Pensions Bill

Baroness Clark of Kilwinning Excerpts

Tuesday 29th October 2013 Commons Chamber

[Steve Webb]

Apparently he is searching for silver bullets. In any case, we are already seeing consolidation. To give the House a sense of scale, let us consider small and medium occupational defined-contribution schemes for between 12 and 1,000 members. The number of such schemes fell by more than a third in three years—a dramatic fall—from 3,300 to 2,110. The number of micro-schemes, with between two and 11 members, fell by a fifth over the same period, from some 45,000 to 36,000. In a sense, the Opposition amendments seek to force the pace on scale, but it is already happening quite quickly. That is a welcome development, and once we implement our measures on scheme quality—which, subject to consultation, may include tough action on charges—there will be a seismic effect on the pensions industry.

If a scheme cannot be used for auto-enrolment unless it delivers seriously low charges, many small, sub-scale schemes will fall by the wayside. The trends are already in that direction, and the measures we shall implement will substantively accelerate that. Rather than presume that scale is the right answer, we have to regulate the quality. If a small scheme can demonstrate that it is, for example, tailored to the characteristics of its membership and is delivering for them, great.

We do not want to kill good-quality small pension schemes, which is what the Opposition’s slightly bureaucratic amendment could do. Instead, we will say, “This is what we think good looks like. If you, as a big or small scheme, can deliver that, we will not tell you what to do. We will set parameters for what good looks like and you have to deliver.” Consolidation is already happening, and the quality requirements we are putting in place will deliver the outcomes that the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East wants.

Moving on—I apologise for the jargon—to decumulation, or “turning pension pots into retirement income,” as I think I am required to call it, new clause 11 suggests that it should be a requirement on schemes to feed in an annuity broker at the end. The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East touches on an important issue, albeit again in an overly rigid way. Getting pension pots into a good profile of retirement income is crucial, which is why we at the Department for Work and Pensions are working with our colleagues at the Treasury on annuities and decumulation. Decumulation is about more than annuities. That is not a snappy soundbite, but in other words, turning a pension pot into a retirement income has to be about the whole process of retirement, not just a single event on a single day that fixes one’s retirement income for perhaps 30 years.

The danger with the rigidity of new clause 11 is that it presumes a backward-looking annuity model. Annuities in their current form were designed for a world where people lived for 10 years with pensions and then died. We now have a world where people might annuitise in their early 60s, or want to stop contributing to their pension pot in their early 60s, and live into their 90s. There are serious questions about the suitability of annuities for everybody. For example, people with big pension pots might want to look at a mixture of draw-down. They might want to look at alternatives, deferral or a range of options. It would be a backward step to hardwire into primary legislation that the only good thing that can be done with a pension is to annuitise through this particular model. We should give people new options at decumulation, not hardwire them into the annuity model. Of course, even an annuity broker may not necessarily guarantee that someone will get, for example, an impaired life annuity or enhanced annuity for disability or low life expectancy.

There is a lot that needs looking at in this section of the market. The initiatives that the industry has already taken—for example, the ABI code that came into practice earlier this year—are welcome, but we need to go further. We need a creative approach to turning pension pots into pension income, not a single product hardwired into a primary legislation model. I understand where the hon. Gentleman is coming from and I believe that the annuity market is in need of further reform, but hardwiring into primary legislation does not seem to us to be the way to go.

The House will be pleased to know that there are two final sections left, both of which are brief. The hon. Member for Hayes and Harlington (John McDonnell), who does not appear to be in his place, tabled new clause 7, on rail pensions. The new clause relates to whether the Government should underwrite the shortfalls in the pension funds of employees who worked for the nationalised rail industry, which was then privatised, and where some companies, such as Jarvis Facilities, Relayfast and Fastline, went to the wall. We sympathise with any worker whose firm goes to the wall, but I say to the hon. Gentleman in absentia that the notion of protected persons in this case was simply that the terms of the pension scheme of the private employer would be as good as in the public sector. It was never a guarantee against the insolvency of the sponsoring employer. All private sector employees are covered by the Pension Protection Fund, provided that their firm pays the PPF levy. That is how these workers will get all or most, depending on their circumstances, of the pensions they were expecting. It would be wrong to give special treatment to that group when many other people work for firms that went to the wall and will not get that treatment.

