Pensions Bill

Public Bill Committee, 15 January 2008.

Nicholas Winterton (Conservative, Macclesfield)

I welcome all members of the Committee to this first sitting. I have a number of preliminary announcements to make. First, if Members wish to remove their jackets during Committee meetings, I am happy that they should do so. However, it is up to my co-Chairman, Mrs. Janet Anderson, to decide whether that is also part of her instruction. Members should also note that mobile telephones, pagers and other electronic devices should be turned off or switched to silent mode. I become very blind if Members whose phones go off then rise to catch my eye.

I remind the Committee that there is a money resolution and a Ways and Means resolution in connection with this Bill, and copies are available here in the Committee Room. I should also like to remind Members that adequate notice should be given of amendments. As a general rule, I and my fellow Chairman do not intend to call starred amendments.

The process of taking oral evidence in Public Bill Committees is still relatively novel, so I will briefly explain what is proposed so that we can all be clear as to precisely what should go on. The Committee will first be asked to consider the programme motion on the amendment paper, on which debate is limited to half an hour. I will then proceed to a motion to report written evidence, and then a motion to permit the Committee to deliberate in private in advance of the oral evidence sessions, which I hope we can take formally. I look to both sides of the Committee for their agreement. Assuming that the second of these motions is agreed to, the Committee will move into private session. Once the Committee has deliberated, the witnesses and members of the public will be invited back in and our oral evidence session will commence. If the Committee agrees to the programme motion—I hope very much that it will—the Committee will hear oral evidence today and on Thursday, moving on to the more familiar proceeding of clause-by-clause scrutiny next week.

We come now to the programme motion. I understand that an amendment is to be proposed. It would be convenient for the Committee if the Minister moved the motion formally and the Government Whip then moved his amendment.

Mike O'Brien (Labour, North Warwickshire)

I beg to move,

That—

(1) the Committee shall (in addition to its first meeting at 10.30 a.m. on Tuesday 15th January) meet—

(a) at 4.00 p.m. on Tuesday 15th January;

(b) at 9.30 a.m. and 1.00 p.m. on Thursday 17th January;

(c) at 10.30 a.m. and 4.00 p.m. on Tuesday 22nd January;

(d) at 9.30 a.m. and 1.00 p.m. on Thursday 24th January;

(e) at 10.30 a.m. and 4.00 p.m. on Tuesday 29th January;

(f) at 9.30 a.m. and 1.00 p.m. on Thursday 31st January;

(g) at 10.30 a.m. and 4.00 p.m. on Tuesday 5th February;

(h) at 9.30 a.m. and 1.00 p.m. on Thursday 7th February;

(i) at 10.30 a.m. and 4.00 p.m. on Tuesday 19th February;

(j) at 9.30 a.m. and 1.00 p.m. on Thursday 21st February;

(k) at 10.30 a.m. and 4.00 p.m. on Tuesday 26th February.

(2) the Committee shall hear oral evidence in accordance with the following Table:

TABLE

Nicholas Winterton (Conservative, Macclesfield)

I allowed the Minister to go into some explanation. I was hoping that he would move the motion formally and that we would have the debate on the amendment, but it is appropriate for the Minister to have said what he did to the Committee.

Nigel Waterson (Conservative, Eastbourne)

Thank you, Sir Nicholas, you can tell how eager I am to get stuck into yet another Pensions Bill.

May I speak briefly on some of the issues raised both on the main motion and the amendment? We will not be dividing; we support both the motion as it stands and the amendment. Had it not been for the amendment, the Pensions Policy Institute would have had to distil all its wisdom and expertise into a 15-minute session—it would have been famous for 15 minutes, as the phrase goes—which did not strike us as very satisfactory.

Pensions Bills are becoming an annual event under this Government and so far as it goes, we welcome the latest one. I welcome all the hon. Members to the Committee—volunteers and pressed men both—and particularly my colleagues who have volunteered to help in our deliberations. Evidence sessions on any view are going to move at a brisk pace, if not in something of a blur. A whole week of oral evidence sounds generous, but one can gauge from the number of organisations that have been clamouring for the opportunity to give evidence just how much interest the Bill excites.

I have said what I needed to say on the amendment—it seems perfectly sensible. I was pleased to hear what the Minister said, both now and in writing, about amendments. We are, of course, particularly interested to see the Government’s amendments on the financial assistance scheme and on giving full compensation to people who have lost their pensions, or much of their pensions. No doubt there will be the usual flurry of excitement as the Bill continues, about whether draft regulations can catch up with the actual clause under which they are to be introduced. I know Ministers always start off with the best of intentions but those matters are not always completely in their control. Obviously it would be helpful, given that many of the important issues in the Bill are left to regulation, if those regulations were in front of us during the relevant debates. I am sure that the Ministers will do their level best—likewise with their amendments.

I apologise that, despite the opportunity—I do not think that there is the obligation—under the rules, most of my amendments so far do not have an explanatory memorandum attached. I drafted them over Christmas, so it was a choice between Christmas and explanatory memorandums and Christmas won. I have checked with the clerks; one has to table the explanatory notes at the same time as the amendments so apparently there is no opportunity to put them in later, which we would be perfectly happy to do. Members may also have noticed that the more recent amendments—I hope future ones—all have attached some attempt to explain what they are about. We of course do not have the resources that are at the disposal of Ministers. We look forward to seeing their amendments and their explanatory notes.

