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Mr. George Osborne (Tatton) (Con):
This is the first of the 28 Government new clauses that my hon. Friend the Member for Havant (Mr. Willetts) talked about and the first of those that have not been subjected to adequate parliamentary scrutiny. At least we know that one new clause—new clause 23—has been subjected to adequate scrutiny, because I introduced it in Committee, where the Government objected to it but they have now brought it back. Unfortunately, new clause 24, which is one of the most significant new clauses, has not had adequate scrutiny. As the Minister said, it gives employees who have been with a company for just three months the ability to take with them, when
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they leave, a refund or a cash transfer sum of the kind that is currently available only to those who have been employed for more than two years.
Of course we want to encourage people to build up pension provision. It is generally recognised on both sides of the House that people are not making adequate provision for their pensions and that younger people often make no such provision because they think that it is something that they can delay until they are settled into employment later in life. I certainly see the merit, therefore, in helping people who change jobs quite often in their younger years to build up a pension provision, although there are already products such as personal pensions available to help them to do that. With the Government's proposed changes to the taxation of pensions and the idea of a lifetime limit, for example, it will also be much easier—one hopes—for people who change careers consistently to build up their pension provision. I recognise, however, that the proposal is worth considering.
The Equal Opportunities Commission, Age Concern and the Fawcett Society have all pointed out that the measure could disproportionately help women. We discussed pension provision for women in Committee and we all agreed that it needed to be improved, although we disagreed on how that might be done.
Why has the new clause been tabled so late in the Bill's passage? I am afraid that that will be a theme for the next hour, because the measure did not come out of the blue. Nor—unlike new clause 34, which we shall discuss tomorrow—has it required crisis meetings in the Government, the bringing together of different Departments and the brokering of an agreement by the Prime Minister. It was in the Green Paper and was then amended and put into the White Paper, so why was it not included when the legislation was introduced in the House of Commons? Why was it tabled only at the very last moment, a couple of days before Report? The explanatory notes were given to Members only yesterday or this morning, depending on when we received the letter. In fact, I am not sure that I received the letter at all; I had to photocopy the one that had been given to my hon. Friend the Member for Eastbourne (Mr. Waterson)—but do not worry, I have read it anyway.
Because the measure has been introduced so late, the Government have not allowed outside organisations to make comments and criticisms or question the new clause's drafting. The Minister knows only too well that that is an important part of the legislative process. It is not simply a question of Ministers and Opposition spokesmen arguing things out across the Dispatch Box; the parliamentary process allows us to raise these issues in Parliament on behalf of outside organisations such as trade unions—I know that some hon. Members will speak on their behalf today—pension fund managers and many others. That is simply not possible when important changes such as this are introduced at the last moment.
Will the Minister say more about the significant changes that have taken place between the publication of the Green Paper, the White Paper and the Bill? He touched on the matter earlier when he said that the proposal in the Green Paper for immediate vesting was
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objected to by employers, although it had been welcomed by consumer organisations and people representing employees. Will he tell us more about the practical nature of those objections, because some of them will apply to people who have been working for only three months?
Will the Minister also explain why he has dropped altogether the proposal in the Green Paper for schemes that have to administer very small amounts of pension to be able to transfer the de minimis amounts to a stakeholder pension? There will still be people on low incomes who will have de minimis amounts after three months and the administration of a large number of such pension schemes could place significant burdens on the pension provider, the cost of which will have to be picked up by all the other scheme members; there is no such thing as a free lunch.
1.30 pm
I asked the National Association of Pension Funds for its view but, like the rest of us, it has struggled to keep up with the Government's new clauses. It stressed that its initial comments did not represent a settled NAPF view, but it highlighted some interesting concerns, saying that
"the 3 months vesting period could potentially cause large problems for an employer who has a large turnover of staff. The result will be lots of small value benefits being vested and significant ongoing admin of these benefits as a result. A lot of the detail around the transfer value is to be prescribed so it is difficult to comment on the basis to be used. The power to transfer out must be given full protection and effective ways to do this will need to be stated."
But, of course, we do not know what these are yet. It continues:
"How viable is the transfer out of very small benefits and are other providers willing to accept these small values?"
Are there providers who will accept the value of someone who has been in employment for only three months? The NAPF also pointed out that the original two-year vesting requirements were suggested precisely because of those potential problems.
In the Green Paper, the Government said, optimistically, that the proposals could help employers to retain staff. That claim was subsequently dropped in the White Paper and the Minister did not repeat it in the House, because it might have exactly the opposite effect. The pension rights offered by a company are often an incentive to remain with a company for the long term, but these measures could give a perverse incentive that allows employees to leave after three months without having to make a commitment over a longer term. Someone will not be as settled in employment after three months as they would be after a year or two. Perhaps the Government could explain the three-month figure.
I know that, elsewhere in the Department, 13 weeks is the definition of sustainable employment in new deal programmes and the like. What is the reason for three months? What assessment have the Government made of the impact on employers' ability to retain staff? Have they any evidence to back up the claim made in the Green Paper? What are the costs? The Minister said that the measure did not represent significant extra burdens for schemes, but what is the evidence for that? We have not seen a full regulatory impact assessment, but there
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will be administrative costs for schemes. I know that the Minister mentioned that in passing, but he did not give hard figures. Perhaps he would undertake to provide us with a proper regulatory impact assessment.
Has the Minister considered something that was floated by the Government themselves? There may be a perverse incentive for employers to introduce waiting periods; in other words, periods after which an employee could join a scheme. In effect, that would defeat the object of the new clause. A company could take on a new employee but say that he could not be a member of the pension scheme for at least two years.
