Pensions Bill

Public Bill Committee, 9 July 2013.

Karen Bradley (Conservative, Staffordshire Moorlands)

On a point of order, Mr Caton. The Committee should be aware that the Minister has issued a written ministerial statement, which will be released at 9.30 am. Copies are available for members of the Committee at the front of the room.

Martin Caton (Labour, Gower)

I understand that the statement does not directly impinge on the Bill, but is a useful background document.

Clause 29 - Automatic transfer of pension benefits etc

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I beg to move amendment 17, in clause 29, page 15, line 18, leave out

‘of which the person is an active member.’.

Martin Caton (Labour, Gower)

With this it will be convenient to discuss new clause 10—Review of section 29 provisions and regulations—

‘The Secretary of State must review the effect of section 29 and any regulations made under it within three years of Royal Assent.’.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

It is a pleasure to serve under your chairmanship again, Mr Caton, on this sunny morning.

Clause 29 brings us to part 4 of the Bill, which might be better considered as the Bill’s second half. I say “second” because the Bill’s provisions fall into two parts: one containing the provisions for the state pension; and the other, provisions on private pensions. I say “half” because the two parts are inextricably linked, in the Government’s own terms. The Government’s desire to reform the state pension on their own terms is driven by the belief that if one can simplify and clarify the system to create a flat-rate state pension, individuals will have a greater incentive to make their own provision for their pensions and to save privately. That belief came across very clearly on Second Reading: Government Back Bencher after Back Bencher made precisely that point, saying that they supported the Bill because it would encourage saving and that, as believers in individual responsibility—people working hard, playing by the rules and making their own provision—they saw that as a good thing.

The key question, which I put to Government Members on Second Reading, is: an incentive to save into what? It is not unfair to say that the UK private pensions market has not been one of our most successful markets over the past 30 years. We know, of course, about the mis-selling scandals which dramatically affected people’s confidence in private pensions—scandals that emerged from the Thatcher Government’s encouragement of private personal pensions at the expense of occupational pensions. Building on Labour’s foundations of auto-enrolment, the Minister and the Government are in some ways trying to put back together that occupational pensions system, as that is what auto-enrolment is really about.

As the Minister looks across the pensions landscape, he has rightly identified that there is an issue with stranded pots. I say “stranded pots” rather than “stranded small pots” because I find it interesting that the Government’s approach is to define stranded pots as small pots only, whereas I would say that a stranded pot is a stranded pot, whatever its size. I will come on to say a little more about that issue.

As I said, when surveying the pensions landscape, the Minister has identified a big issue: if we are going to simplify the state pension and reduce what individuals get from it in the long term—the Institute for Fiscal Studies was clear that, in the very long term, that is what state pension reform means—people will inevitably have to make additional provision privately. Therefore, he has also been looking at reform of the private pensions landscape—auto-enrolment, workplace pensions and personal pensions. When we talk about the pensions system, we usually talk about three pillars: the state pension, workplace or occupational pensions, and private personal pensions. The Minister has looked at those three pillars together and, having decided to reform the state pension, has understandably thought to himself, “What do I have to do to make the second and third pillars into effective vehicles for individuals saving for their pensions?”

Mark Reckless (Conservative, Rochester and Strood)

Is “three pillars” the right description? Is not the more important distinction between the defined benefit occupational schemes—to the extent that they continue—and the defined contribution schemes, whether personal or employer ones?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

That is an interesting way to look at the system. It is worth pointing out to the hon. Gentleman that defined benefit schemes have fewer and fewer active members—we are very much into a system of defined contribution schemes. We can talk about those as the two pillars, but one is a lot higher and stronger than the other. The three-pillar approach allows one to understand the interaction between state pension and private pension savings. I am not sure that the state pension fits into the hon. Gentleman’s typology. It is important to think about the pillars together—about the state pension alongside workplace and private pension saving. The Bill reflects the Government view that that is so, given that parts 1, 2 and 3 are on the state pension, part 4 is on private pensions and part 5 contains tidying-up definitions, plus some powers for the Secretary of State.

I take the hon. Gentleman’s point that defined benefit versus defined contribution is a very important part of the pensions debate, but we are definitely moving towards defined contribution. The Minister asked the right question: how do we make defined contribution work as effectively as possible?

Mark Reckless (Conservative, Rochester and Strood)

The shadow Minister says that we are moving towards defined contribution, but that is not true of the public sector. Are the Opposition comfortable with the current situation, in which defined benefit schemes are almost being phased out in the private sector, but remain the lynchpin of public sector provision? Does he consider that to be sustainable?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I take it to be the logic of the hon. Gentleman’s position that he wants to draw a distinction between private sector defined contribution schemes and public sector defined benefit schemes, and to say, “Public sector schemes should be more like private sector ones.” The big problem, however, is that we must be frank about the difficulties with private sector defined contribution schemes, in which all the risk lies with the individual. The Minister is acutely aware of that, and his defined ambition aspiration—I was going to say “proposal”, but I am not sure it has enough meat on the bones to be that—is a system that combines some aspects of DB with DC, specifically risk sharing. If one assumes that, in the round, the country needs a public sector pensions system that looks like the current private sector DC system, that is a path fraught with difficulty. As things stand, that simply will not deliver the pension savings necessary to build on the flat-rate state pension and thus to provide individuals with a decent income in retirement, and the figures are pretty sobering in that regard.

The majority of people in the private sector are not saving anything; of those who are, the majority are not saving enough to produce half their salary as a retirement income. That problem is understood by many, including the hon. Member for Rochester and Strood, and various approaches may be taken. A frequent argument is that because people are not saving enough, the key is for them to save more. That is true, of course, but that takes me back to my original point: how can we demand that people save more if we are not convinced that the private pensions market products into which we are being encouraged to save provide value for money? At this stage, I am certainly not convinced.

The hon. Gentleman and the Minister do not have to take my word for it; they can take the word of their colleague, the hon. Member for Warrington South (David Mowat), who has delineated clearly the problems in the private pensions market—and he is not a Conservative iconoclast. Michael Johnson from the Centre for Policy Studies, Mrs Thatcher’s favourite think-tank, is even more outspoken on the problems in the private pensions market. Those individuals, as Conservatives and believers in free markets, can see that the pensions market does not operate in the way that a functioning, effective market should.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I have heard the hon. Gentleman in the past decry the evils of the private pensions sector. Will he explain why, when the previous Government initiated automatic enrolment, they did not feel it necessary to set any standards whatever on the sorts of things into which people may be auto-enrolled?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

The Minister must be careful. I noticed last week that he wished to put words in my mouth. “Decrying the evils” is, again, not a term I would ever use. I noticed that he intervened on me two or three times last week to put a gloss—and not a very fair gloss—on things I have said in the past.

Steve Webb (Liberal Democrat, Thornbury and Yate)

A summary.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I have never decried evils. “Evil” is not a word I favour because it lowers debate below the level at which it should be conducted. Did the previous Government get everything right on private pensions? Of course not. That is a perfectly fair thing to say, and I have no problem saying that the previous Government, who I think overall did many good things, did not get everything right, and they did not get everything right on private pensions. If the Minister wants to go on to that territory, what the previous Government did on stakeholder pensions was a significant improvement. [ Interruption. ] The Minister knows I have a problem hearing sedentary observations.

Steve Webb (Liberal Democrat, Thornbury and Yate)

The word I offered was “flop.”

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

“Flop”? That is not the term I would use. Stakeholder pensions brought down the annual management charge and offered a better private pension scheme than was then in existence. Did they address all the problems in the pensions market? No, but if we are assigning culpability, the greatest—I am not trying to get into a partisan ding-dong—goes back to the Thatcher Government’s decision to undermine occupational schemes and to encourage private personal pensions. I say that because we have to think about how we ended up with stranded pots.

The Thatcher Government opened markets in many different areas, and there were better or worse reasons for doing that, depending on the market. The problem with pensions—this has emerged clearly in the past 25 to 30 years—is information asymmetries. People simply do not engage with pensions in the way they engage with the buying of other products.

Because the Thatcher Government gave such encouragement to private personal pensions, at one level, we ended up with the mis-selling scandals, which emerged partly because agents on commission in the 1980s and early ’90s—particularly in the later ’80s—were bombarding individuals in good-quality occupational pension schemes with phone calls and literature saying, “You are in chains. Come out of this occupational scheme, where you are paying a contribution of x, y and z, and come into our wonderful private personal pension, in which your contribution is much lower but you are going to get so much more in return.” They could not deliver those returns, of course, which is where the mis-selling scandals came from, and they did not take account of the most fundamental thing with pensions—taking us back to auto-enrolment—which is employer contribution. The greatest justification for a pension is the employer contribution, which, for the employee, is deferred pay. If the Minister wants to assign blame, that is where the problems in the second and third pillars of the pension system fundamentally began. That is not the only problem. Things have happened since then, but that is where the problems began in occupational workplace pensions. To take up the Minister’s point, the stakeholder scheme was an attempt to put things right. It made a difference, but it did not, of course, solve the problems. However, “decrying evils” is not a term that I would use.

We are now on clause 29, the private pensions part of the Bill. The Minister rightly surveyed the pensions landscape in the workplace and private personal pensions. He identified stranded pots as a significant problem. He used the term “small pots”. I would use the word “pots”. Why does he think that only small stranded pots should be unstranded, to create an ugly-sounding, non-word? There is an issue there. He is right to focus on stranded pots. It would be impossible to make auto-enrolment work effectively unless the pension pots that people are building up as they move from job to job are brought together.

The Minister has quoted the figures. Currently, there are millions and millions of stranded pension pots. It would not surprise me at all if some of us in the Room have a stranded pension pot or two. The present position will only accelerate as time passes. The Department’s latest estimates are that people move from job to job a dozen times during their employment career. That is potentially creating a dozen pension pots for each person. Given that we are moving into auto-enrolment, that situation cannot be allowed to stand.

If we are using arguments about the power of inertia to ensure that people begin to save, they will rightly demand quality to ensure that, when they move jobs, they will not lose track entirely of their pension pot—or, more importantly, not so much lose track of it, as find that the charges on it increase substantially when they move job. We shall come on to quality criteria more generally. We cannot allow that situation to stand. The powers that the Minister has given himself under the Bill suggest that only pension pots which are stranded after Royal Assent of the Bill will be subject to automatic transfer. We believe that all stranded pension pots should be brought within the scope of the Bill.

The three pillars of our pension system are the state system, occupational pensions and private personal pensions. We have dealt so far in Committee with clauses 1 to 28, which deal with the state pension system, and clause 29 begins our discussion on the private pension system. I shall explain why our private pensions market does not function as effectively as it should, as well as why it does not deliver value for money for each saver. Members of the Committee do not have to take my word for that. They can take the word of my colleague, the hon. Member for Warrington South, and the Centre for Policy Studies, whose free marketeers can see the problems with this market. If we believe in markets working effectively to deliver the public interest, the critique of our private pensions system should begin with accepting the problems that emerged, no doubt, in an unintended fashion, under the Thatcher Government’s reforms of occupational pensions: one could no longer be mandated in an occupational scheme. Other reasons played a part, but we ended up with a real savings problem in the United Kingdom.

Heather Wheeler (Conservative, South Derbyshire)

Was that last comment a euphemism for the tax and changes that the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) brought in when he was Chancellor of the Exchequer? That is the reason why we have this dreadful situation where people do not think it is worth saving.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I thank the hon. Lady for raising that question, because on Second Reading some astonishing figures were being thrown around. I believe the Under-Secretary of State for Work and Pensions, the hon. Member for Wirral West (Esther McVey), was shouting that her estimate of the cost was £100 billion. The simple fact is that, while doubtlessly the ending of the tax credit did not help, the idea that that was the cause of our problems in occupational pensions is simply not true.

There has been a long-standing problem since the Thatcher Government changed the rules on occupational pensions. The last time I looked at the monthly figures, the deficits in the undefined benefit schemes were up to £260 billion. That is astonishing and that is a product of bond yields in particular. The pension companies, the Minister will be aware, are keen on a different measure of liabilities, but that is another debate. That deficit is also a product of the state of the economy and, more widely, of the diminution of occupational schemes. On Second Reading, the idea that the ending of the dividend tax credit was the cause was thrown across the Floor. No one is saying that ending it helped, but the idea that it caused the long-term problem is not correct.

Mark Reckless (Conservative, Rochester and Strood)

The hon. Gentleman denies the £100 billion figure that he says was cited on Second Reading. I recall that in 1997 or 1998 the number was between £4 billion and £5 billion a year. I am not sure whether that is correct, but that is what I recall. Since then, 15 years have passed and presumably that number has gone up with at least some growth in pension funds. Is that £100 billion figure so wrong? Does he have an alternative estimate that he can share with us?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

The hon. Gentleman refers to what has happened since 1999, but it is very difficult to calculate the number, given all the other things that have affected occupational schemes since then. What we can say—I have already said this—is that no one is saying the ending of that tax credit helped, because of course it did not. The problems in our occupational system stem from a variety of factors and begin with the ending of the mandating that people had to be in occupational schemes. The problems continued with the pension holidays that companies were allowed to take in 1980s and 1990s, and carried on with the dividend tax credit issue. I say again to the hon. Gentleman and to members of the Committee that the idea that ending the tax credit is the cause of our problems in occupational pensions is at odds with reality.

The biggest problem occupational schemes face is the state of the economy and, in particular, bond yields. We know that pension schemes have to be careful in the risks they take. They are therefore increasingly piling into bonds rather than equities. The hon. Gentleman, I have no doubt, will be acutely aware of how low the yields are, and that is driving up the deficits even further.

A variety of factors have affected the occupational system, and one cannot pick out an individual factor. We have to start with the Social Security Act 1986, which was introduced under the Thatcher Government and was piloted by the Secretary of State responsible for social security at the time. That was the starting point and other things have happened since then that have not helped.

The CBI would say—it said this to me when I met with it yesterday—that employers are feeling pressure from the deficits in defined benefits schemes. To return to the point about distinguishing between defined benefit and defined contribution schemes, we should support defined benefit schemes in the private sector, where they exist. The Minister says that regularly. Those employers that are continuing to deliver defined benefit schemes deserve support because—I go back to the point about defined contribution—all the risk lies with the individual as things stand. The problem with individual DC is not just that all the risk lies with the individual, but that, in terms of decisions about asset allocation, one loses the benefits of scale on the investment side. If an insurance company is managing just one individual’s pot, it will have to go very safe with its asset allocation when the individual gets to 10 years before retirement. It is a significant problem with individual DC that asset managers have to go very safe in their asset allocation as they wind down towards the decumulation phase. They lose the ability to hedge more risky, but higher yielding asset decisions, and they are forced into a much narrower, lower risk asset allocation approach.

Individual DC brings us back to clause 29 and amendment 17. The amendment, to page 15, line 18, of the Bill, would leave out the words

“of which the person is an active member.”

That is intended to allow the automatic transfer of stranded pots into aggregators. There is a general justification for that. The Minister has identified the key issue of stranded pots, and in tackling it, we have a real opportunity to reform the pensions market so that it works in savers’ interests. However, as things stand, and without the deletion proposed in the amendment, the clause will serve the interests of certain providers in the marketplace, to the detriment, in the Opposition’s view, of savers.

The Minister rightly said that, if auto-enrolment is a success, it will generate large numbers of pots left stranded as employees move from one employer to another. It is in savers’ interests that their pots are amalgamated, and the Bill as it stands would give the Minister the power to require the setting-up of a transfer mechanism to bring pots together, but it does not provide for the pot-follows-member policy he favours. In the Bill, he does not decide which form of automatic transfer mechanism to favour, although we know from his public comments, written ministerial statements and the like that he favours pot follows member.

The Minister deserves credit for setting up a transfer mechanism, for recognising the issue of stranded pots and for the fact that the Bill does not preclude there being an aggregator system in future. However, the deletion proposed in the amendment would enable automatic transfer into aggregators, which is a better policy. The Minister has been persuaded to pursue a transfer mechanism that minimises competition for all existing pension pots; militates against the development of scale—we think scale is a good thing for number of reasons, which I will come on to; and serves the interests of some of the big insurance companies, rather than savers. Importantly, almost every stakeholder in the pensions industry is pitched against the proposed system.

As things stand, the Minister and the Association of British Insurers favour pot follows member, but Age UK, CBI, EEF, NAPF, TUC and Which? favour the creation of a system of automatic transfer into aggregators. That is quite a heady line-up.

Steve Webb (Liberal Democrat, Thornbury and Yate)

The hon. Gentleman will be aware that, when we consulted on the issue, those who wanted an aggregator model were split between those who wanted a single aggregator, which is one model, and those who wanted multiple aggregators, which is another. Would he care to subdivide the list that he gave? Clearly, the organisations that he listed do not agree with each other.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I will come to the point about single versus multiple aggregators. I think from my discussions that implementing quality criteria so that there are three or four aggregators would satisfy all the organisations to which I referred. It is pretty striking that the Minister is in the ditch with the ABI, when the CBI, EEF, Age UK, NAPF, TUC and Which? favour aggregators. That is a pretty strong line-up of organisations that, in one way or another, are deeply sceptical of pot follows member. Let me explain why they are so sceptical.

Mark Reckless (Conservative, Rochester and Strood)

All those organisations support aggregators. Is that an answer in the plural to the Minister’s question? Are they all considering the multiple aggregator model, or are some of them still looking at the single aggregator model?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I urge the hon. Gentleman to be patient. I will come to that point, because it deserves an answer. There is a danger of creating a straw man. The Minister sometimes says that an aggregator system will fragment the market. Again, I hope to be able to convince the Committee that that is a bit of a straw man given that an aggregator system, whether there is one aggregator or several, will massively reduce fragmentation in the system. I will start with a critique of pot follows member, and then explain why the aggregator system is better. I am sure that Government Members will be delighted to know that they are getting not only a critique but a solution to meet some of their complaints and observations from last week.

Why is the Minister supported in his preference for pot follows member only by the Association of British Insurers, which one might say has a vested interest in that system with its damaging effects? Why do all those organisations—Age UK, CBI, EEF, NAPF, TUC, Which?—and the official Opposition think that he is getting it wrong with pot follows member?

The consequence of pot follows member is that a saver’s pot automatically moves to the new employer’s scheme, regardless of how good it is. The point about automatic default was raised in the evidence sessions by numerous witnesses. The hon. Member for Burton, by way of Dudley, who is not in his place today, asked of witnesses, “If the mechanism means that one might be defaulted into an inferior scheme, does that not also mean that one might be defaulted into a superior scheme?” That is true, of course, but I am not sure that it is an argument for pot follows member, because it creates a lottery in which one does not know whether one is being defaulted into an inferior or a superior scheme. I am sure that the Minister will agree that, if the automatic transfer mechanism is going to work for stranded pots, it cannot be the case that anyone can be defaulted into an inferior scheme. That would destroy confidence in the new system very quickly.

The Minister would rightly say that he is consulting now on measures that require new quality criteria. There are a number of problems with that. One problem, which we also see with the Bill more generally, is that the Minister is asking the Committee to take on trust that the quality criteria will be good enough to ensure that no one will be defaulted into an inferior scheme. Given how critical the issue of quality criteria is to an assessment of the clause and the Bill more widely, that is an issue.

No one doubts the Minister’s good intentions. However, I will risk bringing in some Max Weber—“Politics as a Vocation”, an instructive read for any politician, either aspiring or practising. Weber is very clear that good intentions do not get things done; what matters in politics is outcomes. The Minister’s intention is to have quality criteria, but we are unable at this stage to assess what those are.

I suspect that the Minister has launched the consultation because he has recognised that what I have pointed out is an issue; however, at this stage, it is only a consultation. Even if we take the Minister at his word that he recognises that quality criteria will be necessary so that no one is defaulted into an inferior scheme, I strongly suspect that the criteria will be of minimum standards and that it will still be feasible for someone to move from a larger, better run, less costly scheme to a smaller, not as well run more expensive one. It all depends what the quality criteria are.

Pensions are a notoriously complicated subject. I hope that the Minister can provide clarity on the quality criteria that he intends to put in place. As things stand, he has not—he has launched a consultation. It is too much for the Minister to expect the Opposition to accept that a consultation is under way without clarity on the quality criteria.

The Government’s policy, as set out by the Minister, is that pot follows member. The Minister thinks, it seems, that it is impossible and unthinkable that one could be moved from a better to an inferior scheme. He is therefore consulting on quality standards, but we do not know what the outcome of that consultation will be. How can the Minister expect the Opposition to be satisfied in those circumstances? Unless those quality criteria are more than just the minimum, there remains a danger that someone will move from a larger, better run, less costly scheme to a smaller, less well run, more expensive one.

