Pensions: National Employment Savings Trust Corporation

Steve Webb Excerpts

Tuesday 18th November 2014 Written Statements

[The Minister for Pensions (Steve Webb)]

I am pleased to announce that Mr Otto Thoresen has been appointed as the next Chair of NEST Corporation, the body that runs the National Employment Savings Trust (NEST). Mr Thoresen will take up the appointment from 1 February 2015.

NEST was established as a low-cost, occupational pension scheme to support automatic enrolment. It is focused on a target market of low to moderate earners and smaller employers who the market served inefficiently. Through delivery of its public service obligation, NEST ensures that all employers have a suitable pension arrangement through which to fulfil their automatic enrolment duties.

NEST already has around 1.6 million members and is working with over 9,000 employers. From June 2015, 1.2 million small employers—those with fewer than 50 workers—will start to engage with automatic enrolment. NEST will be critical in ensuring that these small employers are able to access low-cost pension provision for their workers.

Mr Thoresen brings with him a wealth of knowledge and experience of pensions to this challenging role and has a distinguished career of operating at the highest level in large and complex organisations. He is currently director general of the Association of British Insurers (ABI) and has held senior posts at Aegon, Abbey Life, Royal Life Holdings and Scottish Equitable. He is a trustee of Young Enterprise; an adviser to the Citizens Advice Board Edinburgh; a governor of the Pensions Policy Institute; and a trustee of Step Change, a debt charity. His appointment as Chair demonstrates our commitment to recruiting people with a proven track record and the expertise to get the job done.

Credit Reference Agencies (Client Information)

Steve Webb Excerpts

Tuesday 11th November 2014 Written Statements

[The Minister for Pensions (Steve Webb)]

Section 40 of the Child Maintenance and Other Payments Act 2008 gives the Department for Work and Pensions’ Child Maintenance Group the power to disclose client information to credit reference agencies. This can be done when a client has been non-compliant and has a liability order imposed on them or where they have requested that their information is shared.

It is our intention to commence this power in February 2015. We intend to lay regulations setting out the information that can be disclosed, and thus enabling the power to be used, in March 2015 with the intention of them coming into force by the end of the same month. These regulations will be confined to setting out the information required by credit reference agencies to affect the credit rating of a non-compliant non-resident parent against whom the Department holds a liability order.

This power was consulted on as part of the 2006 Command Paper Cm 6979 “A New System of Child Maintenance”. The responses received were generally supportive of implementing this power.

In my response to written parliamentary question 213703 tabled by the hon. Member for Edinburgh East (Sheila Gilmore), on the subject in July 2014, I said I would consult on this power before regulations were laid.

Further investigation has shown that there is no flexibility regarding the information we will need to provide to credit reference agencies to affect a credit rating of a non-resident parent against whom we hold a liability order. Given this position, a consultation would have no scope for changing the information that would be set out in these regulations. Consequently I have decided not to consult on this power at this stage.

However, if it is decided that further information should be disclosed to credit reference agencies under this power, there will be a consultation in advance of any further regulatory changes.

Oral Answers to Questions

Steve Webb Excerpts

Monday 3rd November 2014 Commons Chamber

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

1. What assessment his Department has made of the effects on working families of recent changes to the level of benefits.

[The Minister for Pensions (Steve Webb)]

Since the financial crash of 2008, while average wages have risen by around 10%, working age benefits have risen by around 20%—a sign of our commitment to those who are most vulnerable, despite the black hole in the public finances that we inherited.

[Chi Onwurah]

In their relentless demonisation of those on benefits, this Government forget to say that only 3% of welfare spending goes on benefits to the unemployed, and a half of all those in poverty are in working households. In the north-east, working people are £1,800 worse off per year since this Government came to power, and a quarter of a million of them do not even get the living wage. Now the Minister decides to freeze working tax credits. Why is he balancing the books on the backs of the working people?

[Steve Webb]

It is difficult to know which of those dubious assertions to choose from that question. [Interruption.] The hon. Lady asks which one is dubious. She says that 3% of what she calls welfare spending goes to the unemployed—[Interruption]—goes on benefits to the unemployed, so she presumably counts state pensions as welfare spending. I do not.

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

I welcome the news that over the last 12 months we have seen the largest annual fall in unemployment since records began. Does the Minister share my view that the best way out of poverty is through sustainable employment and a regular pay packet—something enjoyed by an extra 847 of my constituents since January 2013?

[Steve Webb]

My hon. Friend is quite right. We know that the risk of a child, for example, being in poverty is three times as great if they are in a workless household rather than a working household. We have almost become blasé about new record falls in unemployment month after month. That is the key to our drive to tackle poverty.

[Mr Frank Field (Birkenhead) (Lab)]

I ask the Minister this week to support the living wage campaign in his own Department. Can he tell the House how many contracted-out workers outside London in his Department have yet to receive the living wage?

[Steve Webb]

The right hon. Gentleman deserves great credit for his promotion of the living wage. My right hon. Friend the Secretary of State inherited a situation in which some of the Department’s employees were not receiving the living wage. Our Department has committed to it, and we have had that dialogue with our subcontractors as well.

[Guy Opperman (Hexham) (Con)]

I also welcome the rise in the living wage announced today. The Minister will be aware that jobseeker’s allowance claimant numbers are falling across the board in every single constituency in the north-east, and by 31% in my Hexham constituency over the last year. Does he agree with me that coming off JSA and into employment is surely the way forward?

[Steve Webb]

My hon. Friend is quite right. It is entirely welcome that we are ensuring not only that more people get into work, but that work pays through the universal credit reform, which this coalition Government are proud to have introduced.

[Helen Jones (Warrington North) (Lab)]

According to the Government’s own figures, 20% of working people in my constituency earn less than the living wage, yet they will lose hundreds of pounds a year through this Government’s freeze in working tax credit. How does that possibly reward people who want to work, and how can the Minister justify that when the Government give tax cuts to the wealthy?

[Steve Webb]

The largest number of people who have benefited most from tax cuts during this Government are those who are in work and paying income tax. Under this Government, a typical basic rate taxpayer is £800 a year better off in cash terms as a result of our changes to the personal income tax allowance, and over 3.2 million individuals will have been taken out of income tax altogether.

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

Harrogate borough is part of the roll-out of universal credit, and the feedback from jobseekers and employers has been universally positive. Will the Minister explain a bit more about the benefits to the UK economy as a whole when this roll-out is completed?

[Steve Webb]

My hon. Friend is quite right that the early indications from those receiving universal credit have been positive, in line with the expectations of my right hon. Friend the Secretary of State. We are designing the system to be simpler for people and to make sure that when they take work, work pays. Already those on the front line who are working with unemployed people are welcoming the new freedoms universal credit gives them to support people back to work.

--- Later in debate ---

[Lucy Powell (Manchester Central) (Lab/Co-op)]

16. What forecast he has made of the likely level of child poverty in (a) 2015 and (b) 2020.

[The Minister for Pensions (Steve Webb)]

Relative child poverty is now at its lowest level since the mid-1980s, and there are now 300,000 fewer children in relative poverty than in 2010. However, poverty projections are based on a number of factors that cannot be reliably predicted, including the median income.