It is a great pleasure, Sir Nicholas, to serve under your Chairmanship and that of Mrs. Anderson. I am sure that we will have a thoroughly enjoyable few weeks—particularly the half-term. Many of, but not all, the issues in the Bill are based on the Turner settlement and an element of consensus between the major parties, but there are some big issues, and some issues on which we and the Government still disagree. But I hope that we can, as they say, disagree without being disagreeable.

John Greenway (Conservative, Ryedale)

It is a rare pleasure to serve on a Public Bill Committee and I want to apologise to you in advance, as I will be absent on one or two occasions in the next five or six weeks because of my Council of Europe Parliamentary Assembly responsibilities. However, I intend to play a full and thorough part in the Bill.

On a point of information, the programme motion clearly sets out when we will begin our sittings but can the Minister clarify where he expects the various sittings to end? I am not clear about what happens on Thursday if we start at 9.30 am. I am quite happy to sit in committee when question times take place on the floor of the House as I think this is more important. Other colleagues may have a different point of view. Some clarification on when we think we will end would help because, as my hon. Friend the Member for Eastbourne (Mr. Waterson) says, we do have a lot of work on this Bill and it will help us to programme how far we need to get if we know exactly how much time we have for deliberation. In the meantime, we look forward to serving under your excellent chairmanship.

Nicholas Winterton (Conservative, Macclesfield)

I liked the hon. Gentleman’s last comment. He has given notice that he may be absent for one or two of the sittings because of other parliamentary engagements. It is up to each Member to decide their priorities and if the hon. Gentleman needs to be in Europe for important meetings representing this House the Committee will understand.

May I say to the hon. Member for Eastbourne, following the experiment in the last session with the Legal Services Bill, it was agreed that a further trial of explanatory statements on amendments should be undertaken? The Pensions Bill is one of three chosen for the second phase of the experiment. The hon. Gentleman spoke about the need to table the explanatory note at the same time as the amendment, but that could be possible that that could be changed. The amendment could be tabled and the explanatory note could follow. I do emphasise, therefore, that this is the second phase of an experiment. The Clerk and I have taken note of what the hon. Gentleman has said.

Nicholas Winterton (Conservative, Macclesfield)

We will now hear oral evidence from representatives of the Personal Accounts Delivery Authority. I welcome the witnesses here today: Mr. Paul Myners, chairman of the Personal Accounts Delivery Authority; and Mr. Tim Jones, chief executive of that Authority. Perhaps they would like to introduce themselves to the Committee and those who are here to listen to what is going on so that they will know which is which and who is who.

Nicholas Winterton (Conservative, Macclesfield)

Thank you. You have taken authority and introduced your chief executive. So often the boot is on the other foot, where the chief executive carries the authority, but quite clearly you carry considerable authority as chairman. I liked the way you did it.

Nigel Waterson (Conservative, Eastbourne)

Good morning and welcome. Will this new scheme be up and running in 2012, or is there a plan B?

Nigel Waterson (Conservative, Eastbourne)

You will have noticed that we have tabled quite a few amendments that deal with lump sum contributions, transfers and the annual contribution cap. Would you like to develop in a bit more detail from your perspective—particularly the IT perspective—the mechanics of setting up this massive undertaking and the trade-off of complexity, cost and possible delay?

Mike O'Brien (Labour, North Warwickshire)

The Bill gives you a wide range of responsibilities and obligations. Can you set out the priorities that you see in terms of implementing the provisions of this Bill?

Andrew Selous (Conservative, South West Bedfordshire)

Pursuing the administrative theme a little further, the Department has not had a happy history in terms of its computer provision over quite a number of years. That fact has been looked into by the Public Accounts Committee, among other bodies. Can you tell us anything about the computers for PADA? They are going to have to be fairly substantial and will need to work well. I do not know whether you are constrained by commercial confidentiality considerations, but I would like to know whether you or the Department will be running the computer systems, particularly in terms of the long-term management of the computer schemes. The PAC has picked the Department up on that issue in the past and has accused it of not being capable of being an intelligent customer.

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

I am sure that you have read the report of the Bill’s Second Reading debate in Hansard. My hon. Friend the Member for Colne Valley (Kali Mountford) raised an issue relating to people who are below the £5,000 threshold and perhaps employed in multiple jobs. Would it be PADA’s responsibility to encourage the people who fall into that category—the figures seem to indicate that there are about 40,000 of them—to opt into the personal accounts? Is the system flexible enough to take account of the likelihood that they are people who are going to be moving in and out of different jobs—all low paid and so on, with probably little continuity? Bearing in mind your comments that we need to keep it very simple, is there potentially a problem because of the complex nature of the people who are just below that £5,000 threshold?

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

I am sure that you appreciate the real issue. Here we have the lowest paid in our society, and there is the issue of complexity. I understand the reasons why we have set the thresholds where they are, and that they can be moved up or down. I understand that thresholds have to be set, but surely there are ways in which we can target those people and encourage them at least to come into the personal accounts scheme. This is a rather rambling question but do you envisage promoting personal accounts directed specifically at those people who are below the £5,000 threshold?

Stewart Jackson (Conservative, Peterborough)

Following the question from Andrew Selous about administrative costs, may I ask you, Mr. Jones, to consider clause 10 on employers’ duties? There has been quite a significant increase in the estimate of administrative costs between the publication in December of the regulatory impact assessment and the current assessment. Why do you think there is such an increase and what assessment has been made in terms of the likely administrative costs that will fall on small or micro-businesses?