[Katy Clark (North Ayrshire and Arran) (Lab)]

Does the hon. Gentleman not accept that to enable privatisations to go ahead—we are not just talking about the railways; the electricity sector and the miners were affected in similar ways—promises were made that people’s pensions would not suffer any detriment as a result of privatisation? Our experience is that privatised companies go bust more often than others. Surely we are reneging on those promises.

[Steve Webb]

Just to be clear, new clause 7 makes a specific suggestion regarding a private sector employer going to the wall. The promise was never, “You’ll get absolutely everything, even if your firm goes bankrupt”; it was that the terms of the pension would be as good as in the public sector. Clearly, in this case people are working for a private sector firm and could, if they wish, transfer their pension rights to somewhere else. They chose to keep them with the sponsoring employer.

Bear in mind that the money to pay for any shortfall in those pensions will come from the general taxpayer. Somebody is paying for that shortfall and many general taxpayers have no pension provision at all. If a private company knows that the pension fund is completely insured by the Government, that may influence its behaviour in a way we would not want. If feels unfair to say, “If your private employer used to be nationalised not only do you still have access to a very good pension scheme, but it is absolutely protected, whereas if you worked for any other private firm you are not protected.” I can understand why the hon. Member for Hayes and Harlington, given his trade union links, supports the railway workers—that is fair enough—but it seems like special pleading for that industry and I think there are many others who might make the same argument.

[Steve Webb]

Although the ABI code, for example, no longer requires the providers to send the application form with the wake-up letter, I gather the early evidence is that it has not substantially changed the proportion of people who shop around and then move to a new provider. I agree with my hon. Friend that there is a big agenda on decumulation—I apologise again for the word. It is not just about annuities. The new clause is too narrow and too prescriptive, but I assure my hon. Friend that we do not regard decumulation as a job done—on the contrary.

[Katy Clark]

I have been contacted by a number of constituents who are in difficulties because of the current regime. The Minister clearly accepts that there is a need for change. When will he come forward with proposals? He has been in post for a number of years and is clearly on top of his brief. We need the Government to act. When will they do so?

[Steve Webb]

My particular responsibility is automatic enrolment. We are about to put 10 million people into mainly defined-contribution pensions, the vast majority of whom, all things being equal, will then buy an annuity at the end. For understandable reasons, our focus in the past few years has been to get the infrastructure in place to get those 10 million people into pension saving and building up pension pots. Then, when they have a pension pot, we will ensure that they receive good value at the other end. There will be a set of people who will be auto-enrolled today and will retire tomorrow, but they are a minority. We need to get to grips with this issue. Annuity policy is led by our colleagues in the Treasury, which is why we are working closely with them. We hope to make further announcements soon.

Government amendment 31 relates to the Pension Protection Fund compensation cap. In Committee, we amended the Bill so that workers entering the PPF would have a more generous cap if they had been long-serving employees. The amendment applies the same provisions to people who are already in the PPF. We will not go back years and increase pensions retrospectively, but once the Bill and secondary legislation are passed we will increase their pensions going forward in line with the provisions we have already made for new employees going into the PPF.

--- Later in debate ---

[Gregg McClymont]

Thank you, Madam Deputy Speaker. I was not sure whether I had misheard or whether the hon. Member for Leeds North West (Greg Mulholland) was trying to intervene.