More widely, the Department for Work and Pensions has claimed as a benefit of pot follows member that it is not disruptive of the current industry structure. An initial response to that is that it might be a good idea to disrupt the current industry structure; it is certainly a good idea if one thinks, like the hon. Member for Warrington South, a Treasury Parliamentary Private Secretary, and Michael Johnson at the Centre for Policy Studies, that the current industry structure does not deliver value for money for savers. The DWP has claimed as a benefit of pot follows member that it is not disruptive of the current industry structure, but I am not sure that that is something in favour of pot follows member.

As the hon. Member for Warrington South and the Centre for Policy Studies have repeatedly said, the UK pensions industry is fragmented. As things stand, the private pensions market is fragmented. Even if one does not count personal private pensions, and includes only both trust and contract-based defined contribution schemes and group personal pensions bought by the employer on behalf of their employees, there are more than 200,000 pension schemes in the UK. That is far too many.

Pensions is a scale business, as would be acknowledged by pretty much every commentator on the UK pensions and asset management industries. For example, if one picks up the Financial Times—I am sure the hon. Member for Rochester and Strood and other Committee members on both sides do every day—and reads FTfm on a Monday or FT Money on a Sunday, one will see that every single week Financial Times journalists write about the benefits of scale.

There is the issue of hidden or obscure charges in fund management. I do not claim to know everything about the hon. Member for Rochester and Strood’s political perspective, but I am sure that he is an admirer of America. The Americans are way ahead in driving down the costs of managing pension assets, and they have done that by being fully transparent. Both institutional and individual investors recognised that actually there is a correlation between low cost and value.

Often in the UK people who take a view different from mine will say, “Gregg, you are far too focused on cost. What about value?” My response is that, first of all, one needs to know what something costs before one can measure its value. For example, Australia, which is 15 years ahead of us in the auto-enrolment process, is probably now moving to a debate about value in the cost of its pension products and the asset allocation therein.

Mark Reckless (Conservative, Rochester and Strood)

I am grateful for the hon. Gentleman’s comments and his reference to the US market. I wonder whether he thinks that the 401k model in the US has any lessons for us here, and also whether the relative use of index funds in the UK versus the US could explain some of the observations he just made.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

The Minister—[Interruption.] I merely anticipate the hon. Gentleman’s imminent promotion in the reshuffle. The hon. Gentleman asked two very good questions. Taking the second point first, of course indexing plays a role. It is increasingly coming into the European market, and it plays a big role. There are now huge, passively managed asset management arms. We know who we are talking about without going into detail.

On the second point, I would like to say a couple of things about 401k. This probably says more about my previous life than anything else, but the hon. Gentleman’s mentioning 401k and asking about parallels reminded me of Keynes’s evidence to the 1932 royal commission on lotteries and betting, believe it or not. Even then, Keynes was clear about the difference between the US and UK markets. The American investment market was much more focused on individual small investors than the UK market, which was more of an institutional market.

The hon. Gentleman might or might not be surprised to learn that Keynes was very sceptical about individual investment in the stock market, even though he famously made quite a lot of money by stock picking. Certainly back then he argued that individuals needed a certain level of understanding of how these markets worked and to get into them in detail.

On 401k to the present, I am not hostile to 401k. We must be aware that we need to sort out the structure of the UK pensions market before we think about how to get towards a more individuated system. Often, that comes down to chronology. I meet various stakeholders—representatives of asset managers, employers, pension providers, actuaries, consultants and financial advisers—and everyone has their own perspective. Very rarely do I find that what stakeholders say is unfair or untrue, but there is an issue with chronology. Politics is about one thing at a time, as I am sure the hon. Gentleman will be aware, but we need to sort out the structural issues with the pensions market and build from there.

The structural issues, of which stranded pots is one, stem from information asymmetries in the pensions market. We do not need to go all the way back to Hirschman to talk about the importance of voice and exit for the consumer in any market, but we can. The pensions market does not function as an effective market does. There are reasons for that, which are particularly pertinent to the stranded pots issue.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I think the hon. Gentleman listens to some of the stakeholders he mentioned with particular care. He suggests that the ABI broadly supports our position because it has a vested interest. The NAPF—to take a random example—which recently sponsored his Fabian Society pamphlet, supports super trusts, and that is essentially the model for which he is arguing. Does he accept that many organisations have an angle and it would be wrong to say that those that agree with the Government have a vested interest, while those that agree with him are dispassionate?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

The Minister would be right if the NAPF’s and ABI’s view stemmed from what he describes as a similar “vested interest”. I shall take the two in turn. It is absolutely true that vested interests can be found in more than one place. The big insurers have every right to make their case as strongly as possible to the Minister. He suggests that I listen more carefully to some stakeholders than others, but I put that right back on him.

We will come on to the NEST restrictions; his written ministerial statement on NEST today, which is pertinent to the Bill, suggests that he is listening more closely to some interests than others. The Minister will probably say, with some justice, that all Governments listen to vested interests. I have no problem with that, but the first thing to note when considering the NAPF’s analysis of super trusts is that the NAPF is not a profit-making body. The ABI rightly exists to promote the interests of its members, and the interests of its members are in delivering shareholder value. That is how it should be in capitalism. They have a legal obligation to do that. The job of the Government and politicians is to stand up for the public interest. That is the difference.

The Minister is not doing enough to stand up for the public interest on pot follows member and the NEST restrictions. I say that about pot follows member because, as things stand, we simply do not know what, if any, quality criteria there will be. He is consulting on them. He asks us to support pot follows member in a situation in which one could be defaulted into an inferior scheme. I do not doubt his good intentions or that he will come forward with quality criteria, but will they be minimum quality criteria? Will they ensure that no one is defaulted into an inferior scheme? We simply do not know the answers at this stage.

A wider issue about pot follows member brings us back to defined benefit versus defined contribution, which the Minister raised the other week; I applaud him for that. It also takes us back to the issue that the hon. Member for Rochester and Strood, who is not in his place, raised. The Minister thwarted the possibility of collective defined contribution in the British system. I am pleased that he says that he is interested in the idea of collective defined contribution; I personally think that that is probably a more fruitful space for him to look into than the initial defined ambition observations. Collective defined contribution, however, cannot work in a fragmented, disaggregated UK private pensions system.

The problem with “pot follows member” is that it will preserve the cottage industry structure of UK pensions. That is significant, and the Minister is not doing himself justice in rebutting those who favour an aggregated system. It is even worse from a consumer perspective.

If what we do in Parliament is about delivering for the consumer and ensuring that the market works effectively so that they get a good deal, we must look closely at several aspects of the Minister’s “pot follows member” proposals. First, he proposes that pots with a value greater than £10,000 will remain stranded: they will not be automatically transferred, so no pot worth more than £10,000 will be part of the system. Typically, those stranded pots are subject to financial penalties from the pension provider of which savers are typically unaware.

Steve Webb indicated dissent.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

The Minister shakes his head and I am happy to let him intervene; but perhaps that is part of his logic in wanting to deal with small pots, as he describes them, as opposed to stranded pots.

This is how things stand on stranded pension pots: a friend of mine recently brought their new group personal pension to me to have a look at. Much to my chagrin, I have now become the last port of call for friends, acquaintances and acquaintances’ acquaintances who do not understand their pension statements—given that no one understands their pension statement, that can quickly become a long list. My friend’s pension statement has the annual management charge on it. The annual management charge is only one subset of overall charges. Parts of the industry like to talk about such charges and costs as if they are the only ones, but there is first an annual management charge and then, alongside that, what is called an “active member discount”. Do members of the Committee know what that is? I do not say that in the spirit of wanting to catch anyone out, as I can honestly say I had no idea what it was before taking on this role. A person is charged x amount while a member of their employer’s pension scheme, but when they leave that employer and leave the pension pot behind, overnight, the active member discount takes effect, which typically doubles the annual management charge—and that is before one considers all the other costs and charges. The Minister may say that that is a reason for automatically transferring pots, which may be right, but he does not propose to transfer automatically any pot worth more than £10,000. Why does the proposal apply only to small pots? What is the difference between a £10,000 and an £11,000 pot, or a £5,000 and a £15,000 pot? If the pot is stranded, it is stranded. I would be keen to hear from him on that.

Steve Webb (Liberal Democrat, Thornbury and Yate)

Does the hon. Gentleman propose that every time anybody leaves any pension scheme, their entire pot, however big, should always go off to an aggregator?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I urge a little patience from the Minister, as I will come on to that.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I am sorry.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

No, that is a perfectly fair point, which I will come to. It strikes me that the Minister’s tone had an element of incredulity—I say that not in a spirit of hostility—which says something about his attitude to the pensions market. He explained last week that he had initially supported the lump sum deferral option because he thought that in a rational world, it would encourage people to defer, but that it had not worked out that way because people make decisions for all kinds of reasons.

I do not want to put words in the Minister’s mouth, but the fact that he considers our position odd says something about his attitude to the market. The market has very serious problems. Members of the governing party, including the hon. Member for Warrington South, who is parliamentary private secretary to the Exchequer Secretary to the Treasury, the hon. Member for South West Hertfordshire (Mr Gauke), have spoken in striking terms about those problems. The Centre for Policy Studies, Mrs Thatcher’s favourite think-tank, has said in stark terms that the market has huge problems. The market does not function as effectively as it might, and nothing should be off the table in trying to align more efficiently the interests of savers and providers.

In the Minister’s favoured “pot follows member” system, only pots under £10,000 will be automatically transferred. Another way in which there is less to the Bill than meets the eye is that all pots built up before Royal Assent, regardless of size, will remain stranded. If automatic transfer applies only to pots built up after Royal Assent, there will be millions and millions of stranded pots. They will be hit, for example, by active member discounts, which would more accurately be called a penalty on changing one’s job. Those penalties will remain in place on any stranded pot above £10,000, and indeed on any stranded pot that was created before Royal Assent.

Mark Reckless (Conservative, Rochester and Strood)

An active member discount, which is applied after an individual ceases to be an active member, appears to be not a discount at all but an additional levy imposed after an individual leaves a job. That does not strike me as in any way a good thing.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

The hon. Gentleman is absolutely correct. The active member discount is a euphemism for what actually takes place. When I started to look into the pensions market in detail, that was one of the aspects that made my hair stand on end. One always has to think about why what is, is, to use a rather clumsy phrase. How did we end up with active member discounts or, as we have been urged to call them, deferred member penalties? The answer tells us something wider about the structure of the pensions market, and it is why the Minister’s colleagues and the Centre for Policy Studies take such a hard line. We have reached that position because of the obvious misalignment between the interests of the consumer and those of the provider and employer.

In an occupational scheme, which we all consider to be a good way to go, an employer buys a pension. We must accept, however, that that adds an extra element of complexity, because the consumer does not buy the pension; the employer buys it on their behalf. Understandably, the employer’s interest lies with their employees, so it is difficult to expect an employer to continue to feel as though they have a vested interest in the pension scheme of someone whom they no longer employ. That is how we get to the position of active member discounts—or, to be more precise, deferred member penalties.

The Minister mentioned the ABI, which is a complex membership organisation, and its members do not agree on everything. For example, Legal and General is on record as saying that deferred member penalties should not be placed on pension schemes, so there are clearly different views within the organisation. My point is that some employers like active member discounts, so it is not simply the fault of pension providers that there are such discounts.

The reason why I resisted so stoutly the Minister’s attempt to put the word “evil” into my mouth is that, in a market, such terms do not take us anywhere. The fact is that employers have an interest in those who work for them. Pension providers want business with employers, so they offer them a lower annual management charge, and then make up the difference on people who leave the scheme. The problem is that we know who the loser is—the person with the stranded pension pot.

Steve Webb (Liberal Democrat, Thornbury and Yate)

The hon. Gentleman is labouring, if I might use that word, the issue of deferred member penalties. He said “typically”, but I think he is under a misapprehension. Is he aware that about 85% of contract-based schemes and 96% of trust-based schemes have no deferred member penalties? It is therefore atypical, not typical, to face such charges.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I stoutly resist the Minister’s claim that I am labouring—that is his view, but it is not mine—because “labour” is a wonderful word. Labouring has its uses and is very important, so I resist his characterisation of my labouring over deferred member penalties.

I thank the Minister for his important figures on the usage of deferred member penalties. Does that mean there is no problem? Is the fact that most schemes do not practise deferred member penalties a reason for no schemes to do so? He claims that I am labouring, but the point is clear: his proposals on “pot follows member” will not do anything for any stranded pot of more than £10,000. More importantly, under the Bill as it stands, no stranded pot will be brought within the scope of the automatic transfer system. If the Minister thinks that that is labouring, he is entitled to say so, but I will let others be the judge of that.

Mark Reckless (Conservative, Rochester and Strood)

Does the hon. Gentleman have a view about why the proportions applying the deferred member penalty are as low as the Minister said, given the hon. Gentleman’s economic and market perspective on its being in the pension provider’s and the employer’s interests to negotiate such things?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

It would be useful if the Minister clarified whether he is also talking about group personal pensions when he produces his figures. Is he? This is where we have to be very careful with this Minister’s use of statistics.

The Minister said that contract-based and trust-based defined contribution schemes have a very low take-up of active member discounts or deferred member penalties. The problem is that there are about 150,000 group personal pensions in the UK. A group personal pension is a defined contribution scheme bought by the employer on behalf of employees. I gave the example of my friend who is in a group personal pension scheme, which is increasingly the favoured form of pension in the UK. The Minister intervened and quoted some percentages, but those refer to about 50,000 schemes in the UK. Does he have figures for the other 150,000? He now does not wish to intervene—he does not seem to have the figures to hand—because the fact is that group personal pension schemes practise active member discounts.

Mark Reckless (Conservative, Rochester and Strood)

Does the shadow Minister have any figures?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

The shadow Minister does not have any figures. [ Interruption. ] The Minister says that I am just guessing, but he intervened and said that 85% and 96% of the two types of scheme do not practise them. However, when I catch him out on the fact that the vast majority of schemes are not included in his figures, rather than get up and tell us the figure for group personal pension schemes, he instead tells me that I am guessing. That does not really take us much further in scrutinising the Bill.

Richard Graham (Conservative, Gloucester)

I come to the Committee slightly late this morning and am surprised that we are still on clause 29. The shadow Minister is weighing in on a whole series of issues that do not appear to be especially related to the clause. He talks about the way in which pension schemes operate and how the interests of employer and employees are not aligned, but does he recognise the tragic demise of the defined benefit pension scheme in this country? In my view, a large part of the responsibility is due to the unfortunate role played by the unions in not understanding the crucial relationship between the sustainability of the pension scheme and the sustainability of the business that employs people not only for that generation, but for many generations to come.

On the interests of buyer and consumer being aligned, the hon. Gentleman has not mentioned the many hundreds of thousands—

Martin Caton (Labour, Gower)

Order. If the hon. Gentleman wishes to catch my eye later, he can make a speech, but that was too long for an intervention.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Thank you, Mr Caton, for bringing me back in. The hon. Member for Gloucester started off by saying that what I am saying is not pertinent to the clause, which it is, and I will explain why. He then went on to talk about defined benefit schemes, which are absolutely not pertinent to the clause. Is he aware that we do not have stranded pots from defined benefit schemes? So the hon. Gentleman began by saying that my comments were not pertinent, and he then went on to talk about a form of pension provision that has nothing to do with the clause.

Martin Caton (Labour, Gower)

Order. May I make it clear that if you had been out of order, Mr McClymont, I would have ruled you so? I have two Clerks here who give me very good advice about whether you or any other speaker is in or out of order. Mr Graham is wrong to suggest that you were out of order; I do not think you need to focus any more attention on it.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Thank you, Mr Caton, for that observation and guidance.

Steve Webb (Liberal Democrat, Thornbury and Yate)

The reason I did not immediately jump up, though goaded so to do, is because I wanted to be absolutely sure, but I can assure the hon. Gentleman that the figures I quoted do include group personal pensions.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I think we will have to go away and dig into the figures. If that be the case, I will congratulate the Minister on his judicious patience; my attempt to get him on his feet did not succeed.

Sheila Gilmore (Labour, Edinburgh East)

Given that the Work and Pensions Committee took considerable evidence on the question of active member discounts, or whatever they are called, and concluded, on the evidence, that that was an issue that should be dealt with, I am not sure why we are arguing about numbers.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

My hon. Friend makes a good point. We know that active member discounts or deferred member penalties are not something that any member of the Committee would want to defend. That is a fact.

To go back to clause 29, as encouraged by the hon. Member for Gloucester, the fact is that as things stand, the Minister is not intending to bring pots above £10,000 or currently stranded pots within the compass of the legislation. That relates to active member discounts or deferred member penalties in so far as one of the big problems with such schemes, as the Minister acknowledges, is that there can be extra charges associated with them, of which active member discounts or deferred member penalties are the most obvious.

Let me say why the proposals are not bad only for stranded pots. As I developed my argument—hopefully, the hon. Member for Gloucester will see where I was going with this—I was trying to explain how the stranded pots issue relates to the structure of the pensions market more widely. As things stand, stranded pots—stranded pots in the broadest sense, not just small pots as defined by the Minister—are bad for competition. I am sure the Minister will agree that auto-enrolment has seen new providers enter the market. The providers, including NOW: Pensions, B&CE, NEST and others, are organised in a way that both Government and Opposition think good. Operations are designed to be at scale, to be governed by trustees and, typically, to be low cost. That is a good thing.

The problem for NOW: Pensions, NEST and B&CE, however, is that, because they are new providers that have just entered the market, the bulk of their pots will be subject to movement while the bulk of those held by the longer-established pension providers will not. If the Minister proceeds as he wants to and has the measure apply only to pots created after Royal Assent, it is the new providers, which to put it simply have only new pots, that will bear the burden on their own. I do not think that that is a level playing field. There will be some transfers in, but the bulk of the pots of the exciting new providers in the marketplace, which, as I said, are welcomed by both Government and Opposition, will be new and will be moving around. Many small, stranded pots will be created as the providers continue to operate. The existing providers will not be affected in the same way. That is not a level playing field.

It seems to be an odd artificial construction. I ask Government Members who believe in markets, does that seem like the way to a competitive market? The new providers, who we all agree are doing a good job, will have to deal with the issue, which is right because we do not want stranded pots, but the existing providers and older pots that have been stranded up until Royal Assent will not be subject to the automatic transfer mechanism. Is that the way to an efficient marketplace? [Interruption.] My hon. Friend the Member for Middlesbrough South and East Cleveland suggests that that is rewarding the problem. Whether one takes that view or not—it is a good point—it does not seem like the way to a level playing field.

Mark Reckless (Conservative, Rochester and Strood)

The Government’s approach surely has the advantage of being evolutionary. Were we to accept what I think the shadow Minister is proposing, there would at a specific cut-off date or cliff-edge be an absolutely huge transfer of all the stranded pots built up over many years and decades. That would be an absolutely huge upheaval with quite a lot of risk surrounding it.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I thank the hon. Gentleman for that point, which is particularly the case if one believes in “pot follows member”. Given the extra difficulties associated with it, it is particularly difficult if one tries to bring all stranded pots into that kind of automatic transfer mechanism. The hon. Gentleman absolutely has a point when he says that it is a bigger job of work, but what are we trying to achieve? Are we trying to get to a level playing field in which every provider competes on the same basis? This proposal will not achieve that. The new auto-enrolment providers, such as NEST, NOW: Pensions and B&CE, will tend to have in their scheme the kind of members who change job a lot. There tends to be a lot of job shifting at that lower end of the market.

I am sure that the hon. Gentleman is aware that B&CE, which is doing a really good job with auto-enrolment, emerged during the second world war to provide pensions for construction workers, who tended to move from site to site and were not always in a formal workplace. They have brought that expertise into auto-enrolment. By definition, because of the part of the market that it works in, there will be a tendency for people to move around a lot. That problem exists anyway, and we are going to say that the new providers will have their stranded pots automatically transferred. That is a good thing; the problem is that the existing stranded pots that have been built up over time will not be inside the system. That is not a point against the existing providers. They cannot help the fact that stranded pots have been created, but how are we going to get to a level playing field?

I know that the hon. Gentleman believes in efficient markets, but I suggest that there is an issue to consider. He has suggested that balance is needed, and of course that is true. However, it is important to get a level playing field, and to get the stranded pots—I was going to say “unstranded”, but perhaps it would be better to say “found”. They need to be brought back into the system.

To explain why I consider the proposal to be an odd and artificial construction, I remind hon. Members that in other markets, in industries where the Secretary of State creates exemptions to the rules, that normally happens to facilitate market entry. I am sure that hon. Members agree. The provisions would effectively subject new entrants to the market to the full force of rules, while protecting their bigger, more established rivals. It is hard not to see the Minister’s proposals on stranded pots in that light.

Even more surprisingly, or perhaps perversely, the new entrants are the ones that, we all agree have designed products in a way that fits the public interest by encouraging saving—NOW: Pensions, bringing Danish expertise into the UK system; B&CE, with 70 years of experience of delivering pensions to the construction industry; and the NEST public-backed scheme, which is low-cost and not for profit. Those are entrants that the Minister, I have no doubt, praises and supports. Yet they will have to bear the burden of the proposal, which will not be shared across the industry.