Stewart Jackson (Conservative, Peterborough)

What do you say about the second part of the question in respect of the general estimates? Are you expecting the estimates of administrative costs to rise significantly as you remodel the methodology?

Alan Keen (Labour, Feltham and Heston)

You have already mentioned that you are not going to operate the computer systems yourselves. Can you say whether the IT work is going to be done two levels down? Are you going to employ consultants to help you decide which computer company is to provide the system? Would you give us some of your early thoughts?

Alan Keen (Labour, Feltham and Heston)

Have you had or will you have the chance to look at what happened in the health service? I get the impression, looking at arm’s length, that we—the taxpayer—were let down pretty badly by the providers of the IT systems. It did not look, to me, that the taxpayer was compensated by the companies that failed to produce what they were supposed to produce. Have you had any thoughts on that?

Alan Keen (Labour, Feltham and Heston)

I am quite comforted. I am a lot older than you are, and I worked on the first mainframes, transferring management information on to the first mainframes in industry way back—more than 35 years ago now. I have wisely, since I have been in Parliament for 11 years, kept at arm’s length any experience I had before in the private sector, but I am comforted by what I heard.

Gordon Banks (Labour, Ochil and South Perthshire)

I would like to touch on the employer’s role in the provision of information and on the burdens on and the safeguards for both employers and employees. Obviously, employers will have the duty to provide information on personal accounts. If that is correct, what form will this information take, and is there a need for registration of receipt of the information by the employee that will prevent possible future claims of negligence and non-compliance when somebody says 25 years down the line, “My employer never told me about this; therefore I didn’t register; therefore I want to make a claim”? That in itself is both burdensome on the employer and the employee, but also has built-in safeguards for both. I have two other brief points, but perhaps you would like to take that one first.

Gordon Banks (Labour, Ochil and South Perthshire)

So will there be a registration form that employers will have to keep to say, “Yes, I provided you with this level of information at a certain point in time”, so that there can be no future claims of negligence?

Gordon Banks (Labour, Ochil and South Perthshire)

Okay. A couple of points about costs were possibly touched on earlier. What are your projected costs and number of employees? Also, Mr. Jones, you mentioned earlier the millions of dormant members. Has there been any projection—any crystal ball gazing done—as to how long a dormant member may remain a dormant member, and therefore how often a member may flit in and out of buying into the process?

Gordon Banks (Labour, Ochil and South Perthshire)

The second part of the question related to the dormant members and projections on how many people might flit in and out.

Nicholas Winterton (Conservative, Macclesfield)

We thank Mr. Myners for that additional comment. In order to help both our witnesses and members of the Committee, I am obliged to conclude the questioning around mid-day—in other words to allow the question that has been put to be dealt with before the Government Whip adjourns the Committee.

I have already noted that Paul Rowen, Jim Cunningham, David Borrow, Mike O’Brien, Andrew Selous and Stewart Jackson still have questions to put. I call Paul Rowen.

Paul Rowen (Liberal Democrat, Rochdale)

Thank you, Sir Nicholas. What assessment has been made about the adequacy of generic financial advice in enabling people in perhaps very complex financial circumstances to opt out of the pension scheme?

Paul Rowen (Liberal Democrat, Rochdale)

Nevertheless there are people on housing benefit or at a certain age—approaching retirement age—and I know that the Thoresen review is looking at generic financial advice. Have you made any assessment of what that generic advice needs to provide? Otherwise, there is a danger people are going to say, “This is too complex. I am just going to opt out.”

David Borrow (Labour, South Ribble)

You have already made it clear that this is very much work in progress, and you argued earlier the benefits of keeping it simple. To what extent have you been able to look at lessons from overseas, or are planning to do so in the future? I would raise specifically the KiwiSaver scheme in New Zealand.

David Borrow (Labour, South Ribble)

To what extent is the involvement with systems overseas of benefit in terms of designing the internal system, but also in terms of giving Ministers advice about the complexity and simplicity argument? Ministers may wish to have complexity to deal with fairness issues that have been raised. Do you consider that lessons could be learned from overseas experience that might assist you in your advice to Ministers in that area?

Jim Cunningham (Labour, Coventry South)

Following on from that question, and looking at the international dimension, will you be looking at charge structures?

Jim Cunningham (Labour, Coventry South)

To follow on from that, have you got any ideas of your own for keeping the charges low and simple?

Nigel Waterson (Conservative, Eastbourne)

Moving on to the issue that has become known as “levelling down”—you will have seen the most pessimistic of the projections made by the Pensions Policy Institute in its recent work for the Nuffield Foundation—can you take a few minutes to see how you define your relationship, as the new kids on the block, with existing pension schemes of reasonable quality?

Nigel Waterson (Conservative, Eastbourne)

Thank you. Paul, do you want to add anything to that?

Mike O'Brien (Labour, North Warwickshire)

You both rightly said that simplicity was the key to dealing with issues such as charges and to ensuring that a scheme could deliver for such a large number of people at a reasonable cost. Some people, however, will want an element of choice: they might want sharia-compliant investments, environmentally-compliant investments and so on. To what extent do you intend to offer some degree of choice, bearing in mind that each choice adds cost?

Mike O'Brien (Labour, North Warwickshire)

You said that you would have to look at consulting on some of these investments. How do you propose to go about consulting and reporting back publicly on your investment strategy, not only in terms of the default scheme, but in terms of the other schemes that will give some element of choice?

