Pensions Bill

Public Bill Committee, 17 January 2008.

Janet Anderson (Labour, Rossendale and Darwen)

Good morning everyone and welcome to this oral evidence session on the Pensions Bill. This morning we will begin by hearing evidence from representatives of the Pensions Policy Institute. Welcome to our meeting. Would you like to introduce yourselves to the Committee?

Mike O'Brien (Labour, North Warwickshire)

I am not sure that that answers my question at all. What I was asking you is whether that issue exists today and to what extent.

Mike O'Brien (Labour, North Warwickshire)

Do you accept that some people who are auto-enrolled today are on relatively low incomes, may have broken work records or be on means-tested benefits? Tesco does auto-enrols its staff it and large, reputable organisations ought to do so. I assume you agree that there are mechanisms today that could enable someone to get up to £16,000 back from a smaller pension pot, and there is also the opportunity to take 25 per cent. of the pension—if the figure is greater than that—in a lump-sum payment. There are also measures such as savings credit that attempt to address some of these issues.

Mike O'Brien (Labour, North Warwickshire)

About one in six.

Nigel Waterson (Conservative, Eastbourne)

It seems like—[ Interruption. ]

Janet Anderson (Labour, Rossendale and Darwen)

My apologies for interrupting the Committee, but apparently we have a problem with the sound recording and we do not know why. I suggest that we suspend for five minutes and we will see if we can put that right. My apologies to everyone.

Janet Anderson (Labour, Rossendale and Darwen)

We have sound recording back, so we can recommence our proceedings. Thank you for your patience. Had you finished your question, Mr. Waterson?

Nigel Waterson (Conservative, Eastbourne)

I shall try again; now I know what it is like to be in the movies.

In the summary of your research you have identified at-risk groups; for example, people who are likely to be renting in retirement. Tantalisingly, that only takes us so far. If you were trying to identify the numbers of people in those groups, going forward, what kind of further research would you need to do? What kind of access to modelling would you need?

Nigel Waterson (Conservative, Eastbourne)

I have a couple of follow-up points. You recently updated your projections on likely means-testing levels after the reforms and narrowed the gap between the Department’s estimates and your own, but there is still a gap. Can you explain, partly for members of the Committee who have not seen the research, why there is a gap?

Nigel Waterson (Conservative, Eastbourne)

In one of your research papers, you estimate that the cost of a pension income disregard of £12 a week would be around £600 million. The Government take the view that it would be substantially higher. Do you agree?

Gordon Banks (Labour, Ochil and South Perthshire)

Do you think that the proposed legislation assists in the “it pays to save” debate that is being generated in the UK? Do you think generally that the Bill in its present form will actually build confidence in the aspect of pensions and empower pensions even further?

Gordon Banks (Labour, Ochil and South Perthshire)

I asked whether the Bill generally will increase the standing of pensioners in people’s minds.

Gordon Banks (Labour, Ochil and South Perthshire)

Many people choose to save for their retirement in various different ways, through investments or pensions. Starting with the new generation that will be caught at this early age and will have this opportunity through auto-enrolment, will the Bill be a fundamental step as to how people prepare for their retirement? We might see people getting used to saving through a pensions programme and as they move to better paid jobs, they may have already bought into the concept of saving through pensions and be less tempted to go and try to save through other mechanisms such as property investment.

John Greenway (Conservative, Ryedale)

Could you say a little more? Mr. Banks touched on what I wanted to ask. In your paper, you talked about the importance of generic advice. We are all working slightly in the dark in that we do not yet know what Otto Thoresen is going to come up with, but if what you just said is to have real impact in a positive way, then the generic information, which the Bill already accepts will have to be provided to individuals, is going to be complex. You seem to be suggesting that in some way people will have a different view as to whether they should remain in or out, depending on their own personal circumstances. I wondered if we could tempt you to make some suggestion as to how you think the generic advice, the generic information, could be presented in a way that enables people to make the right judgment—without them having individual advice, because that would clearly not be available to the vast majority.

John Greenway (Conservative, Ryedale)

They will produce a structure—potentially not dissimilar to what you suggested. But there are two very subjective points in your answer. You said, “They do not have a lot of income.” Well, how much? “They do not have a lot of savings”. Well, how much? I think that the question Mr. Banks asked is absolutely right on the button, because I suspect that financial media are going to do these sums. They will put in the press what they think “not a lot of income” or “not a lot of capital savings” actually means for people in certain circumstances, so I suspect there will be a culture that tells people in certain categories just to opt out. This brings us to the key issue of how we can make it more worthwhile for these people to save. In your paper, you suggest increases in trivial commutation limits, capital disregards and so on. Have you done, or would you be prepared to do, some modelling of what those proposals would mean in public spending terms for people of certain ages, over certain periods of time? Over the next four or five weeks, members of the Committee can propose an amendment that says “This is the plan”, but the Minister will say “Hang on, what is the cost of this?” Members on both sides of the Committee want to resolve this, but not in a way that has uncosted implications for public expenditure.

Wayne David (Labour, Caerphilly)

Just to put your comments, analysis and research in some kind of context, will you say a few words about what the Policy Institute is? What are its aims and objectives?

Nigel Waterson (Conservative, Eastbourne)

It is important that we do not confuse you with the Progressive Policies Forum.

Nigel Waterson (Conservative, Eastbourne)

Can I move on to the other big issue that you have dealt with a good deal? That issue is levelling down and the likely effect of personal accounts on existing pension provision. I have two related questions. You describe one of your scenarios as a “pessimistic scenario”, but as potentially disastrous in public policy terms. How likely do you think that that scenario is? Do you accept that, if personal accounts are to be dubbed a success, they have to produce not only more savers but also an overall increase in savings?