I use the word “burden”. Automatic transfers must happen; we are all in favour of them. However, it should not be only some pots that are automatically transferred, while others are not. It should apply to all of them.

Richard Graham (Conservative, Gloucester)

I am delighted to hear the shadow Minister saying that he is coming to the point. May I press him on his amendment to clause 29, which I think implies that the so-called dormant pots would be transferred to an aggregate rather than to the member’s new scheme, of which they would be an active member? What costing has he done of how much that arrangement would cost to create? Who would be responsible for it, and what additional administrative burdens would be generated by the creation of such aggregators?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I am surprised that the hon. Gentleman cannot see the way the argument has developed, and how it all relates to the issue of stranded pots. He asked about costings, and will be aware that the Government’s favoured system, “pot follows member”, has no costings as things stand. They have looked at the technicalities—[ Interruption. ] The hon. Gentleman is shouting—or rather mumbling something.

Richard Graham (Conservative, Gloucester)

Which hon. Member?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

The hon. Member for South West Bedfordshire.

Richard Graham (Conservative, Gloucester)

He does not shout.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

As things stand, it is not clear who will bear the cost of the Government’s “pot follows member” approach. It is not even clear how the system will work. I do not particularly criticise the Minister for that, because, as we know, clause 29 sets up the Secretary of State’s power to transfer pots automatically; it creates the power to have a mechanism, but it does not define the mechanism. It is a bit unfair to ask the Opposition to cost and aggregate a system when the Government have not costed a “pot follows member” system. Not only have the Government not costed such a system, but the information that they have provided so far on “pot follows member” says nothing about quality criteria.

The DWP’s published work on “pot follows member” mentions the technicalities of creating such a system, but does not mention the cost or, certainly, who will bear the cost. I have gathered from my conversations with parts of industry, and the Minister probably agrees, that the industry side is unclear on who will bear the cost of “pot follows member”. The onus is therefore on the Government to explain the cost of “pot follows member” and who will bear it.

As I was saying, it seems a bit strange that only pots stranded after Royal Assent will be automatically transferred. The market will be distorted, because there will not be a level playing field between new entrants.

Richard Graham (Conservative, Gloucester)

According to my reading of the explanatory notes to the Bill, the cash equivalent of a person’s accrued rights to benefits will be transferred. Once the cash equivalent has been calculated and that amount of money transferred, what costs does the hon. Gentleman envisage arising?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I am not sure why the hon. Gentleman is bringing in the issue of cash as opposed to other assets. To be honest, that question on “pot follows member” is best put to the Minister. Significant cost, however, will be attached to the creation of an IT system that enables the automatic transfer from pot to pot. As things stand, it might be worth saying to the hon. Member for Gloucester—he is shaking his head—that one of the biggest of the many issues in the pensions market is the lack of portability. As things stand, people do not move their pensions around. That architecture is not in place among pension providers. We often talk about banks, and there is a lot of pressure for people to be able to change bank accounts more effectively; just at the top of the stairs to the Committee corridor, there is an exhibition about how much easier it is getting to change bank accounts. Private pensions, however, are not like that—the architecture is not in place.

Oliver Colvile (Conservative, Plymouth, Sutton and Devonport)

Is that not because, frankly, it ends up being expensive to move? Someone who wants to set up a pension must raise a large amount of money in the first place to have a £30,000 or even £20,000 pension at the end of it. The cost of transfer is the big problem.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

The hon. Gentleman is spot on. The cost of transferring is high, taking us into the murky world of exit charges and the total lack of clarity about how much it costs, from scheme to scheme, to exit. He is 100% accurate: there is a real portability problem. As I was saying in response to the hon. Member for Gloucester, the architecture for “pot follows member” is not in place. That is why the Government have been consulting. So far, they have produced only a pretty technical note on the kind of things that one would have to do to create “pot follows member” architecture. The process is not straightforward. I am sure the Minister agrees that one thing the industry says about “pot follows member” is, “Who is going to pick up the tab?” Given that the industry has asked that, one must assume that the tab will not be insignificant, although that need not be a reason for not doing something.

Let us be clear that the Minister is absolutely right to put automatic transfers in place. Some in the industry would prefer automatic transfers not to come into place—that was the point made by the hon. Member for Plymouth, Sutton and Devonport. It is important to set the context that interests in the industry do not want portability because, if it is expensive for members to switch their pensions, that is probably good for profits. That is almost certainly the case—I am sure it is the case—so the Minister is doing the right thing by putting an automatic transfer mechanism in place. He has to do it to make auto-enrolment work, and he is doing it. However, there is a big question about the way in which he wishes to do it.

Let me take up the Minister’s challenge. He does not like “pot follows member”, but what about aggregators? In the Opposition’s view, it would be better for automatic transfers to default into a limited number of schemes that met conditions that required them to deliver on public interest objectives, including governance, administration and cost. The Minister pre-empted me, although not unfairly, by saying I have sympathy with the “super trust” or “master trust” model. The reason why we think that kind of approach is better is because we have to come to terms with some pretty gritty things in terms of governance, administration and costs.

The Minister said he will establish minimum quality criteria, but the DWP has in the past stated a desire not to distort the existing industry structure. That statement was made in the Government’s response to the consultation “Improving transfers and dealing with small pension pots” in July 2012. That attitude concerns me, because the Treasury PPS, the hon. Member for Warrington South and the Centre for Policy Studies have both said that if there is one industry that needs its structure changed, it is the private pensions market. The problem is so significant—on their terms as well as my own—that it is critical that default automatic transfer schemes have high-quality thresholds, not minimum ones. I will not put words in the Minister’s mouth, but we have a different assessment of how significant the problem is.

A year ago, when my right hon. Friend the Member for Doncaster North (Edward Miliband) and the Labour party first identified the issue of pension charges, the Minister’s initial response was to accuse us of scaremongering. However, a series of reports emerged from independent sources, which exposed and illuminated the problems in the pensions of market. The Royal Society of Arts asked pension providers what their total costs and charges were. The vast majority said that it was simply their annual management charge, and did not mention the total expenses ratio or the transaction costs. The pensions institute at Cass business school focused on small pots, in particular. My point is that the debate has moved on.

The Minister said, “We want ‘pot follows member’; what do you say?” We need to have a limited number of high-quality schemes into which members default, and they should be labelled aggregators. As individuals leave employment, their accumulated savings would default into such an aggregator, unless they opted to move their past, accumulated savings into their new employer’s scheme. If an individual chooses for their pot to follow them around, that is fine. But the default position—we know that inertia is a powerful force in pensions—should be that it defaults into an aggregator.

The reason why we, the Association of British Insurers, EEF, the National Association of Pension Funds, the TUC, Which? and Age UK favour aggregators is because we emphasise the importance of high-quality criteria and getting the aggregators to scale. The Minister probably takes a different view on this issue—again, I will not put words in his mouth. Aggregators will quickly acquire scale, with the ability to offer low costs and charges. They will support good governance at low cost.

The Minister asked what would happen if one aggregator ends up dominating the market. First, we think there should be several aggregators. However, the Minister’s view does not take account of how big the players are in the pensions market. The Minister and I had a discussion the other week in which we were taking about scale, and he mentioned the energy market. As things stand, there may a dozen providers in the pensions market. We heard a lot of talk from a variety of witnesses about the expectation of further consolidation on the provider side. There is scale on the provider side, so the idea that several aggregators would come to dominate the market does not take account of the sheer muscle of the big players in the insurance market. That is my first point. Secondly, it underestimates the benefits that come from scale on the member side.

One only has to pick up the Financial Times every Monday or Saturday to read about the way that pensions and managing people’s pensions assets are moving in that direction. I hope the Minister considers that. If the Government accepted this amendment for aggregators there would, of course, be no objection to having “pot follows member” for those savers who actively engaged with pension saving and decided that the terms in the scheme offered by their new employer were better than those offered by their aggregator and so wanted to opt for their new employer’s scheme. They should be given that choice. If individuals want to exercise an informed choice and hand their portfolio to their new employer, then they should absolutely be able to do so. There should also be the possibility of switching aggregator.

The Minister has a real opportunity here. He has gone some of the way and I welcome the fact that he recognises the need for an automatic transfer mechanism. But he has a real chance to make some of the changes in the structure of the pensions market that his hon. Friend the Member for Warrington South and the Conservatives’ favourite think tank—though perhaps not the Minister’s—believe are absolutely necessary.

The deletion in amendment 17 is required to allow a Secretary of State to use this Bill to move from “pot follows member” to an aggregator without needing a new Bill. That is the point. As things stand, clause 29 creates only an automatic transfer mechanism. If amendment 17 is accepted, it will enable the Secretary of State to move from “pot follows member” to an aggregator without a need for further legislation. However, if we do not delete these words we will not prevent an eventual move to a more consumer-friendly model, but merely slow it down. It is important to say that “pot follows member” is not a done deal.

The hon. Member for Gloucester inadvertently or otherwise raised the issue of industry attitudes to automatic transfers. [Interruption.]I do not know what the hon. Gentleman is saying, but if he wishes to intervene, I would be delighted. Whether or not he raised the issue inadvertently, the point was rightly made from the Government Benches that portability is a huge issue. If we think about an efficient market, one must be able to move one’s assets around.

The work on the central architecture will not be completed in this Parliament. It is important to say that. I assume the reason why the Minister gives himself in the Bill the powers for automatic transfer without laying down the format is because it will not happen in this Parliament. It is a bit like the NEST restrictions. I believe that any future Secretary of State will opt for the aggregator model as the default model. It may even be true of this Minister after further consideration.

This has not come up so far, but one of the defences that the Minister makes of “pot follows member”—and why presumably he will oppose this amendment—is because he cites industry research that says people prefer it. In the past, he has cited in particular an ABI survey, which, if I remember rightly, I first heard him refer to last year at the all-party group on pensions, chaired by the hon. Member for Gloucester. He has used that evidence before, but it is worth digging down into it a little, because an NAPF survey found that when the differences between “pot follows member” and aggregators were explained to people, the large majority preferred aggregators.

In 2012, the Government’s own response to the consultation, “Improving transfers and dealing with small pension pots,” provided the following evidence: 21% of those surveyed favoured “pot follows member,” while

“24 per cent supported a single aggregator, 19 per cent supported multiple aggregators and 18 per cent supported an aggregator but had no preference for single or multiple models.”

That puts the ABI survey in a rather a different perspective. We must be sure that when one surveys opinion, the terms used are readily understood. It is not unfair to say that a significant number of people will be rather unclear about the implications of a “pot follows member” system as opposed to an aggregator system. It is useful that we are having this discussion to clarify that.

In the past, the Minister has also said to me, and I imagine to others, that there would be more stranded pots with an aggregator than with “pot follows member.” However, that is only the case if there is a limit on the pot size that can transfer to an aggregator. If one takes a view that all stranded pots should be found and brought back into the system, that will not be the case. When he looked at an aggregator, the Minister would have limited the pot size to £2,000, and on that basis said that it would distort the market. He proposes a £10,000 limit for “pot follows member” yet, in his ruminations on an aggregator system, he puts an arbitrary £2,000 limit on the transfer and by using that limit finds that there would be more stranded pots. Why a £10,000 limit for “pot follows member” and a £2,000 limit for an aggregator? I would appreciate the Minister’s observations on those measurements.

It is very important to note that under “pot follows member” 88% of people will have multiple pots between 2050 and 2060, according to DWP modelling. The Minister has said in the past, and I think he said in the evidence session, that aggregators will fragment the system, but that evidence is from the DWP’s document, “Automatic pension transfers: estimated impacts under different pot size limits” of October 2012

The Minister should be congratulated for recognising the problem of automatic transfers, but he is going down the wrong road by proposing “pot follows member.” The idea that it is more popular with the public, for example, is based on a partial reading of the opinion polling. The Minister’s calculations regarding there being more stranded pots with aggregators is based on two different measurements, rather than treating “pot follows member” and aggregators consistently. He uses a £2,000 figure when modelling aggregators and a £10,000 figure when modelling “pot follows member.” Surely that cannot be fair?

It has been a little while, but I believe we are also considering new clause 10. That being the case, I want to say a little about the new clause—I can reassure the Committee that it will be only a little, which will be a relief for Government Members. New clause 10 would simply ensure that the Secretary of State must review the effect of section 29 and any regulations made under it within three years of Royal Assent. [Interruption.] Again, there are observations from the Government Back Benches. I cannot comment on them because I cannot hear them. I will happily give way.

Richard Graham (Conservative, Gloucester)

I can enlighten the hon. Gentleman on a brief observation that I was sharing with my hon. Friend the Member for South Derbyshire about the number of reviews that had been called for in his amendments. Perhaps he could remind us of exactly how many reviews these amendments entail?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I am sure the hon. Gentleman can count himself. He does not need me to do so.

Richard Graham (Conservative, Gloucester)

Is that a “don’t know”?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I think the hon. Gentleman can use his fingers to count them or does he want the Opposition to provide an abacus? I thank the hon. Gentleman for his fortitude. We have called for a number of reviews but I am sure he will agree that this is a very important clause. At the moment there are millions and millions of stranded pension pots. If auto-enrolment is to work and have public confidence, there has to be a shift such that those stranded pots are brought back into the system. Being brought back into the system means being added to an individual’s pension pot. The more people have in their pension pot, the more they will have in retirement. Pension saving is all about the magic of compound interest. Doubtless the Minister agrees. That is the logic of him wanting to create an automatic transfer system. This is really important stuff. New clause 10 states:

“The Secretary of State must review the effect of section 29 and any regulations made under it within three years of Royal Assent.”

That seems perfectly fair.

Richard Graham (Conservative, Gloucester)

No doubt the Minister will want to comment but if something is not working it should be reviewed a great deal earlier than within three years of Royal Assent. I do not see the added value of trying to tie it down to some precise mechanism.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I take the hon. Gentleman’s point. The problem in this case is that the Minister is giving the Government the power to put in place an automatic transfer mechanism. But the Minister himself has not put into the legislation any description or regulations regarding what kind of mechanism he intends to use. We know his view is that pot follows member, but he has not chosen to place that in the Bill. We are peering into the dark here. We know that the Minister rightly wants to have an automatic transfer mechanism but the Bill does not provide for the system of automatic transfers. In that situation it is surely not unfair to want Parliament to be able to keep track of what happens.

I say to the hon. Member for Gloucester, and this may make his point for him in a slightly different way, that I am sceptical of how quickly “pot follows member” will happen. The architecture is not in place for it and the industry is wary about paying for it. We know what has happened in the past on all Governments’ watch regarding IT. There is a big question about when “pot follows member” will happen. It does not look as if it will happen in this Parliament. If I am wrong and the Minister wishes to clarify that “pot follows member” will be in place by 2015, I will accept that correction, but as things stand, all we are doing here is setting up a power for an automatic transfer mechanism and looking at the best way to do that. There is nothing in regulations or in a clause. All we want to do is make sure that the Government make good legislation. The Opposition are hoping that, by the time we come to review this matter, the Government will have changed, as it will be a future Government that have to come to the House to explain themselves. That is the way it should be.

In one way or another, we are all here to scrutinise legislation. The hon. Member for Gloucester is a fair man, and he will therefore, perhaps, see that it is perfectly justifiable to look for a review. He asked me to count the number of reviews asked for in my amendments. Let us be honest: it is not that many. We can have an argument about reviews versus other ways of proceeding, but I will stand my ground on the point that my job—the Opposition’s job—is to scrutinise the Government’s proposed legislation.

There is a significant amount of consensus on the Bill. Even though I believe that the system proposed in the clause is going down the wrong route, I congratulate the Minister on grasping the nettle of automatic transfer—I put that on the record. There are vested interests that do not want to see any automatic transfer system, for the reasons that were set out a moment ago, and, in that context, we welcome the power that is being proposed. However, the surveys that suggest that “pot follows member” is popular do not stand up to a moment’s scrutiny. We also believe that the Minister’s claim that aggregators will mean more stranded pots does not stand up to scrutiny: he uses a £2,000 figure for his aggregator modelling but a £10,000 figure for “pot follows member”, so how can the comparison be fair?

More widely, the Minister has a chance here to scale up things significantly on the pension scheme side. In particular, he can ensure that the new entrants to the market—we all applaud those new entrants—are not the only ones that have to grasp fully the issue of stranded pots.

For those reasons, we have tabled amendment 17 and new clause 10, and I commend them to the Committee.

Sheila Gilmore (Labour, Edinburgh East)

I am glad to have the opportunity to speak about the amendment and the new clause. I will begin with a few general points. It is perhaps a pity that we have not taken the opportunity that the passage of the Bill offers to look more widely at some of the other outstanding issues on pensions; it may be, therefore, that we will need further legislation on those. One problem we face is that we are dealing with bits and pieces that, even if changed for the better, could have consequences in other parts of the system.

According to the Government’s own estimates of dormant defined contribution pots, there could be 50 million by 2050 if nothing is done to deal with the issue. More than 12 million of those would contain less than £2,000; of course, that means that a substantial number would contain considerably more than that. The Work and Pensions Committee produced a report in the previous Session on governance and best practice in schemes, and in our inquiry we looked at what should be done about dormant pots and how they should be transferred. There is now a widespread view that there should be a mechanism for ensuring that they are transferred without individuals having to make all the running with both their old scheme and their new one; instead of that kind of voluntary arrangement, there is a view that, in many circumstances, it would be better if the money were transferred into a scheme.

Of course, there are two different views on how that should be done. I am not sure whether they are mutually exclusive, although much of the debate seems to be conducted on the basis that they are and that we have to go for one or the other. From early in this debate, the Minister has been firmly of the view that “pot follows member” is the appropriate way in which to go. In support of that, as my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East said, there was some citation of the survey carried out by the Association of British Insurers.

The Select Committee took a look at the matter; questions were asked about it and evidence from other people was heard. Serious concerns were raised about whether the survey really could be relied on to the extent that it has been, and whether it was a true representation of consumer views. One problem is that the matter is extremely complicated. At first blush, if we ask someone, “Do you want your pension to follow you to your new job?”, it sounds attractive and perhaps the most appropriate thing to do. However, let me highlight what some of the critics said. In the TUC’s evidence to the Committee, it said that it did not believe that most consumers would support such an approach if its inherent risks were explained to them. In other words, the survey is based on partial information and on the fact that most of us do not entirely understand pension issues. Therefore, people might support the initially attractive option and say, “Of course I want it to follow me to my new firm. That makes a lot of sense; why would I want anything else?” However, such a view is not necessarily based on solid information.

In its evidence to the Select Committee, the National Association of Pension Funds said that a new employer scheme

“may be a scheme that has a lower annual management charge…but it may not.”

It felt that it was a lottery for the individual over which they have little choice. If they were following into their new employer scheme, then that was the scheme they were going into.

When the Minister was giving evidence to the Select Committee, he shifted the debate back to asking why people were being enrolled in poor quality schemes. He argued that if we tackled that problem, the objections to “pot follows member” would disappear. I ask the Minister to reconsider his position on that, because both aspects need to be tackled. No individual should be subject to detriment while the overall quality is being sorted out. Moreover, it is not entirely about auto-enrolment schemes, which might be covered by some of the forthcoming regulation on quality. We do not need to say that we must sort out the whole thing before we look at the specific issue of people transferring, because they will suffer an actual detriment if their accumulated pension pot is transferred to a scheme that is not as good as the one they were in previously, where, okay, it would lie dormant. No one should be in a position where they have to suffer detriment.

On the basis of that evidence, the Select Committee made its recommendation. It said:

“However we remain concerned about the potential for this system to result in consumer detriment for some individuals. While we agree with the Government that people should not be auto-enrolled into poor quality schemes, it remains the case that people may be transferred from a scheme with low charges and good governance into a scheme with high charges and poor governance. If the introduction of ‘pot follows member’ remains the Government's preference, it must ensure, through stringent regulation, that all auto-enrolment schemes benefit from good governance and are free from high charges”.

That was a clear recommendation to deal with this particular matter.

Another matter that has come up over the course of the morning was the question of how much we should be transferring. There are a lot of different views across the piece, and that makes it important to try to get this right. We obviously have people who say that we should go with “pot follows member”, and that is where the Minister finds himself, but there was significant variation in views. There were people who clearly felt that the option should be there to transfer to an aggregator scheme. Admittedly, there is a debate that then follows about whether there should be one aggregator scheme or several, and whether it would be possible to allow other firms to get into operating some form of aggregator.

Just because there are many different views, it does not necessarily mean that we should disregard operating some form of aggregator, or say that, because they have not decided what kind of aggregator they want, we will just go for the other option. It is important that we get this right. Both options should be there. The purpose of amendment 29 is to make it easier—after all, we are not being asked in the Bill to vote specifically on whether it should be “pot holds member”—in the future for the Government who implement this to look again at the bigger picture and all the options and to be able to move in either direction, or perhaps both directions. The Minister might tell me that that would be impossible but I cannot see why, in principle, it should not be possible to have the option of transferring the pension into an aggregator scheme or taking it to one’s next known employment and, therefore, next known pension scheme.