Mike O'Brien (Labour, North Warwickshire)

That is likely to be an understatement.

Nicholas Winterton (Conservative, Macclesfield)

I am going to call John Greenway very briefly because he has not come in yet. I hope that he will be brief because we have something like nine minutes before we need to adjourn, and at least three other Members have caught my eye.

John Greenway (Conservative, Ryedale)

I was happy to wait until the end, but you have called me and this touches on the subject. The moment you introduce a choice, we are back to the vexed old question of advice. Following on from what Paul Rowen said, we all have high expectations of getting some clarity on the subject from the Thoresen review. Until we have that, it is impossible to make judgments about what is going to happen. I suspect that, in collaboration with the retail distribution review that the FSA is undertaking, the whole area of advice may be recast.

Would you accept that if people have a choice of funds, they are going to have to make decisions? If they make the wrong decisions—choosing the wrong fund for them at their age and stage in life, for example—they might have a disappointed realisation, and the whole question is likely to arise about who is then responsible for them making the wrong choice. That will be for not just one person, but a great many.

Andrew Selous (Conservative, South West Bedfordshire)

Two brief questions. Would it help the launch of a successful personal accounts system if those people who, through no fault of their own, had been auto-enrolled and then got no benefit in retirement could have some form of restitution? Do not define what that would be—perhaps we all need to go away and think about that. Would that help your job in selling this to the mass market, which we would want to do for personal accounts to be a success? My second question concerns some employers in really cut-throat industries where margins are low who might offer financial inducements to their employees not to join to save on their contributions. There would then not be a level playing field for employers. Do you think that there should be some stick to do something about those employers?

Andrew Selous (Conservative, South West Bedfordshire)

It was about employers offering financial inducements to their employees not to go into the scheme to get a competitive advantage.

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

Coming back to the last question from Nigel Waterson about levelling down, 75 per cent. of employers with an occupational pension scheme are contributing more than 3 per cent. What evidence do you have that, by introducing the new scheme with a 3 per cent. contribution from employers, you are not going to see employers either reducing their contribution in existing occupational pension schemes, or even closing them down and moving their staff into the new scheme that you are running? Is there any evidence internationally that that has happened or has not happened?

Stewart Jackson (Conservative, Peterborough)

Clause 61 of the Bill gives the organisation the authority to borrow money. In the past, the Government have had some issues regarding semi-autonomous agencies such as the Assets Recovery Agency. This is a potential concern. May I ask Mr. Myners who he would borrow money from? What collateral would he have, and for what purposes might the authority borrow money?

Nicholas Winterton (Conservative, Macclesfield)

We look as if we have come to the end of our questions. May I pose a question to our two witnesses, because taking evidence at the beginning of a Public Bill Committee is an experimental procedure? Do you think that coming to give evidence to members of a Public Bill Committee is helpful in the scrutiny and understanding of legislation? Mr. Myners, perhaps it would be appropriate for you to deal with that question.

Nicholas Winterton (Conservative, Macclesfield)

Mr. Myners, I have to say from the Chair that I am totally and completely 100 per cent. impartial in these matters, but I just felt that, because this is an experiment and still in its early days, I would ask that question, which I hope has been appreciated by Members on both sides of the Committee.

On behalf of the Committee, may I thank you, Mr. Myners and Mr. Jones, for the valuable and helpful evidence that you have given the Public Bill Committee this morning?

Further consideration adjourned.—[Mr. David.]

Written Evidence to be reported to the House

Janet Anderson (Labour, Rossendale and Darwen)

Good afternoon. Welcome to this oral evidence session on the Pensions Bill. May I welcome Mr. Stephen Haddrill, director general of the Association of British Insurers, Joanne Segars, chief executive of the National Association of Pension Funds, and Mr. Dick Saunders, chief executive of the Investment Management Association? I warn you that the session will have to finish at 5.10 pm on the dot, but I will try not to cut any of you off in mid-flow. I shall call the Minister first.

Mike O'Brien (Labour, North Warwickshire)

I welcome you to the Chair, Mrs. Anderson. I will begin by asking Joanne Segars a question. How do we ensure that automatic enrolment best targets those who are currently without pension provision?

Mike O'Brien (Labour, North Warwickshire)

In terms of pension provision more broadly, the aim, obviously, is that people should go to not just personal accounts, but other types of pension schemes. The aim of personal accounts is to complement, rather than to compete with, existing pension provision. Therefore, how do we ensure that other pension schemes, such as some of the ones that you represent, are able to access those who are currently without provision?

Nigel Waterson (Conservative, Eastbourne)

May I just follow up that question by putting a similar question to Stephen Haddrill? More specifically, what kind of measures do you think should be in the Bill to minimise the erosion of existing provision, particularly to avoid the worst case scenario painted recently by the Pensions Policy Institute about the levelling down of existing provision?

Nigel Waterson (Conservative, Eastbourne)

Can I just follow up on one point? Going back to group personal pension schemes, what is your preferred solution to the problem? Joanne and Dick might also want to have a go at this. What do you think that we should do about what everyone acknowledges is a problem because of European legislation?

Nigel Waterson (Conservative, Eastbourne)

Does the NAPF have a different solution?

Dawn Butler (Labour, Brent South)

Could you explain whether your industry would benefit from auto-enrolment, and how can we build confidence in investment?

Janet Anderson (Labour, Rossendale and Darwen)

There is a Division in the Chamber. I will suspend the sitting for 15 minutes to enable Members to vote. We do not regain that time, so we will still need to finish this session at 5.10 pm.