I want to pay tribute to the hon. Member for Warrington South (David Mowat), one of the group of 40, as a doughty campaigner on behalf of those who wish to see radical reform of the pensions market. I do not know whether he had left his place when I quoted from the “40 Policy Ideas from the 40” and the description of the private pensions market as “failed”. I noted that the language used by those 40 MPs was stronger than anything I had used about the private pension market, and suggested that it is a little odd that Conservative MPs take a tougher line on the industry than the Liberal Democrat Minister. Perhaps it is not odd, however, because those who believe in free markets will want the pensions market to work effectively. [Interruption.] I did not catch what was said by the hon. Member for Gloucester (Richard Graham), but I invite him to intervene if he wishes to do so.

Mr Speaker—[Laughter]—I am sorry, Madam Deputy Speaker. You are not the only one who can make a verbal slip!

I was struck by what the Minister said about decumulation. It proved my point about his ability to talk but not necessarily to take any action, or enough action. New clause 11 calls for an independent brokerage service to guide those who annuitise on retirement through the process. Its aim is to deal with the lack of competition which, according to the NAPF and others, causes people to receive an average of 20% less in their annuities than they would have received had they shopped around. That returns me to a point with which I have been trying to persuade the Minister to engage. Buying an annuity involves a huge decision which a person will make only once in a lifetime, and which will affect the rest of that person’s life. However, the process is complicated, and because they find it hard to understand what they are being told, most people currently default to the annuities that they are being offered by their existing pension providers.

[Katy Clark]

I am glad that my hon. Friend is speaking up for savers. He is raising issues that have already been raised with me by a number of my constituents. When I told the Minister that we were waiting to hear proposals from the Government, he said that we would hear something very soon. Has my hon. Friend been given any indication of when that might happen?

[Madam Deputy Speaker (Mrs Eleanor Laing)]

Gregg McClymont!

--- Later in debate ---

[Richard Graham]

I am glad to see the Minister nodding on that.

[Katy Clark]

Like the hon. Gentleman, I have nuclear power stations in my constituency—Hunterston A, which is being decommissioned, and Hunterston B. Has he, like me, been contacted by numerous employees who are incredibly concerned about the protections that will be taken away from them by this Bill?

[Richard Graham]

That is an interesting point. The answer is yes, but they are not in the hundreds. They come in two types. One type number those who are either still working there and are concerned about possible changes to the defined benefit scheme and exactly the issue I have just gone through with the Minister. I hope that that will be reassuring to the hon. Lady’s constituents as well as to mine.

The second type of person who has been in touch relates to the third constituency query I was going to raise: those members who are covered by the Electricity (Protected Persons) (England and Wales) Pension Regulations 1990. I see the hon. Member for North Ayrshire and Arran (Katy Clark) nodding and suspect that she has been contacted by people in a similar situation. The issue is that their pensions might be affected by changes to their pension schemes to reflect these higher national insurance costs. I understand that the Government have still not responded to their own consultation on whether to exempt protected persons from these changes. The Minister might care to comment on that later. It might be something that the Treasury is involved in, alongside the Department for Work and Pensions, but I think that it would be right to express concern on behalf of some of the pensioners involved. However, I understand that there is an argument that both existing pensioners and current members of a pension scheme should be treated with consistency on that. I raise the issue so that the Minister can respond. Those were the three queries on bereavement, change of occupational schemes—which has been answered—and the protected persons scheme.

In conclusion, what the Government are proposing in the Pensions Bill is important and will make a difference. The changes will enable people to save and that saving will pay. The technical details, which the Minister covered earlier, are important for smoothing out some of the small but niggly details that will affect our constituents in due course.

At the risk of repeating myself, I am disappointed by the approach taken by the shadow Minister, the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East. For him and his party to fall back on a slogan of “consultation not action” really was disappointing; after 86 minutes we would have hoped for a great deal more clarity on his precise proposals. What exactly does he intend to do on charges? In the absence of such clarity, I hope that he and Members from all parties will make substantive contributions to the consultation so that we can agree on the charges, make changes to the annuity details and say with pride to all our constituents that this Pensions Bill will make a difference to all our lives in retirement.