Size also evoked quite different views, and it is not necessarily the case that any particular group appears to be of one mind on this. For example, in his submission to the Select Committee, Tim Thomas, who is the head of employment policy at EEF, the manufacturers organisation, suggested a limit of £10,000 for the automatic transfer mechanism. The basis for that recommendation was that they had done a survey of their members and 40% who responded had members with pots of less than £10,000. They felt that they should be able to transfer automatically, and some 40% would be of substantial use. To make the limit too low would mean that only a very limited number of people would benefit from automatic transfer.

It is also interesting that Tim Thomas’s organisation was not particularly enthusiastic about always being “pot follows member” and suggested an aggregator. They were in favour of having NEST as the aggregator, and indeed, that demonstrates the breadth of view, but it is important for the Government to look into this as fully as possible and make sure that we get it right.

Over the years, a lot of the debate on pensions has tended to be along the lines of “It’s what you did that made it all go wrong” and we can have an entertaining knockabout debate on that basis. However, it is a lot more serious than that. What is serious is that the consequences of a lot of the pension policy decisions that we make will reverberate many years into the future. Often, it is only after 10 or even more years that we realise that decisions that were taken, and thought to be for the best at the time, have serious and adverse consequences that were not fully explored. On that basis, I hope that, having agreed that there should be the opportunity for automatic transfer, we will create the ability for the Government to get the form of automatic transfer right and ensure that there is no detriment.

I want to touch on the issue of active member discounts because it is linked to this whole question of “pot follows member”.

Anne Main (Conservative, St Albans)

I remind the Committee that with this we are discussing new clause 10—Review of section 29 provisions and regulations—

‘The Secretary of State must review the effect of section 29 and any regulations made under it within three years of Royal Assent.’.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

On a point of order, Mrs Main. It is a pleasure to serve under your chairmanship this warm afternoon. I seek clarification from the Minister. We had a discussion this morning about active member discounts, and the Minister quoted a DWP report and said that only 16% of contract schemes practise AMDs.

I want to get this on the record. I went away and looked at that report, which is entitled “Pension landscape and charging”—it is research report 804 from 2012. What the DWP survey actually records is that 141 employers of the 514 surveyed knew that their members were charged anything at all—we all know that pension schemes have charges. Of those, 16% knew they were charged AMDs. That might be evidence that they are not aware of AMDs, not necessarily that AMDs are absent.

The DWP survey is not based on an analysis of the actual contracts; it is a survey of what employers are aware of. Much of our discussion in this Committee has been about information asymmetries in pensions. No quantitative information was required from contract providers. Only 141 of 514 employers surveyed realised that members paid any charges at all as a percentage of the fund. The figure of 16% for AMDs is drawn from the minority of 141 employers who had any knowledge of charges.

I should add—I am sure the Minister is aware of this—that the 141 companies that knew there were charges tended to be bigger employers. The smaller employers in particular were not aware of charges. In the qualitative evidence in the report, one provider revealed that of the schemes written in 2011, 85% opted for the active member discount or the deferred member penalty. That is from the qualitative interviews with providers.

This is tricky stuff, and I am not suggesting the Minister did anything other than give the facts as he was aware of them. However, it highlights the need for the DWP to get real data from providers, and not rely on conjecture and such surveys. This point will also be relevant to clause 35. I thank the Committee for letting me make that point of order.

Sheila Gilmore (Labour, Edinburgh East)

I was talking about active member discounts before we concluded this morning. The issue is about whether there is a detriment to people, which will not necessarily be cured by the proposed changes.

Which? calculated that increased charges for deferred members could potentially reduce pension income by about 25%, which is very significant. That is not to say it will happen in every case, but any additional charge will have an impact on the pot that people grow and, in turn, the size of annuity they can buy with it. It is an important and significant matter that affects the pensions that people receive.

When this matter was raised before the Select Committee on Work and Pensions, it was significant that many witnesses, including witnesses from the pensions industry, came out strongly against the practice of higher charges. When the Minister gave evidence to the Select Committee, he said that he would not rule out a ban, but the Government had no plans to ban active member discounts. His view was that automatic transfer, which is what we are dealing with in this part of the Bill, should take care of the problem because there would be fewer deferred members. That in part also depends on the decisions that are made about automatic transfers, which we have also been discussing, the discussion about what level automatic transfers should kick in at, and whether there should be only 2,000 as has been suggested, or a higher level. There is also the question of the type of transfer that would take place.

Scottish Life made a statement to the Select Committee. It took the view that if the Government were to allow active member discounts to continue, there was a risk that companies that were still determined to use them in some shape or form, would simply find other ways to recoup the potential loss, possibly by passing the costs on to those deferred people who did not get a transfer or were not part of the automatic transfer process. Scottish Life thought that the Government should act to remove that altogether rather than to rely on the automatic transfer to solve the problem for them.

Based on that evidence, the Select Committee made a strong recommendation. Like all these recommendations it was unanimous, but it was unanimous on the basis of a strong body of evidence. We thought that the use of active member discounts had the potential to reduce significantly the amount of money available to people in retirement and that we had not had any convincing evidence for retaining the charges. The Select Committee recommended:

“Despite the Government’s assertion that its “pot follows member” approach for dealing with small pension pot transfers will take care of the problem of active member discounts, we believe that people who do not have their pots automatically transferred also need to be protected… We recommend that the Government bans the use of active member discounts without delay”.

That is a fairly strong recommendation. The belief that everything will be dealt with by this clause and that automatic transfer will resolve the problem is not the case. I ask the Minister to address the matter again.

Steve Webb (Liberal Democrat, Thornbury and Yate)

Good afternoon, Mrs Main. I recalled earlier on that the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East, like me, used to be an academic. We academics think in 55-minute lectures. So we had a double lecture this morning. It was on amendment 17 which takes out the requirement that the automatic transfer goes to a scheme of which someone is an active member. That was the nub of the issue. The hon. Gentleman’s very full contribution enabled us to tease out a bit more the alternative proposition. The Government, quite properly, must set out what they plan to do. If the Opposition have an alternative model it is sometimes helpful to know what it is. For the first time this afternoon we started to understand what the Opposition proposition is. By the end of the hon. Gentleman’s contribution I was far less convinced of the merits of his case than I was at the start.

The Bill provides that as people change jobs their pot, by default, follows with them as long as it is less than £10,000. As far as I can understand it, his proposition was that the dormant pots of everyone should go to an aggregator with no pot size limit. The model he has in mind which his friends the NAPF supports is a small number of very large providers. The analogy I drew deliberately is with the energy market. We have essentially a very concentrated energy market. If we delete “pensions” and insert “energy” we could make all the same arguments. What we need is a small number of big providers. They will compete vigorously. Costs will be driven down. We do not want it to be small scale. Generating electricity is not a cottage industry, one might say. Would not that be a really good outcome for consumers? I kind of think it would not. Having a market dominated by a small number of very big providers who get on with each other, shall we say, would not necessarily be the best outcome for consumers.

The problem I have with the hon. Gentleman’s model is that he does not just want aggregators, which could themselves unbalance the market, he wants vast swathes of historical pension saving all to be shovelled into these aggregators. His point is that that scale is great but what he does not seem to see is the other end of that which is all the pension schemes from which money is taken which then become sub-scale and bad value for money for the people who are left in them. He sees the scale where the money ends up but he does not see the loss of scale where the money has come from.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

There is a lot already in what the Minister says. II will try to be brief. The Minister makes a comparison with the energy market; however, to clarify, when I was talking about scale I meant the scheme side. It is very difficult to compare the energy market to the pensions market, as his hon. Friend the Member for Warrington South (David Mowat) has made clear on numerous occasions. In the energy market the individual buys the energy; with an occupational pension the employer buys the product, or the pension. What I am suggesting is that we have scale on the provider side: there are about a dozen big pensions providers. What we do not have is scale on the member side, given that we have hundreds of thousands of pension schemes.

It is interesting that the Minister mentioned unbalancing. I would say that the market is unbalanced at the moment, because we have a smallish number of big pension providers and hundreds of thousands of schemes that are meant to protect the interest of the member. Does the Minister think that the analogy works, given that in occupational pensions it is not the consumer who buys the pension?

Steve Webb (Liberal Democrat, Thornbury and Yate)

In the hon. Gentleman’s world of a small number of aggregators, people will presumably choose where they put their historic pension pots. I assume that he is not suggesting that my entire lifetime legacy pension pots will just be randomly assigned to some provider, but that I will choose. In that market I am a consumer who has a very small number of places from which to choose; so it is analogous with the electricity market.

Mark Reckless (Conservative, Rochester and Strood)

Would the model proposed of forcing very large numbers of people to transfer their savings in current private providers into a small number of huge aggregators not have certain attractions, if one intended it as the prelude to nationalisation?

Steve Webb (Liberal Democrat, Thornbury and Yate)

It would certainly be ripe for a future Government that was interested in that approach. I have no idea which wing of the Labour party the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East comes from, but he does come from Glasgow; I do not know whether that tells us anything. However, I do not imagine that that is where he is coming from—let me put it like that.

We will come back to the £10,000 pot-size limit that we envisage. However, when the hon. Gentleman suggested that we should be interested in all dormant pots, not just smaller ones, he is suggesting that the whole of the dormant pots should end up in aggregators, unless someone opts out of that. We think that by the time we get to 2050, or whenever it is that this has been up and running for a generation, the amount of money in those dormant pension pots will be of the order of £0.75 trillion. That is £0.75 trillion in stranded pension pots in today’s money. Call me old-fashioned, but even though I have been in pensions for a little while now, I still think that £0.75 trillion is soon going to get to serious money. My worry is that, if we have a system whereby all of that ends up in the hands of a relatively small number of aggregators—to use the hon. Gentleman’s phrase—that will not serve the interest of all the other providers.

The hon. Gentleman envisages a situation in which, for instance, I leave a firm; I am in their workplace pension scheme; and by default, the money that I leave behind, no matter how much, goes to some third-party scheme. However, what about the people who remain in the scheme that I have just left? They are now in a smaller pension scheme, given that everybody who leaves takes their money with them. Therefore the firm, particularly if it is in a difficult industrial sector and perhaps is shrinking, is losing scale. Everybody who has left has the same fixed costs of a scheme, but those left behind face higher charges. Scale is great if you benefit from it, but if all we do is shunt all the money to two or three people, how does that benefit the consumer? I am sure that you would love to be one of those two or three people, but what if you are not?

Anne Main (Conservative, St Albans)

Before I call Mr McClymont, will he keep his comments to an intervention?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I thank the Minister for giving way again. I was interested to hear him set out how the kind of architecture he is thinking about has developed. I take him up on the point about losing scale as things stand. This is the big point of difference between us. I look at the pensions market and see how fragmented this aggregated market is, with hundreds of thousands of schemes representing employees. I am not talking about the providers, who have scale. The Minister’s argument is that that this would reduce scale in x, y and z. As things stand, does he agree that the UK pensions market is fragmented?

Steve Webb (Liberal Democrat, Thornbury and Yate)

I do, actually. However it is becoming significantly less so. I was not aware of the recent trends until I looked into this. Let me give him a feel of that. In the last three years, from 2009 to 2012, the number of small and medium-sized occupational DC schemes fell by a third. The number of micro-schemes fell by a fifth, from 45,000 to 36,000, whereas the number of large schemes remained relatively stable. So for obvious reasons, consolidation is happening. On the other side of the coin, over half of the active members of private sector occupational DC schemes a couple of years ago were in schemes of 10,000 or more.

This is a classic case of picking the figures depending on what argument you want to make. If you want to say the market is fragmented you say there are lots of schemes. If you want to say that it is concentrated, you say that most people are in big schemes. Of course, both are true.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I take the Minister’s point. What then is now the average size of a pension scheme in the UK? What is the average membership?

Steve Webb (Liberal Democrat, Thornbury and Yate)

An hon. Friend quite rightly says: “Mean or median?” As I said, over half—the median person—is in a scheme of more than 10,000 members. There is a long tail on distribution, I do not dispute that for a second. Some of these are what you might call top-hat schemes, very small firms just set up for the director or something like that. I am not sure that these are what we are actually interested in.

Some consolidation is going on, but there is an awfully long way to go. My worry is that the hon. Gentleman actively wants to manage the pensions market down to a very high degree of concentration. That process can go too far.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I will just reiterate this point for the Minister’s benefit. He says that there is a high degree of concentration. We have the provider side and the saver side. I suggest that we need to consolidate the saver side. I am not suggesting it for the provider side. That is already consolidated. We are down to about a dozen major providers. So as the Minister develops the argument and characterises our position, will he bear in mind that when we talk about consolidation, we talk in terms of savers? We need to rebalance in favour of the saver.

Steve Webb (Liberal Democrat, Thornbury and Yate)

It is the case that in the UK the average scheme has around 2,500 members. This is clearly smaller than in other countries, but those trends are changing over time, as I indicated. We are seeing fewer small and medium-sized schemes and fewer micro-schemes, whereas the number of larger schemes stays about the same. So there are trends towards consolidation going on.

To rewind: clause 29 paves the way for our proposed “pot follows member” model. Amendment 17 says that the pot should not follow the member, it should go somewhere else. One word that the hon. Gentleman did not use at all this morning—and there were not many of those—was “engagement”. The paradox of automatic enrolment is that it is built around inertia. By doing nothing, you end up in a pension. Inertia is great, but it is also a problem, because if we do not just want people in pension saving but engaging with their pensions, building more and the rest of it, we want them to engage.

The problem with not doing “pot follows member” is that when you leave a firm, your pension pot goes somewhere else, to a provider with whom you have no relationship and who possibly you did not choose. You then have a pension with your current provider and probably have other legacy pots too, unless you are in the bizarre and extreme version that the hon. Gentleman describes, where every legacy pot is shoved into one place, which is extraordinary. You then end up with more fragmentation than if the money goes with you. You also end up with less engagement.

That is crucial, because if the money goes with you, your pension accumulates where you are, with the firm you are with, which puts money into your pension. You will be far more engaged with a single correspondence from a single pension provider linked to your current employer, which perhaps in some large work forces comes into the workplace. That is engaged pension saving. Shunting things off to some super trust that people have never heard of and never chosen is a different business.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

The Minister is beginning to set out the advantages, as he sees them, of pot follows member. Will he comment on the DWP evidence that shows that, under the Government’s proposals, by 2050 86% of people will still have more than one pension pot? He said that he wanted to reduce fragmentation, but is that the case?

Steve Webb (Liberal Democrat, Thornbury and Yate)

It is absolutely the case that our proposals will radically reduce fragmentation, but if there is a pot-size limit of any sort, there will be times when people work for a firm for a long period and build up a pot in excess of that amount. Let me address that issue on two fronts.

First, the hon. Gentleman said that we compared unfairly the £2,000 pot-size limit for the single aggregator with a limit of £10,000 for pot follows member. He seems to be the sort of man who would read impact assessments, so he will have read that we looked at different thresholds: £2,000, £5,000, £10,000 and £20,000 for the pot follows member model. Comparing like with like, with £2,000 on pot follows member and £2,000 on the aggregator, there is still substantially more consolidation with pot follows member.

We compared £2,000 for the single aggregator with £10,000 for pot follows member because we simply do not believe that we could have a single aggregator with a high pot-size limit and I do not think that that is the hon. Gentleman’s policy, either. That is because, to give the Committee a new number—it always likes a new number—owing to the size of transfers, we think that, if there was a single aggregator, once the system is up and running, it would take between £7.5 billion and £10 billion of small pots each year, over and above any other regular business that it had. Imagine that over a decade: there is one provider in the market that, if we had a £10,000 pot-size limit, will suddenly have got £100 billion from everybody else’s pension schemes.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I am listening carefully to the Minister. Am I right in saying that DWP undertook to model an aggregator system on the basis of a single aggregator with a £2,000 limit, rather than a system of several aggregators, and that that was done as opposed to pot follows member with a £10,000 limit? Is that fair?

Steve Webb (Liberal Democrat, Thornbury and Yate)

That is right, except for the last part. We looked at four different thresholds for pot follows member, including £2,000, so we did compare like with like. It is stating the blindingly obvious: if a person goes from their first employer to their second employer, in scenario one, their pot goes with them and they have one pension pot. In the hon. Gentleman’s model, the first pension pot is shunted off to somebody else and they have a pension with their second employer, so they have two pots. Therefore, by definition, pot follows member will reduce the number of pots that people have.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I take it as a compliment that the Minister says that he thinks that I am the kind of man who would read the impact assessments. When he modelled pot follows member at £2,000 versus a single aggregator at £2,000, what was the number of stranded pots for pot follows member? We know the figure for £10,000, but how many pots were there if we fairly apply the £2,000 limit in the modelling?

Steve Webb (Liberal Democrat, Thornbury and Yate)

Obviously, the hon. Gentleman already knows the answer to that question. Pot follows member with a £2,000 pot limit would reduce the number of dormant pots by 19%, whereas the aggregator with the same limit reduces that by only 13%. When comparing like with like, it must be true that we would end up with fewer dormant small pots under pot follows member, because there is a chance that people would end up with only one pension pot, whereas in his model, they would always have at least two.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Will the Minister give way?

Steve Webb (Liberal Democrat, Thornbury and Yate)

I will give way, but I am aware that we have the whole of the rest of the Bill to discuss. I do not fully understand why the hon. Gentleman is allocating so much time to this amendment and I would not want him to get to the end of Thursday and feel that he did not get proper scrutiny of the other bits of the Bill that he wanted to scrutinise. I will keep on giving way for as long as he wants to intervene, but that will allow less time for the other issues that he may want to raise.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I thank the Minister for those cautionary words. Does he agree that the difference between 19% and 13% is not enormous, and it might well be that, if aggregators have other advantages, that difference is not as significant as it might otherwise be?

Steve Webb (Liberal Democrat, Thornbury and Yate)

First, whereas we can have a £10,000 pot size limit for pot follows member, and that is an entirely credible thing to do, I simply do not believe that, with a single aggregator, you could have a pot size limit of £10,000. It is fine to say that 6% is not that big a number, but whereas with the one model you need a low limit to avoid a massive concentration on a single aggregator, in our model we can have a much higher limit.

To address the hon. Gentleman’s point about the £10,000 limit and about dates, the £10,000 limit is not on the face of the Bill. We looked at a range and took the view that £10,000 struck the right balance, including getting consolidation. He criticised us for not wanting massive upheaval in the pensions industry. We recognise that this is a time of great change, because of automatic enrolment. The industry tells us that it needs the capacity to take millions of people into workplace pensions.

We are being cautioned against going too fast. I must say to the hon. Gentleman that the criticism of us on automatic transfers is not that we are not being comprehensive enough; it is that we are going too far, too fast. His suggestion that the whole of legacy pensions that everyone has built up across the entire industry should suddenly be available to be shunted into a small number of providers is an earthquake. The disruption that that would cause, in particular to all the pension schemes whose members left, would be on a scale he just does not seem to think about or care about. That baffles me.

Richard Graham (Conservative, Gloucester)

Does my hon. Friend agree that there seem to be three fundamental issues here? First, the shadow Minister has a focus on large aggregators, whereas I am yet to be convinced by his argument that the consumer—the future pensioner—will benefit. I am worried that he may have been the victim of lobbying by a big pension provider hoping to benefit from a rapid consolidation.

Secondly, the hon. Gentleman said earlier that he was not sure for how many reviews he had called. Mrs Main, you may be interested to hear that I have done some rapid work on a Chinese abacus, as the shadow Minister recommended. He must have heard that I have just been re-elected chairman of the all-party parliamentary group on China. My abacus shows me that he has called for seven reviews, two of which were for every three years from now on, for ever. Therefore it is actually quite hard on an abacus or, indeed, a calculator, to know quite how many reviews he has called for. This could run and run indefinitely.

Thirdly, in essence, the shadow Minister’s position could be seen by some people, although clearly not by any of us in this room, as aiming to ensure that, if the Bill is a great success, he has played a considerable role in that. However, if, on the other hand, it runs into difficulties, he has positioned himself in such a way as to be able to say that he flagged up the concerns, without making any concrete counter proposals worth their weight.

