Oral Answers to Questions

Steve Webb Excerpts

Monday 5th November 2012 Commons Chamber

[Dan Jarvis (Barnsley Central) (Lab)]

1. What steps he is taking to ensure that foreign conglomerates carry out their responsibilities to UK pension-holders.

[The Minister of State, Department for Work and Pensions (Steve Webb)]

As this is the first session of DWP questions since the announcement of the untimely death of Malcolm Wicks, I hope that you will allow me, Mr. Speaker, to place on record, on behalf of the whole ministerial team, our appreciation of Malcolm and all that he contributed to our debates on pensions and welfare.

The Pensions Regulator has “anti-avoidance” powers to take action against employers when they have acted to avoid supporting the scheme. That includes taking action in foreign jurisdictions when necessary. For example, four financial support directions were issued last year against companies in north America in the Nortel case.

[Dan Jarvis]

I thank the Minister for his response, and for meeting my constituent Alan Hunton and me to discuss the matter. He is aware of my concern about foreign companies that have purchased and asset-stripped businesses in the United Kingdom. In some cases, those firms have discarded their pension responsibilities in such a way as to endanger the pensions to which their employees are entitled. Will the Minister explain how he is working with the Pensions Regulator, and with his colleagues in the Government, to curtail such predatory behaviour?

[Steve Webb]

This is indeed an important issue. I can assure the hon. Gentleman that the Pensions Regulator has engaged during the last 12 months, and continues to engage, with more than 1,100 schemes that are linked to overseas employers. Between April 2010 and August 2012, it has exercised its powers on at least 10 occasions in relation to such schemes.

[Andrew Bridgen (North West Leicestershire) (Con)]

The Minister is aware of a case in my constituency in which the BMI pension fund was placed in a pension protection fund by Lufthansa. In this case, Lufthansa voluntarily paid over £84 million in compensation to the fundholders. However, under current HMRC rules the money is being treated as income, and the lifetime and annual allowance rules are being applied to the compensation. Does my hon. Friend agree that the position is unfair and should be reviewed by HMRC?

[Steve Webb]

I am grateful to my hon. Friend for raising that case. I have corresponded with Treasury colleagues about the issue, and, subject to their consent, I shall be happy to share with him the reply that I have just received.

[Stuart Andrew (Pudsey) (Con)]

2. What progress he has made on the Government's disability strategy.

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[Lorely Burt (Solihull) (LD)]

8. What steps he is taking to protect members of pension schemes from being incentivised to transfer their pensions.

[The Minister of State, Department for Work and Pensions (Steve Webb)]

The Government have worked closely with the pensions industry to address concerns regarding incentive exercises. As a result, an industry code of practice was published in June, which we fully support. A monitoring board has been established to evaluate the effectiveness of the code.

[Lorely Burt]

I am grateful for that answer. Can my hon. Friend provide evidence on the number of companies that have signed up to the code of practice? Is it achieving its objectives?

[Steve Webb]

I am grateful to my hon. Friend for that. The industry’s response to the code has been very encouraging. Some 49 individual firms and, perhaps more importantly, 14 representative organisations have publicly signed up to support the code, and the figures are growing. The supporters include the major employee benefit consultancies engaged in these exercises and their representative organisations.

[Mr David Crausby (Bolton North East) (Lab)]

Auto-enrolment of pensions is a wise and overdue step forward, especially for low-paid employees. However, with workers changing jobs an average of 11 times in their working lives, does it not make much more sense for them to park their pensions in low-cost aggregator schemes? If not that, what will the Minister do to ensure that fundholders will not have incurred high charges throughout their working lives as a result of numerous transfers?

[Steve Webb]

The issue that the hon. Gentleman rightly raises is one of the many loose ends left for us by the previous Government. When auto-enrolment was set up, they simply left us with a situation where people could accumulate a dozen small pots and leave them fragmented. We propose under auto-enrolment that where people leave behind a small pot it will, by default, transfer to their new employer, so that they will accumulate what I have called, in technical terms, a big fat pot.