[Diana Johnson]

According to the most recent figures published under this Government, 53% of children in the Orchard Park and Greenwood ward in my constituency are living in poverty, compared with 11% in the neighbouring constituency of Haltemprice and Howden. What is the Minister going to do to ensure that we do not end up with a permanently divided society?

[Steve Webb]

The fall in unemployment has happened across the country, and the risk that a child will be living in poverty is three times greater for those living in workless households than for those living in a house in work. We now have over 300,000 fewer children living in workless households, with more falls since those figures were put together. That is the best antidote to child poverty.

[Lucy Powell]

Those same figures show that Manchester Central has the fourth highest rate of child poverty in the country. That comes on top of the finding by the Government’s own Social Mobility and Child Poverty Commission that there are now 600,000 more children in working households living in absolute poverty. When will Ministers stop denying that that is a problem and do something about it?

[Steve Webb]

I was very struck by the comments of the hon. Lady’s hon. Friend the shadow Education Secretary. According to a recent article:

“Criticising the policies of the last Labour government, Mr Hunt said that the party had previously been too preoccupied with tax credits and not given enough thought to tackling social problems in families.”

We are tackling those social problems through the troubled families initiative and a whole range of initiatives, such as the pupil premium, free school meals and more help with child care for young children. Disadvantaged children will benefit from our measures.

[Sir Bob Russell (Colchester) (LD)]

Assuming that the Department for Work and Pensions supports the armed forces covenant, will the Minister indicate whether the children of any serving personnel might be brought into child poverty as a result of the Ministry of Defence’s decision in recent days, as we approach Remembrance Sunday, to jack up the rents for Army married housing?

[Steve Webb]

I take a close interest in those matters, as vice-chair of the ministerial committee on the armed forces covenant, and know that my hon. Friend has a proud record in speaking for his constituents on these matters. We have sought to benefit the children of serving personnel—for example, with regard to education if they have to move around the country—but I will be happy to raise with colleagues in the Ministry of Defence his concern about the impact of the rent increase and ensure that he receives a written response.

Workplace Pensions

Steve Webb Excerpts

Friday 17th October 2014 Written Statements

[The Minister for Pensions (Steve Webb)]

Four million people have been automatically enrolled into workplace pensions since 2012—a significant step as we expand retirement saving in the UK. Millions more will be enrolled before 2018 as the workplace market is transformed.

We must make sure workplace pensions are well governed, with competent trustees and managers and members’ interests at the heart of everything they do. Today’s Command Paper confirms that we intend to place minimum governance standards on all money purchase schemes. The Pensions Regulator and the Financial Conduct Authority will continue working with the DWP to make sure members are protected regardless of the type of workplace arrangement they are saving into.

We will also press on with the charges measures we announced in March—protecting members from high and unfair charges. Today we provide more detail on how these protections will be implemented, along with more information on measures to drive greater transparency, so pension savers and those running schemes know exactly what they are paying for.

Alongside today’s Command Paper we are publishing draft regulations on the governance and charges measures that, subject to parliamentary approval and any changes as a result of this consultation, will commence from April 2015. The consultation will last for four weeks and we look forward to engaging with our stakeholders during that period to make sure we get this important legislation right.

This Government are putting savers at the heart of the pensions system. Alongside the flexibilities announced in the Budget, these measures will provide savers with the best chance of securing a financially independent retirement.

Cold Weather Payments Scheme 2014/15

Steve Webb Excerpts

Monday 13th October 2014 Written Statements

[The Minister for Pensions (Steve Webb)]

I am pleased to announce that on 7 October 2014 regulations were laid to amend the cold weather payment scheme. The changes detailed in these regulations will come into force on 1 November this year, in time for the beginning of the winter period.

There have been no Royal Mail postcode changes affecting this year’s scheme. The Meteorological Office however has recommended that the primary station at Manston be replaced with Langdon Bay and the primary station at Lyneham will be replaced with Westonbirt. The Morpeth, Cockle Park station is proposed as a more suitable station than the primary station at Boulmer. There are no proposed changes to postcode linkages for these stations.

Also, and as a result of MPs’ representations, a few postcodes will be re-assigned to suitable weather stations.

This will ensure that the weather stations to postcode links are as representative as the current arrangement.

I am writing to each Member who made representations about the administration of the scheme last winter to make them aware of the advice from the Meteorological Office.

Cold weather payments are separate from, and in addition to, winter fuel payments.

The amendments resulted from the Department’s annual review of the cold weather payments scheme. The review drew on expert advice from the Meteorological Office and took account of representations from benefit claimants and Members of Parliament.

For winter 2014/15 the cold weather payment rate will continue to be £25 for each seven day period of very cold weather.

Discretionary Social Fund (Redcar and Cleveland)

Steve Webb Excerpts

Wednesday 10th September 2014 Westminster Hall

[The Minister for Pensions (Steve Webb)]

It is a pleasure to serve under your chairmanship, Mrs Brooke. I congratulate my hon. Friend the Member for Redcar (Ian Swales) on securing the debate and on representing his constituents’ concerns in such a measured, thoughtful and well-informed way.

In the brief time available to me, I hope to answer my hon. Friend’s questions and make some observations about how Redcar and Cleveland council’s performance compares with that of other local authorities. Some of the things he observed are, to a greater or lesser extent, common across local authorities, but some suggest that there are particular issues in Redcar that I should address.

My hon. Friend asked about the allocations for 2013-14 and beyond. Nationally, we are roughly spending the money that we would have spent on community care grants and certain crisis loans, plus an amount for administration, had we continued the schemes. The transition to local provision was not a cut, but broadly a transfer of the money we would have spent.

My hon. Friend asked how the specific allocations were made. They were based on historical spend and demand. In other words, we looked at where community care grants were paid and where crisis loans were bid for. It is never quite as simple as that, but that is the basis for the allocations. He asked for the figure for 2012-13. In his area, the Department for Work and Pensions spent £717,000 on the things that the council is now responsible for.

I will briefly recap what happened. My hon. Friend spoke about localism, and we took the view that, although it is right that DWP does certain things nationally, it is important that the national Government do not overlap, duplicate and interact unhelpfully with what local authorities do. We looked at what DWP was doing, and it became apparent that community care grants and, to some extent, crisis loans overlapped with things that local authorities were already doing for vulnerable people, people coming out of care and people in crisis. The point of the reforms was to give local authorities the money that we would have spent and enable them to co-ordinate it, so people have to deal with only one authority, not two, and get better results.

It is fair to say that all local authorities in 2013-14 took a while to get going on local welfare provision, which was not surprising given that it was new money and that new processes had to be set up. We estimate that in the first year, 2013-14, about 60% of the funding that was available across the country was spent. We think the corresponding figure for Redcar and Cleveland is 40%—that is programme funding, not administration.

Although we accept that there is a general issue about setting up new systems because it is costly and takes time, Redcar and Cleveland council seems to have struggled more than many others in getting the money out to its citizens. As my hon. Friend said, the unspent money was carried forward, so it will get into the system at some point. Nevertheless, in 2013-14 many people in need did not get the money when they needed it, and the fact that the council will spend the money in 2017-18 or 2018-19 does not address those people’s needs, which is regrettable.