David Borrow (Labour, South Ribble)

I would like to go back to this issue of uncertainty and your modelling of groups that were at risk of being better off opting out than opting in. I understand that point in relation to groups in their 50s or 60s, because the date of retirement is touchable. But the other part of uncertainty is the value of the state pension. It is interesting that many people in their 20s and 30s assume that the value of the state pension will deteriorate. Therefore, whatever your modelling may be for someone in their 20s or 30s, looking at pension provision in 40 years’ time, it is a risk to assume that the existing basic state pension and pension credits regime will be in place. However much we may wish that to be the case, there is a great deal of risk that it may not. It may be better in 40 years or it may be worse. Therefore, it strikes me that, at that age group, having a big pension pot that is theirs is a positive thing because of the uncertainty around state provision in 40 years when they may be looking at retirement.

Janet Anderson (Labour, Rossendale and Darwen)

My apologies, but we must now move on to the next witnesses. Thank you very much indeed.

We are now going to hear evidence from the British Chambers of Commerce and the Federation of Small Businesses. Would you like to introduce yourselves to the Committee, please?

Mike O'Brien (Labour, North Warwickshire)

A fundamental question—is your organisation broadly supportive of the terms of the Bill, of the concept of automatic enrolment and of more people saving? If so, why?

Nigel Waterson (Conservative, Eastbourne)

I have two issues to raise. First, what evidence do you have from within your own organisations about the attitude of your members to the issue of levelling down? Once personal accounts come in, there will be a tendency for them to get out of existing pension schemes and point their employees in the direction of personal accounts.

Nigel Waterson (Conservative, Eastbourne)

On a separate issue, are you concerned that the Bill as it stands does not contain any specific proposals for assisting smaller businesses in the introduction of personal accounts? What kind of assistance would your organisations like to see for helping smaller businesses through this period?

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

Following on from the questions about levelling down, Mr. Cherry, do you offer a pension scheme to your staff?

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

Mr. Compton, you were indicating a different view from Mr. Cherry of the surveys that we have done. On levelling down, do employers fear that if they are offering their own occupational scheme and not all their staff are in it, the risk for them is that they will be faced with the additional costs of the new scheme together with the costs of an existing scheme? There is then a possibility that levelling down would come in. Is that a fair assumption?

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

The reason behind my question is that I had made the assumption, particularly in relation to larger companies, that virtually all their staff would be in the company occupational scheme. Therefore, there would be no additional costs for that particular company if all its staff were in the company scheme and it would be only those companies with a mix of people—some who are in and some who are not in—that would face the additional administrative and financial burden.

Andrew Selous (Conservative, South West Bedfordshire)

I would like to ask you a bit more about the compliance regime, penalty notices, records and information, inspections and so on. I do not expect any business to welcome naturally what that entails, but at the same time, I imagine that in terms of issues of competitive advantage your members would be quite keen for that to be an area that is properly enforced so the good employers who are making their contributions are not undercut by people who are managing not to do so. I would be interested to hear your general comments on what is in the Bill at the moment and perhaps what we as a Committee need to do to have an effective compliance regime that it works well with the least amount of interference.

Andrew Selous (Conservative, South West Bedfordshire)

So you are saying that the help and information provided to small businesses will be critical for the success of this?

Gordon Banks (Labour, Ochil and South Perthshire)

I think that I need to declare an interest. I am a member of the Federation of Small Businesses. I approach this next batch of questions from my business background. Most of the issues have been touched on but the burden to small business concerns me. If I was not sitting here now in 2008 having been in this House for three years I probably would not know about these pension provisions and the potential onus on my business. I am concerned about the overall burden and about the exposure that small businesses may face when they fail, as opposed to when they deliberately try to prevent the process from going forward.

The point about information is perfectly correct: we must have quantity, not quality. I know the amount of stuff that comes into a small business, and we have to have quality, not quantity. The business I am involved in offers pension provision, and people opt out when it is offered at an earlier age. As they become more mature, however, they opt in and they invariably turn around say, “I wish I’d done that 10 years ago. That is what I should have done.”

I can therefore see an awful lot of benefits to auto-enrolment, but I am concerned about the burden that small businesses will face and about the possibility of them inadvertently being drawn into a position where they are vulnerable to challenges over their competence and so on. That is more of a statement on which I would like some comments than a range of questions.

John Greenway (Conservative, Ryedale)

I have a suspicion that many of the firms that are your members employ either agency workers or those with self-employed status. Would that be correct?

John Greenway (Conservative, Ryedale)

You certainly would have some.

John Greenway (Conservative, Ryedale)

There would be no point in my asking you my next question unless I had clarified that. Have you already had concerns, or do you anticipate concerns, about the definition of a worker and the potential inclusion of agency workers within it? An additional complication is that if an agency supplies a worker to a firm, and the firm has control over the day-to-day delivery of his work, there may be some confusion about who is responsible for auto-enrolment. I wondered whether the issue has crossed your radar and, if so, what your feelings were.

John Greenway (Conservative, Ryedale)

I want to ask you something else. Therefore, I will not labour the point, other than to say that, if, over the course of the next few weeks or even months—the Bill will go to another place after we have dealt with it—you think that some clarification by amendment would be helpful, I am sure that we would be very happy to have that debate in Committee.

The other question that I wanted to ask you was about the concerns you may have as to the responsibility that may rest with employers from relatively small firms—I have had a lot of sympathy for what Mr. Cherry has said about the difficulties that small employers have—for the provision of information. That leads to the concern that, in the long run, it may be seen as the employers’ fault if people have been auto-enrolled, and that turns out to have been the wrong course of action. My own view is that we still have to get this area of the Bill right.

David Borrow (Labour, South Ribble)

I want to touch again on the question of communications. One of the things that has always struck me about Government-business relationships is that Government are very good at communicating with large companies, and large companies have the resources to communicate with Government. Therefore, models and systems are set up which are suitable for large companies.