--- Later in debate ---

[Greg Mulholland]

Thank you, Mr Deputy Speaker. May I remind the House what the improvements to auto-enrolment will do, which has not come out in the debate? Let us look at the figures. Some 1.6 million people have signed up for auto-enrolment. Of course, the ability to opt out remains, but rather than the expected one in three opting out, the figure is only 10%. Many millions of people are not currently saving for their retirement, but auto-enrolment will lead to between 6 million and 9 million people saving for the first time by 2018. That is crucial.

It is important to remember—this, too, has not been mentioned in the debate—that, as well as employee contributions, there will be support from employers and the Government. People aged 22 or over who are earning more than £9,440 a year will be automatically put into the pension scheme. Individuals who choose to save 4% of their income will benefit from an employer contribution of 3% and tax relief of 1%. It is important to welcome and emphasise that—it should be welcomed and emphasised by all hon. Members.

The key debate is on charging. The Minister referred to the OFT report that raised concerns about standards, particularly in legacy schemes. The Government have rightly amended the Bill to take that into account. I warmly welcome amendment 30 and his announcement of the consultation. I believe the consultation should be welcomed and not criticised.

I should gently make one point to my namesake, the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East. He gave the impression that he was critical of the Government’s approach on consultation, but in amendment (a), which he has tabled, proposed new subsection (3) to Government new clause 1 states:

“Before making regulations under subsection (2), the Secretary of State must undertake a public consultation”.

It is odd that he is critical of the Government’s approach while calling for the very same consultation in black and white.

The hon. Gentleman was slightly wrong, or he misplaced his emphasis, in his suggestion that the Government are consulting rather than taking action. He knows—his proposal shows this—that consultation is a necessary precursor to legislation. It is important in getting legislation right. Without daring to put words into the mouth of the Minister, I think it is important to say that the intention is clear—that there should be a charge cap and that one will be introduced. The point of the consultation is not whether to introduce one: it is to find out the best way to do so. We should be clear about the subject of the consultation.

I have one question for the Minister, which he may be able to answer. The announcement on the consultation is imminent, although it is not happening as part of the Bill, so will we see him back at the Dispatch Box soon to make it? He is clearly the right and proper person to make the announcement, given his involvement in the Bill. I hope that he will be back, perhaps even in the next 24 or 48 hours, to announce it, and I and others look forward to welcoming that and the details that I am sure he will wish to lay out.

Despite this being a complicated subject in terms of the figures, the construct of the Bill and the pension sector as a whole, we all know that in the end this is about people’s future incomes and ensuring that they have a reasonable standard of living in their retirement, as well as more certainty in their retirement. The figures that the Minister provided about the current impact of the 1.5% and 1% charges were startling in showing just how much money people lose over the course of saving for their pensions. That is why a cap is right.

I say gently to the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East that in his 78-minute speech—at least, I made it 78 minutes, not 86 minutes—[Interruption.] I am being generous: perhaps the hon. Member for Gloucester (Richard Graham) thought it felt like 86 minutes. In any case, the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East showed his knowledge of his brief, and I commend him for that, but it is slightly strange to hear his many recommendations for auto-enrolment when the previous Government would not even countenance those suggestions at the time of introduction. Nor did he acknowledge the problems with the 1% and 1.5% charges.

This has been a long and challenging process. Hon. Members on both sides of the House have made contributions that have been listened to and addressed. I look forward to the consultation. All of us with an interest in this issue should watch it closely and take part in it. We should also encourage others to take part. I shall end by congratulating the Minister, his team and his colleagues on what they have done to get this important Bill to this stage. It will lead to more certainty and fairer retirement incomes for the people of this country.

[Katy Clark]

In the short time available to me, I wish to focus on the issue of protected persons, which was raised in the debate by the hon. Member for Gloucester (Richard Graham), who also has many constituents employed in the nuclear industry. The electricity sector will be affected, as well as many other sectors. My hon. Friend the Member for Hayes and Harlington (John McDonnell) has tabled new clause 7 to address those affected in the railway industry, who are protected persons as a result of a privatisation that happened 20 years ago. Other industries affected include energy, water and mining. It is believed that some 52,000 people in this position will probably be affected by the Bill.