Steve Webb (Liberal Democrat, Thornbury and Yate)

My hon. Friend is right that new clause 10, which we are also considering, is about yet another review. Just to make sure that I do not fail to deal with that point, the review for which new clause 10 calls is within three years of Royal Assent. Assuming, all being well, that we get Royal Assent in early 2014, he wants a review in 2017. Given that we legislate in 2014, and we then produce and consult on regulations, we would complete that process in 2015. We would then set up some sort of infrastructure to do this, so we could easily be talking 2016 before we even start doing it. The suggestion in new clause 10 that we then have a review within about a year of starting seems extraordinary. He will be aware that the NEST review, envisaged in the Pensions Act 2008, was nine years after that legislation went through. I think that calling for a review before something has even started is going some, even by his standards.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I am a little surprised that the Minister says that, but I will not pick up on that point. I want to go back to his statement that he was told that he was going too fast. Could the Minister elaborate a little on where that point of view comes from? Who is saying that he is going too fast on automatic transfers? He left that hanging enigmatically in the air.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I am quite sure that the hon. Gentleman has told us twice that he is an avid reader of the Financial Times. He reads it on a Monday to see the pensions bit, and he reads it on a Saturday, presumably to read “How To Spend It”. I do not know whether he turns straight to that section. He will know from the pensions press that almost whatever we do, there is always someone saying, “Whoa! Hold on. Do not go so far or so fast. Slow down.” He pointed out that there are always voices saying, “Please don’t change anything; we are quite comfortable with the status quo.” He is accusing us of not wanting to shake things up enough, and he said that the DWP had used the disruptive impact of something as a reason not to do it. He urged us to be disruptive, but with this measure, the principal thing that people are saying to us is that we are doing so much stuff, and we should concentrate on auto-enrolment and single tier and park this measure. Either we are going too fast or too slow; I suspect it is not both.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

The Minister tries to ascribe both those views to me, but the argument that he is going too fast is not my view. He has mentioned people in the pensions press, but it is a bit unfair to ascribe two views to me when I have been consistent in putting forward only one. Surely it is up to the Minister—I guess this is his position—to assess the submissions and evidence he gets. His view is to find some sort of middle way, and my view is that he should get cracking. It is unfair to ascribe to me a view about going too slowly, which I have not at any stage articulated.

Steve Webb (Liberal Democrat, Thornbury and Yate)

The point I am trying to make is that the hon. Gentleman said in his contribution that he would urge the Department not to hold back from doing something because of its disruptive impact on the pensions market. I was simply trying to make the point that those who do not necessarily support what we are doing think we are being too disruptive. I do not think there is any evidence for the suggestion that we are ultra conservative and cautious and do not want to shake things up.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Will the Minister give way?

Steve Webb (Liberal Democrat, Thornbury and Yate)

Perhaps I should make progress. I am happy to give way to the hon. Gentleman in due course.

Earlier, we were trading some points about, “Who have you got on your side and who have we got on our side in this argument?” As ever, I want to bring in the great British people on my side. The hon. Gentleman rather dissed—along with the hon. Member for Edinburgh East, in a surprisingly unpopulist moment—the views of the great British public. I think that I am paraphrasing only ever so slightly when I say that the hon. Lady said, “Pensions are complicated stuff. If you ask them whether they want their money to go with them, they will probably say yes.” She did not quite say this, but I thought I heard her imply, “But what do they know.”

Sheila Gilmore rose—

Anne Main (Conservative, St Albans)

Order. Before I call Ms Gilmore, would the Minister like to clarify “dissed”?

Steve Webb (Liberal Democrat, Thornbury and Yate)

I understand, Mrs Main, that it is a colloquial term used on the street to mean disrespect.

Sheila Gilmore (Labour, Edinburgh East)

The point I was trying to make—I am sure that the Minister would agree that it shows no disrespect to anybody—was that a straightforward survey or opinion poll question may not encompass the issues. I quoted some of the evidence we received, and my point was that, without knowing the risks and benefits, it is difficult to make a judgment.

Steve Webb (Liberal Democrat, Thornbury and Yate)

For the record, I should clarify that “diss” originates from Jamaican vernacular English; the Committee should be aware of that.

On the hon. Lady’s point, if we are interested in engaging members of the public who do not “get” pensions, their views on what they want to happen when they change job are pretty important. To dismiss them—if I might use that phrase—on the basis that it is difficult and they might not have thought it through understates the importance of what the public has to say.

For the avoidance of doubt, the public were asked in a consumer survey which of four options they wanted when they changed job: that the pot automatically follows them to the new job, which is “pot follows member”; that the pot moves to a central scheme and a new pot starts with the new employer, which is the position of hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East; that the pot stays where it is, and it is up to the person to move the pot, which is the status quo; or that the pot is visible with all other pension pots at a central place online, which is known, slightly surreally, as a virtual aggregator. I have to say that the Great British public put in fourth place the Opposition’s position: move to a new central scheme and start a new pot with a new employer. In third place was the status quo. In second place—I feel the tension mounting in the room—with 17%, is the option to have all other pension pots visible at a central place online, which is the virtual aggregator. However, with more votes than all the other options put together was the coalition’s position. Given that 58% of the public chose this position, I reassure my hon. Friends that this is a popular policy—we try to slip them in occasionally when no one is looking.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Will the Minister give way?

Steve Webb (Liberal Democrat, Thornbury and Yate)

I am on a bit of a roll, if the hon. Gentleman will bear with me for just a minute. This is not the only survey—[Interruption.]

Anne Main (Conservative, St Albans)

Order. I am sure that Mr Blenkinsop can make his comments if he wishes to make an intervention.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I am grateful to you, Mrs Main.

Obviously, the Labour party has suggested that because the survey was conducted by the ABI, it is somehow a bit dodgy. However, earlier this year, research published by Aviva found that two thirds of employers and employees are supportive of the DWP’s “pot follows member” plans. In fact, John Lawson, the head of corporate benefits, said that that shows that the DWP’s favoured solution is a “hit with the public”. I do kind of think that we are tapping into what the public want, although I apologise that it is not what the Opposition want.

There was a third survey by the hon. Gentleman’s friends, the NAPF, which sponsored his pamphlet. It saw that the ABI had come out with a survey finding that the public wanted this policy, so it asked some leading questions and managed to get very different answers. The NAPF said things like, “Would you like it to be automatically moved to a central scheme that meets certain standards and has low charges, with the option to bring new pots into the scheme when you leave future jobs?” Funnily enough, people kind of liked the idea of their money in a good scheme with low charges and that slightly tilted the balance.

I think that initial survey asked a straight question, but then another organisation with a rather different view asked questions to get the answer that it wanted. My clear sense is that one can ask somebody in the street, “What do want to happen when you change job? Do you want your money to come with you, do you want it to go off somewhere else, or do you want it just left behind?” It is intuitive that people want their money where it is—with them and where they know what is happening to it. If there are issues around the scheme of which they are a member and they have a sponsoring employer, they can do something about it. If we want engagement, which is a word that the hon. Gentleman did not use, the best way to get that is for people to take the money with them.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I am surprised by the way in which the Minister analyses these surveys. Pension charges and charging structures are far too complicated. I have a double maths A-level, an engineering degree and I am a chartered accountant, and I can just about understand this stuff. The majority of people who will be buying these products struggle to understand exactly what they are purchasing and where their hard-earned savings are going. This is not my observation, nor the observation of the Labour party, but the observation of the hon. Member for Warrington South.

Anne Main (Conservative, St Albans)

Order. Are you asking the Minister a question in the intervention?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I am.

Anne Main (Conservative, St Albans)

Will you phrase it as a question, please?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Does not the Minister agree with his hon. Friend the Member for Warrington South? If people are asked in a survey by the ABI—we might call it the Minister’s friend, since he is so keen to ascribe the NAPF as my friend—about “pot follows member”, do they understand the issue of active member discounts, exit charges and the other hidden charges that go along with many pension schemes?

Steve Webb (Liberal Democrat, Thornbury and Yate)

Of course, those issues apply equally to the hon. Gentleman’s preferred model as to mine. People are being given the option of where they want to move their money to, and they have expressed a strong preference for moving their money out to the new scheme that they have joined, rather than some third-party scheme. The terms and conditions of the scheme that they are leaving behind, with deferred member charges perhaps applying, would be equally relevant to both.

In a sense, if we say, “People are too stupid to understand all this stuff, so what they say does not matter,” is that not the problem with pensions? We have made it so complicated and difficult that people need, like my hon. Friend for Warrington South, multiple maths degrees or whatever he has, but they should not need all that.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I respect the Minister’s argument. Of course he has a point, but it is utopian to say that a thing should be something when the facts are as they are. We know that, as things stand, people find it difficult to understand the complexity of a pension statement, and there are reasons for that—that is the world we live in. We might all wish that it was different, but that is the world the Minister is living in. Does he not agree, like the hon. Member for Warrington South, that we have to accept that pensions, as things stand, are complicated, and that we have to legislate on that basis, even if we hope in the future that it will be otherwise?

Steve Webb (Liberal Democrat, Thornbury and Yate)

I think the hon. Gentleman is saying that things are complicated and we have to legislate for a complex world, but I am saying that the views of the people who actually end up with these pensions matter a great deal. They may not know the fine print of how pensions work, but they know what they want.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

The Minister uses the terminology “fine print”, but when people are facing active member discounts, exit fees and hidden charges, it is not fine print—it is a rip off. Does he not agree?

Steve Webb (Liberal Democrat, Thornbury and Yate)

Mrs Main, you would not have heard the hon. Gentleman describing this morning the scenario of his friend producing a pensions document in which the active member discount was in the fine print, although I will not quibble with him about terminology.

We are trying to get to a situation in which people are automatically enrolled into good-quality pension schemes; in which, when they change jobs, they move from a good-quality pension scheme to another good-quality pension scheme; in which, by default, the money goes with them; in which they accumulate what I have called a big fat pot; in which that big fat pot provides good value for money when they turn it into an annuity; and in which we end the position whereby people have fragmented pots, are not able to buy good-value annuities and lose pensions. The number of people who lose pensions completely is incredible. I often say to members of the public, “Last time you moved house, did you tell all your pension providers your new address?” A lot of people scurry for their handbags and wallets at that point and start writing down, “Note to self—I must do that.” Ideally we need people’s pensions to be in one place, or in as few places as possible.

On the pot size limit, £10,000 gets us going, but £10,000 need not be the end of the story. We have the power to review that limit, and I would have no problem with it being raised in due course. Clearly, however, we want to get things going.

The hon. Gentleman suggested that we cannot do anything about pots created before Royal Assent, but that is not true. Paragraph 1(4)(e) of schedule 16 allows us to prescribe a date from which rights accrue, and that means that we can bring in older pots. Again, we are trying to walk before we run—we are trying to get a system going. Even at £10,000, the steady state might be about a million transfers a year—if we did them all instantaneously—so we should have a sense of scale.

The hon. Gentleman mentioned the IT infrastructure. He seemed to imply that our proposal needs a big, clunking IT system, and that we do not know what the price of it is, whereas his proposal does not. However, how does somebody’s money get from their old scheme to an aggregator? One model would be a sort of carousel system, meaning that whenever a person leaves a job, whichever aggregator’s turn it is gets the pot. That would avoid one aggregator hogging all the money. That system might be fair, but once someone has been allocated to an aggregator, by definition all their aggregation must happen in the same place, so we would need a database to link each person with the aggregator with which they ended up.

That system would be complicated and messy enough—I suspect that it would involve just as much IT infrastructure as our proposals—but the hon. Gentleman’s system goes far beyond that if he does not have a £10,000 limit, and that would be unadvisable. We envisage automatic transfers involving relatively modest amounts ending up, by default, in one big place. However, if he were to take the whole of people’s legacy pension rights without limit, people will need advice, because this is difficult stuff. We envisage a streamlined and automated process consolidating small amounts of money in a worthwhile place without the need for financial advisers and all that kind of stuff.

The hon. Gentleman, however, has an alternative model, and this morning’s sitting was really interesting because the hour and three quarters that he spent describing it enabled us to hear for the first time what that proposal was. It is astonishingly different from what the Bill proposes, and it does not appear to have been thoroughly thought through. Presumably the hon. Gentleman is suggesting that people take all their previous small pots and big pots, and then somehow consolidate them—I am not quite sure how that mechanism would work—in a single place. I was not clear about whether they would be advised to do that.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

The Minister builds his argument on an assessment of what people want. Will he confirm that when the DWP’s consultation on improving transfers and dealing with small pots was undertaken in 2012, there was a significant majority in favour of aggregators? Only 21% of those consulted favoured “pot follows member”, while 61% favoured some sort of aggregator. Is that accurate? Is that not what the people want?

Steve Webb (Liberal Democrat, Thornbury and Yate)

No, unless the hon. Gentleman thinks that members of the public generally respond to DWP consultation documents. The percentages he cites overwhelmingly represent pensions organisations, pension providers and people in the industry. A very modest number of members of the public respond to such surveys. Experts certainly responded to the consultation, and of those who expressed a specific preference—for “pot follows member”, a single aggregator or a multiple aggregator—fewer people explicitly backed a multiple aggregator than backed “pot follows member”.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Is the Minister saying that he prefers a survey by the Association of British Insurers to a survey carried out by his own Department?

Steve Webb (Liberal Democrat, Thornbury and Yate)

I think that intervention is rather beneath the hon. Gentleman. We undertake complex, sophisticated, technical consultations to which people who understand the fine print of pensions respond. If he looks at the list of respondents, it would be his friends and mine: pension providers, employers organisations, trade unions and so on. I genuinely do not know how many members of the public responded—I might be just about to remember—but only a handful of members of the public respond to DWP consultations, rip-roaring reads though they are. We therefore complement that technical, sophisticated consultation with finding out what the public think, which is entirely appropriate. The reason why the hon. Gentleman is so defensive is that the public have voted clearly for what they want, but he is trying to suggest that their views do not matter.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I would not say that I am defensive at all. The DWP’s survey on improving transfers and dealing with small pots showed that one in five people—21%—supported “pot follows member”. It seems that the Minister prefers the survey by our friends the ABI, which of course has an interest in the process. Surely the Government’s own survey is the most important and impartial document.

Steve Webb (Liberal Democrat, Thornbury and Yate)

That is an absurd comparison. Mysteriously, I now have the list of respondents, so the Committee may note how many names of members of the public are on the list: Aegon, Age UK, Alexander Forbes financial services, Altus, Aon Hewitt, the ABI, the Association of Consulting Actuaries, the Association of Pension Lawyers, Aviva—that is just the As. I did not notice any members of the public. The idea that the consultation is our opinion poll saying one thing, while the ABI survey says something else, is nonsense. When the public were asked for a simple response to a simple question, their views were quite clear.

The hon. Gentleman is right to say that, in response to our consultation, there was a wide range of views. The choice is not “pot follows member” or aggregator. The aggregator is not one proposition, but many propositions, and I imagine that the hon. Gentleman’s proposition would get 0% support, given that the version he described this morning involved unlimited pot sizes and everyone consolidating into a handful of providers. He and I spend our time talking to a range of what are loosely called stakeholders, and I have never heard anyone advocating his proposal.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

This is a little puzzling. We have three surveys. The DWP’s survey shows a fifth of people supporting “pot follows member” and a majority for the aggregator. The NAPF survey shows support for an aggregator. However, the Minister decides to focus entirely on the support for his proposal in the ABI survey. I do not understand why he dismisses his survey and the NAPF’s, but favours the ABI survey.

Steve Webb (Liberal Democrat, Thornbury and Yate)

The hon. Gentleman uses the word “survey” to describe two totally different things. When the Government produce a complex technical document, with lots of analysis, charts, facts and figures, we are not asking the general public to reply to it—although they are welcome to. It is not a survey of the general public.

The hon. Gentleman is right to say that about one in five of the people who replied to our consultation liked “pot follows member”; I accept that. Interestingly, I spoke only this week to a group of senior industry figures, a number of whom said to me, “Actually, to be honest, Steve, we wouldn’t reply the same way now as we did then.” Things are moving on. People are changing their views and realising that this is going to happen; and as a result, recognising the direction of travel, they can see the sense of the approach.

The hon. Gentleman has intervened many times, saying, “You are ignoring this survey and counting that one”; but they are not the same thing. The key point is that the responses to our consultation—not our survey, but our consultation—were fragmented. It is not the case that if one person favours a multiple aggregator and someone else favours a single aggregator, they are both advocating the same thing: they are not. Although the responses were fragmented, the one almost unanimous conclusion that people came to was that the previous Government’s failure to address the issue at all was absolutely what we needed to do something about.

Richard Graham (Conservative, Gloucester)

My hon. Friend is absolutely right to highlight the tragic fact that, despite the interesting comments from the shadow Minister, during the 13 years that Labour was in power, with 13 different Pensions Ministers, none of these crucial aspects were tackled, although some ideas were put forward.

New clause 10—a bit like a fund of funds, it is a review of reviews—calls for a review of the entirety of clause 29, and presumably of the other reviews proposed. Does my hon. Friend agree that there are other ways than endless reviews to respond to the imperfections that will inevitably emerge from any Bill, including this one? A good example of one way to tackle those imperfections is precisely my hon. Friend’s response to the call for evidence on the annual contribution limit and transfer restrictions in NEST. That is an excellent example of how Government can respond at short notice, and I hope my hon. Friend will take that point up.

Steve Webb (Liberal Democrat, Thornbury and Yate)

My hon. Friend is quite right: he has given a classic example of preparing a consultation document, listening carefully—not asking solely the public for advice on technical matters—and coming up with a recommendation that has been widely welcomed.

The shadow Minister is asking for a lot more detail in the Bill on “pot follows member” when in fact everyone involved in this process has welcomed the Bill’s flexibility. They do not want us to box ourselves into a specific and narrow model. To be fair, the hon. Gentleman at one point said that it was good that the Bill gives flexibility. However, it does not give the flexibility he thinks it does: it does not provide for an aggregator as an option, and schedule 16 is quite clear on that. His amendment would not do the job: it would be out of kilter with the schedule, which is entirely premised on a “pot follows member” model. The schedule refers to the scheme that passes the money out, the scheme that takes the money in and the sort of transfers that have to happen. The amendment would change only clause 29, which would not deliver his aim. If we accepted it, we would end up with an internally inconsistent Bill. If the hon. Gentleman returns to this issue at a later stage, he will have to do a lot more work.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I will look again at the matter. What the Minister has said is not my understanding, which is that deleting

“of which the person is an active member”

from the clause enables a system of automatic transfer into aggregators to proceed. However, to clarify something for the Minister so that we are not talking at cross purposes, the deletion I am proposing would be required to allow the current or a future Secretary of State to use this legislation to move from “pot follows member”—my assumption being that that is what the Minister will legislate for—to an aggregator without a new Bill.

Steve Webb (Liberal Democrat, Thornbury and Yate)

To which my answer is, “But it wouldn’t.” It opens up the scope of clause 29 alone; provisions in schedule 16 relating to the definition of a qualifying member and an automatic transfer scheme would have to be broadened in a similar manner, as they refer to the member being an active member of the scheme. The hon. Gentleman would have to set about schedule 16 as well. For the avoidance of doubt, the Bill does not provide for an aggregator and, as it stands, does not provide the legal framework to allow us to morph one thing into the other.

The regulations that follow from “pot follows member” will be subject to considerable parliamentary scrutiny next year, because we accept that the full details are not in the Bill. By way of analogy, one thing we have found with automatic enrolment is that if too much detail is put in a Bill, when something changes, the system no longer fits, which leads to a lot more trouble. With automatic enrolment, far too much detail was probably put in the Bill at the time. With this Bill, we are trying to give the legal framework; we will then consult on regulations and have Parliament debate them, and then move with some flexibility. That approach has been welcomed.

The hon. Gentleman mentioned Australia. He is a great fan of the Australian pensions system, as, indeed, are many of us: they have done a good job in Australia. The Australians would accept, however, that they got one thing wrong: not dealing with the issue of stranded pots and consolidation. The hon. Gentleman and I met the former senator, Nick Sherry, who is widely respected for his role in the Australian scheme. The Australians are now doing “pot follows member”. They have taken the view that the best way to deal with the problem is to have the money going with people. When it suits the Opposition, they quote the Australians, but when the Australians agree with us, they go quiet.

On 7 November last year, Nick Sherry said of pot follows member:

“It’s the only practical way. It’s better off that it’s in”—

the worker’s—

“last account, which is why I think it’s the only practical solution.”

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Does the Minister not agree that Australia is in a very different situation? The argument against “pot follows member” is that as things stand, we do not have any clarity on the quality criteria we would need to meet to ensure that someone could not be defaulted into an inferior scheme. The Australians have already undertaken the reforms necessary to ensure that someone cannot be defaulted into an inferior scheme. Is that accurate?

Steve Webb (Liberal Democrat, Thornbury and Yate)

To be clear, the hon. Gentleman mentioned in his speech the consultation document that we published this month: “Quality standards in workplace defined contribution pension schemes”. We will be publishing a similar document once the Office of Fair Trading has concluded its work. It will include measures on charges, including consulting on a charge account. It is absolutely clear to me that we will not do what the previous Government did, which was to put in place auto-enrolment without quality standards.