Organisations such as your own, which represent small businesses, have the job of putting forward their problems, but in my experience of meeting your organisations and your members, those proprietors of small businesses who actually participate in consultation communications are unusual, and very untypical of small businesses.

I am trying to get to the extent to which your organisations have the capacity to communicate to the DWP in terms of how that communication of the new system should be, how the regulation should be laid and what sort of form-filling is suitable. That communication is difficult, because the person I meet when I go to one of your events, the business person who comes to a business breakfast that I hold in my constituency, is not from the typical company with four, five or 20 employees because, by their very nature, they are too busy running their businesses to come to speak to politicians and Government and everybody else. One of the problems that Government have is consulting with those people who will have the most difficulty in implementing whatever comes out of here. I would like some comments around that.

David Borrow (Labour, South Ribble)

I was not implying that either of your organisations should try to give the information.

David Borrow (Labour, South Ribble)

What I am trying to probe is whether or not your organisations have the capacity to help the Government tailor the communications message in the most effective manner. That is the key thing.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

Your views on the way in which the information should be provided to employers, and the role of the Government on that front, are very clear. I wanted to ask you a bit more about the provision of information to employees, because in an answer to an earlier question Mr. Cherry made it clear that he certainly did not see a role for employers in providing advice to their employees about the decisions that they should be making about whether to opt out. Do you think that there should be a duty on employers to provide information to employees about personal accounts?

Secondly, Mr. Cherry again made the point that there are lots of financial advisers out there who can offer people advice; but obviously, for people on low incomes, accessing advice from a financial adviser could be expensive and it is therefore unlikely to happen. Therefore, what is the role of the Government in ensuring that there is, at the very least, generic financial advice available to employees, so that they can make a rational decision about whether to opt out?

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

So you would say that there is some role for employers in providing information, but no role at all in providing advice.

Andrew Selous (Conservative, South West Bedfordshire)

Could I ask about the regulatory impact assessment? Mr. Cherry said earlier that you thought that it was perhaps a little optimistic. If you were able to quantify that, it would be helpful.

Mike O'Brien (Labour, North Warwickshire)

I am surprised to hear you say that, because Manchester Business School has been assisting DWP and the other groups that have been looking at these figures. We took significant care to consider the detailed analysis done by Manchester Business School, with your assistance, and the figures in the table, which you have referred to, which include about £70 of ongoing cost for a microbusiness, about £80 for a larger small business and about £10 for a single-person director firm, include things like opportunity cost lost, so they are quite robust in terms of the costings that are included.

When I first looked at the figures, I questioned their size as an ongoing cost annual figure. We went back and did further research and double-checked our figures and not only are these fairly robust, but to some extent, when you look at what is in there, they might well be padded. It is curious, when we are talking about these sorts of figures—about £70 a year for small business—that there should be substantial concern about that, because we are talking about less than £2 a week.

Mike O'Brien (Labour, North Warwickshire)

Well, in a sense you are not, are you? Bob is running an insurance company that is today dealing with him in terms of the collection of his insurance. I do not know what it is or what the circumstances are, but we do know that many people in small businesses will do exactly what Bob has done. They will decide not to go to personal accounts. They will decide to go to insurance companies with whom they have a current relationship or with trust-based pension schemes with which they have a relationship—whether a personal pension or whatever—and they will then be able to continue with that relationship and continue dealing with them.

Written Evidence to be reported to the House.

Nicholas Winterton (Conservative, Macclesfield)

This is another session in which we take evidence from distinguished witnesses. I welcome David Yeandle of the Engineering Employers Federation; Neil Carbery, head of pensions and employment at the Confederation of British Industry; John Cridland, the deputy director-general of the CBI; Ian Farr, chairman of the Association of Consulting Actuaries; and Keith Barton, honorary secretary of the Association of Consulting Actuaries.

I say again for the benefit of both members of the Committee and witnesses that questions and answers must relate directly to the legislation that we are considering. I do not want rambling questions or rambling responses relating to any matter other than the legislation that we are considering. We have Ministers here, so I call Mike O’Brien, to put the first question to our witnesses.

Mike O'Brien (Labour, North Warwickshire)

May I ask our witnesses whether their organisations broadly support the Bill as it stands? Some of you may wish for additions to it—I know the Association of Consulting Actuaries does. As the Bill stands at the moment, do you give broad support to its principles, and, if so, why?

Nicholas Winterton (Conservative, Macclesfield)

Thank you. I call Ian Farr. I am happy for him to make one or two introductory remarks in answering the Minister’s question, but they must be related to the legislation.

Mike O'Brien (Labour, North Warwickshire)

John Cridland mentioned the importance of maintaining the consensus around the Turner commission proposals. Is that a view that everyone shares? Can you say why it is so important?

Nigel Waterson (Conservative, Eastbourne)

May I direct a question at the employers’ organisations, and come back later to the actuaries? I have two issues in one question. Do you support the approach that the 3 per cent. contribution level should be enshrined in legislation so that it can only be changed in the future by primary legislation? Could you expand a bit more on the sort of help your organisations would like to see proposed for the smaller employers, as clearly there is an issue about extra costs and administration?

Nicholas Winterton (Conservative, Macclesfield)

Nigel, the question stays with you. Do you want to put a question to the actuaries?

Nigel Waterson (Conservative, Eastbourne)

Let me raise it now, although it moves us on to a different subject, which is the issue of deregulation—or simplification, however you want to call it. I was in Holland last week, hearing about the benefits of the flexibilities in their system, especially conditional indexation. Would Ian and Keith like to elaborate on the kind of flexibilities we might be able to build into the system through the Bill? What could encourage employers to keep existing defined benefit schemes open and, perhaps, stem the tide of levelling down when the time comes?

