Mr.
O'Brien: I want clarification about what the hon.
Gentleman’s intention. It has always been argued that the 3 per
cent. should be the minimum employer contribution. His amendment would
make it the only possible contribution. Is that his
intention?
Mr.
Waterson: The Minister makes a good point, in which case
we will have to recast the amendment. If the Minister accepts the
principle that we should write 3 per cent. into clause 53 we would be
very happy with that.
It just seems to me that if
there is a clause headed “Contribution Limits”, then it
is worth spelling out what is envisaged on contributions. We know the
position at the moment is that we start off with an 8 per cent. overall
level of contributions: 5 per cent. from an employee, 3 per cent. from
employers. Again, this point was quite hard fought the other day on the
basis that, if some future Government or personal accounts board wanted
to come back and argue for a higher statutory employer contribution,
they would have to do that by way of primary legislation. I think that
remains the Government’s position, and I am sure our position as
well—and that is the kind of reassurance that employers are
looking for. If the
principle is acceptable to the Minister—I was not going to press
this amendment to a vote anyway—I am sure he can find a way of
setting out even more issues about contribution levels, including the 8
per cent. overall figure, into clause 53, which just seems a logical
place to put it, despite the fact it appears earlier in the
Bill.
Danny
Alexander: The points made by the hon. Member for
Eastbourne are ones that we, the Liberal Democrats, would wish to
associate ourselves with. There is clearly a question about employer
contribution and how it can be maintained at the 3 per cent. level that
has been promised, and that is the expectation. An amendment such as
this—which makes it clear that there would have to be further
primary legislation if that were to be changed—would give the
appropriate reassurance for which employers would certainly be
looking.
Mr.
O'Brien: Clause 18 says
“the employer’s contribution
must be at least 3% of the amount of the jobholder’s qualifying
earnings in the pay reference period.”
It is in the Bill already. I am
not sure there is any point in putting it into this clause. It might
confuse the courts, who may think there is some other further
point. We cannot
accept the amendment proposed by the Conservatives, on the basis that
it makes 3 per cent. the contribution; we have always made it clear
that we regard it as a minimum contribution. We expect many employers
will want to make a contribution higher than 3 per cent. We think that
is a matter for them. That is why we have worded clause 18 in the way
we did, saying that the employer’s contribution must be at least
3 per cent. of the amount of the jobholder’s qualifying
earnings. I cannot see any point in putting it here.
I thought the Conservatives had
taken a view that the employer’s contribution should be held at
3 per cent. which somewhat surprised me. I see now that that was not
the intention—so that is clearer—but I do not see any
point in putting it in twice. I can see a point in not doing it, in
that the courts might want to know why it was there twice and whether
this meant something slightly different. I am not convinced of the
argument and do not see why this is necessary. I regret I cannot accept
the
amendment.
Mr.
Waterson: I am happy to be cajoled by the Minister. I beg
to ask leave to withdraw the
amendment. Amendment,
by leave, withdrawn.
Mr.
Waterson: I beg to move amendment No. 77, in
clause 53, page 25, line 34, at
end insert— ‘(1A) The
Secretary of State must in each tax year from 2005 determine whether
the amount prescribed in subsection (1) has maintained its
value. (1B) If the average
earnings index (including bonuses) for the whole economy for September
of a year is higher than the index for the previous September, the
Secretary of State shall as soon as practicable make an order in
relation to the amount in section (1), increasing the amount, if the
new index is higher, by the same percentage as the amount of the
increase of the
index.’.
The
Chairman: With this it will be convenient to discuss the
following: No. 29, in
clause 53, page 26, line 1, leave
out subsection (3) and
insert— ‘(3) There shall be
an absolute prohibition on transfers between the pension scheme
established under section 50 and other pension or savings schemes, and
jobholder contributions shall be limited to £3,600 in any one
year.’. No.
103, in
clause 53, page 26, line 1, leave
out subsection (3) and
insert— ‘(3) A member may
make payments that are not contributions for the purposes of provision
under subsection (1) up to a maximum of 2 per cent. of the standard
lifetime
allowance’. No.
30, in
clause 53, page 26, line 1, leave
out subsection (3). No.
58, in
clause 53, page 26, line 6, leave
out subsection
(5).