I would summarise amendments 17 and 9, and various amendments we have yet to come to, as a long list of things that the hon. Gentleman thinks the previous Government should have done but did not, and that we now ought to do. I agree. We need quality standards and action on charging, on scale and on stranded pots. He is absolutely right repeatedly to point out all the gaps the previous Government left on automatic enrolment, and I am proud that this Bill is progressively dealing with them. Quality, which we will come on to substantively in the next group of amendments, is absolutely something that we will deal with.

Amendment 17 proposes that people’s money does not go with them but goes off somewhere else, possibly with very large amounts going to a small number of aggregators, but that is not a model I have heard anybody advocate. We take the view that most people want their money to go with them, which means they get more consolidation. We do not need to review this in 2017, when it has perhaps been up and running for only a year or so, so new clause 10 is a more otiose review than many of the other reviews proposed by the hon. Gentleman. Amendment 17 does not in fact work, because we would need to change schedule 16 as well. On that basis, I urge him to withdraw his amendment.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I listened very carefully to what the Minister said. He began, interestingly, with his criticisms of the aggregator model and why he favoured “pot follows member”. His most striking point was on surveys, of which we have three: the ABI’s, the NAPF’s and his own Department’s. Of those three, only one—the ABI’s—supports the Minister’s position, and that is the one he focuses on. That in itself is striking. He makes references to my “friends” in the NAPF. I am pleased to say that I do consider the people at the NAPF to be friends of mine. I consider the ABI to be a friend—it is a politician’s job to listen to all stakeholders. I am surprised that the Minister comes down on the side of the ABI survey, rather than his own or the NAPF’s.

It is important to make two points. First, the Minister tried to characterise the NAPF survey as having leading questions. It actually explained to people what “pot follows member” and “aggregators” mean. The ABI survey did not do that at all. Secondly, I asked about the modelling on the £2,000 limit for a single aggregator, versus a £10,000 limit for “pot follows member”. The Department has done that modelling, but why did it not model multiple aggregators? Its own survey showed significant support for that within the pensions landscape, yet we have only two sets of figures. One does not need to be a statistician to have a nose for the fact that that will probably lead to an unrepresentative set of numbers. The Minister said that the previous Government should have done x, y and z. That may be so, but he has been in post for three years now and it is in his gift to go down what the Opposition believe is the appropriate route.

The Minister seems to get a little testy during interventions. I am just trying to clarify these points with him. I welcome the fact that he wants to move down the automatic route, and he is right to do so, but it seems that he wants to characterise our position as moving too quickly towards a balanced market. I am happy to say that the pensions market needs significant reform, and I am not alone in saying that. I stand with the Centre for Policy Studies and some of the Minister’s colleagues, particularly the hon. Member for Warrington South. It is not just me and the rest of the Labour party who are saying this.

The Minister wondered in passing what wing of the Labour party I come from, pointing out, however, that I do come from Glasgow; I am not quite sure what wing that places someone on. I repeatedly mentioned the Centre for Policy Studies and the Minister’s colleagues because if he believes in a functioning market and wants people to have a good deal, it is not an issue of left or right; it is an issue of right and wrong. All we are seeking to do is to coax the Minister faster down what we believe is the right route. I therefore intend to press the amendment to a Division.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I beg to move amendment 9, in clause 29, page 15, line 18, at end insert

‘and which meets the quality requirements set out by the Secretary of State in regulations.’.

Anne Main (Conservative, St Albans)

With this it will be convenient to discuss the following:

Amendment 10, in clause 29, page 15, line 21, at end insert

‘and to set out quality requirements in relation to such accounts.’.

Amendment 11, in schedule 16, page 88, line 34, leave out ‘may’ and insert ‘shall’.

Amendment 12, in schedule 16, page 88, line 38, at end insert—

‘(c) other aspects relating to the quality and good standing of the scheme.’.

Amendment 13, in schedule 16, page 90, line 20, at end insert—

‘(3A) The regulations must provide for quality requirements in relation to governance, administration and other relevant matters relating to the quality and good standing of the merged account.’.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

In discussing these amendments, I will try to get over my disappointment at having moved off my favourite clause, 29.

Steve Webb (Liberal Democrat, Thornbury and Yate)

We are still on clause 29.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Well, my favourite part of clause 29. We are getting even more granular.

Our justification for amendment 9 is that clause 29 splits the Secretary of State’s power to require automatic transfer, so that it applies first to cash and then to assets, an issue raised by the hon. Member for Gloucester. The amendment simply requires that the quality requirements apply when cash is transferred. Our amendment would clarify that when the cash equivalent of benefits is transferred, automatic transfer schemes “must” rather than “may” have quality requirements. We are pressing the Government a bit further—it is no more complicated than that.

The justification for the change proposed in amendment 10 is that it would add a quality requirement where assets are automatically transferred. That would tidy things up and make matters straightforward to understand. It would be clear that a quality requirement would apply in those situations.

Amendment 11 would leave out “may” and insert “shall”. We know that people’s savings will be automatically transferred into these schemes. There should be a duty, not an option, on the Secretary of State to establish quality requirements.

Amendment 12 would insert

“(c) other aspects relating to the quality and good standing of the scheme.”

The amendment would allow the Secretary of State to impose higher standards on schemes into which people’s savings automatically default, on issues in addition to governance and administration.

In terms of quality standards, governance and administration are key, but there are other issues relating to quality. For example, the Minister is consulting on a price cap for auto-enrolment schemes. The amendment would give the Secretary of State the power to set a lower more demanding price cap for automatic transfer aggregator schemes than he might do for all qualifying schemes for automatic enrolment.

We think that is possible. As the Minister will be aware, we argue that aggregators will operate with economies of scale and be able to operate at low cost. If the Minister were minded to set a more demanding price cap for automatic transfer aggregator schemes, that would mean that only schemes operating at economies of scale such that they could meet that more demanding price cap could get into that place. That would ensure that default automatic schemes became scale operators with low costs for savers. I would describe amendment 12 as trying to increase the Secretary of State’s and the Minister’s room for manoeuvre regarding quality in automatic transfer schemes.

Amendment 13 would insert

“(3A) The regulations must provide for quality requirements in relation to governance, administration and other relevant matters relating to the quality and good standing of the merged account.”

That would oblige rather than give an option to the Secretary of State to require automatic transfer companies to respect quality requirements when accounts are merged, rather than simply when a money transfer takes place. It would clarify that automatic transfers involving assets other than cash must be in accounts that meet quality requirements.

I will give the Minister a flavour of our general view of the amendments and why we believe they are necessary. As things stand, the Bill would permit the Secretary of State to add quality requirements to schemes into which people’s pension savings will be automatically defaulted when they change jobs. That goes back to our discussion about what the quality requirements will be. The Minister mentioned that he is consulting on the matter and that there will be further consultation after the OFT reports.

We think the Bill should oblige the Secretary of State to require schemes receiving those pension savings to meet high quality requirements in the various ways in which automatic transfers will take place. We are trying to encourage the Government to ensure that every form of automatic transfer possible has to meet these quality requirements.

I think it was just last week that the DWP published its call for evidence on quality standards and workplace defined-contribution pension schemes. I am pleased that the Government are beginning to move in that direction, as it is important. That reflects a debate that has moved quite significantly in the past year. We would be further encouraged if the Government moved faster—a familiar plea—and were less tentative in their ambitions and less inclined to temper measures that are in our view clearly in the interests of savers and saving.

The Minister understandably remained somewhat enigmatic about those who are telling him not to go so fast. The amendments are about giving the Minister and the Secretary of State the power to face down those interests and to ensure that everyone is getting quality.

Steve Webb (Liberal Democrat, Thornbury and Yate)

There is a danger of violent agreement breaking out. We entirely agree that we need quality in workplace pension provision. We entirely agree that people should automatically be enrolled into workplace pension schemes of sufficient quality. We entirely agree that automatic transfers should be between schemes of requisite quality. Governments do many things because they are the right thing to do—not because an Act of Parliament that will have Royal Assent next Easter will make them do them. We are doing such things.

The hon. Gentleman referred to the call for evidence on quality that we published last week. We have already indicated that we will publish a further document in the autumn that will cover the vexed issue of charges, but we want to do that in the light of the OFT’s work. I know that the hon. Gentleman is keen, as am I, to have the OFT look at such matters, but we have to give it time to do its work before pre-empting it with our conclusions. Changing the law to make us do something so that by next April we have a legal duty to do something that we have already begun to do this summer seems rather unnecessary.

I think the hon. Gentleman has slightly misunderstood one or two things, so I will provide some clarification. He is a bit hung up—I do not mean that at all pejoratively—on “cash”. Just to make it clear, standards will apply to all automatic transfer schemes regardless of the type of assets that may be transferred. Cash is the unit of currency that may be used to transfer value, but standards apply to schemes. There is no distinction between cash and other assets.

We already have powers in the Bill to set standards not just on governance administration, on which we have already consulted, but on charging. We want all schemes to meet the requisite standards, not just aggregators. If we do impose a charge cap, for example, we would want the flexibility to be able to reduce it over time as schemes became more efficient. I said earlier that we need flexibility. Putting everything in detail in the Bill is not the place to do it, but that is the direction of travel in which we are clearly going. I accept the hon. Gentleman’s point about quality.

The hon. Gentleman suggested that we had been “tentative”. I point out to him that we have recently banned consultancy charges. We did not choose the quiet life by restricting them and allowing people to justify them; we just said that if the money is not benefiting scheme members, let us get it out of the system. If firms want to pay for advice, that is fine—let them pay for advice. That was clear, decisive action and it has been widely welcomed in the interests of consumers. Where it is necessary to act quickly and firmly, that is what we have done.

The hon. Gentleman referred to my three years or so in this role, and I hope he will observe the sequencing of what we have done, because it could almost have been planned. The first piece of legislation that I signed my name to was the restoration of the earnings link on the state pension. People campaigned for it for 30 years and the coalition delivered it.

Oliver Colvile (Conservative, Plymouth, Sutton and Devonport)

Does the Minister recognise that both the Conservatives and Liberal Democrats campaigned for that during the last general election?

Steve Webb (Liberal Democrat, Thornbury and Yate)

Indeed. I am sure that the record will show that I used the word “coalition” in my remark.

Getting the state pension foundation right for those who have already retired was absolutely the first thing that we had to do. The second was to bed in the automatic enrolment process in time for the 2012 start, so we had a review, “Making automatic enrolment work”, in summer 2010 and we acted on its recommendations in the Pensions Act 2011. Auto-enrolment has duly started, and successfully. The third thing we had to do to underpin automatic enrolment was to get the state pension infrastructure right for the next generation of pensioners, hence this Bill, single tier and all that.

Those are clearly first-order issues, as well as making the system more sustainable through state pension age, but we need to move on to small pots, consolidation, quality standards and so on. There is a logical sequence to the whole thing.

I reassure my hon. Friends that, far from being tentative about these matters, we have been remorselessly and brutally systematic in, first, prioritising those who have already retired; secondly, making sure that auto-enrolment got off to a stunning start, which it has; thirdly, having a state pension system that we can be proud of and that works; and, finally, moving on to the next phases of our agenda.

Unlike in many of our discussions, we are not dealing with a complex matter. The hon. Gentleman wants quality, and we want quality. We plan to regulate and legislate for quality. We do not need a law to make us do so, because we have already started.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I thank the Minister for his response to the amendments. It is absolutely right to ban consultancy charging. The Minister will encounter no disagreement on that from the Opposition, because we welcome the fact that the Government have done it. The Minister said that he was working to a plan that is remorselessly, brutally systematic—that is quite a phrase—and suggested that there was a sequence regarding state pension, auto-enrolment and flat rate.

There is another pertinent story here. The amendments are designed to change “may” to “must” to oblige the Government to do certain things, because in the sphere of private pension reform the Government have been a bit slow off the mark, to put it politely. When Labour first began to look at the matter about a year ago, the Minister’s initial response was to say that we were scaremongering.

Steve Webb (Liberal Democrat, Thornbury and Yate)

The hon. Gentleman has said that twice now, so I would like to clarify this. The Leader of the Opposition, who I do not think discovered high pension charges only a year ago, referred to people charging 4% and cited a scheme that was doing so. It turned out that that scheme was providing superb returns to its members, but he presented those very high charges as though they were somehow typical or illustrative. We are saying that if we want people to accept auto-enrolment into workplace pensions, scaremongering by citing extreme examples as though they were typical is not what we need.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

That was an important intervention, because it illustrated some of the differences between our approaches. There is no point quibbling over dates, but I think that the incident we are discussing took place about a year ago. The Minister again used the word “scaremongering” to describe our talking about a 4% charge, but over the past year it has become clear that we often do not know the total cost of a pension. I referred to that earlier when the Minister quoted the 2012 survey of employers. Most employers in that survey have no idea whether they are being charged or not.

As things stand, we simply do not know what people are being charged. I assume that is why the ABI—friends of the Minister’s and mine—are creating a voluntary code of conduct, and why the Investment Management Association, which represents fund managers, is bringing in a voluntary code of conduct on costs and charges. The NAPF—the Minister designates it as my friend, but I am perfectly happy to include him in its affections—is doing the same thing.

Richard Graham (Conservative, Gloucester)

The hon. Gentleman is quite right to highlight the difficulty of analysing the exact costs of pension provision, the obscurity within which the language is sometimes wrapped, and the fact that many pensioners as well as many employers will not be able to specify with great clarity the exact costs. Is he in danger of missing the value of what is involved, however? There are two sides to the equation: the cost and the value. I am interested in the fact that, earlier, he was recommending consolidation into a small handful of aggregators where costs would probably be lower, but there would be no clarity or confirmation of the value of the performance generated by those aggregators. Is he in danger of repeating the same mistake on the issue under discussion?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I do not accept that I am making a mistake. The hon. Gentleman accepted that there was an issue in respect of the disclosure of costs. It has been said to me before that we focus too much on cost and not enough on value, unless we know the cost to begin with. We simply do not know the cost.

Richard Graham (Conservative, Gloucester)

When people know whether their pension has gone up or down and by how much, in a sense the cost of that is less relevant than the value generated. Will the hon. Gentleman accept that there are two different ways in which to look at a financial consequence?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

My view is that, before we can work out the value, we have to know the total cost. The hon. Gentleman made a broader point, when he said that value matters, and I do not disagree. For example, the Australian market is now moving into the debate about value. Do we need a more complicated asset allocation and more higher cost actively managed funds, as we move towards a mature book, when people come into retirement under the new system? I do not disagree with that but, until we can actually clarify the total cost and charges of a pension scheme in the pensions market in the United Kingdom, we cannot take part in a value debate.

Richard Graham (Conservative, Gloucester)

If the hon. Gentleman had his pension fund invested in units that rose 10% in value last year, he would know the value of the investments of his future pension. Whether he would know the costs beneath that is not necessarily relevant to his understanding of its value. Does he accept that?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

If the hon. Gentleman is saying that everyone should not know the total cost and charges on their pension, I disagree. I have no problem with that. It is perfectly legitimate to disagree. We believe that everything has to be disclosed.

Richard Graham (Conservative, Gloucester)

When F. E. Smith was giving evidence at a case some time ago, he was asked by the judge to explain his point. At the end of doing so, the judge said, “Mr Smith, I regret that I am none the wiser,” to which Mr Smith replied, “No, m’lud, but you are much better informed.” Can I leave it at that?

Anne Main (Conservative, St Albans)

Order. Mr McClymont has to treat that as an intervention, not a question.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I guess so.

Where was I? [Interruption.] Fortunately, that was a rhetorical question. Before the hon. Gentleman intervened, I was saying that we can sum up the Minister’s position on the amendments. The Minister told us to trust him, and said that he had a plan. He used the terms “the direction of travel”, as well as “remorselessly and brutally systemic”. I love that phrase. We are working to a plan, and we are now discussing the next part of the plan. That is a fair assessment of the Government’s position. If the hon. Gentleman is absolutely adamant that they are going down that route, why not accept the amendments?

Christopher Pincher (Conservative, Tamworth)

We are certainly all enjoying the hon. Gentleman’s contribution, as long as it may be. However, we get the feeling that the amendments tabled by the Opposition are somewhat superfluous. I put it to him that amendment 11, which will change schedule 16(12)(1) from

“The regulations may impose requirements”

to the regulations “shall” impose requirements. That does not follow through because he does not want to change the words in paragraph 12 (2), which say:

“The requirements may in particular relate to—

(a) the governance of the scheme;

(b) the administration of the scheme.”

That paragraph gives the Government some flexibility. Why, therefore, does he need to impose on the Bill amendment 12, which says:

“other aspects relating to the quality and good standing of the scheme.’.”?

In not wanting to amend paragraph12(2), he appears to be admitting that the schedule has sufficient flexibility to cover off those other quality aspects. He seems to want to impose some amendments, but not others, and it does not seem to follow through.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

That is not my understanding of the amendments. Listening to the hon. Gentleman, I appreciate that he has given the matter some thought. The general thrust of the amendments is to try to get the Government to put into law something that they say they want to do. I do not think that that is an unfair thing to propose. As the Minister says, this is step 4 of his plan. I take him at his word. The consulting charges are an example of it, as are the consultations. We have a difference of view over how important this is and how quickly it has to proceed. Generally speaking, our view is that the amendments put into law something that the Minister is remorselessly, brutally and systematically raring to do. As things stand, we intend to push the amendment to a vote. Let me say finally that the Minister refers to violent agreement on this. I am pleased to hear that if that be the case. We all want to see a pensions market that delivers for savers; that is the goal we are all trying to get to. We think that toughening up the Bill will help the Minister to achieve that, so we will push the amendment to a vote.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I will not detain the Committee unduly on this, because most of the meat of the automatic transfer powers is in schedule 16 to which the clause refers. However, it is worth putting on the record a couple of important observations about how we envisage “pot follows member” working. One is that, if we are not careful, we could have 1 million small pots flying all over the place, following people—stalking them. Clearly, there is a cost associated with that. The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East referred to some of the big providers—NEST, NOW: Pensions, B&CE, the People’s Pension and so on—and the cost that any transfer mechanism would impose on them. We understand that point and do not wish to cause any more difficulties than are necessary for the proposition.

To be clear, one of the models we are looking at would be that pots would not have to instantaneously follow the member. For example, one option would be that perhaps once every year or two, schemes would look for stranded pots of their current members and pool them all in one go. If someone started with NEST, moved to NOW and came back to NEST, in that scenario, if the pooling together happened a couple of years later, they would never have had to put the money from NEST out to NOW and back to NEST. They would have stayed as a NEST member, their NEST entitlement would stay where it was, and all they would have to do is consolidate the one pension that was with another provider.

In some of the oral evidence it was suggested that there would be vast numbers of transfers going on all the time, every day, with huge costs. The Bill contains practical, sensible provisions that would enable us to ensure that pensions got consolidated soon enough, but without creating nugatory work for schemes. It is worth putting that on the record.

Schedule 16 goes into some detail about the parameters of the “pot follows member” system, which we will come to in a moment. However, I wanted briefly to come back to the issue of quality. The hon. Gentleman essentially said of the auto-transfer stuff that on quality we ought to get a move on. It is worth saying that we are less than 12 months into automatic enrolment. The evidence is that that the schemes into which people are currently being automatically enrolled are of high quality, as far as we can tell. People are being auto-enrolled into the employer’s current scheme or into new schemes at charging levels that we have not seen before and, as the hon. Gentleman says, new entrants are coming in. We do not, therefore, think that we currently have a quality problem with auto-enrolment.

But we could have. Clause 29 provides for an auto-transfer mechanism that will have quality standards for the point at which auto-transfers might happen, which is the point at which we might have a problem with quality. In a sense, my remorseless, brutal, systematic approach is in place precisely because we have prioritised the things that we had to do first: state pension reform and getting automatic enrolment up and running. In a sense, in the early phases, quality is looking after itself in automatic enrolment for big employers. They are shopping around and doing due diligence for their employees, so workers are being enrolled into good quality schemes, but we cannot assume that that will happen.

We absolutely want quality, but rushing it would also be a mistake. For example, if we put in a charge cap too low, there is a danger that we would drive some providers out of the market and have excessive consolidation. If we go too high, we might find people drifting up towards a charge cap and it becomes the new normal. Those are delicate balancing acts. The hon. Gentleman mentioned stakeholder pensions this morning. They came in with a cap at 1%, and eventually 1.5% was regarded as an acceptable cap. We would not dream of that being acceptable now.

As the market evolves, what becomes appropriate evolves, which is another reason for taking a bit of time to get things right rather than going hell for leather. The default position of any Opposition is, “Do more, quicker.” However, Governments that have done more quicker have sometimes lived to regret it. We are looking carefully at the market. The hon. Gentleman mentioned the industry-led initiatives on which we have worked with the industry. Our friends the NAPF, our friends the ABI, our friends the IMA and others have been bringing forward their own initiatives, which we very much welcome, but if such initiatives do not take us to where we need to be, legislation may well be necessary.