Janet Anderson (Labour, Rossendale and Darwen)

Mr. Saunders, our apologies for that interruption. Would you like to complete your answer?

Stewart Jackson (Conservative, Peterborough)

May I bring up an issue that I raised in the previous evidence session and which relates to clause 10 and employers duties? With regard to the significant increase in the current regulatory impact assessment costs from last year’s, have you been involved in the development of cost projections in those latest impact assessment and are you confident that the Government’s latest cost projections are accurate?

Andrew Selous (Conservative, South West Bedfordshire)

May I ask what your views are on the issue of possible future legal liability in relation to generic financial advice? We have obviously just been through the saga of the 125,000 to 140,000 people whose occupational schemes collapsed, and prior to that there were various legal challenges about how much they were able to rely on information put out at the time about those pension schemes. What is your view on the possibility of problems in that area, should people save and believe that the generic financial advice that they were given was wrong, perhaps because they do not benefit through the loss of other means-tested benefits?

Paul Rowen (Liberal Democrat, Rochdale)

Will the group expand a little on some of the submissions that you have made on the effects of personal accounts on existing pension schemes? I know that concerns have been raised about the proposed contribution limit and whether things can transfer, and whether that will lead to a levelling down of existing pension schemes. What evidence do you have that that is likely to occur?

Jim Cunningham (Labour, Coventry South)

For clarification, do you support the Bill? If so, why?

Julie Kirkbride (Conservative, Bromsgrove)

Mr. Haddrill, you said that you were less supportive of the Bill because you were frightened of it being overcomplicated. Will you give us an idea of what you have in mind?

Julie Kirkbride (Conservative, Bromsgrove)

The interface with the benefits system is another point that I was going to pick up. While I completely agree with all three of you that that issue can be overestimated, many millions of people would benefit from this. However, as we all know in politics, it is the ones who do not benefit who complain. There clearly will be a group of people, Mr. Saunders, because 40 years is a long time. In the mean time, many people with a working life span of 10 or 15 years could find themselves paying in and not receiving what they consider to be a benefit because of the interaction with the benefit system. Ms Segars mentioned that there are schemes that could right that potential wrong. Can you give us a bit more of a flavour of what they might be and whether they should be in the Bill before it proceeds, or whether this issue could be dealt with afterwards by the Department for Work and Pensions fiddling with benefit requirement levels?

Julie Kirkbride (Conservative, Bromsgrove)

I agree. The issue is when there is a smaller contribution period.

Mike O'Brien (Labour, North Warwickshire)

Joanne, you went through the options for dealing with the issue of pays to save. There are people today who have saved for a second pension, and the pot is not large enough and they are on pension credit. One option that has been floated is that such people who end up on pension credit should get back all their contribution. What would your industry’s reaction be if it had to repay anyone who went on to pension credit, and provide, in effect, a guaranteed investment?

Mike O'Brien (Labour, North Warwickshire)

All of you.

Mike O'Brien (Labour, North Warwickshire)

With respect, that is not the question I am asking. I understand that point. You have made it very well and I agree with the point you have made. I am asking what the likely reaction is of people in your industry to the suggestion that the contribution that people have made would have to be repaid from the pension fund. What effect would that have on the pension funds that you operate?

Mike O'Brien (Labour, North Warwickshire)

I agree with that.

John Greenway (Conservative, Ryedale)

You gave us sums relating to the number of people in the private sector who are in schemes—6.2 million. How many of those people—you might not have the figure, but it would be useful if you did—are in workplace group personal pension schemes? Do you have that figure?

John Greenway (Conservative, Ryedale)

I just wondered how big a problem that was, because the question that I really wanted to ask you was this. In terms of discouraging levelling down and encouraging employers to continue with arrangements that they have, resolving this issue is a major challenge. A number of the memorandums that we have received have talked about potentially resolving it through a master trust. It would be helpful to the Committee—it would certainly be helpful to me—if someone could explain how that would work and how we would need to amend the Bill to make that possible.

John Greenway (Conservative, Ryedale)

I think that we have to finish this Committee stage with some clear idea of how we resolve the issue. There is agreement across the Committee that it is a problem that needs to be solved. If we can solve it, we remove one of the temptations for employers suddenly to say, “Well, if I’ve got to change anyway, why don’t I give them all 3 per cent.?” Do you all perceive that to be the case?

James Plaskitt (Labour, Warwick and Leamington)

You have all spoken about the potential for millions of people to gain from these personal schemes. What key factors do you each think have to be in place to ensure maximum consumer confidence in pension schemes that have a statutory foundation?

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

Coming back to the point that John Greenway made, I, and I am sure other members of the Committee, would welcome any thoughts that you have on how the unintended consequence of the schemes—the risk of the schemes—could be reduced. Mr. Haddrill referred to the risk of the levelling down of the schemes that currently cover 4.2 million people. You will never get rid of the risk, but you can certainly reduce it.

Can I ask you some questions about the self-employed? They will not be covered by the scheme, but they will be able to opt in. You are part of an industry that is famed for its marketing. If you have not been able to encourage somebody who is self-employed—not necessarily on a particularly high income—to take out a personal pension plan, how do you think that the opt-in will work? Do you know how many self-employed people do not have a personal pension plan?

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

Have you any idea of how many people we are talking about—those who are self-employed and have not got a pension plan? As you say, they might be dependent on selling their business on when they want to retire and on that providing them with a pot for their pension.