Many of my constituents have been in touch with me on the issue. They tell me that the Government have still not responded to the consultation on whether to exempt protected persons from changes to their pension schemes to reflect higher employer national insurance costs from April 2016. I will focus not so much on the detail of new clause 7, which would help those in the railway industry, or new clause 37, which would help those in other sectors, but on the principle they both address.

--- Later in debate ---

[Gregg McClymont]

I want to speak in particular to our new clause 8 and amendment 37. We are now discussing the provisions in this Bill that relate specifically to state pensions rather than private pensions, and it might be of some significance that the issue of protected persons and protected pension schemes is emerging in this context.

We have listened to the very powerful case made by my hon. Friend the Member for Hayes and Harlington (John McDonnell), and one cannot but feel that there is a specific set of circumstances around the privatisation of nationalised industries. My hon. Friend has eloquently focused on the railways, but amendment 37 deals with the issue of former nationalised industries in the round, and there are also energy schemes and some coal schemes.

We are in a curious situation. The Minister is giving himself the power to keep the promise made to the members of those schemes, but he has not yet said whether he will use that power to honour that promise. This is a Pensions Bill and there are 50,000 or so remaining members of these pension schemes, so it is curious that he has not yet said what he intends to do. Will he do so in his reply?

[Katy Clark]

Does my hon. Friend agree that the difference is that these privatisations were hugely contentious and there was huge opposition to them, and the pension promises were made by politicians to try to ensure that these things happened? That puts those situations in a different category from many of the others we are talking about.

[Gregg McClymont]

I thank my hon. Friend for that intervention. I agree that there is a specific set of circumstances around these pension schemes. I am certainly not saying that accruals and the terms and conditions of a pension can never be changed in any circumstances, but there is a specific set of politically charged circumstances to do with the privatisation of these industries. Specific undertakings were given to the members of those schemes to encourage them to accept, if not actively support, the privatisation of the industries in which they worked. I urge the Minister to tell us this evening, if he can do so, whether he intends to use the power he is giving himself in the Bill to honour the promises made to the members of those schemes. If he will not do so, we will force a Division to test the opinion of this House on amendment 37, which would mean that the promises made to the 50,000 or so men and women in those protected schemes were met.

I am conscious of the time and allowing the Minister appropriate time to respond to the broader debate. I noted closely what the hon. Member for Brighton, Pavilion (Caroline Lucas) said about her new clause 6 and her belief that the 700,000 or so women in the group born between 1951 and 1953 will not get the new state pension, because they are the last pension cohort before the equalisation of the pension age, whereas men of precisely the same age will get it. Let me put it in simple terms: if there were twins, one male and one female, in that age cohort, the male twin would get the new state pension in 2016 but the female twin would not, having retired a little earlier. Such issues do emerge when we are involved in pension reform. The Minister and I have gone back and forth on the matter on a number of occasions, and I will not anticipate his arguments because we have gone through them some time before. However, we have to look at the issue in the context of a view that has grown up among many women that this Government’s attitude to their pension provision is not as generous as they believe it should be.

When considering the 2011 legislation, we had to deal with the issue of a significant number of women having very little time to prepare for retirement and short notice. They would have had to work for longer but some of them would have had only five years to prepare for that. They were five years from when they thought they would be retiring and then found out that they might have to work for seven more years. I am pleased that the Minister made a concession on that, although he did not go as far as we wanted. That group of women—a slightly different group from those we are dealing with here—who were also approaching retirement, felt that they were being unfairly treated. Not only did they feel, rightly, that they were being unfairly treated, but we have also had to deal with the Minister’s approach to auto-enrolment, which is excluding more than half a million women—and rising—from the benefits of auto-enrolment, because of the raising of the threshold for auto-enrolment in line with the personal allowance. A general sense has developed that this Government do not quite get it with women and pensions.