Mr.
Waterson: This group of amendments will take a bit more
time. They are all around the issues of contribution caps and transfers
into and out of personal accounts.
I will quickly go through what
the amendments seek to do and then give a bit more background. It is
logical to start with amendment No. 29 which incorporates an absolute
prohibition on transfers between the pension scheme—the personal
accounts—and other schemes and also says that the contributions
of the jobholder should be limited to £3,600 in any one year.
Amendment No. 77 deals with how to maintain the value year-on-year of
that contribution and I will return to that in a moment. Amendment No.
30 seeks to take out subsection (3) which would allow an order to
change contribution levels. Subsection (5) would be taken out under
amendment No. 58 which gives the Secretary of State power to repeal
this section. There has
been a long and fairly fierce debate about contribution limits. There
are very powerful arguments on both sides. On the one hand are ranged
the consumer organisations and others, such as Age Concern, who argue
the case for more flexibility in either a lifetime limit or a higher
annual contribution cap or transfers in, either a one-off in year one
or subsequent years of capital amounts.
Some of the arguments focus on
people who want to catch up contributions—perhaps some of the
people I talked of earlier who do nothing between now and 2012,
assuming that is the date—or people who want to put savings, an
inheritance or divorce settlement into personal accounts. I apologise
to people whose arguments I am paraphrasing. I will perhaps touch upon
one or two in more detail and perhaps in their own words in a
minute.
2.45
pm Ranged on one
side are a group of people, especially those representing the industry,
who argue very strongly and persuasively that we must take every step
that we can in legislation to ensure that personal accounts, even if
they are a success in their own right, do not erode existing pension
provision and compete as a non-advice, low-cost alternative to other
pension savings. We have debated at length the nightmare scenario,
which was conjured up by the Pensions Policy Institute, of personal
accounts being quite successful, but the overall pension savings in the
country sharply declining because of levelling down and so
on. On the other side
of the argument is the mantra of simplicity. Mr. Tim Jones
seems to be getting a good run today. He raises this every time I have
any kind of conversation with him, and I am sure the same goes for
Ministers. As he and Paul Myners have said to me—and, I am sure,
to everybody else who takes an interest in these things, including the
Minister—every extra bell and whistle will add to the cost of
personal accounts, and might add to the risk of them not being ready by
2012. As will become apparent when I deal with these amendments in more
detail, I side with those who say, “Let’s not take risks
about implementing personal accounts. There might be reasons for
reviewing things later, but we need to be absolutely sure that this is
ready to go in 2012,” and those who say, “We have a
pretty good private pension set-up in this country as it is. It has
taken a few knocks, but it is still a lot better than many other
countries’, and we do not want to see that eroded or threatened
by this new personal accounts system.”
Let me deal first with the annual
contribution cap. The Pensions Commission originally proposed an annual
limit of about £3,000, in support of which it
said: “This
approach would mean that lower earners would effectively be free of any
cap (since they would be unlikely to be able to use the freedom) while
limiting the extent to which higher earners could use the NPSS as a
low-cost alternative for pension saving that is already in many cases
occurring.” It is clear
from that that the commission sussed out quite early on that there was
a risk of levelling down and that that had to be dealt with
clearly. We then made a
quantum leap to the December 2006 White Paper, when the Department for
Work and Pensions suddenly popped up with the suggestion that the limit
should go up to £5,000. It also proposed that the Personal
Accounts Board should be able to review the limit, and suggested a
higher limit of £10,000 in the first year. I know that the
Minister has been turning that over in his mind, so he might have
something to say about it. The Work and Pensions Committee also
examined at the issue.