Andrew Selous (Conservative, South West Bedfordshire)

Two brief questions, if I may. First, I would be interested in your estimates of the additional amount of net pension saving that we will have overall as a result of personal accounts—if you are prepared to hazard a figure, even a ballpark one would be useful.

Secondly, can I take you back to the point about the European Union and workplace and personal pensions? You said that this was an issue that applied to only the UK. Are there examples in the recent past where the Government have gone into battle with the EU, perhaps on some issue of City regulation, and have come back with a result? You seem to be indicating that perhaps with a bit of oomph the Government might be able to achieve a result here? Would that be a fair summary of your views?

Janet Anderson (Labour, Rossendale and Darwen)

Nigel Waterson.

Nigel Waterson (Conservative, Eastbourne)

One of the themes that comes through strongly in most of the submissions from the industry is the concern about a level playing field and the lack of public subsidy for the personal accounts system. Do any or all of you want to expand a bit on the sort of things you have in mind that you have spotted in the Bill so far on this issue?

Mike O'Brien (Labour, North Warwickshire)

Both Stephen’s and Joanne’s organisations have schemes that sell to employers and through them to employees. We have discussed the issue of “it pays to save”. What sort of information or advice do you give to those who may buy the sort of pension scheme that is being sold by your organisations?

Mike O'Brien (Labour, North Warwickshire)

Of the people with whom both your organisations will deal, most will benefit while some will end up having to claim pension credit. Therefore the advice they are given at the start of that process, if it comes from your organisations, is not independent. You are obviously regulated. Do you think that a requirement, which might attach to personal accounts and therefore would probably have to attach to any other pension scheme that is created, would need to be much more developed than it is now or do you think that the current level of regulation gives people sufficient understanding of what they are buying to enable them to make a judgment about whether they should invest?

Janet Anderson (Labour, Rossendale and Darwen)

I think we just have time for one last quick question from Mr. John Greenway.

John Greenway (Conservative, Ryedale)

Thank you, Chairman. This was really on the theme that Mr. O’Brien raised. Perhaps I could just address the issue the other way around. In fairness we all have high hopes of the Thoresen results. In another Committee Room this morning the Financial Services Agency told the all-party insurance group that its retail distribution review will be leisurely in order to take account of that. There will be an opportunity for us to look at this.

Should not the question that Mr. O’Brien put be the other way around? Is there a fear from the point of view of the existing industry that personal accounts, with their lower regulatory regime, much lower costs and quite a number of investment vehicle opportunities—we were told this morning by the Personal Accounts Delivery Authority that it would be perhaps as many as a dozen or 20—will make the existing contract-based pension products look increasingly uncompetitive? We may be looking five or 10 years down the track, but if that is an issue should not we address it now and is this one of the reasons why everyone seems to be so opposed from within the industry to additional contributions being permitted for personal account holders?

Janet Anderson (Labour, Rossendale and Darwen)

I am afraid that we now have to move on to the next evidence session. If the witnesses want to add anything we would welcome them writing to the Committee. Thank you very much to all three for your evidence.

We now come to the next oral evidence session. I welcome our five witnesses who together make up the people’s pension commission. They are Christina Barnes, director of pensions policy at the Commission for Equality and Human Rights; Sally West, policy manager of Age Concern; Nigel Stanley, head of campaigns and communications at the TUC; Mervyn Kohler, a special adviser at Help the Aged; and Doug Taylor, personal finance campaign leader for Which? I warn you that there may be another Division in the Chamber; if so, I shall suspend the sitting for 15 minutes.

Mike O'Brien (Labour, North Warwickshire)

Thank you all for coming here today. May I ask each of you briefly to say why you think it important, as you have indicated, that the legislation is passed?

Mike O'Brien (Labour, North Warwickshire)

In terms of your answers, some of you have indicated the importance of automatic enrolment. If there was an exemption for insurance-based schemes on automatic enrolment, what would be your view?

Nigel Waterson (Conservative, Eastbourne)

May I ask how concerned your various organisations are about the at-risk groups identified in the work done by the Pensions Policy Institute? What do you think should be done to minimise the disadvantages caused to people who are auto-enrolled, but might have been better advised to have not been enrolled?

Nigel Waterson (Conservative, Eastbourne)

Absolutely.

David Borrow (Labour, South Ribble)

It has been suggested that we could amend the scheme to allow some variation in the level of contributions from both employers and employees in a risk-sharing system. I am interested in your views on those proposals and whether there is any merit in exploring them further.

David Borrow (Labour, South Ribble)

Would it be correct to say that your view is that we should introduce these schemes and get things bedded down, and that if seven years down the track people want to discuss risk sharing and other areas, we could look at it again once we know how the proposed new system is actually working?

Mike O'Brien (Labour, North Warwickshire)

May I ask those who have not spoken on the new risk-sharing proposal to indicate their views? Do you agree with the TUC line on that?

Stewart Jackson (Conservative, Peterborough)

May I ask a brief question of everyone, although perhaps I will start by asking you, Mr. Taylor, a specific question? Do you think that the arrangements for consumer consultation proposed in the Bill are sufficient? That is the first question; the next one is for all of you. Concerning the methodology in respect of administration costs, have you been involved in preparing projections for the administration costs of this scheme?