[Mr Peter Bone (Wellingborough) (Con)]

9. How many people have found jobs through Jobcentre Plus since May 2010.

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[David Mowat (Warrington South) (Con)]

14. What recent discussions he has had on the auto-enrolment charging regime for employees.

[The Minister of State, Department for Work and Pensions (Steve Webb)]

It is vital that people are enrolled in schemes that offer transparent and value-for-money charges. The National Employment Savings Trust’s low charge structure has set a benchmark, prompting several competitive alternatives in the market, and I have called for providers to guarantee not to enrol people into high-cost legacy schemes.

[David Mowat]

The Minister will be aware of the recent Cass business school report that says that many older defined-contribution schemes charge 3% or more. That is six times the best practice of newer schemes, and it is costing many tens of thousands of people the chance of having a decent pension. Will he act to ensure that people cannot be auto-enrolled into those schemes—by using either a kitemark or a charges cap?

[Steve Webb]

On the sort of legacy schemes that my hon. Friend refers to, I am pleased to announce that, only today, another provider—Fidelity—has said that fees in its default funds will not exceed 1% and that existing scheme members will have the opportunity to switch out of their current funds. That follows Aviva’s statements that its schemes will have a charge of not more than 1%. It will not allow auto-enrolment into any older-style schemes. I encourage other firms to follow suit.

[Kelvin Hopkins (Luton North) (Lab)]

Auto-enrolment schemes will still be subject to stock market vagaries, the effects of varying interest rates and inefficiencies of scale. Is not what we really need a 100% state system, where we get defined benefits, as well as defined contributions, and efficiencies of scale and best possible value?

[Steve Webb]

Two sorts of risk are associated with pensions: financial risk and political risk. We have had SERPs—the state earnings-related pension scheme—which successive Governments cut and cut again. So that scheme did not provide any guarantee either. I want a balance of risks for people, a state promise and a private sector entitlement as well.

[Andrew Jones (Harrogate and Knaresborough) (Con)]

rose—

[Andrew Jones]

16. I am developing it as fast as I can, Mr Speaker.

Can the Minister update the House on how employees have responded to auto-enrolment?

[Steve Webb]

Yes. The first firm to auto-enrol was RBS bank, which did so in July. It had 86% scheme membership before auto-enrolment. That has now risen to 93%. The early signs are encouraging.

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

We now seem to have a consensus across the House on the need for a charge cap. The leader of the Labour party has called for a charge cap on old-style legacy schemes, and the hon. Member for Warrington South (David Mowat) has just done the same. Can the Minister confirm that, when he refers to Aviva charging no more than 1%, that is an average and does not apply to all schemes?

[Steve Webb]

On the hon. Gentleman’s first point, this is another of the loose ends left by Labour on auto-enrolment. When Labour legislated, it put in practically no quality requirement at all. So Labour required millions of people to auto-enrol but set practically no standards for what they were auto-enrolled into. This is one of the many issues that we are actively tackling.

[Gregg McClymont]

The Minister has not answered the second part of the question, so I will ask it again. He just told the House that Aviva—I do not single out Aviva, as this is a broader issue—is charging no more than 1% on its schemes. My understanding is that that is an average of 1%, so a scheme could charge 0.4% and another could charge much more. The hon. Member for Warrington South, the leader of the Labour party and I are calling for a cap on old-style legacy schemes. Why does the Minister not get on with this, so that everyone can have a decent retirement scheme?

[Steve Webb]

Let me clarify the specific point. The statement by Aviva is that

“its schemes for automatic enrolment will have an average total product charge of less than 1%... It will not allow auto-enrolment into…older-style schemes.”

On the charge cap, the danger of the hon. Gentleman’s idea of having, say, a 1% across-the-board cap is that someone can tick the box with 0.99%. Actually, many in the market will offer below that. There is a danger that people will be misled if they are just below the cap, when many lower prices are available in the market.