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

On the risk of levelling down, in the paper that you submitted to the Committee, you indicated that you had undertaken a survey in February 2007, covering 336 schemes with 2.1 million members. In the survey, did you ask the employers whether the 3 per cent. level would encourage them, irrespective of where we go with conditional indexation, to change their existing occupational pensions? If only part of their work force was covered by their own scheme, were they concerned that the introduction of the new scheme would increase their administrative costs and so on? Therefore, was that another encouragement for them to switch from a more generous scheme—from their point of view, in terms of their contributions—to the 3 per cent. scheme? I hope that that was not a rambling question.

Nicholas Winterton (Conservative, Macclesfield)

No, it was not. Could you indicate which witness you would like to respond?

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

Mr. Farr or Mr. Barton.

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

My question was whether you had addressed that issue in the survey and what responses you had had from those companies?

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

May I just clarify that point? The employers who responded to the survey were those who were already paying more than a 3 per cent. contribution?

John Greenway (Conservative, Ryedale)

I was going to ask about this later on, as I suspect Mr. Waterson was, but we will deal with it now. I wanted to ask a question of the CBI.

To what extent do you think that the fact that, to all intents and purposes, there will be no transfers in or out of the schemes would be a disincentive for the kind of levelling down you have described? Employers would then be left with frozen schemes to administer at a cost.

John Greenway (Conservative, Ryedale)

No, I am talking about the fact that, not surprisingly—and I share your sentiment on this—employers have only so much money to spend on pensions and they will be tempted to level down. If they levelled down, by saying “We’ll just auto-enrol everyone in the personal accounts scheme”—that was Mr. Ainger’s question—an occupational pension scheme would then become a paid-up frozen scheme. The Government’s clear intention is that the benefits that employees have should not be transferred into their personal accounts. Would that not be a disincentive to people doing that very thing? It has been suggested to us that it is, but you are the professionals so I would be grateful for your view.

John Greenway (Conservative, Ryedale)

That is very helpful. Coming back to the conditional indexation issue, you will be aware that on Second Reading I made known my support for what you have said. Two days ago, the TUC, with the support of the charities for the elderly, expressed some reservations about conditional indexation, and I think we reached a point where they would support further review on trying to find a middle way, rather than have all the risk resting with employers or employees. Have you done any work or given any thought to features other than conditional indexation, which might lead to a sharing of risk? If we were to have a further review of this, it would have to be on the basis that we might find some other golden solution. I suspect you have looked at all the possible solutions and concluded that there is no golden solution other than the one you propose.

John Greenway (Conservative, Ryedale)

That is very clear, and your answer is so full that I do not need to ask you another question on it.

May I turn to the general issue of employer duties? I want to raise the issue of advice and information. What is your feeling—particularly those of you from the CBI—about who should be responsible, not just for the provision of information but for the accuracy and good sense of that information? Do you and your members have concerns that, in the fullness of time, there might be some attempt to suggest that the information provided by employers was quasi-advice that and the employer would be responsible for that? Should PADA and the Government be responsible for the accuracy of information, given that this is going to be an execution-only, non-advised product?

Gordon Banks (Labour, Ochil and South Perthshire)

I would like to go back to some of the issues that we have touched on briefly and explore them a little bit more.

I come to this discussion from a business background, having run my own business since 1986. My first comment—probably for the CBI and the Engineering Employers Federation—is that I have concerns about how Government and Government bodies disseminate information to businesses, especially small businesses. Small businesses are often too busy being small businesses—certainly too busy to go and look for the relevant information—to make sure that they are compliant. They are often far too busy to be members of organisations, such as those you are representing here today.

That leads me to what concerns you might have over inadvertent non-compliance, from the employers’ point of view, while bearing in mind that there is a responsibility to seek the right balance between the employer’s rights and obligations and the employee’s rights. I am thinking of things like the re-enrolment periods, which we discussed this morning with other witnesses and which mean that records are going to have to be retained for significant periods of time. I have another point to make on information, but perhaps you would like to comment.

Gordon Banks (Labour, Ochil and South Perthshire)

Mr. Yeandle was going to make a contribution and I wanted to come back on another question about generic advice.

Gordon Banks (Labour, Ochil and South Perthshire)

On the issue of the generic advice and your concerns, obviously we do not know what the content of the generic advice will be. It is very difficult, as we all know, to get a one-size-fits-all scheme that does the job 100 per cent. Do you have comments relating to the difficulties that that might produce?

Gordon Banks (Labour, Ochil and South Perthshire)

Can I ask you about the quality of that information?

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

I want to return to the question of information and advice that was touched on. There appears to be a consensus among you that it is not the role of employers to provide advice. I want to ask two things. First, what is the role of employers in providing information? Should they be expected to provide information to their employees themselves, or should they simply be expected to be a conduit for information that is prepared and provided by the Government or the personal accounts delivery authority?

Secondly, in relation to the point on advice that Gordon Banks raised, there clearly will be some people for whom automatic enrolment in a personal account could be the wrong decision. That advice has to be more than generic; it has to have some personalised quality. In that case, is it the role of Government rather than the role of PADA to provide that advice?

John Greenway (Conservative, Ryedale)

Should we consider having a prohibition on employers giving advice? Looking the other way through the telescope, that would prohibit employers from giving advice to employees to opt out, thereby avoiding the payroll cost to the employer of automatic enrolment. If you have studied our evidence, you will have heard that some of our witnesses have that concern.

Mike O'Brien (Labour, North Warwickshire)

The EEF and the CBI have employers who currently have pension schemes. Presumably, in most of those cases, information will be given but not advice. I have a great deal of sympathy for the points you have been making in terms of the role of the employer, but that is the case now. You give information to an employee who is either automatically enrolled or is able to join the scheme, but you will not give advice because that would put you at some liability. It may be that some of the larger employers have advice schemes: I do not know.