My hon. Friend asked about ring-fencing, which is a constant dilemma. Philosophically, he and I are both localists, so we think that, in general, local authorities are best placed to determine local need. There is a risk if we tell councils in every specific case that they absolutely have to spend so much money on a certain thing because we think it is important. There is a tension between those things, and judgments must constantly be made. The philosophy behind the localisation was to merge the funding with other council funding in an integrated way to make funding for one person part of the big pot, so we felt particularly uncomfortable about creating a hard ring fence, although we thought hard about it. In the end, we said to local authorities, “This is your money.” The two things my hon. Friend referred to—crisis loans for people in immediate crisis and community care grants for people who are coming back into the community—are where we would have spent the money, and they mirror where the money was previously spent.

We asked local authorities to report back to us. As there was an underspend in 2013-14, I wrote to local authorities in January and July 2014 to tell them that in 2014-15 we would like to know what was happening on a quarterly basis. The majority of local authorities replied to that letter, but Redcar and Cleveland did not, which puts us in a difficult position. In the letter on 2014-15 spending, I said:

“Whilst we do not intend to withhold money, if evidence comes to light that the money is not being spent we will have to revisit that decision during the course of the year… Providing a return is a crucial part of monitoring this spend”.

I urge my hon. Friend’s local authority to let us know what it has been spending the money on in 2014-15. As custodians of more than £170 million a year of public money, we have a duty to seek assurance, in the context of localism, that the money is being well spent, so we need to hear back from the local authorities.

My hon. Friend also raised an important issue about the proportion of people being turned down, which is concerning. Not everybody used to get social fund loans or community care grants, but, roughly, more than two thirds of people who applied for crisis loans and more than a third of people who applied for community care grants were successful. Although my hon. Friend said that the one in 10 figure might not be what it seems, one must ask whether we have the balance right if the vast majority of people who have gone through the expense and difficulty of claiming are turned down. Obviously, it is for local authorities to decide how to carve up the pot, but if so many people are being turned down, the local authority probably should look again at whether is has the balance right.

[Tom Blenkinsop]

Will the Minister give way?

[Steve Webb]

As I have got only a few minutes, I am sure the hon. Gentleman will forgive me for not giving way.

My hon. Friend asked what happens in a crisis and whose responsibility it is. In general, if it has been agreed that somebody is entitled to a DWP benefit, but they have not yet got the money, they can get an advance payment of benefit. That is a matter for the DWP. If a person has applied to us and there has been a bureaucratic problem at our end, that is a matter for us, but financial crises per se are a matter for the local authority; that is the split. If a person has an issue with DWP, we expect them to go to DWP, but people have financial crises for a whole raft of reasons.

My hon. Friend asked about the position in 2015-16. DWP receives funding from the Treasury, which it allocates in full to local authorities for local welfare provision for 2013-14 and 2014-15. The intention was always that, post 2015-16, it would be one of the things that fell within local authority responsibilities funded by the Department for Communities and Local Government. As non-ring-fenced activity, there is no separate sum in the total local government settlement for that item, but the local government settlement for 2015-16 was set in the knowledge that this matter is a responsibility of local government. It is fair to say that local government gets significant sums for people in need. For example, it receives £200 million for a troubled families initiative, and £3.8 billion for adult health and social care funding. Therefore, large sums of money go to local government for people in need, and it will have that responsibility from 2015-16. The issue that my hon. Friend raised is currently the subject of a judicial review. I hope the matter will be resolved before too long, but, as it is currently before the courts, I am constrained about saying any more about it.

Finally, my hon. Friend asked whether I think that the council got it right and whether that is how we expected money to be paid out. I hesitate to second-guess local authorities because the point of localism is to let them decide how best to use the money in the interests of their citizens. I share my hon. Friend’s concern about the amount of money in kind available—as he said, we are not talking about cash—and about the fact that in the past people would have been able to get significant help in a crisis. Money is going to other things that are worthy in their own right—nobody objects to funding a credit union or a carers group—but there is a risk, and local authorities that have had spending power transferred to them must look after people in crisis. Improved infrastructure and general financial capability are great, but people in crisis and those who come out of institutions need provision. Every local authority, including my hon. Friend’s, must meet those urgent, immediate needs, not only their wider strategic goals. I hope that response helps my hon. Friend.

Pensions (Automatic Enrolment)

Steve Webb Excerpts

Monday 8th September 2014 Written Statements

[The Minister for Pensions (Steve Webb)]

I am pleased to announce the Government intend to remove the annual contribution limit and transfer restrictions on National Employment Savings Trust (NEST), to ensure all businesses can be confident that this low-cost and easy to use scheme is among the options they can choose to enrol their work force.

NEST was set up to support automatic enrolment. It was designed to provide a quality, low-cost pension scheme focused on a target market of low to moderate earners and smaller employers.

NEST currently has over 1.5 million scheme members and is working with over 8,900 employers. The scheme has a public service obligation to accept any worker automatically enrolled by their employer and in recognition of this, NEST receives state aid. To balance any competitive advantage there are a number of constraints including an annual contribution limit and restrictions on transfers.

In their response to the call for evidence on the impact of the annual contribution limit and the transfer restrictions on NEST, (Cm 8668) published in July 2013, the Government confirmed their intention to lift these two constraints in April 2017. Since then, the European Commission has considered and approved the modifications to the state aid case for NEST. Full details of the Commission’s decision are available here: http://ec.europa.eu/competition/state_aid/ cases/251386/251386_1567249_105_2.pdf

Accordingly, we will commence a short technical consultation on draft legislation, this autumn, to remove the annual contribution limit and the bulk transfer restrictions on 1 April 2017. We also retain the option to remove the individual transfer restrictions, from 1 October 2015.

Pension Schemes Bill

Steve Webb Excerpts

Tuesday 2nd September 2014 Commons Chamber

[The Minister for Pensions (Steve Webb)]

I beg to move, That the Bill be now read a Second time.

It gives me great pleasure to move this Bill, alongside my right hon. Friend the Secretary of State for Work and Pensions and my hon. Friend the Financial Secretary to the Treasury, as the latest measure in our groundbreaking pension reforms. In the run-up to the Queen’s Speech, there was some suggestion that the Government had run out of steam. Indeed, the phrase was coined that this was a zombie Parliament. I have to say that, with not one but two items of pensions legislation in the Queen’s Speech—the Pension Schemes Bill and its sister Bill, the pensions tax Bill—we will be very busy over the remaining months of this Parliament taking the pensions system to a far better place. I can assure the House that there are no zombies at the Department for Work and Pensions.

The Pension Schemes Bill will improve the system in two ways: it will give people much greater flexibility on how and when they access their savings, and it will enable innovation in the pensions industry, to better meet the needs of businesses and individuals.

Before I run through the principal features of the Bill, I want to set out the context of the pensions reform that we have undertaken as a coalition Government in these past four years, because it is not possible to have an effective pensions system without an effective foundation. That is why the Pensions Act 2014, which introduces the new state pension, is so vital. A single, simple, decent pension, getting the vast majority of people clear of means-testing, provides a firm foundation for retirement saving. The reform was long overdue and it will transform the pensions landscape of this country.

