. It will also advise on the design of the commercial strategy, including the financial, technical and commercial analysis needed for policy development. That is the general approach. I will now turn to specific amendments.

On Crown immunity, I understand that the intention of the hon. Member for Eastbourne is not to give the organisation Crown immunity, but to test whether we believe that it should be subject to judicial procedures in the normal way, as any organisation advising on policy in this way should be. That is our intention. If he wanted to press his amendment, we would resist, but I hope that gives him the comfort that he wants. If people feel that they need judicial recourse against the authority, they will be able to resort to it in the normal way.

Nigel Waterson (Conservative, Eastbourne)

I do not want to labour the point, but it seems odd to envisage legal claims against the delivery authority rather than the board in due course. I wonder what kind of claims the Minister envisages being made. Is any provision made for possible claims in the amount set out in the regulatory impact assessment, which is £21 million for the delivery authority up to the second Bill being dealt with by Parliament?

James Purnell (Labour, Stalybridge and Hyde)

If people wanted judicial recourse against the authority, they would sue the Secretary of State in the normal way. They would have judicial review of the Secretary of State. I hope that that gives the hon. Gentleman the assurance that he wants. If there was a feeling that the authority had acted in a way that needed judicial review, that would be possible.

Nigel Waterson (Conservative, Eastbourne)

So, I assume that in due course the board would have a different set-up? That body, once it is up and running, is envisaged as the one to be sued, rather than the Secretary of State.

James Purnell (Labour, Stalybridge and Hyde)

That is absolutely right. In the authority’s next incarnation, when not giving advice but actually making proposals, then it would obviously be subject to normal judicial review and other legal proceedings.

On freedom of information, I am just not sure that I agree with the hon. Gentleman. I can see the desire for transparency. However, in the same way as civil servants give advice to Ministers, which they would sometimes not be comfortable having in the public domain, so is the role of the delivery authority in giving advice to the Secretary of State, where the analogy would apply as well.

There are some side effects of his amendment that I think the hon. Gentleman would not want, such as anybody applying for an interview being able to ask for the questions that they were going to be asked in advance, or so I am told. Apparently anyone wanting to get into the authority’s IT system could ask for the passwords. I know that that is not the amendment’s intention. On the basis of wanting effective policy-making at this stage it would be better for the Freedom of Information Act to apply to Departments, as it does now. That is why we will resist the amendment if the hon. Gentleman divides the Committee on the proposal. We do not propose to exempt the authority from protection for policy and advice because it would not be conducive to their giving frank and impartial guidance, which is exactly why Parliament put those provisions into the Freedom of Information Act in the first place.

On amendments Nos. 12 and 13, I reassure the hon. Gentleman and the hon. Member for Yeovil that as with all other public bodies, when appointing non-executives we are required to follow the code of practice of the Office of the Commissioner for Public Appointments for ministerial appointments to public bodies, which is a guide to the steps that must be followed to ensure a fair, open and transparent appointments process. Independent scrutiny is a mandatory element of the process and no appointment may be made unless an independent assessor has been involved. In appointing initial executive members we will follow an open and transparent process that follows best practice and standard employment procedures.

The hon. Member for Eastbourne wanted to know whether we had started recruiting. I can tell him that we engaged headhunters on Monday and we plan to start the recruitment process in February. If he knows of anyone who may want to apply, he can refer them to a firm called Egon Zehnder. I hope that that gives the hon. Gentleman the information that he wanted.

Nigel Waterson (Conservative, Eastbourne)

As soon as we adjourn today I shall be polishing my CV.

Two questions arise from what the Minister said: first, will he share with the Committee the job descriptions of the positions of chairman and chief executive that he has given to Egon Zehnder, a reputable and well-known firm in the field? Secondly, what is the Cabinet Office or other rule about recruiting people and spending money when the Bill has barely scratched the surface of its parliamentary process? These people do not work for charitable purposes.

James Purnell (Labour, Stalybridge and Hyde)

I think the rule is that the process can start after Second Reading. We will be careful to follow the application procedure in keeping with Cabinet Office and Treasury guidance on the spending of public money under this Bill.

The hon. Gentleman asked whether we would want specific marketing expertise and we are happy to discuss that with him and with stakeholders.

Nigel Waterson (Conservative, Eastbourne)

I hope that the Minister has not forgotten my first point.

James Purnell (Labour, Stalybridge and Hyde)

I probably have. [Interruption.] We are happy to share that with the hon. Gentleman. We want to discuss it with our headhunters first, as their expertise is in formulating all that. If the hon. Gentleman wants to make any suggestions we will be happy to consider them and we will happily commit to sharing the job description with him. The process can begin after Second Reading but the appointment will be after Royal Assent.

We did not envisage requiring marketing expertise to be specified in legislation. It will be for the chairman and the chief executive to decide the expertise that they want on that issue. However, we do not want to put that in the Bill, as we want a nimble organisation that can be flexible in deciding whom it recruits.