Alan Keen (Labour, Feltham and Heston)

I am delighted at the constructive attitude of the employers’ organisations. However, I got more pessimistic as I listened, though not because you do not want to give information or advice. We are concerned—though perhaps not all of us—about employees within small businesses. There is a reluctance by the employers’ organisations even to give information, to get involved with small businesses. Would you agree that the Government are going to have to put some sort of mechanism in place to be proactive with small businesses? I think Mr. Yeandle was optimistic when he said that people look at information and say, “Who is this from?” I think the first reaction would be to throw it in the bin and not even wonder who it is from. If we are not proactive, we will not get small employers involved. I have had experience in large companies and in running my own business, and it was a dreadful shock moving from a large company to my own small business. Have you put some thought into how the Government could be proactive in this field?

Alan Keen (Labour, Feltham and Heston)

Do you agree that no small business would want to pay the 3 per cent., but much more difficult for them than paying the 3 per cent.—finding the money—is actually the administration of the scheme and the willingness to get to grips with it. Have you put any thought, as employers’ organisations, into being able to help, or helping the Government set up a proactive organisation that can give not just advice, but practical help and go knock on the doors?

Alan Keen (Labour, Feltham and Heston)

Do you get the feeling that the people who are responsible—both PADA and the Government—understand that that is the major problem and that they are listening to you?

Alan Keen (Labour, Feltham and Heston)

I was pleased with the experience of the PADA chair and chief executive, but obviously we are talking about a body of companies that are way below the level at which those people have worked. That is what concerns me; we have got to get it right before we get too close to it.

Alan Keen (Labour, Feltham and Heston)

Would you agree that it should not come from Westminster or central London: it should be done on a regional or even a smaller basis to get onto the doorsteps?

Andrew Selous (Conservative, South West Bedfordshire)

All of you talked about simplicity, more than once. What about the issue of agency workers, as far as the employer organisations are concerned? We have briefings from the House of Commons Library that says that they can be defined as employees of the organisation that they are working for, and that the definition of “jobholder” in clause 1 of the Bill includes “employee”. I wonder if that is an issue that has come across either the CBI’s or the EEF’s radar screen.

Nicholas Winterton (Conservative, Macclesfield)

May I ask whether the actuaries have any comment to make on agency workers?

Nicholas Winterton (Conservative, Macclesfield)

I just wondered.

Andrew Selous (Conservative, South West Bedfordshire)

The other phrase that we have heard an awful lot throughout today is light-touch enforcement, specifically in relation to inadvertent non-compliance. We know that there are some pretty big sticks within the Bill. We all accept that they are there for good reason, to deal with the rogue employer element. How would you all like to see the enforcement regime operated, from a light-touch point of view? That is going to be critical going forward.

Nicholas Winterton (Conservative, Macclesfield)

Two colleagues have caught my eye for a second innings, but I am still to call Wayne David for his first.

Wayne David (Labour, Caerphilly)

You are a very fair umpire, Sir Nicholas.

I want to return to the issue that Mr. Farr raised of conditionally indexed schemes. I notice that in his written submission, and also orally today, the emphasis was placed on how lifting the ban on the implementation of those schemes has worked effectively in the Netherlands, for example. But, of course, the Netherlands is not the United Kingdom.

My question is not so much to you, Mr. Farr, but to Mr. Yeandle and Mr. Cridland. I get the impression that both the EEF and the CBI are lukewarm towards the suggestion and I wonder what would happen in practical terms. Do you think that there would be a reasonably large take-up by your members?

Wayne David (Labour, Caerphilly)

This is a very interesting discussion, but we are not taking part in an esoteric philosophical discussion here. We are considering a Bill, and we will get into the nitty-gritty very shortly. It is not my intention to try to put words into the mouths of Mr. Cridland and Mr. Yeandle, but can I infer from what you said earlier that you would not be in favour of an amendment to the Bill as suggested by Mr. Farr?

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

May I ask a question to which I hope you will have an answer? Mr. Cridland, you mentioned at the beginning of this evidence session the question of the costs to employers of implementing this scheme. We have estimates of the costs in the regulatory impact assessment provided by the Government. Do you think that those costs are accurate, or—as we heard from other organisations this morning—that they might be underestimates?

Nicholas Winterton (Conservative, Macclesfield)

Before you answer, Nigel Waterson would also like to put one more point. Perhaps you could deal with them together in the 90 seconds we have left.

Nigel Waterson (Conservative, Eastbourne)

John Cridland made a point about group personal pensions. Everybody knows there is a problem. There are three possible solutions being mooted: getting Brussels to change the law; streamlined enrolment or master trusts. Can I have a yes or no answer from each organisation as to which of those you favour as a solution?

Nigel Waterson (Conservative, Eastbourne)

I wonder whether that was a yes-no answer.

Nicholas Winterton (Conservative, Macclesfield)

Do you have a response? No, so perhaps it is an appropriate time to bring this part of our deliberations to an end. I thank our witnesses—David Yeandle, Neil Carbery, John Cridland, Ian Farr and Keith Barton— for their full and frank responses to the many questions that they have been asked.

We have now had a relatively smooth changeover of witnesses. I welcome warmly Adair Turner—Lord Turner of Ecchinswell—Jeannie Drake and Professor John Hills, who are all from the Pensions Commission.

Nigel Waterson (Conservative, Eastbourne)

Welcome to the final act, as it were, of the commission’s work. I have two questions. First, does anything in the Bill not sit comfortably with the conclusions in your report? Secondly, there has been a lot of debate recently about means-testing and the effects on at-risk groups. A consensus has now emerged that everyone agrees that issues need addressing. Solutions to those problems have been punted around, such as income disregard and fiddling with trivial commutations. Do you accept that there is a problem and have any of the solutions taken your fancy in recent months?

Nicholas Winterton (Conservative, Macclesfield)

Professor Hills, have you anything to add?