The second crucial measure is the introduction of the triple lock, ensuring that for both today’s and tomorrow’s pensioners the long-term, decades-long decline in the value of the basic state pension has been halted. Under this coalition Government, the state pension is now a bigger share of the national average wage than at any stage in the past 20 years—a record of which we can all be proud. At current inflation rates, though new figures are due out shortly, we would anticipate that the triple lock will bite again this year, providing further protection to the nation’s pensioners.

Having established a firm and decent state pension foundation, the next stage in our reforms was to ensure mass membership of workplace pensions—again reversing decades of decline. I was delighted, therefore, that the most recent statistics showed that, for the first time in decades, we have significantly reversed the fall in membership of workplace pension schemes. The successful introduction of automatic enrolment, filling the many gaps in the policy left to us by the previous Government, has now seen 4 million people successfully enrolled into workplace pensions, with more being added with every passing week.

[Richard Fuller (Bedford) (Con)]

The Minister is rightly saying that this Bill is part of a series of measures the Government have undertaken to increase pensions for people. Is the number of people in the auto-enrolment process higher or lower than expected?

[Steve Webb]

I am grateful to my hon. Friend for that question. The number is substantially higher. I had to apologise to the Select Committee in oral evidence recently that we had grossly underestimated the success of our policy. We had thought that the staying-in rates for workplace pensions might be as high as two thirds, but in reality the number of people who, having been automatically enrolled, are staying in is touching nine tenths. Even so, with each passing month, as new figures come out, the sceptics keep saying, “Oh, as we get to smaller firms, the opt-out rates will shoot up,” but we are certainly seeing no evidence of that so far. I think there is a sense that people knew that they needed a pension and knew the value of an employer contribution and tax relief, and when we remove the barriers for them they are delighted to accept it.

[Dame Anne Begg (Aberdeen South) (Lab)]

May I be very clear that both the Select Committee and the Opposition welcome auto-enrolment and are very glad that it has been so successful, because one of the good things the coalition Government did was carry on the policy legislated for by the previous Labour Government? Perhaps some credit should be paid to them.

[Steve Webb]

The hon. Lady will be aware that there was a decade between the first stirrings of the Turner report and the implementation of automatic enrolment. She will also be aware that there is a risk—this is an important point and although I would not accuse the hon. Lady of doing this, perhaps it is relevant to her more partisan colleagues—of rewriting history on this issue. Had we implemented automatic enrolment as envisaged by the Opposition, it would have crashed and burned. Let me explain why I say that, because it is very important.

Had we auto-enrolled people into schemes without any prospect of a charge cap, they could have been exposed to something the Opposition call rip-off pension charges. When in government, the Opposition proposed no consumer protection on charges. Secondly, they would have auto-enrolled people the second their earnings were a pound above the threshold, so people would have been enrolled into pension schemes into which literally pennies were being put by employers and employees. That would have created derision and undermined auto-enrolment. Thirdly and crucially, auto-enrolment was envisaged without any reform of the state pension, so we would have had a state pension of about £5,000 a year and a means test of about £7,000 a year. Therefore, the first £2,000 a year of private saving would have been largely clawed back by means- testing. There would have been stories in the press of mis-selling and of people saying, “Why did I bother saving for a small pension?” I still remember a national newspaper journalist telling me that only when we reformed the state pension did we remove the fundamental objection to auto-enrolment for people on a low wage.

We would, therefore, have had rip-off charges, nugatory amounts going in and means-testing of savings; if we had not addressed those things, auto-enrolment would have failed. I believe that the coalition made that policy work and were right to do so.

As well as making sure that we have mass membership of workplace pensions, we have had to address a number of other crucial issues, including, as I have mentioned, scheme quality and ensuring that people do not face excessive charges. From next April, default funds for auto-enrolment schemes will be capped at 0.75%. Certain forms of charges over the coming years will be banned altogether. The so-called active member discounts, which mysteriously increase charges when someone is no longer an active member of a pension scheme, and commission charges and consultancy charges are all banned by this coalition Government. We are putting in place new measures to ensure quality governance of schemes—not just trust-based schemes but contract-based ones—with independent governance committees acting in the members’ interests for the first time.

This is a huge, positive agenda, but there are two big areas where further work is needed. The first is the move from defined benefit to defined contribution—a long-term, decades-long trend transferring risk from being wholly on the employer to being wholly on the individual. We remain concerned that that transference of risk causes problems for individuals and that we need to enable, encourage and foster risk-sharing models, and that is what this Bill does.

Secondly, what happens at the end? What happens when someone has accumulated a pension pot? What can they do with it? Again, the previous Government failed to address the fact that, all too often, people with a pension pot defaulted into an annuity with the provider they had already saved with and did not get the best value for money—they made a once-in-a-lifetime retirement choice that all too often resulted in poor value for money. That is why the Chancellor’s groundbreaking Budget announcements, which the Opposition are still fundamentally ambivalent about at best, were so important. They gave people freedom and choice in what to do when they have accumulated a pension pot. This Bill and the amendments that will follow provide for guaranteed independent guidance for people making those choices, which is something that far too many people do not have at present.

[Kelvin Hopkins (Luton North) (Lab)]

The Minister talks about poor value for money, but essentially is the problem not the private pensions market? A universal state scheme would be incredibly efficient, give much better value for money and could be underwritten by Government. Such a system would make it possible to have defined benefits as well as defined contributions, and would be infinitely better for everyone involved.

[Steve Webb]

I always enjoy it when the hon. Gentleman intervenes to make that point. In a sense, he has been consistent: he simply thinks that we should tax people more to pay higher state pensions. That is an entirely credible left-wing position. It is not his party’s position.

Sharing future state pension rights between the state and the market is sensible risk sharing, which is relevant to the Bill, for the following practical reason. Although the hon. Gentleman may live in a world where Government promises are immutable, and where someone who is 25 is told by the Government, “Don’t worry: I will tax you a lot more to jack up the state pension, and in 40 years it will all be fine because you’ll get a fat state pension”, Governments—obviously not the present one—do rip up pension promises.

I do not think that individual citizens should rely wholly on something that is unfunded. That is what it would be, because such people are essentially hoping that their children and grandchildren will pay them a generous pension. However, by the time those people are pensioners, there will of course be many times more pensioners and many times—relatively—fewer workers. That is a very insecure basis on which to base retirement income.

We are making sure that there is a single, simple, decent state floor—to that extent, I agree with the hon. Gentleman—built on by the ownership of capital assets, an employer contribution, tax relief from the public purse and individual contributions invested in the productive wealth of the economy, so that as the economy grows pension wealth grows. There is therefore a capital right as well as a pension promise from the state, which is how I would want to share my risks.

[Kelvin Hopkins]

I would like the opportunity to answer every point made by the Minister, but let me ask him one simple question. If the economy gets into very serious trouble and the private pensions market gets into a real financial crisis, as happened with the banks in 2008, what will happen then, without Government underwriting?