As I was saying, independent scrutiny will be a mandatory element in the process and no appointment will be made without an independent assessor. We recognise the importance of ensuring that the board contains individuals with a breadth of knowledge and experience from a range of backgrounds. At the initial stage of delivery, it will be small, so it will be particularly important to ensure that we have the right skills and expertise in place.

Amendments Nos. 8, 9, 10, 11, 41, 42, 44, 14 and 45 relate to the important issue of consumer representation. The principle that consumer involvement and expertise is vital to the work of the delivery authority is recognised by all parties. However, at this stage I am wary of starting to mandate individuals on boards to represent individual stakeholder groups. We might end up with stakeholders in the financial services industry, stakeholders among employers providing schemes and stakeholders in trade unions, and we would be in danger of creating the sense that certain people on the board had responsibility for one particular section or interest rather than for the effectiveness of personal accounts as a whole. Like the BBC and Ofcom, which do not have people representing specific interests, we want the board as a whole to be responsible for the whole success of personal accounts. That means representing consumers and performing the other duties that, initially, the personal accounts board and the delivery authority will have.

While supporting the principle that consumers and people with expertise in consumer issues should have appropriate involvement in personal accounts, we are reluctant to legislate specifically for that.

David Laws (Liberal Democrat, Yeovil)

Has the Minister had a chance to meet the most prominent consumer organisations to think about how he might satisfy their concerns within the context of those reservations? Would he be willing to do so if they wished to take him up on it before the measure is taken further?

James Purnell (Labour, Stalybridge and Hyde)

We met with them a number of times in the run-up to publication of the White Paper, and will be happy to do so again. In fact, we had one running meeting—the Division bell rang half way through and we continued it while running to the Division Lobby. The issue is not new, and the views of those people shaped the section of the White Paper covering consumer representation. We are happy to listen to any specific proposal. However, we do not think that we should necessarily legislate for the detail. We will continue to discuss the issue; indeed, my officials are in regular discussion with the stakeholders who have been mentioned and others, as well as through our much-referred-to series of seminars

As for the calls for a lay chair, all members of the delivery authority board will be expected to act in the interests of all prospective scheme members in performing their roles. That duty will apply to everyone. Given that we are trying to create an organisation with a relatively small board, we do not want to specify backgrounds that would not be suitable for particular jobs. We recognise that those interests will have to be taken into account, and that people with expertise in those issues will have to be involved in personal accounts, but we may come to regret disqualifying anybody with a financial services background from chairing the authority if the best person to do so happens to have that background. In that, we disagree with the thrust of the amendment. We want the delivery authority to have the flexibility to recruit the best people for the job, and we do not want to tie their hands. With that, I shall move on from consumer representation, unless hon. Members have any burning issues to raise.

Amendment No.15 relates to conflict of interest. There is nothing hugely mysterious about it. Most conflicts of interest would be financial, but it possible to envisage a conflict of interest that was not directly financial. For example, a member of someone’s family might run a company that could be affected by the introduction of personal accounts, or there might be other non-financial conflicts of interest. The only reason for having the words “and other interests” is to give the Secretary of State the flexibility to deal with any potential non-financial conflicts, having regard to legal advice as necessary.

As for amendment No. 82, again there is no great mystery here. We are replicating the financial remuneration framework that applies to non-departmental public bodies, which gives the Secretary of State, should he so determine, the flexibility to pay or make provision for payment of pensions, allowances or gratuities to non-executive members or their dependants, survivors, spouses or children. There is nothing new about that; that is how we remunerate people generally, and we will consider the exact remuneration package at a later stage.

I hope that I have given the hon. Member for Eastbourne the information that he wanted, and that I have dealt with all the amendments that we are discussing with the clause. I thank hon. Members for tabling the amendments; it is important that we have had a chance to discuss them, and I hope that we have been able to allay any concerns. As I say, we support the general thrust behind most of the amendments. We want hon. Members involved at the very heart of personal accounts; their support and confidence in the organisation will be central to making it a success. They have asked genuinely open-minded questions about how that should be done in the next phase of personal accounts. In this phase there will be a nimble, small body that gives us advice based on the best financial, consumer and other expertise. I urge hon. Members to withdraw their amendments.

Nigel Waterson (Conservative, Eastbourne)

I am grateful to the Minister for going through all the amendments in such detail. Let me try to pick up some of those points as briefly as I am able, given the size of the group of amendments—the largest group that the Committee has considered so far.

I am grateful for the clarification on Crown immunity. I was genuinely puzzled by that, and I am now clear that the legal situation in terms of the claims of the delivery authority will be quite different from that of the board in due course. It is important that there is in due course a separation between the body that is delivering personal accounts in the long term and the Government of the day.