Flexibility and enabling people to build up pension funds while they move jobs is important. We are not against the principle of the new clause, but a huge amount of detail remains to be fleshed out. As it has been introduced so late in the process, it is difficult for the Opposition to undertake the scrutiny that is needed.
Mr. Webb: We welcome the spirit of new clause 24. The people affected by regular job moves or short-term employment will tend to be younger people and, perhaps, women in particular. One of the legion of reasons why many women have poor private pension rights in retirement today is a problem that we are trying to deal with through new clause 24: the fact that they may never have entered a scheme or that, if they were part-time, they had fewer rights than full-time workers. Many of those things have been changed but the new clause deals with something that remains a problem: the fact some people never get into a scheme for long enough to build up a decent pension right.
My wife left the NHS pension scheme after a fairly short period and, as they used to say, took out her superannuation. As a result, she will accrue smaller occupational pension rights. Obviously, she married wisely, so that should not be a problem but—abstracted from my present circumstances—we want women to have good pension rights in their own right, not least because they might not end up being married to their present husband as pensioners. Anything that gives people in short-term jobs, and women in particular, better pension rights has to be a good thing in principle. We welcome the principle of the new clause.
Before the thoughtful speech of the hon. Member for Tatton (Mr. Osborne), I had written down, "Why now?" The Minister referred to "Action on Occupational Pensions", the White Paper that we were not allowed to call a White Paper that was published about a year ago. Why has the new clause appeared at this point in the proceedings when it is so difficult to make a serious assessment of it? It is not driven by the EU directive or by the tax simplification in the Finance Bill, which is the reason why so many parts of the process have been late.
What has been the problem? Were the drafters so busy with the other things that the Government have done that this was deemed a low priority and had to be done late in the day? I am concerned that this has been slipped in, as it were, especially given that we are all sympathetic towards the measure. I do not think that the Government want to avoid scrutiny of it; I am sure that they do not.
I intervened on the Minister to get an understanding of how much people can transfer across. In the worked example given by the Minister—someone on £20,000 a
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year, with 3 per cent. employee contributions and working for 18 months—one can see that, if they have their money back, they get £900, but I am puzzled as to where the cash equivalent transfer figure comes from. I thought that if they got £900, presumably the tax relief would have been considered. If one put £900 into a pension fund, it would be grossed up by the amount of tax relief, presumably, and would be worth more than £1,200. If one then added back in the value of the employer contributions, one would get a figure of about £2,500, rather than the £2,385 we have been given. The figure is not clear.
New clause 24 alone takes up six pages—one can see why we sought to divide the House on the timing of debates—that none of us really understands. [Interruption.] I am sure that the Minister does understand it; I absolve him from that, but the rest of us are struggling. For example, subsection (1) of proposed section 101AF, which is headed, "Calculation of cash transfer sum", says:
"Cash transfer sums are to be calculated and verified in the prescribed manner",
It is apparent that dozens and dozens of regulations will be associated with the dozens of new clauses that the Government have tabled. That raises a serious issue that we might as well deal with now, rather than at every single new clause. Presumably, there will be a substantial burden on the parliamentary drafters in the Department who produce the regulations, which are the law of the land just as much as the new clauses. Have additional staff been taken on by the Government? Have the Government obtained additional parliamentary drafting resources to deal with the vast range of regulations that will be needed to support the new clauses? Given that we want this measure included—we want early leavers given good opportunities to build up pension rights—we want it to be included as soon as possible. If the Government have a couple of dozen regulations to write, we might have to wait a long time. I hope that the Minister can reassure us that his Department has the capacity needed to produce the detailed regulations required.
There are also worries about the scrutiny of those regulations. I am not aware that they will be subject to the affirmative resolution procedure. The chances are that they will be among the many negative resolutions that just appear on a list, about which many of us think, "Can we be bothered to try to force an hour and a half on that, when we can't amend it anyway?" I am worried about the Department's capacity to produce the regulations in a timely manner and in a way that will allow people to make useful comment.
My point on the cash transfer sums is that they must be definitive. To produce the figures given to us in our briefing notes, the Department must have had in mind a formula or structure for the sums. For the benefit of the wider audience who read our proceedings, will the Minister put on record the Department's current thinking on the way in which the transfer values will be calculated? A quite precise figure was given in our briefing, but the Minister implied that there would be a large range of possible transfer values. It would be helpful if the Government's thinking could be placed on record now so that, if there is a problem, actuaries and
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others who understand such matters far better than we in the House do can make early representations to the Government to allow them to do the best job possible when the regulations appear.
I have a further question on calculating cash equivalent transfer values. Are they intended to be actuarially neutral? In other words, is it intended that the amount of money that I will be given to put into a new pension if I leave my old one will be simply the equivalent of the money that I have put in, the money that the employer has put in and the return that we have had on it, or is some concept of incentive built in? Are the Government adding a bit at the expense of other scheme members or is there a slight penalty? Under the regulation in new section 101AF(3)(a), "amounts" may
"be deducted in respect of administrative costs in calculating cash transfer sums",
which involves something of a penalty element. Apart from that, is it intended that the transfer values should be actuarially neutral or is there some reward? The Minister hinted that there would be some reward for taking the money and reinvesting it in a new pension. Presumably, any such reward would be to the detriment of other scheme members if it were other than actuarially fair. If that were the case, we would object, so I hope that the Minister can clear up that point for us.
We want improved provision for people who leave early and, ideally, we want the money that they already have in a pension scheme to go into a new pension scheme, rather than just paying for a foreign holiday. That has to be the right direction. However, as will no doubt be remarked again this afternoon and during the coming three days, much is still being left to regulations of which we have not yet even seen drafts, so I hope that the Minister can give the House and the wider audience a clearer idea of the Government's thinking on these matters.
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