[Steve Webb]

But the idea that if the economy does very badly tax-funded pensions are secure is implausible. If the economy does badly, public expenditure on benefits must rise, tax receipts will fall, the deficit will rise and the ability of the public purse to pay the generous state pensions wanted by the hon. Gentleman will fall. We need a strong economy come what may, and a strong economy will generate the money for state pensions and for private pensions.

[Crispin Blunt (Reigate) (Con)]

I represent a significant number of providers in my constituency, including Legal and General, Partnership and Just Retirement, while Fidelity is also in this market to a degree. I am very concerned about the levy that is coming in to pay for the guidance, and about the difference between the £20 million that the Government have set aside to begin funding the guidance and the reality of what realistic guidance actually requires. If the Minister or I wanted an evaluation of our pensions for the purposes of a court—for divorce, for example—the amount of work required would cost about £2,000. There are 500,000 people waiting for and needing guidance. It will be £1 billion—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. The hon. Gentleman might be better off making his point in two interventions, because otherwise he will have made his speech, and I am sure that the Minister will not remember it all.

[Steve Webb]

Let me make a start, and I will then be happy to give way again. To be clear, the £20 million is not an estimate of the annual recurring cost of providing guidance; it is a one-off, seedcorn, getting-the-thing-going fund. For example, if we need to set up websites, produce literature and create infrastructure, the £20 million will enable us to do so. That may involve organisations such as the Pensions Advisory Service and the Money Advice Service, and it may involve Government spending. The first point is that it is about getting things going; it is not our estimate of the recurring cost of guidance.

The second point is that there is clearly a world of difference between a guidance conversion to get people to base camp—enabling them to understand concepts and helping them to know where to go for further information and advice—and a sophisticated, individualised, tailored piece of independent financial advice recommending products. There is a whole spectrum, and the guidance is very much at not the “cheap”, which is the wrong word, but the budget end of that scale.

I assure my hon. Friend that we do not envisage a levy on the financial services industry to pay for full-blown, regulated, independent, tailored financial advice. The guidance will not be like that, but it will certainly be cost-efficient. Although we will honour the Chancellor’s pledge for face-to-face guidance when people want it, we anticipate that many people will want telephone conversations, websites and all the rest of it, much of which is substantially cheaper than the very expensive sort of advice he mentioned.

[Crispin Blunt]

I will take advantage of your invitation, Mr Deputy Speaker. I am not suggesting anything other than that the guidance is incredibly important—frankly, it needs to be closer to advice than guidance in its scale if it is to ensure that people are properly equipped to make such very difficult and complex choices—but I am concerned by the suggestion that the levy will be directed at firms that will benefit, whereas we want a competitive market which highly entrepreneurial firms that can put together new products will enter to win business from people who have left their money sitting or have not moved it, and who take annuities from existing providers and the rest. There is a dichotomy there.

[Mark Field (Cities of London and Westminster) (Con)]

Will my hon. Friend give way? [Laughter.]

[Steve Webb]

I do not think that my hon. Friend can intervene on an intervention, but I will give way to him in a moment if he so wishes.

I agree with my hon. Friend the Member for Reigate (Crispin Blunt) that we want to see innovation. The industry is talking about a decade of innovation, so although this system will be up and running next April, it is widely assumed that the market will develop and new markets will indeed be brought forward. I have seen no evidence that the envisaged level of levy will hamper entry into the market. As he well knows, the financial services industry is a big industry, and this is a huge opportunity. We are also talking about the auto-enrolment of between 8 million and 9 million new pension savers. These are huge additional sources of revenue for the pensions industry. Relative to that, the scale of the levy for the guidance is modest, so I think that I can reassure him about that issue of scale.



To move on to the substance of the Bill, I will make my remarks in two sections: the first on the pension schemes and the defined-ambition proposition, and the second on freedom and choice in pensions.

First, what is defined ambition? Essentially, it is a radical reshaping of pensions legislation to ensure that it remains relevant for future generations, and to reflect, recognise and, to quote the coalition agreement, “reinvigorate” innovation in consumer-focused product design in either shared-risk or, as we are calling them, defined-ambition pensions.

The Bill will introduce three categories of pension scheme based on the type of promise that they provide to savers during the saving phase about the benefits that will be available to people on retirement, including a new defined-ambition or shared-risk category of pension scheme. The Bill will enable collective benefits to operate in the UK, as they do successfully in many other countries. We have very much tried to focus on pension members’ experience of what their scheme offers. The new Bill will apply and refocus existing legislation in relation to the new terms.

The first category is for salary-related pension schemes—for example, traditional final or average-salary schemes—where the pension is specified in relation to the person’s salary. They have been in decline since the 1970s, and the majority of them are now closed to new members. They are often known as defined-benefit pension schemes, in which the employer bears the risks of longevity, investment returns and inflation.

The switch has been to the other extreme—schemes commonly known as defined-contribution or, more technically, money purchase schemes. The number of defined-contribution schemes established per year has generally increased since 2007, with 1,060 new schemes in 2013. Membership of such schemes increased by 15% to 2.7 million in 2013.

As you can clearly see, Mr Deputy Speaker, we have a binary model: people get either a money purchase or a non-money purchase benefit. Although both types of pension will be the right product for many people, is it right that the only future for pensions that is encouraged by our legislation is one in which either the individual consumer or the employer takes on all the risk? We do not believe so. Many employers have found the increasing costs of longevity and investment risk too heavy to bear, but if defined-contribution schemes are the only alternative, outcomes for savers will be less certain and more volatile than for earlier generations, making it much harder for future generations of savers to plan for later life.

Consumer trust in the pensions industry is low. As I have said, we can protect people against the risks of high charges or poor governance, but our research has shown time and again that many individuals want more stability and certainty. They want to know something about what their savings will give them and have some protection from the worst vagaries of the market. That is why the Bill provides new definitions for private pensions, including the new defined-ambition category of pension scheme, and for collective benefits.

The new shared-risk definition describes a middle ground between the more polarised money purchase and non-money purchase definitions. It will create a distinctive space to encourage innovation in pension design, and it will provide more certainty for individuals than defined-contribution schemes by sharing risks among employers, employees and third parties.

The collective benefit definition will enable a new form of risk pooling among scheme members that is able to provide greater stability in outcomes for members. Collective pension schemes are often recognised internationally as high quality, and it is only right that the United Kingdom should have access to pensions viewed as being among the world’s best. We also have the advantage of providing protections at the outset that address issues to which the more mature schemes overseas are now turning their attention.

We have engaged extensively with stakeholders across the pensions industry and found that there is an appetite for legislation that allows greater risk sharing and risk pooling. There are employers who will welcome the greater flexibility to create pension schemes that suit the needs of their work force. Pension providers want the flexibility to design and offer pensions that provide greater certainty. Individuals value the option to have greater certainty than that provided by DC pension schemes, as well as the greater stability that collective schemes may provide.

I am pleased to share with the House the warm welcome that the proposals have had. Age UK says that it

“welcomes the overall intention of the Bill”.