I am disappointed by the Minister’s reaction on freedom of information. I suppose that all Ministers develop in that way eventually, and it is rather upsetting to see this Minister, who is so young, succumbing to what the right hon. Member for Manchester, Gorton (Sir Gerald Kaufman) calls “ministeritis” in his excellent book, “How to be a Minister”, the third edition of which has just come out and which I commend to the Minister. Again, this is not just some mad Tory obsession, or even a mad Liberal Democrat obsession. It is a point initially raised by the Association of British Insurers, which has a legitimate interest on behalf of its many members. In a way, it suggests to me that the Government are now stepping back.

We have all immensely enjoyed the succession of seminars, where there has been cross-fertilisation between Ministers, officials, the industry and others. It seems as if we are now going to take a step backwards. Given that the body will be primarily delivering advice to Ministers about the future shape of personal accounts, I cannot believe that it can claim a monopoly of wisdom, expertise and experience in those matters. I think that it is important that bodies such as the ABI and its members, and many others such as Which? or any body with an interest, should have access to the documents. As for the ludicrous examples given—with due respect to the Minister—I do not know whether he has ever tried to make a freedom of information application under this Government, but the notion that someone going for an interview could get the questions in advance by putting in a freedom of information application is just risible. I forget what the other example was.

John Penrose (Conservative, Weston-Super-Mare)

IT passwords.

Nigel Waterson (Conservative, Eastbourne)

Yes, gaining access to the IT system. I am sure that some exclusion can be crafted to put the Minister at ease on that. All that we are talking about is people with a legitimate interest and genuine expertise and knowledge of these matters having access to the advice tendered to Ministers. My intention—I am not quite sure where it comes in our deliberations, Mr. Gale—is to press new clause 5 to a vote. I urge Opposition Members to join me on that.

James Purnell (Labour, Stalybridge and Hyde)

I give the hon. Gentleman an assurance that we want the authority to be open and consultative in everything that it does. There may well be occasions when it wants to give advice in confidence. I am sure that he can imagine circumstances in which it would want to do that. That is why we think that freedom of information should apply to this body in the same way that it applies to other Government bodies.

Nigel Waterson (Conservative, Eastbourne)

I see that. I do not suggest that this is the beginning of some slippery slope to a police state, any more than we have one at the moment but without the police, but there is a genuine issue here. I hope that whoever runs this body will have the good sense to meet regularly with us. If consensus is to mean anything, it needs to be a continuing process. I regard the position on freedom of information as being counter consensual in that sense.

I hope that we can get round that by having regular meetings with this bod or bods who will tell us their troubles. We do not want to sweep into office in two or three years’ time to find that they have been advising Ministers that this whole thing is doomed to fail miserably. We will keep coming to the seminars, because we are sad people with nothing else to do, but also because they can be quite interesting. But I urge the Minister to reconsider that point.

I am grateful for the Minister’s openness on the appointment procedures. I am delighted to hear that he has Egon Zehnder on the case. I shall be interested to see what comes from his discussions with that firm. I assume that the usual rules about political affiliation will be observed. I was grateful for his confirmation that the appointment can be made only after Royal Assent. I suppose that any money can be spent only then too. I hope that Egon Zehnder is aware of that.

There is a serious point about marketing experience. David Norgrove or Laurence Churchill are both excellent and incredibly able and competent men, but a different animal is needed here. I am not suggesting PY Gerbeau, but we are looking for someone with a bit of pizzazz and salesmanship and a marketing strength which is not required in something like the Pension Protection Fund, which in effect has a captive audience. That is the point that I was trying to make, if I can put it in a nutshell.

I think that I am happy with the Minister’s assurances about consumer representation. He clearly stated that the Government were also grateful for the input from Which? and others. As I said in my opening remarks, I can understand the argument that we should not necessarily state in the Bill precisely who should be taken on. The Minister reassured me enough that I shall not press the amendments. I accept that the wealth and variety of experience referred to in the amendments, as well as consumers’ views, will be taken into account. That is a win for our point of view.

I mentioned earlier the £21 million which, according to the RIA, has been budgeted for the delivery authority between now and the next Bill. I should have done so earlier, but let me say that I shall be immensely grateful if the Minister will write to us with a breakdown of how that figure was reached.

I was satisfied by what the Minister had to say on conflict of interest—he confirmed what he had had in mind. However, as he says, the great bulk of such potential cases would be based on a financial conflict of interest.

I am happy not to pursue any of the amendments tabled in my name; of course, I cannot speak for the Liberal Democrats. However, I would like to vote at the appropriate moment on new clause 5.

I beg to ask leave to withdraw the amendment.

Roger Gale (Conservative, North Thanet)

We have had the substantive debate on the principle behind schedule 6, but we are yet to debate two groups of amendments to it.

Further consideration adjourned.—[Mr. Heppell.]