Nigel Waterson (Conservative, Eastbourne)

That was a full answer, and I am grateful. It may be beyond your current brief anyway, but have you had chance to think about any of the alternatives being floated about disregards? You mentioned trivial commutation. There is a view that a disregard itself extends means-testing, but you have other things to do these days, so you might not have got into that subject.

Mike O'Brien (Labour, North Warwickshire)

We have had evidence over two days now. The degree of consensus has been remarkable among the TUC, the CBI, the organisations that support older people, various small businesses and engineers and others. They have broadly supported the consensus that you created as a result of your report on pensions. Therefore, it would be really useful to have on the record your view as to why it is so important that these changes need to be made. What is your view about why this is so important?

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

May I pick up on the point that Jeannie Drake just made about employer engagement being in inevitable decline unless reforms of this nature were put forward? How does that apply to the question raised by a number of organisations in relation to this Bill about the possibility of the levelling down of existing provision?

Nicholas Winterton (Conservative, Macclesfield)

To help witnesses and members of the Committee, we shall complete this part of our questioning and evidence-taking at 3.15 pm. At least five other Members have so far caught my eye. I call Alan Keen, who will be followed by John Greenway

Alan Keen (Labour, Feltham and Heston)

Fifty-six per cent. will have no private provision pension. Roughly how many millions of people is that?

Alan Keen (Labour, Feltham and Heston)

Of that 12 million, how many are employed by small businesses?

Alan Keen (Labour, Feltham and Heston)

I have to admit that my knowledge of pension policy has all been gained during the past week. I shall concentrate on the mechanics. What are your greatest concerns about getting small business to understand? We know how important it is to all of them that their employees have the chance, but what concerns you most? You said that you have focus groups from small businesses. What did they say to you?

Alan Keen (Labour, Feltham and Heston)

Have you thought about the mechanics of it? We talked before you started to give evidence about how this will have to be done not from central London but on a regional or even an area basis. Short of going in and sending people to jail—it does not matter what the law is—what is needed is constructive help from people who understand how the system has to work. I asked the employers’ representatives and they were reluctant to be involved in giving anything more than straightforward information, let alone in helping practically with the smaller companies. Who is going to do that?

Alan Keen (Labour, Feltham and Heston)

I will not press you further. Obviously it is up to other people. Thank you again for the work that you have done to get to this stage.

John Greenway (Conservative, Ryedale)

I would first like to say to Professor John Hills that I am sure that I did study chapter 7 of his report but I cannot entirely recall right now what it said.

I want to take you back to your initial conversation on the issue of means-tested benefits and whether it is worth people saving or not. It flows on in a sense from the answers that Lord Turner gave to Alan Keen. One thing we are trying to grapple with is a scenario in which the employer quite rightly will not want to give advice—I think we are likely to conclude that that must be the case—but individuals will nevertheless have to make judgments based on the information provided. That can only be done in a generic information sense.

Among some of the earlier witnesses—the elderly charities in particular, on Tuesday afternoon if I remember correctly—there was concern that it has to be simple and straightforward, yet the questions in people’s minds are complex. You both referred to relatively low earnings, very low incomes. What do we mean by that? We will have to produce some numbers. Everyone who has been before us—the Minister is the only one left—has said that they think the scheme can work. He must be very happy about that.

Mike O'Brien (Labour, North Warwickshire)

You do not know what I am going to say.

John Greenway (Conservative, Ryedale)

It really would be a turn-up for the books if the Minister suddenly said, “We think that this is a lot of nonsense”. He will not say that. Everybody supports it. I said on Second Reading that my understanding of the industry is that people’s goodwill towards it is admirable, but is it your view that we can devise a system of generic information, which is not a too elaborate Christmas tree of questions by which people can judge whether the scheme is for them or not? There will be some for whom it clearly will not be.

You mentioned housing benefit. For a person aged 62, who is retiring in three years’ time and is already on housing benefit and who does not own his own house and is on a very low income, the answer is clearly no. However, at the other end there will be people—I appreciate that my question has been long, Sir Nicholas. This is my final comment—

Nicholas Winterton (Conservative, Macclesfield)

I was about to suggest that you might apply for an Adjournment debate on the matter. You could ask our witnesses a question.

John Greenway (Conservative, Ryedale)

Should not we leave people with the question in their minds that that it is why they should contribute to a pension, not why they should not?

Andrew Selous (Conservative, South West Bedfordshire)

You stress, as many of our witnesses have, a need for simplicity in the administration for this to work. I understand that. We heard from some witnesses yesterday that many of us have “untidy lives”—people come in and out of work, they may be self-employed for a while, or they may have some previous pension provision, then perhaps that will stop and they will go into personal accounts—for example, what will happen to that? It struck me that there are five years before the measure comes in. I am sure that the three of you would want people to make provision now, if they are not making provision. Mindful of the need for simplicity, which I understand, what do you say about dealing with those issues? Following on from that, you were talking about the importance of people understanding the importance of pension saving. I agree with you. Do you think that part of achieving that might be some sort of annual statement showing the value of your employers’ contributions year-by-year?

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

I shall try to be brief. We have heard from a number of witnesses about the different levels of risk, as they see it, in levelling down, and you gave a formidable presentation about why you thought that the risk would be lower rather than higher, as some witnesses said. The ACA, when it gave evidence, said that it had a real fear about the issue. Other than what you have said about the Bill, which should go some way to reducing the opportunities for employers to level down, have you looked at the ACA’s proposal for conditionally indexed schemes? Would that be another method of reducing the risk of levelling down further? Should it be included in the Bill?

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

So you would be happy to see a change?

Nicholas Winterton (Conservative, Macclesfield)

If Julie Kirkbride has a very short question soliciting a very short answer, I will allow her—

Julie Kirkbride (Conservative, Bromsgrove)

I think that it would be better if I left it.