Stewart Jackson (Conservative, Peterborough)

May I pin you down on a specific issue? You say that you are not involved in the cost projections of administrative costs, or have not been. Can I infer from that that you might have some doubt as to whether the Government’s projections are accurate, or would that not be the case?

Wayne David (Labour, Caerphilly)

May I refer to the issue of compliance? It is anticipated that most employers will co-operate fully with the scheme and great difficulties are not envisaged. However, it is feared that a minority of employers will not be inclined to co-operate. Therefore, we have to address the issue of how to put that right. There are issues not only of publicity and how to raise awareness but one of enforcement as well. What views do you have of the pensions regulator and how we can ensure that that body is able to fulfil its new enhanced role successfully?

Paul Rowen (Liberal Democrat, Rochdale)

I would like to ask a couple of questions. The first is about people who are on low incomes, or means-tested benefits or perhaps have several jobs. Several of you have raised concerns about that. What changes would you like to see that would enable those people on the margins to benefit from personal pensions?

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

I ask this question first to Nigel Stanley. In the previous evidence-taking session, Stephen Haddrill, the director general of the Association of British Insurers said that in his opinion, for the 4.3 million people currently in occupational pensions whose employers contribute more than 3 per cent., there was a real risk that some of those employers could start to level down their schemes. I would guess that a significant proportion of those 4.3 million people are represented by trade unions in the TUC. Your paper does not touch on that issue——the potential unintended consequence of the new schemes. Does that mean that you do not share Mr. Haddrill’s fears, or that you were not really aware of the matter?

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

I would not suggest that in a million years. Surely the experience of the last few years has been that employers that were recognised as good, including in the public sector, have changed their pension schemes and have, in many cases, ended final salary schemes because of the cost involved. Unfortunately, the evidence so far is that irrespective of whether employers are good or bad, given certain circumstances, they are likely to seek to reduce the costs of their contributions to a scheme. Do you have any ideas other than increasing the power of trade unions in the work place? Other than that, are there any technical things that you think could be introduced in the Bill to try to reduce the risk of this levelling down threat?

Andrew Selous (Conservative, South West Bedfordshire)

I have two points to make. It would be possible at the moment for an employer to offer a financial inducement to their employees not to be auto-enrolled, because they might want to save their costs. The Bill is silent on this subject at the moment. Were that to be the case, there would not be a level playing field as far as employers were concerned, in that the cost-base of some employers could be significantly lower than others. Do any of you have views on that? Is that perhaps an area that the Committee needs to examine going forward?

Also, in point 7.4 of the TUC contribution, there is a suggestion that

“modest pension income and lump sums are disregarded”

as far as means-tested benefit rules are concerned. I wonder whether Nigel Stanley or perhaps any of our five witnesses, or even all of them, might be prepared to put some possible figures to those two suggestions, even if they were tentative ones at this stage.

Andrew Selous (Conservative, South West Bedfordshire)

May I just come back to that subject? Perhaps you might get a savvy employee who might do that and more power to him or her were that to be the case, but there might be others who just take the money without really understanding the issue and think that they have got a good deal up front, and actually they would lose out in a significant way. Then that employer has a lower cost base and can go in and undercut other good employers in the area. So I take your point, but there is a serious point to my question.

Andrew Selous (Conservative, South West Bedfordshire)

Sorry, I have not had an answer to my second question from any of you.

Dawn Butler (Labour, Brent South)

I would like to talk about the employers who before even offering an incentive will try to screen out individuals who they think might want to save for a pension. There is a consideration of putting in the legislation a pre-employment prohibition. What are the panel’s views on that?

John Greenway (Conservative, Ryedale)

I would like to take you back to the conversation that you had with Mr. O’Brien about the review of defined benefits. We need to be absolutely clear what you are saying. In an answer a moment ago, Mr. Taylor said that there has been a levelling down from defined benefits. I thought that I detected in Mr. Stanley’s initial answer a sense that there is an issue here of the contraction of the number of defined benefit schemes or of the number who are in such schemes, but that you were not quite convinced with the ACA proposal. Perhaps it needs to be explored more, and so on. We need to provide some impetus for the kind of review that you talked about. If we tried to include in the Bill a clause that might not be as prescriptive and specific as the ACA proposal, but that provided impetus for a review, would you go so far as to support that?

John Greenway (Conservative, Ryedale)

That is part of the ACA proposal.

John Greenway (Conservative, Ryedale)

We need to bring the two closer together, do we not?

John Greenway (Conservative, Ryedale)

They come at a pretty alarming rate. I want to move on to a couple of other points in the TUC memorandum, which I have to say was one of the better reads among the papers that we were sent. The first issue is payment of arrears. We are talking about employers simply not enrolling people when they should or not making the contributions when they should. Is it your view that the employer should be responsible for the loss of investment return that the individual member suffers by those contributions not being paid? It could be quite considerable.

John Greenway (Conservative, Ryedale)

With interest?

John Greenway (Conservative, Ryedale)

But that is why we need to explore it—that is the joy of this afternoon’s sitting. In paragraph 5.7 of your report, you make a point that I have not read anywhere else. It is an issue that I can tell you has cropped up before, not in pension discussions—

John Greenway (Conservative, Ryedale)

The point that I was just about to make to Mr. Stanley concerns paragraph 5.7 of the memorandum. It reflects on the fact that our general understanding is that personal accounts will not be suitable in the Government’s view for transfers in and out, even of fairly small amounts. As a result of the Bill, we are increasingly likely to see migrant workers, who might be in this country for two or three years—some for a longer time, some for a shorter time—who, because of the level of earnings and the fact that they now have such an opportunity, will build up personal accounts and have a fair amount of accrued benefit in them.