The National Association of Pension Funds says that it has

“long supported enabling greater risk-sharing in pensions arrangements”

and welcomes the creation of a framework that enables greater innovation and risk sharing. The TUC says that it has long supported collective pensions

“as a means of improving the income available to workers in retirement. The legislation will bring the UK into line with countries such as the Netherlands, Denmark and Canada where such schemes already operate.”

I welcome the fact that the Opposition have sort of, vaguely-ish welcomed our proposals. The more stability and consistency we have on pensions, the better, because pensions are not just for Christmas but are a long-term business. The fact that there is a degree of common ground in this area is entirely welcome.

[Guy Opperman (Hexham) (Con)]

On behalf of my constituents in Northumberland, I wholeheartedly welcome this reform, which has been massively welcomed by those who currently have a pension. However, how will the Government ensure that most small and medium-sized enterprises offer defined-ambition pensions? There is a degree of concern, which is legitimately held, that the safer defined-contribution pensions, in which there is little or no risk, will continue to be offered, thereby reducing the impact of the defined-ambition pension. What are the incentives?

[Steve Webb]

I am grateful to my hon. Friend for raising that important point about the potential market and demand for such schemes. We have undertaken research not only among consumers but among employers. We have found that about a quarter of employers say that they would be interested in providing shared-risk schemes and that another quarter are waiting to see. To be honest, if I were surveyed at this point, I would probably be in the waiting-to-see quarter because the legislation is yet to go through and the regulations that this framework Bill provides for have yet to be tabled. Understandably, firms are not queuing up to declare for this form of pension provision.

On the whole, such schemes are unlikely to be provided by SMEs. In general, we anticipate that just as with final salary and DB pensions, it is larger employers who will tend to go for shared-risk schemes—not exclusively, but largely. The reason is that, beyond the bare legal minimum of auto-enrolment, providing a workplace pension is not a legal requirement but an option. It tends to be larger employers who see pension provision as part of a package, perhaps including a company car or a workplace crèche, and who offer additional benefits. A risk-sharing scheme is, to my mind, a fringe benefit. However, it is a very valuable benefit where the employer says, “I want to do more for my employees than the legal minimum.”

My hon. Friend the Member for Hexham (Guy Opperman) asked what the incentive is. Although the best pension schemes may have gone, the best employers have not. There are therefore good employers out there who want to do more than the bare legal minimum. They will find that their employees want a pension scheme that reduces the risks and uncertainties of this very uncertain world. They will therefore find that this is an attractive part of their package.

Once the schemes are up and running, small employers may well choose to join them. We will probably need scale before we get to that stage. I am guessing that larger employers will use them first, but once there is the infrastructure—a regulatory regime or governance regime—one can imagine a scenario in which smaller employers would join.

[Nigel Mills (Amber Valley) (Con)]

The Minister has just mentioned the regulatory regime. Has he given any thought to how we will regulate the new defined-ambition, shared-risk schemes? Presumably, if a defined-contribution scheme adds a small promise, it will trip over into being a defined-ambition scheme. The regulation would therefore move from the Financial Conduct Authority to the Pensions Regulator, and it could drop back again. Does it not look as though we need one pensions regulator to make it all make sense?

[Steve Webb]

I am grateful to my hon. Friend. That is an issue that the Work and Pensions Committee, of which he is a member, has raised in relation to the appropriate regulatory regime. It is fair to say that in drawing up the regulations and guidance for the Bill, the number of times we have had to ask ourselves which regulator it is that does which bit and to ensure that what the FCA does mirrors what the Pensions Regulator does has added to the complexity of the process. When I gave evidence to the Select Committee a little while ago, I said that this was not the time to start reforming the regulators. That remains my view. My hon. Friend will be aware that the FCA has only just been created out of the ashes of the Financial Services Authority. This precise point is not the right time for yet another regulatory reform. However, the experience of the last 12 months has made me more sympathetic to the view that the eventual destination might well be a single regulator.

My hon. Friend also raises the regulation of DA and collective DC schemes. It is clear that what we need is good governance. Arguably, one of the problems of the Dutch experience, as it has been described to us, is that the schemes were described as DB to the members and DC to the employers. One of those two descriptions was not true. We have to ensure that we have good governance and transparent communication. Because of issues of intergenerational fairness and so on, the rules of the scheme—who gets what when things go wrong and who benefits when things go well—have to be transparent. We therefore need a clear, although not excessive, regulatory framework.

What I have described so far is the Pension Schemes Bill as we originally envisaged it, which deals with risk sharing. Obviously, that is the fruit of several years’ worth of consultation papers and extensive engagement with stakeholders in the pensions industry. I would like to place on the record my appreciation to the many working groups that the Department has run, including the defined ambition working groups of Andrew Vaughn of the Association of Consulting Actuaries, and to all the experts who have given their time to help us draw up the various models. We are very grateful to them.

The second half of the Bill relates to the Chancellor’s freedom and choice in pensions agenda. It may be that other right hon. and hon. Members regularly have people walk up to them in the street, shake their hand and thank them for Government policy. It has been a relatively novel experience for me, but I have genuinely had people walk up to me, shake my hand and thank me for this policy because it gives them back control over their own money. It says not that the Government know best but that the individual, with the right support and guidance, should be in the best place to make their own choices about their own money. The Government are committed to giving people freedom and choice in how they use their pension savings.

Budget 2014 announced radical new flexibilities in how and when people may access their pension arrangements. We undertook a 13-week consultation, and the response to it was published in July. Draft tax clauses for technical comment were published in August. The momentum is gathering. This Bill, along with the taxation of pensions Bill, will mean that from April 2015, individuals from the age of 55 will be able to access pensions flexibility if they wish to, subject to their marginal rate of income tax, rather than the current 55% tax charge.

This Bill will make the required changes to pensions legislation, including a guidance guarantee. That means that everyone with a defined-contribution pension arrangement will be offered free, impartial guidance so that they are clear about the range of options available to them on retirement. There will also be a duty on providers and schemes to ensure that they make people aware of their right to guidance and signpost them to this service.

The taxation of pensions Bill will legislate for the required tax regime changes. The Government will continue to allow members of private sector DB schemes the freedom to transfer to other types of scheme. In the majority of cases, it will continue to be in the best interests of the individual to remain in their DB scheme. That is why two additional safeguards will be introduced to protect individuals and schemes. First, there will be a new requirement for individuals transferring out of a DB scheme to take advice—with a capital A—from a financial adviser before a transfer can be accepted. Secondly, there will be new guidance for trustees of defined-benefit schemes on using their existing powers to delay transfer payments and taking account of scheme funding levels when deciding transfer values. To protect the Exchequer and taxpayers, however, transfers will not, other than in very limited circumstances, be allowed from unfunded public service DB schemes to schemes with DC arrangements.

I want to pick up on two final issues that relate to how the freedom will work in practice. The first was raised in oral questions yesterday and relates to the position of schemes with exit fees. The uncharitable side of me would say that one or two of my answers yesterday were misrepresented in the Twittersphere, as I think it is called. The charitable side of me would say that my comments were misunderstood. Let me be absolutely clear about where we stand on schemes with exit fees.

First, despite Opposition attempts to hype this up and overstate the case, the number of schemes with exit fees is very much in the minority. In other words, our 2013 pensions and charges landscape survey found that more than five in six trust-based schemes, and nine out of 10 employers with contract-based schemes, had no exit fees. We must therefore be clear that exit fees are exceptional.