Nicholas Winterton (Conservative, Macclesfield)

It is, in fact, just after 3.15 pm. On behalf of the Committee I thank our witnesses, Lord Turner, Jeannie Drake and Professor John Hills, for the expert and very helpful evidence that they have provided. Thank you very much indeed.

Nicholas Winterton (Conservative, Macclesfield)

I have allowed slightly more than five minutes—perhaps mostly for my benefit—which is using the huge authority that rests in the person of the Chairman.

We now come to the last part of our evidence taking today. I say to our witnesses that I understand that there is an agreement across the Committee—all the Whips have agreed—that we might finish a little earlier than is scheduled, but that is up to the Government Whip, who may seek to catch—[Interruption.] He is here. It is up to the Government Whip, who may seek to catch my eye to move a motion. If he does, I shall give the matter proper consideration before I put it to the Committee.

We are very pleased to have the Minister of State, Department for Work and Pensions, Mr. Mike O’Brien, to give evidence, together with Caroline Rookes, director of private pensions in the Department for Work and Pensions. I welcome you. Nigel Waterson, the shadow Secretary of State for these matters, will put the first question.

Nigel Waterson (Conservative, Eastbourne)

That is a bit Ruritanian, Sir Nicholas. I am a shadow Minister of State—we must get these things right.

Nicholas Winterton (Conservative, Macclesfield)

I anticipate promotion. [Interruption.] Unpaid, I say to the Committee.

Nigel Waterson (Conservative, Eastbourne)

Clearly, Government members of the Committee do not want to ruin their career prospects by quizzing the Minister, so it falls to us to start the ball rolling. Could I begin with a couple of questions? I have four points in all, if that helps, Sir Nicholas. First, how confident are you, Mike, that personal accounts will be up and running in 2012? You have made it clear you have given very bullish instructions to Tim and his colleagues at PADA, but how confident are you really that it can all be done in time, on the basis of the advice you are getting?

Nigel Waterson (Conservative, Eastbourne)

Thank you. Do you accept that when the dust has settled and the smoke has cleared, if, as well as an increase in the number of savers, there is not an overall increase in the amount of savings in this country, personal accounts will have been a failure?

Nicholas Winterton (Conservative, Macclesfield)

Does Caroline Rookes want to add to the Minister’s response?

Nigel Waterson (Conservative, Eastbourne)

I have two related points. First, why is the contribution cap figure of £3,600, adjusted for inflation, not in the Bill? Secondly, do you accept the broad principle, in setting up PADA and its successor body, of a level playing field and no public subsidy?

Nigel Waterson (Conservative, Eastbourne)

Public subsidy.

Nigel Waterson (Conservative, Eastbourne)

Just to clarify, am I right in saying that in the last legislation, we specified a figure of £23 million for PADA? I think that is right, from memory. Is there any suggestion that that amount will be increased between now and PADA’s life coming to its natural end?

Nigel Waterson (Conservative, Eastbourne)

We can return to this issue, so I will leave it there. I have one final question. If the ACA is right that it could make a difference to a number of DB schemes to bring in the flexibilities involved in risk sharing, such as conditional indexation, and if all this is trying to do is provide a possible route for people that is not obligatory and that they can choose for commercial reasons, why do I get the feeling that you and the Government as a whole are so unenthusiastic about it?

Nigel Waterson (Conservative, Eastbourne)

Can I take that as an indication that our finest minds are working on the problem?

Nigel Waterson (Conservative, Eastbourne)

I was not thinking of you, Mike.

John Greenway (Conservative, Ryedale)

Jeannie Drake from the Pensions Commission mentioned at least two other schemes—the rail scheme and the British Aerospace scheme—that have found other ways of doing this. Is it feasible to ask your Department to try to publicise the information as to how this can be done so that we can then have a suite of ideas on which to consult, which the TUC and the elderly charities asked for on Tuesday? I would add that I personally think the issue is urgent, because the number of defined-benefit scheme members, particularly new members, is fast diminishing.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

In the evidence we have heard, there seems to have been agreement that there are—at the very least—some people for whom it may not pay to save in personal accounts. What estimates has the Department made about how many people this might apply to? Part of the Minister’s reply will be that that is very unpredictable; has he identified particular groups that this particularly applies to?

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

The point that concerns me is about the advice, on to which you rightly moved the conversation. Despite what has been said, it remains unclear what range of advice will be available and of what the generic advice will consist. I agree that the scheme needs to be kept simple and that the involvement of PADA, and of the Personal Accounts Board, in due course, has to be kept to a minimum, for cost reasons.

Various proposals are on the table, however, including those being considered by the Thoresen review, for wider-ranging advice, not just on pensions, but on wider financial matter as well. Do not forget that someone’s decision about whether to enrol at a particular time might be based on their wider financial circumstances, such as, for instance, large credit card debts. I am looking for a sense from you that broader thinking is going on, not about advice provided by PADA—your point on that is correct—but on wider advice that would involve more than a website providing some information. People should have access to a system, whereby a conversation can take place over the phone or, when necessary, face-to-face—it does not necessarily have to involve hugely expensive personal financial advisors. That could be done through voluntary organisations. It would allow people to look into it in more depth and to make an informed decision. Simply providing information, however detailed, via a website, would not enable them to do that.

Julie Kirkbride (Conservative, Bromsgrove)

If almost everybody will benefit from taking out a personal account or pension of some description, why do we not make it compulsory?

Julie Kirkbride (Conservative, Bromsgrove)

In answering Nigel’s point earlier, you quoted the Pensions Policy Institute on its more favourable projections that there could be £10 billion extra going into pension funds. At the same evidence-taking sitting, it also said that its worst-case scenario is that £10 billion less is going into pension funds because of levelling-down. Would you still consider it a success because more people have some form of private saving, even if there was less money going in, or do you think that that would be a problem?