[Gavin Barwell (Croydon Central) (Con)]

15. What recent assessment he has made of the level of employment.

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[Pauline Latham (Mid Derbyshire) (Con)]

17. What progress his Department has made on its plans to support separated families.

[The Minister of State, Department for Work and Pensions (Steve Webb)]

The Government have already announced a £20 million investment in the development of support for separated families in the current spending review period. This will include provision of an online distributable web application to be launched later in the autumn, and up to £14 million for the new innovation fund to support separated families.

[Pauline Latham]

I thank the Minister for that answer. Will he reassure the House that the £14 million innovation fund will be spent on projects that will ultimately benefit children, and will he explain how that will be achieved?

[Steve Webb]

Yes. We have had 100 expressions of interest from voluntary groups and charities, and we have whittled that down to about 30. All are trying to build on existing work that enables parents, when they are separating, to deal with each other in a mature way in the interests of the children. That is the central aspect of our new strategy.

[Kerry McCarthy (Bristol East) (Lab)]

When family breakdowns occur, grandparents, aunts, uncles or other relatives often have to step into the breach and a kinship care situation arises. Will the Minister assure me that he is talking to his colleagues in other Departments to make sure that when that situation happens, particularly in an emergency, support is given to those who step up to the plate?

[Steve Webb]

I agree that we need to support kinship carers, such as grandparents. One change that our Department has made is that, for example, where a mother is going out to work and is not using the national insurance credits that she would have gained for receiving child benefit, they can be passed to a grandparent, who may not be of pension age, to make sure that they are not financially disadvantaged. That is just one of the things we are doing to support that important group.

[Jonathan Evans (Cardiff North) (Con)]

18. What steps his Department is taking to ensure that older workers with little private pension provision are not disadvantaged by the introduction of auto-enrolment.

[The Minister of State, Department for Work and Pensions (Steve Webb)]

Our research shows that even under the current rules 99% of savers will get back at least as much as they put in under auto-enrolment, and around 70% will get back twice as much. In addition, our state pension reforms will support planning and saving for retirement by delivering a simpler, single, flat-rate pension set above the basic level of the means test.

[Jonathan Evans]

I accept that those were the calculations made in 2010 as part of the auto-enrolment review, but since that time we have seen investment returns fall so much that the Financial Services Authority is ordering the industry to downscale its forecasts and we have also seen annuity rates fall. Have the Government recalculated their figures to take account of that?

[Steve Webb]

The short answer to the hon. Gentleman’s question is no. However, one important point I would raise is that if someone only builds up a very small pension pot, they have a legal right to take it, in most circumstances, as a cash lump sum with a quarter tax-free. Even someone later in life can get an employer contribution tax relief—a lump sum taken with a tax-free contribution. That will be attractive, even in later life.

[Stephen Metcalfe (South Basildon and East Thurrock) (Con)]

20. What steps he is taking to tackle the causes of social breakdown.

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[Mark Durkan (Foyle) (SDLP)]

T10. The Fair Pensions report, “Whose Duty? Ensuring effective stewardship in contract-based pensions”, highlights the relative lack of quality standards being applied to UK schemes, as opposed to other jurisdictions such as Australia. The Minister referred to active steps being taken in relation to auto-enrolment. Do those steps extend to re-visiting actively the qualifying criteria and the default fund guidance?

[The Minister of State, Department for Work and Pensions (Steve Webb)]

The hon. Gentleman is right to raise the important issue of governance. We do not think that we have a significant problem with the early stages of automatic enrolment for the biggest firms. They are coming in at a low cost and are well governed. The issue will arise further through the process and we are indeed looking at the quality of schemes into which people are auto-enrolled, including charges and governance.

[Andrew Jones (Harrogate and Knaresborough) (Con)]

T7. What progress is being made to ensure that work capability assessments are sensitive to fluctuating medical conditions such as stroke care?