Clause 29 paves the way for schedule 16, to which we will return. It is essential to ensure that we have the automatic transfer potential, which is an integral part of our solution to the problem of dormant pension pots. I therefore commend the clause to the Committee.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I am interested, again, in what the Minister said. I would like to pick up on two of his points. First, he said, as he has said on the record a number of times, that he does not think there is a quality problem with auto-enrolment, as things stand. I take that to mean that in the early stages, the big employers are getting good deals from providers. That certainly appears to be the case. However, I do not think the Minister will disagree—he will intervene if I am misrepresenting his position—that that does not tell us much about what will happen with the smaller employers. In his response I think he was anticipating that when he said that it is a delicate balancing act and we have time to get it right before it gets to smaller employers. It is worth putting on the record that there is a big difference between the big blue-chip companies that are enrolling their employees in the new workplace pensions as we speak and the small employers, who will be staging between now and 2017, I believe—the Government have moved back the auto-enrolment staging dates. Therefore, it does not tell us very much.

We know from the survey the Minister quoted, which I dug into a bit more to see what was being said, that smaller employers in particular do not have the pensions resources to get the best possible deal from a provider. That goes back to the broader argument about how to rebalance the pensions system so that those representing the saver—the employers in particular—are at the bargaining table with the providers so they are able to get the best possible deal. Our concern is that the Government have had to be encouraged down that road.

The Minister takes a different view, but in the past year the pressure has built up for action on the private pensions market. This morning I mentioned the report of the Royal Society of Arts on what constitutes a charge, and the report of the pensions institute of the Cass business school, “Caveat venditor”, on the hidden charges that can accrue on a pension. There have been various developments in this debate since then. The most significant in recent months has been the recent OFT announcement. The OFT is currently undertaking an investigation into the private defined contribution pensions market, and the Financial Conduct Authority is looking into the annuities market—the Minister mentioned annuities.

I do not think it is unfair for the Minister to set out his direction of travel and to introduce what he describes as building blocks, as he has done. However, the issue goes back to the assessment of how urgent the need to reform the private pensions market is. If it were just me saying that, that would be one thing, but it is a cross-party issue, and a range of organisations have said that the market does not deliver effectively for the consumer. That is a very important point. I appreciate that the Minister is trying hard to move things along, but, in our opinion, he must go faster.

It is that “trust me” thing. For the Minister, I can entirely understand that. He knows what he wants to do and he is keen to do it. Why can people not see that he is doing all the right things? Things are going to happen, and people should not be so impatient. I absolutely understand that psychology. However, he has to deal with significant vested interests in this space. That is just a fact. It is a big industry. We have sought to ensure that the Minister has more tools at his disposal so he can get his way with parts of the industry that want him to go more slowly than he would otherwise proceed.

The clause sets up the power for an automatic transfer mechanism. That is very important. However, we have significant concerns about the Minister’s preferred route of pot follows member—I know hon. Members would like me to elaborate on what I said this morning about that, but I am afraid I will disappoint them. We do not oppose setting up the power for an automatic transfer mechanism, so on that basis we will not oppose the clause standing part of the Bill.

Schedule 16 - Automatic transfer of pension benefits etc

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I beg to move amendment 20, in schedule 16, page 85, line 17, leave out paragraph 1(4)(e).

Schedule 16 sets out some of the detail of the provision. The justification for the deletion is that, on our reading, the schedule is intended to give the Secretary of State the ability to exempt all existing pots from the automatic transfer mechanism. The Minister painted what is thought to be an alarming picture of enormous amounts of money—£0.75 trillion, I think—being brought into the stranded pot system, but that shows how big the problems are with the current pension system. It tells us, first, how many stranded pots there are, and, secondly, how little engagement there is with the current pension system—the Minister made great play with the word “engagement”. Surely an aggregate stranded pension pot of such size illuminates the significant problems with the current pensions market.

The amendment would remove the ability from the Secretary of State to exempt all existing pots from the automatic transfer system. If the Minister intends to proceed on that basis, it explains why the DWP thinks that by 2050 or 2060, 87% of people will still have multiple pots—a situation we would all deplore. This is a significant point of disagreement between the Minister and me. If his £0.75 trillion figure is correct, it is still not clear to me why that amount of money is better off stranded than being brought back into the system. On that basis, I commend the amendment to the Committee.

Steve Webb (Liberal Democrat, Thornbury and Yate)

This comes back to the issue of walking before one can run. We envisage a massive potential problem of millions—and eventually tens of millions—of small pension pots. We want to get to a situation in which people’s pension savings are consolidated in many fewer places. But getting from here to there, given the scale of the problem described by the hon. Gentleman—£0.75 trillion of dormant pots by 2050 even under our plans, or without auto-transfers anyway—is a huge challenge. He should bear in mind that dormant pots can be DB as well as DC, so there are issues around DB automatic transfers, but there is no difference between us on fragmentation being a problem.

All we propose to do is initially set a date beyond which automatic transfers will apply. One option would be to say that all automatic enrolment pots would be auto-transferred, while another would be to say that all pots that become dormant after Royal Assent would be auto-transferred—in fact, the two options would cover many of the same pots.

Over time, once the infrastructure is in place and we are confident that we have dealt with things such as pension liberation fraud, transfers and identity—once the infrastructure is in place to deal with those sorts of things quickly, cleanly and cheaply—there might be huge potential for expanding the scope of all that. We might do so through raising the pot size limit or by bringing the date back in time; indeed there might in effect not be a date. The basic idea is that we start with something manageable. Even with our pot size limit and date proposed, we could be talking about 1 million dormant pots a year if we are not careful.

All we are trying to do through paragraph (1)(4)(e) of the schedule is to allow us to implement the policy gradually. The amendment would stop us from doing that; it is the “big bang” amendment. Having, for 13 years, not thought that there was a problem with small pots or that it was necessary to legislate for dormant pots at all, the hon. Gentleman now wants to amend the Bill so that every dormant pot in the entire British pension universe is within the scope of the policy. I hope that he will, on reflection, think that the amendment is absurd.

Clearly, we need to get the scheme up and running and to do so at a manageable scale. Just to provide the Committee with one example of some of the problems with the process, pension scheme record keeping is not universally brilliant. A year or two ago, I responded to an Adjournment debate about a pension scheme for Grimsby’s fishermen. I seem to recall that one of the problems with some of the pension records was that they said, “Captain Jones”, and that was about as much as it had. There was no national insurance number or date of birth; it just said, “Captain Jones’s pension”. I hope that we have come a long way since then.

If we use the date powers that the schedule will provide us to say, for example, that new auto-enrolment schemes are within scope, I think we can then have more confidence—although not total confidence—about data quality. If we simply said, as the amendment suggests, that every scheme ever would be within scope, there would be carnage, because many pension schemes out there have lousy record keeping.

The Pensions Regulator is working on the issue and trying to drive up standards, but to try to graft new legal duties on a system where the data are, shall we say, of variable quality would be a nightmare. Even in the context of auto-enrolment, someone told me the other day that a pension scheme had had trouble because certain provisions with auto-enrolment referred to the state pension age of the scheme member—one has to know whether a member is a man or a woman. Apparently that pension scheme did not know whether its members were men or women and was going down the first names to find out whether it was a Julie or a Jack and then which pension age applied. It is incredible to think that that is a modern pension scheme.

We have an awful journey to go on to ensure that pension schemes have high-quality data. The idea that we should not, in some way, restrict the universal pension schemes in the first instance to which automatic transfers apply, or should apply a legal duty to practically every scheme, all with variable standards of record keeping, and expect schemes to be able to ask other schemes for data that they might not have or to send pension schemes to the right place is, to put it gently, running before we can walk.

The ability to constrain what we are doing to the newest schemes—those set up under auto-enrolment and those that we are clearest about—seems to be entirely measured. Oppositions always want us to go fast, but we believe in getting the policy right, which is why we need the powers in the Bill.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

May I pick up on a couple of points? The first is about our earlier discussion—the Minister mentioned it this afternoon—regarding the lack of a level playing field between new entrants and current players in the marketplace, if we have a situation where only pots stranded after Royal Assent are included in the automatic transfer mechanism. We need to think about that a little.

As things stand, the book of an insurance company that is a current player in the market equals existing contracts plus future contracts. Existing contracts will be exempt from the new system, while future contracts over £10,000 will be exempt. We are talking about the biggest players in the UK pensions market. If the Minister has his way, the bulk of existing providers’ business will be exempt from the new system.

New providers such as B&CE, NOW and NEST have few existing contracts—they have only just started—and most future ones will not have accumulated £10,000 by the time Royal Assent is granted. The new entrants into the marketplace, who, as the Minister would agree, are driving down charges and increasing quality, will therefore face a situation where the bulk of their business rightly has to meet the challenges of the automatic transfer mechanism. However, the bulk of the existing providers—the big players in the marketplace—will be exempted.

That is a significant competition issue and we need to probe that a little further. At the moment of automatic transfer in the pot follows member mechanism that the Minister proposes, the company with the current contract with the saver can try to persuade that customer to opt out of the automatic transfer and stay with the existing provider. In that case, the competition would be between the company with the current contract and the company to which the contract would automatically transfer under pot follows member.

On that basis, looking at it from a fair perspective of working out how matters will proceed, that will affect virtually all business of the new providers and little of the business of the insurance companies; they will have much more margin to play with and there will be a big cost difference.

More widely, if there are excess profits on the contracts written before pot follows member—those that will not be brought into that system that might exist at the moment, rather than after Royal Assent—there is a danger of cross-subsidy. Admittedly, that would be within a company, but it would still be cross-subsidy because if the Minister takes the view, rightly, that a transfer mechanism, whatever it be, is a way of driving forward quality and delivering more value for the saver, that probably involves reducing excess profits where those exist. However, the current providers will be able to retain those profits in that situation and use them to fund a retention offer for the saver.

The lack of a level playing field under the Minister’s preferred system is a big issue. He mentioned that he is aware of that, but that is significant for anybody who cares about competition and I am sure that he will consider that further. He suggested the possibility of a system that does not require transfers every year to deal with that problem, but then we would be again into the situation where things might need to take place to make his chosen mechanism work properly that are not laid out before us. We simply do not know. He indicated that he is interested in that, but, for us as a Bill Committee, there is nothing for us to look at. We do know, however, that under his system there will not be a level playing field between new entrants to the market and existing players.

We all believe that new entrants can be really effective and I think that the Minister would agree that bringing down charges in the early stages of auto-enrolment is important. NEST, B&CE and NOW have played a big role; they came into the marketplace and said, “We will charge this”, which was significantly lower than what had been the case and the other providers responded to that on price and hopefully on quality, too. That is a significant issue and something that further supports the Opposition’s view that giving the Secretary of State the ability to exempt all existing pots from the automatic transfer mechanism is not something that we can support.

Steve Webb (Liberal Democrat, Thornbury and Yate)

There is obviously a lot of detail in schedule 16. It goes on for many pages, but it might be helpful if I explain how “pot follows member” might work and set out a couple of models. We produced what we call inside the Department the policy certainty document—I slightly overstate it there—in April 2013. I want to give the Committee a bit more clarity about how this might work in practice. The basic idea is that a person works for firm A and is auto-enrolled by firm A into pension scheme A. He moves to firm B and leaves behind a pot below the pot-size limit. Firm B auto-enrols him into pension scheme B, which then establishes that he has a dormant pension pot in scheme A and, unless he objects, pulls the old pension pot into the new scheme.

We are essentially looking at two ways of doing that. One is what might be called a central database model. Under the powers in schedule 16, the scheme in which money has been left behind would have a duty to notify the central database that there was a dormant pot. So there would be a dormant pot alert. That is then stored on the central database. Then the new scheme that has auto-enrolled the employee checks the central database to see whether the new scheme member has any dormant pots. It finds one, contacts scheme A and pulls the money across. Clearly, that is an IT project. I keep telling my colleague in the Department that as Excel spreadsheets can have a million lines on them these days, surely all we need is a big Excel spread sheet. I am advised that we need more than that. However, the basic principle is obvious. The dormant pot is registered as what is called the ceding scheme and then the automatic transfer scheme pulls it across.

One can see the attractions of that kind of model. It could be a nucleus for a broader pensions database where perhaps information about all an employee’s pension schemes were held even if they did not end up physically consolidated. As was mentioned earlier, portability is important. This database could be used as a facilitator for pension transfers more generally. We certainly envisage that pension transfers have to be a lot cheaper and simpler than they are at the moment. That is absolutely clear. That would be one model. We envisage—we have powers in schedule 16 to do this—that ultimately the industry will pay for this. The Government will not in the long run pay for this.

Clearly, if there are set-up costs, there might be issues about whether the Government make it happen. We have indicated that there is a levy, for example, on pension schemes, so one option would be to use the levy to recoup the costs. However, the basic idea is that, as our impact assessment shows, the net present value of savings to the pensions industry of getting rid of millions upon millions of stranded pots runs to £6.4 billion. We think that asking the industry ultimately to pay the cost of the infrastructure to save them £6.4 billion is a pretty good bargain.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I thank the Minister for his elaboration on the cost of an automatic transfer mechanism. Would it be fair to say that the Government have not come to an agreement with the industry on the industry funding this? Is that a fair assessment of the position? Do we know precisely how much it will cost?

Steve Webb (Liberal Democrat, Thornbury and Yate)

We certainly do not know precisely how much it would cost. It depends how it is done. For example, just to cite one of the things that we have to be careful about, we are increasingly aware of a growing phenomenon called pensions liberation fraud. It sounds rather too glamorous for something that is actually rather seedy and rips people off. There is a tendency for people with pensions to be approached and encouraged to transfer them into decidedly shady pension schemes. They then find that they have breached Inland Revenue rules by early access and have a hefty tax penalty, that the new schemes have very high charges, and they can end up losing all their money.

Clearly, we do not want to facilitate that sort of thing through automatic transfers, so we will need an infrastructure just to make sure that money goes from proper pension scheme to proper pension scheme. That kind of thing needs doing. I should add that it would need doing in the hon. Gentleman’s automatic aggregator model as well. One would have to be quite clear where the money was going and about the bona fides of the people the money was being sent to. That is one model, an IT-based central database and so on, which is from where I instinctively came to this.

There is another way of doing it, which would, in a sense, be more paper based. We refer to it as a pension information transfer document, or a pensions P45. The basic idea would be that, when someone leaves a firm, the reference number of the scheme that they have come from is on the P45 or similar. When they are auto-enrolled on a new scheme and it asks to see their pensions P45, it would have the reference number of the scheme they came from. The new scheme could then simply directly contact the old scheme and ask if there was a dormant pot. The old scheme would say yes and send the money across.

At one level, that is attractive, because it avoids the need for a big database and all the rest. The downside is that we all lose bits of paper. How many times have people started a new job and been asked for their P45 from their previous employer? Then it is: “What did I do with it? I have lost it”. We know there would be significant drop-out if we went down that route. So we might get 70% of dormant pots going across and the other 30% never supplying the information.

We are trying to strike a balance. There is a relatively cheap and simple paper-based way of doing it—it need not be paper based, but a direct way of doing it. We also want to think about the burden on employers. Would that put a burden on firms so that every time somebody left them, they had to put on the P45 the reference number of the scheme of which the individual was a member? If the firm had only one pension scheme, that would be blindingly obvious. However, many firms have multiple schemes, multiple sections and so on. We therefore want to be a bit careful about the burden on firms.

We are still talking to IT people, the pensions industry, consultants, employers and many others about how best to deliver this. That is why the Bill gives us flexibility. Schedule 16 sets out a set of general rules, such as the duty of a scheme someone is leaving to report dormant pots, and the duty of the scheme someone joins to obtain that pot. There are rules about the right to opt out, because this is an automated process, and the powers for us to raise money to pay for all that. There is obviously a lot more detail in schedule 16, but I hope that this gives the Committee a flavour of how we plan to use the powers in it, and I commend it.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I thank the Minister for that run through schedule 16. He is right. There is more detail in schedule 16, but it is fair to say that the Government’s desire automatically to transfer pots via “pot follows member” is a long way from fruition.

The Minister mentioned a couple of options: a centralised IT database or perhaps a paper-based system, but he pointed out the downside of bits of paper. He mentioned enthusiastically something Aviva had said about small pots and the pot follows member system. Is he aware of the proposal from, I believe, John Lawson, of Aviva and the ubiquitous Tom McPhail at Hargreaves Lansdowne? According to the pensions press and things that I have seen, they have come up with a proposal for perhaps making this work. I would be interested in the Minister’s view.

The Minister mentioned that, in the end, the industry will have to pay for this. That does not surprise one. He also mentioned a levy. For other members of the Committee who might not be aware of it, will he say more about how that might work and what levy he refers to?

Steve Webb (Liberal Democrat, Thornbury and Yate)

I am grateful to the hon. Gentleman. He asked about the alternative proposition that John Lawson and Tom McPhail had put forward, which, to Labour party ears might be pronounced “OMOP”. That is, one member, one pot. Their basic proposition is that, when people change jobs, they leave the pot behind and the new employer has to put money into the pot that they started with.

Their interesting argument for that is that it avoids moving money around. Money would probably stay in the first scheme someone joined. Someone would be free to say to a new employer, “No, put money into my new pot,” but inertia being such a dynamic force, the chances are that large numbers of people would end up with their pension with the employer they started with. That potentially introduces an element of lottery; the pension scheme of where someone first worked will accumulate all that person’s pension. That is an interesting notion.

I have met John Lawson and Tom McPhail to talk about that, as I am always hungry for new ideas in a remorseless way. One of my worries is that an employer could end up having to send pension contributions for each employee to each of the pots they first started with. If the employer were a supermarket or similar with tens or even hundreds of thousands of workers, it would have to log and register each preferred pension pot. It would not, on the whole, be putting money into the supermarket pension scheme, with perhaps having workplace presentations about the merits of that scheme and advisers coming in. Instead there would be great fragmentation.

I can see the attraction of not moving the money around. However, on the other hand, employers would be less engaged in workplace pensions because they would not be putting money into their own pension scheme, but perhaps into that of a rival supermarket. While it is not an absurd idea and I have looked at and thought about it, it raises a raft of different issues. It also does not gel with automatic enrolment. If someone works for supermarket A and goes to supermarket B, does the latter automatically enrol that person into its scheme, and then by default all the money goes into the first scheme? It does not conceptually fit well with auto-enrolment. While it is an interesting idea, we have a number of reservations about it and do not think it deals with the issue.

The hon. Gentleman asked about the levy. There is a levy on pension schemes separate from the pension protection fund levy, which is a DB thing. All pension schemes pay a levy related to their size, to fund things such as the Pensions Regulator. If I remember rightly, the ombudsman is funded through the levy. It is not a huge sum of money, but it enables us to run the infrastructure of pensions regulation. That is the power that we could use there.

Clause 30 - Power to prohibit offer of incentives to transfer pension rights

Steve Webb (Liberal Democrat, Thornbury and Yate)

Let me spend a moment or two running through the clause. We are on a totally different topic. The Committee will be relieved that we have done automatic transfers and can now move on to some of the other important issues in the Bill.

Clause 30 would give a backstop legal power that we hope not to use. So keen are we not to use it or leave it lying around on the statute book, that its sunset is in clause 31. Clause 31 says that if we do not use clause 30 within seven years, it falls away. What is the power in clause 30? One of the first pension scandals that I came across as a Minister was enhanced transfer value exercises, or ETVs. A variant on ETVs is known in the jargon as PIEs, or pension increase exchanges. There is nothing inherently evil in an enhanced transfer value, in other words, swapping rights in one scheme for rights in another. There is nothing inherently evil in a pension increase exchange, that is, giving up inflation protection that is not statutory in return for perhaps a higher starting pension. There is nothing wrong with any of that, but how it was being done was very wrong.

The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East referred earlier today to pensions mis-selling. Many enhanced transfer value exercises were of a similar nature. A defined benefit pension scheme trying to reduce its costs and volatility would bring in consultants who would write to scheme members saying, “Would you like to transfer out some of your rights under this scheme in return for a big bung?” I do not think that “bung” was technically the word that they used, but a cash bung is what it was.

The scheme would say, “You’ve got these really rather valuable defined benefit pension rights. Give them up, and we’ll put some money into a defined contribution scheme for you.” The rules on valuation often meant that the cash value that people got was not as good as the value of the rights that they were giving up. They could not access their pension money early, but they could take a cash incentive in an incentivised transfer exercise. People were doing that, and firms were saying things like, “We’ll pay for independent financial advice, but it’s only free if you accept our offer.” If, after taking independent financial advice, people decided not to take the offer, they had to pay for the advice.