Secondly—I am generally talking about legacy schemes here—we are already considering charges, and a legacy audit is being undertaken of old and high-charging schemes. That is due to report by December and will provide additional information about existing fees. At the moment, we do not have full information with which to form policy, but the Government are working with the pensions industry to understand how common exit fees are, how large they are, and the terms under which they operate. Crucially, once the evidence is clearer, the Government will be able to decide whether additional measures are required to protect savers. At the moment we are gathering information, but we are determined to ensure that savers are protected. I hope that is helpful.

The compatibility of the two halves of the Bill has been mentioned. On the one hand we are giving people freedom and flexibility, and on the other we are bringing forward a framework within which people might be members of a pension scheme all their life, through working age and well into retirement. We must obviously ensure that those two things gel, and I assure the House that they do.

All our reforms are about putting the saver first and addressing people’s desire for greater certainty about income in both the savings and the pay-out phase—the accumulation and decumulation phase. In a defined ambition scheme, more than one type of benefit arrangement is likely to make up the overall pension pot or income stream. We expect people with defined contribution arrangements within a defined ambition scheme to be able to access those arrangements in line with new budget flexibilities. Members of DC schemes that offer collective benefits will be able to cash out their collective benefits if they so choose. If they remain within the scheme, it is likely that they will receive a pension income for life, since that is how we envisage collective benefits being set up. People will not have to make decisions on how to access their savings; decisions on how to pay out scheme benefits will be made by scheme fiduciaries.

These schemes will offer an option—that is the crucial point: the freedom and choice agenda—for those who wish the scheme to pay them a pension income for life. Either way, the individual will have choice over what to do with their savings. Together with the amendments that will follow shortly, the Bill will set out a legislative framework that will mean greater choice and flexibility for future private pensions, tailored to the needs of employers and individual savers.

This Parliament has seen little short of a pensions revolution: radical state pension reform providing a firm foundation; mass membership of workplace pensions through the effective implementation of automatic enrolment; quality standard charge caps; and a war on rip-off pension charges. Now in this Bill there are two new strands to our reforms: enabling and facilitating risk-sharing pension models rather than the extremes of risk that would otherwise be the case, and new freedoms for individuals to know best what to do with their money. At the end of this Parliament, we will truly have transformed the pensions landscape. That is a record of which this coalition Government can be proud, and I commend the Bill to the House.

--- Later in debate ---

[Gregg McClymont]

I will make a little more progress and then let in hon. Members from all parts of the Government Benches.

The Minister glosses over the tension in Government policy, suggesting that everything is coherent, but I strongly believe that that is not the case. He spent 15 minutes talking about things other than this pensions Bill, in which, more widely, the Government are attempting—we welcome the attempt, not least because we have been arguing for it—to pool and share risk long term across generations. In doing so, they are reflecting a developing political consensus around the importance of sharing risk as widely as possible in the pension sphere. The corollary is that the bigger the pension scheme—appropriately governed—the greater the returns to scheme members. Put simply, the bigger the pension scheme—appropriately governed to share risk as widely as possible—the larger the pensions for people in those schemes. I think that there is a developing consensus that that is a good thing, and in so far as it promotes collective defined contributions, the Bill is welcome.

[Steve Webb]

Will the hon. Gentleman clarify the evolution of the Opposition’s thinking? In government, six months before the last general election, the Labour DWP produced a report rejecting CDCs. When did they change their mind?

[Gregg McClymont]

I would like to take all the credit, of course— having not been in the previous Parliament—but in my opinion and that of the Opposition Front-Bench team, there is a very good case for encouraging collective provision. Politics involves evolution. I am kinder at times than the Minister, so I will not give him chapter and verse about how he has chased our tail on pensions policy, but whatever the origins of the policy, surely the point is to get the best possible outcomes.

The Minister alluded to other parts of the pension scheme in the Bill. Its provisions reflect the knock-on consequences of the flexibilities at retirement announced by the Government, evidenced by the fact that this is being shared between the Treasury and the DWP. It redefines the type of workplace schemes that can be set up so that a third form of scheme—neither DB nor individual DC—can be created. It also prevents the transfer out of most public service defined-benefits schemes, except to other DB schemes, which makes sense given the basis on which these Treasury-funded schemes proceed.

Currently, on the insolvency of an employer, the Pensions Regulator can employ an independent trustee from a register that it maintains. Conversely, when it uses its general powers of appointment to replace a trustee found not to be fit and proper, it does so using flexible procurement panels. The Government’s response allows the alignment of both procedures on the second, which seems to make sense. And of course the Bill will allow the Secretary of State to make payments into the Remploy pension scheme. These are all sensible policies supported by the Opposition.

The principal case for the Bill, however, as the Minister set out, is the recognition of the case for collective pension saving. There appears to be some appetite among the public for this kind of risk sharing. Research undertaken recently by the Institute for Public Policy Research suggested as much when it found that collective pensions were the most popular option across different income levels, life stages and ages. That makes sense given that pensions are a form of collective insurance against poverty and indignity in old age. On that basis, the debate that the Bill generates is welcome.

The Minister described how the pensions landscape had changed. DB is no longer as popular as it once was; employers do not want to take on the risks of defined-benefits schemes; and increasingly we live in a world of individual defined contribution, where the risk is entirely on the individual saver and depends on the performance of the stock market. As he suggested, finding a way to share risk is a good thing, but let me point out several aspects on which the Bill is silent—aspects that are central if collective pensions are to succeed.

The first aspect—as far as I am aware, the Minister was silent on this—is the awareness that cross-generational collective pensions can, in extreme circumstances, involve a reduction in pensions in payment. This is not something that the UK is culturally and historically attuned to. In a cross-generational collective pension fund, the smoothing of risk and reward between different generations can mean, in extreme circumstances, that the pensions being paid to pensioners are cut. That is something with which our politics is not familiar and an important point about defined-contribution collective pensions that has to be considered.

The second important point is that governance is even more important in collective pension schemes of this kind than it is in other forms of pension. Managing a rolling pension fund—one that brings together the savings of teenagers, pensioners and every generation in between and that demands that each cohort is treated equally—requires substantial technical expertise. The prize, if a fund is managed correctly, can be bigger pensions, but that demands governance of the highest quality, yet the Bill is silent on governance. The Minister mentioned it in the round, but he did not talk about the governance that he wishes to see or that, more importantly, the Bill puts in place for these pension schemes. And the Bill is silent despite the Government saying in their response to the consultation document, “Reshaping workplace pensions for future generations”:

“Collective schemes are complex and can be opaque… This necessitates strong standards of communication and governance. We intend collective schemes to be overseen by experienced fiduciaries acting on behalf of members, taking decisions at scheme level and removing the need for individuals to make difficult choices over fund allocations and retirement income products”—

not a philosophy the Government are adopting at the point of retirement via their Budget reforms. What has happened to their intention that governance be undertaken by experienced fiduciaries?