The £5,000 announcement
caused, to put it mildly, a bit of a flurry in the industry, because it
emerged that a £5,000 cap would, in theory, incorporate
something like 94 per cent. of all existing pension provision, which
was not at all what Lord Turner had in mind. We in the official
Opposition were quite taken aback by the proposal. We did not know
where it came from, what was behind it and who was in favour of
it—it was certainly not the industry—and we did not think
that it was sensible. We made it very clear, both in public and in
private, that if the Government wanted to proceed with that figure,
they would jeopardise the whole consensus process and that we would
certainly not sign up to it. The Government got their mind right, to
quote another famous film, and came up with a figure of £3,600
at 2005 prices, which we were content with, and a mini-consensus has
grown up around that figure since, which is good news. We would still
urge the Government to keep the £3,600 figure, and the Minister
has made it abundantly clear that that £3,600 at 2005 prices is
still the policy. We
are trying to help out the Minister with amendment No. 77, which deals
with uprating the figure. However, the figure does not appear in the
Bill, or even, I believe, in the explanatory notes. We think that it
should, and some of the witnesses agree with us. I will cite what some
of them said in a
moment. I give credit
to the Engineering Employers Federation and Mr. David
Yeandle, who came up with the wording of amendment No. 77. It is
designed to make it clear that the Government will not only carry
through their commitment to an annual limit of £3,600, based on
2005 earnings levels, but that they are committed to that
limit “being uprated with
earnings from that point to implementation from
2012.” It cites that the
precedent for such tight drafting as section 34 of the Employment
Relations Act 1999, which is used to implement, among other things, the
maximum weekly pay that is used for calculating statutory redundancy
pay annually in line with the retail price index. This is not rocket
science.
In our evidence session, I was
underwhelmed by the Minister’s response when I quizzed him as to
why £3,600 was not mentioned at all in the Bill. He
said: “£3,600 is a
2005 figure”, which is
correct, “which will be
annually uprated as we deal with issues in terms of the economy,
inflation and other factors. Therefore we want to ensure we do not
enshrine in statute something that we then plan to amend year on year.
” That is fair enough, up
to a point. He
continued: “For
those reasons, enshrining that figure in legislation would not be wise
but we would intend to say that very clearly the policy is that that is
the figure; we do not intend to increase it other than by the increases
in the level of inflation.”——[Official Report,
Pensions Public Bill Committee, 17 January 2008; c. 113,
Q138.] Why am I not
convinced by that? All sorts of pieces of legislation are peppered with
examples of figures that change. At the moment, £3,600 may not
be the right figure. However, I have never claimed that any of my
amendments or new clauses is the ultimate. We do not have all these
clever people working for us, and if the principles are accepted, the
parliamentary draftsmen can go away and sort it
out. However, given
that this is such an important issue, why can it not be in the Bill?
The argument that one should not put a figure in legislation because it
will change is, with respect, completely bonkers. Figures have been put
in all sorts of legislation, such as tax and minimum wage legislation,
and those figures change. There is almost invariably a formula in the
legislation setting out how they are to change. With respect to the
Minister, I do not think that that is a valid argument against the
amendments. The EEF
supports a £3,600 limit. Originally, it lobbied the other way
and wanted the limit to be more open and flexible, but its attitude now
seems to be, “We have now alighted on this figure and there
seems to be general agreement—perhaps some of it
grudging—that that should be the figure, so let us make sure
that it is in the
legislation.” There
is also a question of lump-sum contributions and transfers. Although I
intellectually understand the arguments that are put forward in favour
of them, I think that there are real arguments against. I have dealt
with simplicity and the erosion of existing provision. If someone had a
£10,000 inheritance and decided to put that into their personal
account scheme, there would be two major
problems. A lump sum
would not attract the employer contribution. I do not want to reopen
the whole debate—important though it is, and we have had it more
than once—about the groups that will benefit from personal
accounts, not benefit, or not benefit as much as they expect. Those
three groups—those that will benefit, those definitely at risk
and those in the middle, as identified by the PPI—will be part
of the ongoing process at which we will be looking on a cross-party
basis. Part of the definition of whether people are going to be better
off will be based purely on an employer contribution, because that will
make all the difference to whether they are going to get something out
of this or not. However, with a £10,000 lump sum, there will be
no employer
contribution. We also
keep coming back to the issue of advice. No one is going to give any of
those people specific advice
on their particular situation. Otto Thoresen, as people keep reminding
us, is wrestling with the oxymoron of generic advice. We will see what
he comes up with in his final report—I think that the Minister
said that other day that it might be published in March. Someone might
well be advised not to put that £10,000 in personal accounts and
to do something completely different, but there will be no one queuing
up to give such specific
advice. Let me come
back to what some of our witnesses said about the subject. When we saw
Mr. Stephen Haddrill of the Association of British Insurers
on 15 January, I asked him what he thought should be in the Bill to
minimise the erosion of existing provision. He talked about his
concerns on levelling down and the need to ensure that the personal
account remained “targeted
at the people it is really designed for...Money speaks, and we
fear then that personal accounts will get delivered for the people with
more money”— rather
than the target group. He went on to
say: “That is
why we do not like the idea of high levels of contribution being
allowed during the year—the Minister has given assurances on
that, but we do not see that £3,600 figure on the cap actually
on the face of the Bill.