People were rung up late at night and told that, unless they replied by 9 o’clock the next morning, the offer would lapse, and so on. Vulnerable and elderly people were offered large amounts of cash to give up valuable pension rights. The question was always, “If it’s in the scheme member’s interest to take up the deal, why are they being offered it?” The answer was that in many cases, it was not remotely in their interest. I have seen examples regarded as good practice, astonishingly, in which the employer said, “Of the value of the rights you’re giving up, we’re taking 40% and you get 60%.” It’s the equivalent of writing a letter to somebody saying, “Dear Mr Smith, this morning you had £100 in your bank account. Would you like to sign this piece of paper, and we’ll give you £60 back?” That is the kind of thing that was going on.

We took the view that that was unacceptable. I tried to use my office and the power of moral persuasion to make that clear. I held up brochures for schemes at the annual conference of the hon. Gentleman’s favourite trade body, naming and shaming. The power of public opinion and good practice started to change behaviour in the market, and the frequency of such exercises started to drop, but they were still happening. When trying to estimate what seven years’ service in a final salary pension scheme 10 years ago was worth in cash, how were people expected to know what fair value was? They clearly were not getting fair value. We have taken the view and made it clear that that sort of thing—offering cash incentives to bribe people into giving up good-quality pension rights—is just not on. If people want to swap one sort of pension right for another and it is only pension-to-pension transfer, that is one thing, but cash incentives were off.

We decided to work with each of the people in the value chain, if that is the right phrase in the context. We worked with advisers, actuaries, accountants, employers, employer benefit consultants and so on. I am grateful to Margaret Snowdon, who chaired the group that brought together people who spent hours of their time working on a code of good practice. I have it in my hand: “Incentive Exercises for Pensions: A Code of Good Practice”, published in June 2012. Essentially, it was the industry saying, “We accept that we need to clean this up, and that there are things that shouldn’t be going on. We will sort out our own house.”

I am pleased to say that that is happening. The volume of the exercises has dropped dramatically. We worked with the then Financial Services Authority, which changed the rules and guidance about how the calculations had to be done. As a result, few such exercises now take place. The code of practice indicates that where any exercise of that sort is taking place, certain things should be done. There is a lot of detail here, for anyone interested, in terms of information for members, independent financial advice and so on.

We do not object to transferring one sort of pension right to another; what we object to is the use of cash bribes to get people to give up complex pension rights that they may not even understand. Clause 30 gives us the power, if we think that our code of practice is not working and we spot bad practice re-emerging, to use the force of law to stop it. As I said earlier, we do not want to use clause 30, and I would be as delighted as anyone if, under clause 31, clause 30 were to be sunset and never used. However, we thought that it was important, partly to underpin the work of the industry group, for the industry to know that if that practice continued, we would stop it.

Richard Graham (Conservative, Gloucester)

In my many years working in the pension sector, that was one of the saddest things, and it was allowed to carry on for far too long. I welcome the measures, and I believe that many of my constituents who were unwise enough to accept cash incentives at a time when they appeared attractive will share my delight that the Minister has included the clause as an important part of the Pensions Bill.

Steve Webb (Liberal Democrat, Thornbury and Yate)

As we have heard, my hon. Friend is chair of the all-party group on pensions and is knowledgeable about these matters, so I am grateful to him for his support.

Sheila Gilmore (Labour, Edinburgh East)

Perhaps I will pass over the Minister’s comment suggesting that people were subject to the schemes because they did not fully understand the complexities of pensions; we had that debate earlier. What would the criteria be for implementing the clause?

Anne Main (Conservative, St Albans)

Sheila Gilmore had just finished an intervention on the Minister before the Divisions. Mrs Gilmore has not yet returned to the room, but Minister, would you like to respond?

Steve Webb (Liberal Democrat, Thornbury and Yate)

I would be delighted. I am sure that the hon. Lady will study the record carefully to see the answer to her perfectly reasonable question, which was, as I recall: “You have these powers under clause 30 to ban these things, but how bad will things have to get before you ban them?” I paraphrase again, but only slightly. Let me clarify the situation; it was a perfectly fair question. As well as the code of good practice, we have an incentive exercises monitoring board. This is not a quango; it is the Government working together with the industry and stakeholders—those people coming together to evaluate the effectiveness of the code. The board will report back to Ministers three years after the publication of the code, which was in June 2012. It will advise on the extent to which the code has been followed. We are not constraining the way in which it does that work. If it advises that the code is not being followed and that people are losing out in an inappropriate way, we will use the powers under clause 30. I hope that that answers the hon. Lady’s question. With that, I commend clause 30 to the Committee.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Speaking for myself, I am delighted that the windows have been opened and sunlight is flooding into the room. With clause 30, the Minister is giving himself the powers to deal with, in law, a familiar refrain—the issue of pension liberation schemes, enhanced transfer values, PIEs and the like. He is right to do so, of course. I have just a couple of observations and perhaps one or two questions.

First, I do not want to misrepresent the Minister’s position, but he said that the Government try very hard to explain to savers that these schemes generally are not in their interest, yet the schemes keep proliferating, which takes us back to the issue of engagement and an informed consumer. It is worth reflecting on the fact that, generally, these kinds of scheme are not in the long-term interest of the saver, yet there is evidence that savers keep accepting these kinds of offer. That makes the point that Labour Members have been trying to make, to some degree, that often when it comes to pensions, it does not operate like a normal market and one cannot assume that the saver will always make a rational decision. That is worth putting on the record, because the continuing growth of pension liberation schemes and the like speaks to the issue of whether or not there is an informed consumer. That is point one; I think that it is a point worth making.

I read recently an argument from someone in the pensions space about the role of Her Majesty’s Revenue and Customs in all this. The Minister has picked up on that, but certainly the argument that I read—I am not clear on whether it is correct—is that HMRC has a role to play in all this, that HMRC enables these schemes to be registered—

Steve Webb (Liberal Democrat, Thornbury and Yate)

To clarify, we are not talking under clause 30 about pension liberation at all. That is something completely different. This is about mainstream, blue chip companies offering their scheme members cash equivalents, plus a bonus to give up their rights under the scheme, to move them into another legitimate scheme. We are not talking about pension liberation fraud here.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

It sounds like I am jumping the gun and so keen to see reform of the pensions system that I am bringing it into clauses where it does not belong. I take the Minister’s point and thank him for his guidance. He has given a precise explanation of what the clause deals with. The general view is, as you, Mrs Main, and the Minister will be aware, that dealing with such schemes is important, but we do not intend to divide the Committee on it.

Clause 32 - Short service benefit for scheme member with money purchase benefit

Steve Webb (Liberal Democrat, Thornbury and Yate)

Short service refunds are a feature of trust-based workplace pension provision, whereby people who are members of a scheme for less than two years, for example, can get a refund of their contributions. Although the employer does not get the cash back out, it is in a sense credited to them within the scheme, saving them money. In a way, this is almost the opposite of automatic transfers: if people do not stay with a firm for more than a couple of years, they get their cash back and the firm gets some benefit as well. Crucially, when moving on to their next job, they have not accrued any pension rights. That is the problem. People who have had a series of jobs, working for firms for relatively short periods, sequentially fail to build up pension rights.

In a world of automatic enrolment and automatic transfers, we felt that it went against the grain for some people to put up to two years’ worth of contributions into a workplace and scheme—and their employers—with all that money coming out again and not turning into pension. We really have a problem, because we need to ensure that every penny that goes into pension schemes turns in pension, as far as possible. Short service refunds go against that.

We propose that short service refunds should be ended. I was struck, in the oral evidence, by the overwhelming support for that proposition. A lot of witnesses were asked questions, from a list of questions we asked all witnesses, and I am pretty sure that I did not hear anybody say that we should not be doing this. Even the employers’ organisations, which were initially a little bit wary, recognised that this is not part of the future of pension provision.

Heather Wheeler (Conservative, South Derbyshire)

I am glad to hear the Minister’s explanation. This is crucial. People move from a firm they have been with for up to two years to get promotion, perhaps, which they think is great, they have a history of working, but they can end up with no pension whatever. It is a superb move, Minister.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I am grateful to my hon. Friend. We all know people who “took out their super”, as the phrase in the public sector used to be. They took the money out, which at the time was attractive, because as we were observed on clause 30, cash is attractive. But if we are in the business of long-term saving, such refunds have no place in the long term. There is not a date in the Bill, but we envisage ending short service refunds soon after Royal Assent, so 2014 would be the time scale, or shortly thereafter, for pension membership that had generated a refund by that date. Obviously, there would still be refunds after that date, for people who were already in schemes.

It is a gradual move in the right direction, which appears to be warmly welcomed. I commend the clause to the Committee.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

The Minister is right; he took the words out of my mouth. The support in the evidence sessions for the proposal was striking. The hon. Member for South Derbyshire made the point strongly as well. It is a sensible move, which we support. Its logic is straightforward. We know that we have a real pension savings problem in this country. I mentioned earlier that the majority of people who work in the private sector do not have any pension savings and the majority of those who do are not saving enough for a reasonable retirement. In those circumstances, the Government should pull any lever that they can to encourage pension saving. The clause contains one such lever, so we give it our full support.

Clause 33 - Automatic re-enrolment: exceptions where automatic enrolment deferred

Steve Webb (Liberal Democrat, Thornbury and Yate)

This is a tidying-up clause that relates to something that we have not come across yet. We have talked about automatic enrolment, but we have not talked about re-enrolment. One of the features of automatic enrolment is that it keeps happening; enrolment happens only once, but re-enrolment follows three years later.

One of the interesting things about the early days of automatic enrolment is that firms that operate contract joining to a pension scheme—in other words, when an employee joins as part of the contract, they join the pension scheme unless they opt out, so it is a version of automatic enrolment—must, under our law, automatically enrol those who opted out of contract joining, and significant numbers of those people are saying yes to automatic enrolment. We see that as evidence that although people may opt out at one stage, giving them another prod every few years will significantly boost pension scheme membership even among those who previously opted out. Re-enrolment after three years is, therefore, an important part of the system.

We have, however, observed a potential anomaly, which clause 33 is designed to deal with. If an employer uses a waiting period, in which they do not have to automatically enrol people, and the three-year re-enrolment falls in the middle of that period, they end up in the absurd situation of having to automatically enrol people in the middle of their waiting period because the three-year cycle has come around again. Clause 33 amends sections 5 and 30 of the Pensions Act 2008 by removing an employer’s three-yearly automatic re-enrolment duty if the worker’s re-enrolment falls in a period in which their enrolment has been legitimately postponed. An obvious legitimate postponement would be, for example, in the case of DB or hybrid schemes where postponement is allowed towards the end of the automatic enrolment period, or when the date of re-enrolment falls in the middle of a waiting period.

We are trying to deal with a situation in which there are conflicting duties and there is a question over which one takes priority. Waiting periods and transitional arrangements are designed to make automatic enrolment work, so we think that they, rather than the three-yearly date, should dominate to avoid arbitrary and odd results. Clause 33 gives us the power to suspend the three-yearly re-enrolment duty in the circumstances that I have described. I hope that the Committee will agree that the clause is a sensible piece of tidying up.

Clause 34 - Automatic enrolment: powers to create general exceptions

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I beg to move amendment 14, in clause 34, page 18, line 16, at end insert—

‘(5) Regulations under this section shall be made only for the purposes of resolving inconsistencies or making technical adjustments or both, and may not be made to achieve substantive changes in policy. In particular, they shall not be made to exempt entire classes of business or businesses, such as small and medium-sized businesses, from automatic enrolment.

(6) Regulations under this section shall be laid before and approved by resolution of both Houses of Parliament.’.

The justification for the amendment emerges from my reading of the Bill and from questions that I asked some of those who gave evidence to the Committee. As I understand it, clause 34 is drafted very widely—so widely, in fact, that it would allow entire classes of employers to be exempted—and regulations made under clause 34 are not required by clause 45 to be approved by a resolution of each House of Parliament. As the Bill stands, that would allow a future Secretary of State abruptly to implement any such proposals regarding exemptions of categories of employer without Parliament having wished to make that possible or discussed it.

When I asked Neil Carberry of the CBI about clause 34 in the oral evidence session, he undertook to go away and look at it. I am delighted that he wrote to the Minister and to me and—I imagine—to the Committee. The crux of the CBI’s position is that in principle

“the CBI supports the intention of the clause. It is, however, too broadly drafted. As written, the provisions for exemptions will be framed by categories or descriptions of workers, or”—

the next four words are italicised—

“in some other way which will be at the discretion of the Secretary of State for Work and Pensions. The inclusion of ‘in some other way’ would provide too broad a power to government to change the scope of automatic enrolment at any time it saw fit. For instance, it would provide the Secretary of State with a secondary legislation power to exempt some businesses. This is a move the CBI could not support, as it undermines the consensus that was reached on pensions reform by giving exempted firms a cost advantage over those within the”

auto-enrolment

“regime. We believe, therefore, that the Government should remove the term ‘in some other way’ to address this.”

The CBI put the point well and that is the justification for our amendment.

I have no doubt that the Minister will say—I will believe him when he does—that the intention is to use the clause’s power sparingly to avoid anomalies in the system. I cannot really do better than the CBI’s response, however, and have to say that the provision is too widely drafted. The amendment would tighten up clause 34 to ensure that a future Secretary of State or Government could not use the power in a much wider way than the Minister intends.

I am sure that the Minister will forgive us saying that some of the context around auto-enrolment has been the potential impact of the famous or infamous, depending on one’s point of view, Adrian Beecroft report that was undertaken for the Prime Minister. When I first came into this role, that was the context in which some auto-enrolment stuff was discussed. I believe that Mr Beecroft made some recommendations, although my attempts to source a copy of the report through a freedom of information request sadly fell on deaf ears. We have, however, seen changes to the auto-enrolment regime and we know that some interests are concerned about auto-enrolment’s impact on various groups of employers, but I know that my view and the Minister’s view is that auto-enrolment must encompass as wide a cross-section and range of employers and employees as possible.

In that spirit, I hope that the Minister will ensure that there can be no shenanigans regarding the usage of clause 34 at some point in the future. The CBI suggested our amendment, but the TUC has also pointed out the clause’s drafting problems. I ask the Minister to accept the amendment, but if he cannot accept it from me, I ask him to accept it from the CBI and the TUC so that the situation that I have outlined does not arise.

Steve Webb (Liberal Democrat, Thornbury and Yate)

Clause 34 is designed to ensure that we do not automatically enrol people whom it would be a bit daft to enrol. The danger of everything being in primary legislation is that people do what they think is right and then a situation that was not thought of arises or becomes more prevalent and flexibility is required. The Government published another consultation in March 2013 titled “Technical Changes to Automatic Enrolment”. I am happy to send the hon. Gentleman a copy if he has not seen it.

On page 24, under “Automatic enrolment—other changes”, is “Excluding certain categories of worker from the automatic enrolment duty”. We have been explicit about the kind of categories that we have in mind. One example might be active members of money purchase schemes who have given notice of retirement—people who have told their employer that they are about to retire, but, because the law says that they have to be auto-enrolled, have to be put in a pension scheme by their employer the week before they retire, leaving them having to opt out after leaving the firm.

Another example might be people who have handed in their notice during a deferral period—the firm is going to auto-enrol them, but has deferred doing so, but they hand in their notice and the notice period goes past the end of the deferral, so the employer has to enrol them even though they are going to leave. At a pensions conference, I came across one employer who had had to auto-enrol someone who had not started with the firm and not even actually worked for it, because of a change of mind. Such things need to be dealt with.

There is a briefing paper on clause 34, of which we have notified the Committee. It has been published, in case hon. Members want further details, and it includes those kind of examples. Another one that we are often asked about is wealthier individuals who have exceeded their lifetime income tax limits—enhanced or fixed tax protection cases. It is patently obvious that those folks should immediately opt out, so that they do not undermine their protection on tax relief, but we still require employers to put them in, assuming and hoping that they will opt out again. That is a bit of a waste of time for everyone.

In all such things, we are trying to think of things that have been brought to our attention as automatic enrolment has started, so that we can avoid bringing it into disrepute. In theory, one might imagine that we know what they all are. Truth tells us, however, that as time goes by, new things arise. For example, we set up payroll periods—we have weekly rates, fortnightly rates, four-weekly rates, monthly rates and all the rest of it—but then someone said, “Ah, yes, but if you teach in a private school, you might be paid three times a year, once each term. Have you thought of that?” So we need another bit of the rules to deal with three payments a year. Only when we are doing things—in real time, live running—do we come across new examples.

Clause 34 is therefore deliberately broadly drafted to enable us to cover situations as they arise, to avoid auto-enrolment being a waste of time. I understand that the CBI is worried about the clause because it does not want us to use it to exclude small firms. Had we been going to use it to exclude small firms, however, we would bloomin’ well have done it by now, because we could have done. When we rescheduled the roll-out to small firms, we chose to do it by giving them extra time, but we did not exclude them. The Government took that decision, and I stand by it.

The hon. Gentleman says, “Yes, I trust you”—as he regularly says—“but what about your dastardly successors?” After the next election, a malign Government might step in and want to exclude small firms, but if a malign Government come along and want to exclude small firms, they will just pass a law and do it. We cannot stop a future Government excluding small firms. Even if we accepted his amendment—and he will not be surprised to learn there are issues about how it is worded—and put the provision into the Bill, a Government that wanted to exclude small firms would just remove it again. We cannot bind future Governments, and this Government do not need binding, because we have made our position perfectly clear: clause 34 is about odd exceptional cases and things that might arise.

On the amendment, a number of things are unclear. What is a “technical adjustment”? One might argue that the whole Bill is a technical adjustment on one level. When is a change a technical adjustment? When is it resolving inconsistencies or both, or neither? What is a “change in policy”? If, in another bit of the Bill, we changed the threshold for small pots from £10,000 to £50,000, is that a change in policy a technical adjustment? Such things would end up being settled in the courts. The amendment, although I appreciate that it is probing, does not deliver the clarity that we need.

Finally, I know that the hon. Gentleman is an exhaustive seeker after truth, prober and scrutiniser of the Government, and I am disappointed that his FOI request did not yield a copy of the Beecroft report, but I am advised that it is on the internet.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I am sure that that was a response to what the Minister described as me being an exhaustive seeker after truth, which makes me sound like someone out of a DC comic—[ Interruption. ]

Anne Main (Conservative, St Albans)

Order.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I think I drew that interruption from the hon. Member for South Derbyshire, so I cannot complain.

The Minister referred to drafting issues with our amendment. I am interested in that. I have looked at the ones he has mentioned so far and, unsurprisingly, I do not take that view. I guess that it is always in the nature of such things that each side has its own draftsmen and never the twain shall meet unless, of course, going back to our first day in Committee, it is to discuss avant-garde drafting.

I have cautioned the Minister before about misrepresenting my position. This time he says that I said, “I trust you.” That is putting it a bit strongly; I would not want to go that far. Although he has many excellent attributes, he is subject to having to deal with conflicting interests in a balance of forces. I do not doubt his good intentions, but it is absolutely possible that after the next election he will be go on to greater things and someone else will be in the hot seat, although he might say that there is no greater thing than pensions, and I would expect nothing less from him.

The Minister mentioned that the CBI is concerned about the Government using such a widely drafted clause. My understanding is that he agrees that it is widely drafted, but that it is necessary for the reasons he set out. The CBI is concerned about exemptions for smaller employers and, to be fair, we can see why, given what we understood to be in Beecroft—and now we can find out; when I sit down I will be googling the report.

In all seriousness, there is a balance to be struck here. All Governments inevitably want as wide a freedom of manoeuvre as possible, but in this case we have the concerns expressed by the CBI and the TUC, and the background to the Beecroft proposals for termination, or rather my understanding of the desire to free small businesses from what Mr Beecroft sees as burdens—I have to be careful, because I have not yet read the report. I remember that, at the time, it was considered that the report was an evidence-free zone, that it was basically Mr Beecroft’s personal reflections on what he had perceived—

Anne Main (Conservative, St Albans)

Order. I am sure that we will not travel too far down the road of a report that Mr McClymont has not read.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

No, especially since it is on the internet now, and we can all get it ourselves. My point is that the CBI and the TUC are understandably concerned about the context of the proposals in the report. We must not forget that the proposals had an impact on auto-enrolment. The moving back of the staging dates was, I believe, a product of the influence of the report and the higher echelons of Government. The Minister is looking quizzically. If I am wrong I am happy for him to correct me, but that is certainly my suspicion—I shall put it no stronger than that.

The Minister says that the amendment is a probing one, but it is important because we need to understand the powers that the Bill gives and does not give to the Government. I do not want to put words into his mouth, but he says that the amendment does not do the job of making the clause as broad or as narrow as it needs to be, and we do not agree. We do not intend to press the amendment to a Division at this stage, but we encourage him to continue to consider the matter and to take representations from the CBI, the TUC and other interested parties. I beg to ask leave to withdraw the amendment.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I hope that, in my remarks on amendment 14, I set out the purpose of clause 34 and the sorts of situations in which we envisage it might be applied. It is very much a tidying-up measure, and I am grateful to the hon. Gentleman for his intention not to oppose it. I commend that the clause stand part of the Bill.