However, if the migrants leave the country and never come back, the question arises whether there should not be a mechanism to provide for that. What underpins the matter is a growing sense in European institutions that, if the individuals are making contributions in host countries, they should receive the benefits for which those contributions provide. Is that the scenario you envisaged when you made the suggestion in the memorandum? Do you think that there ought perhaps to be at the least clarification of what regulation-making powers will be in the Bill to cope with such matters, if they became a problem in the future?

John Greenway (Conservative, Ryedale)

I want to be serious for one second longer. I am also concerned about the same issue, but the other way round. Let us suppose that the migrant worker thinks, “Well, I might not be here for too long, so therefore I shall opt out. I would rather have the money and send it home”. The employer might then think that that is a good idea because he saves money. There might be a general environment, culture or climate in which migrant workers think that such matters are not for them, whereas in reality about 25, 30 or 40 years later some of them might still be here and, if they have not taken the opportunity to invest in personal accounts, we will end up with a whopping great pension deficiency in respect of those workers. If we could clarify matters in Committee, it might be particularly helpful in explaining to a growing number of people—the number of whom is likely to increase by 2012—why it is a good idea for them to take part.

John Greenway (Conservative, Ryedale)

We have not spent 18 years on this matter in the Council of Europe, but the council has made it absolutely clear that people have a human right to get the benefit for which they have paid. The mechanism for doing that is not with the Council of Europe, but with the European Union. We will pursue it.

Julie Kirkbride (Conservative, Bromsgrove)

That is a particularly vexing point of the proposed legislation because clearly we have many potentially migrant workers; albeit my hon. Friend the Member for Ryedale said that not all of them might back to their own countries. If, however, we did allow transfer out, would it have to be a transfer out to another pension scheme in their own country even though it is a very small amount?

Presumably, there is also a scenario whereby people who are born in Britain and who are not migrant workers here go and live abroad, and we cannot distinguish between British people going and living in Spain and Polish people coming and working here for a period of time and returning to wherever they want, which might or might not be Poland. Is that another issue on how we differentiate between migrant workers and someone who was born in Britain, and should we therefore insist that it has to go into a scheme in order to stop British people going abroad and just taking out the money that they put in? Should there be a limit on how much could be in the fund before that would be allowed, or do all of those issues simply not have answers?

Julie Kirkbride (Conservative, Bromsgrove)

The test would be a lack of contribution for a certain period of time?

David Borrow (Labour, South Ribble)

I want to come back to the issue of flexibility. I think that most people would instinctively feel that we should have the maximum amount of flexibility, whether that is a matter of people with multiple jobs being able to put income from all of those jobs into one pot or people who have money left to them being able to put that into a personal account, or a whole range of other things that we have just talked about.

One of the things that I picked up on during this morning’s evidence session with PADA was that they were still working and acquiring information in this country and overseas on both the administrative and policy problems. Would you agree with me that one of the important things for the Committee as we deal with the detail of the Bill is to ensure that there is sufficient scope for regulations to be laid at some point in the future to allow the issues of flexibility to be addressed when administrative and cost problems are met?

I think that we would all recognise that greater flexibility brings administrative difficulties and has cost implications. What we do not know at the moment is how great those will be. The key thing is that the Bill has to have enough flexibility through future regulation to ensure that, if things work, we can bring in flexibility in due course. Is that the way you see that going ahead?

Mike O'Brien (Labour, North Warwickshire)

One of the things that Sally mentioned is that someone should be able to make a lifetime payment in—from a legacy or something like that, into personal accounts. What is your view of the other suggestion about payments in, which is that at the creation of a personal account someone should be able to pay in a lump sum, such as £10,000?

Andrew Selous (Conservative, South West Bedfordshire)

I want to return, if I may, to the interesting discussion that was prompted by the questions asked by my hon. Friends the Member for Ryedale and for Bromsgrove on the issue of migrant workers. In some parts of the country and in some industries, there are firms staffed entirely by migrant workers. I am concerned that if none of those migrant workers auto-enrolled, because they were here for just six months, a year or a couple of years, that business would have a significant competitive advantage over other businesses in the area. That is an observation as much as a question, but I would be interested if you had any comments on it.

Is there a case for generic financial advice being directed specifically at migrant workers who are going to be in the country for short periods of time, advising them whether there are transfer possibilities to send money back to Poland or whether it will be tied up in the UK until they are 60 or 65? I can see the matter being a real problem by creating a competitive advantage in local economies up and down the country, and I would be interested in your comments on that.

Julie Kirkbride (Conservative, Bromsgrove)

I must say that I have not read all the briefings that have come through, so this point may well be in them. While you were talking, the question crossed my mind whether there is any assurance provision attached. In most private pension schemes, if one snuffs it, the family gets something out of it. In some cases, you can pass on your pension contribution to someone else. It stays in the scheme, and they get many more years’ benefit as a result of your early demise. Do you have any views on whether something could be done on that, as an incentive for some people to take out pensions in the first place?

Julie Kirkbride (Conservative, Bromsgrove)

I would not go quite that far.

Janet Anderson (Labour, Rossendale and Darwen)

Thank you very much. If there are no further questions, I thank you all very much indeed for giving up the time to come before the Committee. It has been very useful.

Further consideration adjourned.—[Mr. David.]