We— this is the view of
the ABI— “would
much prefer that to be in the
Bill.” He continued to
say: “We do not
see anything about transfers in from other schemes on the face of the
Bill in terms of them being stopped, which is what we would like to
see. I think that we should also be very cautious indeed about random
lump-sum contributions—in fact, not allow them—into these
schemes, because they will not be matched by an employer
contribution”— I
have made that point
already— “and they
will not necessarily be the right thing to do. This is an advice-free
zone”— here is the
chilling bit for
Ministers— “so
people will be making mistakes, and, in 20 years’ time,
liabilities will be laid at the door of the Government as a
result.”——[Official Report, Pensions
Public Bill Committee, 15 January 2008; c. 24-25,
Q31.] I do not know who the
Government will be in 20 years’ time. All that I can say with
some confidence is that neither the Minister nor I will be in our
posts. I do not know
whether that is significant, coming from the ABI, but I should touch on
something else that Stephen Haddrill said. When he talked about
additional contributions, he
said: “The real
reason why we do not like additional contributions is because we think
it complicates matters. We think it will be taking money out of
financial pots where people have had advice and where they have got
good investments and are putting them in something on which they will
have no advice.”——[Official Report, Pensions
Public Bill Committee, 15 January 2008; c. 37,
Q52.] That was all he has to say
on that particular issue. Additionally, the written evidence of the
Engineering Employers Federation
stated: “We are
therefore very surprised and disappointed to see that, whilst Clause 53
of the Pensions Bill refers to the introduction of an annual
contribution limit, there is no reference to the level of this limit in
either the Pensions Bill itself or the Bill’s Explanatory Notes.
We consider that both the £3,600 annual contribution limit and
its uprating in line with earnings between 2005 and 2012 need to be set
out clearly in the Pensions Bill as we feel that the absence of this
detail will inevitably reopen the debate on this important issue which
we felt had been
resolved.”
3
pm I will take the
Minister at his word when he says that he does not want to reopen the
debate, and, certainly, we do not. However, the sure way of ensuring
that that does not happen is to put it in the Bill. I have already said
that I cannot see the remotest technical problem with a clause that
takes account of £3,600 at 2005 prices.
The Investment Management
Association, which has similar views, hardly surprisingly, to those of
the ABI,
says: “Key to
keeping the costs of the system low is ensuring that individuals can be
confident that they can participate without seeking regulated financial
advice.” It goes
on to talk about complications because of other contributions. It
says: “IMA
therefore supports a strict annual contribution cap, with £3,600
a reasonable level, (uprated annually as appropriate) and that this
should be specified in the
Bill.” Interestingly
it goes on to say that it would accept a higher
limit “for the first year
in which Personal Accounts come into operation...We also oppose
Amendment
103” —which we will
be hearing
about— “since this
would allow annual contributions of up to £30,000, taking the
system well beyond its core
purpose.” I
agree with that. I am delighted to see that the IMA supports my
amendment to remove subsection 5, which it describes
as “an unnecessary power
to repeal by Order the section dealing with contribution
limits.” It says
that: “This
would be required only if Parliament were not committed to keeping
Personal Accounts focused on their target market of those without
current access to long term saving. While there may be a need for
flexibility in the event of a future review that leads to a different
consensus about contribution limits, there are sufficient powers in
Clause 53 to allow the Secretary of State to change the limit in any
direction. We cannot see however why it might ever be necessary to
consider abolishing the limit
altogether.” There
are powerful arguments on both sides of the debate. We have come down
on the side that I have described. This is the purpose behind our part
of the group of amendments and I hope that those arguments will commend
themselves to the
Committee.
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