Julie Kirkbride (Conservative, Bromsgrove)

We all hope so, but sometimes we cannot always predict. We had a little bit of discussion in the evidence-taking sitting about the deadweight of people who are auto-enrolled but who are migrant workers. Is it the view of your Department that this is something that we are just going to have to put up with? There could be an awful lot of people who were auto-enrolled who then go and live in another country because we have a significant number of migrant workers in the UK. It would clearly add to the administration cost, but is that something that we have to put up with in order to have the advantages of auto-enrolment, or is there a way forward in the future?

Julie Kirkbride (Conservative, Bromsgrove)

Very small sums that add to the cost of the administration.

Julie Kirkbride (Conservative, Bromsgrove)

We are waiting with eager anticipation for your financial assistance scheme amendments, and I wonder if you could give us some more details and some reassurance for the many people who are interested in this, that it will match the PPF criteria.

Julie Kirkbride (Conservative, Bromsgrove)

That is very clear. So we can tell the people who know that they are in the financial assistance scheme that if they are due to retire at their scheme retirement age by June, they will have their money.

John Greenway (Conservative, Ryedale)

From my point of view, I have a few tidying-up points. Most of what I wanted to ask has been covered.

You made the point about the opt-in, opt-out review in 2017, and you and I had a conversation about this the other day, so I entirely understand the pressure you are under from both sides. I wondered whether you might like to say a few words about your intentions on lump sum investments. On Tuesday afternoon, we heard some quite polarised comments. Understandably, the Association of British Insurers and others feel that taking lump-sum investments without advice is not a good thing. On the other hand, people might want to start saving and to put in a lump sum in 2012. I would appreciate your views on that.

John Greenway (Conservative, Ryedale)

Help the Aged made that point.

John Greenway (Conservative, Ryedale)

But judging by what you say, one possible restriction might be for people who are not in a pension fund now or for people who do not have access to a pension fund now, other than as a stakeholder. I suspect that all of us would think that if people know that they are going to be in a personal account scheme with lower costs and so on, it might be better to wait. That might be one restriction.

On that basis, and again thinking about where the lump sums might be invested, do you have a feel as to how many funds it is realistic for PADA to have in the personal account regime without again introducing the complexity of people perhaps needing advice as to which fund to go into? This issue concerns me.

John Greenway (Conservative, Ryedale)

Unscrupulous smaller employers who might feel encouraged to persuade employees to opt out and thereby save money are a matter that has come up during our evidence sessions. I have not thought this through myself yet, but I wonder whether you share my sense that, by making it absolutely clear that employers do not give advice but only information, there might be a means of ensuring that it is illegal under the Bill for them to advise people to opt out. It is your clear intention that they should not be allowed to advise people to opt out so might that not be one mechanism that we can think and talk about in Committee?

John Greenway (Conservative, Ryedale)

They all have a pension fund now.

John Greenway (Conservative, Ryedale)

Sir Nicholas, the Minister has left open the possibility that we can discuss this further in Committee.

John Greenway (Conservative, Ryedale)

We certainly can.

Nicholas Winterton (Conservative, Macclesfield)

And I can confirm from the Chair that that will be possible.

I remind our witnesses and Committee members that I am obliged to bring the evidence-taking to an end at quarter to 5. Three other Members have caught my eye. I call Nick Ainger.

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

I have two questions. First, on the discussion that we had about levelling down and the introduction of greater flexibility in risk-sharing, could you not introduce an enabling clause that would give you the time to consider and consult on the range of risk-sharing options, and then bring forward detailed legislation in the form of regulation?

Secondly, and completely unrelated, the Select Committee on Work and Pensions asked the Government to consider the idea of auto-enrolment for the self-employed, and you responded by saying, “No, they will have to opt in.” Why was that decision taken?

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

But they are paying their class 2 national insurance stamp. Is there not a way of using that system? Most are paying that through direct debit, I guess. Is there not a way of encouraging them to, in effect, auto-enrol when they pay their class 2 stamp?

Nick Ainger (Labour, Carmarthen West and South Pembrokeshire)

But they can opt out if they want.

Andrew Selous (Conservative, South West Bedfordshire)

May I take you back to an earlier point? You mentioned the possibility of a sharia fund and an ethical fund. Some people, for example, do not like to invest in tobacco companies. Others might not want to invest in companies that trade extensively in Burma at the moment. Will there be provision for such people?

Andrew Selous (Conservative, South West Bedfordshire)

I am slightly surprised at that answer given that you have already mentioned sharia and environmental funds within the personal accounts scheme. Perhaps we should leave it there.

Andrew Selous (Conservative, South West Bedfordshire)

Moving on to another area. As regards to employers, particularly small employers and the mechanism by which they are going to make the payments, I understand that the PAYE system is not an option; the computer cannot cope. You are obviously the expert on that as your officials can advise you. In order to help small employers, is there any possibility that these payments could be made along with PAYE? I do not think that it could all be on the same form but it could be two parts of the same form to streamline this process and make it as administratively easy as possible, particularly for the smaller employers.

Nicholas Winterton (Conservative, Macclesfield)

Wayne David.

Wayne David (Labour, Caerphilly)

I intend to withdraw my question.

Andrew Selous (Conservative, South West Bedfordshire)

If Mr. David does not have another question, I do.

Nicholas Winterton (Conservative, Macclesfield)

A further question is permitted, but watch the time.

Andrew Selous (Conservative, South West Bedfordshire)

Can you tell the Committee what the Government are doing at the moment to deal with the issue in Europe about the auto-enrolment of personal pensions not being possible? It strikes me that that should be a battle that it is possible to win, given that the European regulation was really intended to stop auto-enrolment of group personal pensions. Will you put some effort into trying to change that regulation?

Nicholas Winterton (Conservative, Macclesfield)

If the Minister wishes to finish he can do so.

Mike O'Brien (Labour, North Warwickshire)

Thank you.

Further consideration adjourned.—[Mr. David]