I am reminded of the fankle that the Government have got themselves into over the governance of individual defined-contribution pensions. I will not give chapter and verse now, because it would not be appropriate, but the independent governance committees that the Government intend to set up for individual defined-contribution pensions—the Minister referred to them—are neither independent, nor governance. They will be in the hands of the insurance company. The mistake that the Government appear to have made over individual defined-contribution pensions, they are now making with respect to collective defined-contribution pensions.

There is nothing in the Bill about the standards of governance that CDC pension schemes will have to meet. Everything is left to secondary legislation. I say to the Secretary of State and the Minister—who asked about the attitude of the Opposition—that so much of pensions legislation under this Government has been left to secondary legislation, making it difficult for the whole House accurately to understand the consequences and outcomes of any one pension Bill or policy.

As regards collective pensions and the second aspect of the Government’s silence—on governance—the Opposition believe that the Government should follow our lead and require the schemes to have trustees and to be based on a legal duty to prioritise the interests of savers above all others. Failure to require all schemes to have trustees—this is crucial—means that some collective DC schemes will be run by trustees and others by private firms seeking to maximise their short-term returns. That is surely not in the spirit of the collective pensions on which the Minister wishes to build. Given the complexity of managing collective, inter-generational, risk-sharing pension schemes, the highest level of governance is critical, and I urge the Government to say explicitly—either today or as the Bill goes forward—what the governance criteria and rules will be.

Beyond governance, a third crucial aspect of collective pensions remains unexamined by the Bill. The Government have left entirely to secondary legislation the question of what kind of collective pensions they wish to promote. The Minister suggests that collective DC is one sort of pension scheme, but it is not: there are different forms of collective defined contribution, so clarity about which form the Government wish to see would be useful for all parties as we examine the proposals.

Broadly, there are two kinds of collective pensions that the Government might wish to promote. One is a form of collective DC that sets a target income for each saver and a probability of the target income being met on retirement—a 95% probability, say, of that target being realised. This form of collective DC demands significant assets in reserve so as to make the probability realistic. Given the substantial assets that any scheme would need to materialise, that is what we might call a heavy form of collective DC pensions.

There is also, however, a lighter form of collective DC, which is more intra-generational than inter-generational—involving risk sharing among a particular cohort rather than between generations. That lighter form of DC collective pensions is also to be welcomed, as it would bring the advantage of scaling and pooling within a generation. Fundamentally, too—I am not sure the Minister mentioned this—the great advantage of collective pensions is that they avoid the real difficulty of having to make the decision on the spot on retirement for the rest of one’s retirement. That does not happen under either the heavier or lighter form of collective DC, as a form of draw-down applies. The pension fund never ends; it continues, so a form of draw-down is possible. As I said, an on-the-spot, once-in-a-lifetime decision about retirement income might apply under the Bill.

The Government have not stated which form of collective DC they wish to see materialise from the Bill. As with governance, the Bill is entirely silent on those points. Everything is left to secondary legislation once again, and I see a pattern when it comes to pensions legislation under this Government. They bring forward a Second Reading, take a Bill into Committee and then leave so much of the fundamental detail to subsequent secondary legislation. I am not sure that that is a sensible way to proceed if we want to make substantial and good legislation. Those are some of the issues on which I would like to gain further clarity from the Government.

The Minister spent some time talking about the budget reforms, and we have heard contributions and interventions from Front Benchers about them. The Government are silent on the issues of flexibility and the interaction with auto-enrolment pension saving. They claim that all those aspects fit together very well, but I have suggested that there is a fundamental difference in approach in the spheres of building up the pension pot, auto-enrolment and turning the pension pot into retirement income.

The three tests that the Opposition have set for these reforms are sensible. We must know first what the guidance guarantee amounts to—a fundamental point on which we still have no clarity. We expect perhaps an amendment or amendments to provide clarity on the guidance guarantee. We should remember that the Chancellor promised advice, not guidance, in his Budget statement. There is a fundamental difference between the two, and the Minister subsequently clarified that guidance rather than financial advice will be provided. We await with bated breath the details of the guidance guarantee. Without top-quality guidance, the potential for successful flexibilities will be much reduced.

Secondly, we need to know how the budget reforms will impact on the pension pots and retirement income of low and middle earners. That is important. One of the weaknesses of individual DC, from which the Minister is trying to move way, is that 10 years from any individual’s retirement, the pension fund has to move assets into low-yielding bonds to avoid any risks so close to the retirement age. There is less risk, but less return. The danger of the Government’s flexibility provisions on retirement is the interaction with pension fund asset management. It now becomes the norm that individuals will cash in their pension pot at 55, 56 or 57, which means that at the age of 45, 46 or 47 the pension fund will have to move into low-risk, low-yielding assets, reducing the pension pot when cashed in on retirement.

--- Later in debate ---

[Nigel Mills]

Yes. I have not been totally clear. I was alluding to the fact that these schemes will be even harder for trustees. I meant the trustees who try to govern these schemes. If we have a scheme that is giving a clear promise, we can create a set of assumptions. We will know how much funding we will need on top of our investment returns and longevity predictions. We will at least have some fixed parameters, so we can then define the contributions. If we even vary what we are promising to pay, we would have to take a really educated decision and say, “Shall we vary the promise down from £20,000 to £18,000, put up the contributions or a bit of both? Will it all be all right again in five years?” That will become quite difficult for trustees, and we will then really need the regulator to be able to check that trustees are capable and competent at dealing with shifting sands in these calculations.

[Steve Webb]

I did not respond properly to the hon. Gentleman when he intervened on me on this matter. Broadly speaking, it would not change which regulator was involved if there was or was not a bit of a promise. The Pensions Regulator deals with occupational workplace defined-benefits and defined-contributions pensions. The Financial Conduct Authority deals with group personal pensions and similar. Essentially, that is the division rather than whether there is or is not a promise.

[Nigel Mills]

That is a helpful clarification, but we have still had the bizarre situation in which the Pensions Regulator is responsible for auto-enrolment even though most of the schemes into which people are enrolled are not regulated by the Pensions Regulator. I sense that we are introducing further uncertainty into what schemes there are and people need to understand exactly what is going on.

Trying to create a new form of pension that can try to stop the bleed away from defined benefits is the right direction in which to travel. If we are to have a credible pensions industry, we need to ensure that people can have certainty or at least confidence that if they keep paying into their pension funds with their employers at the rate that they are they will have some idea what they will get rather than a vague hope that they might at some point get something suitable. That is the thing that does most discredit to the pensions industry. People end up getting so much less than they thought they would, despite what they thought they were paying and would be entitled to, that they decide the whole thing is not worth doing at all.

That question takes us to a fundamental part of pensions policy. We are spending a lot of taxpayers’ money on tax relief for pensions and if we end up with just a glorified savings vehicle with no direct link to pensions, we must wonder whether we will be distorting the investment market quite horribly. We need a clear and confident link, so that people know that the money they are putting away is meant to get a retirement income that they are happy with and is not just a super-glorified pre-tax income ISA, which I fear we might be drifting towards.

The Work and Pensions Committee considered the principle of collective schemes briefly in our inquiry on a pension governance a couple of years ago. The idea that we can somehow share risk between the generations, smoothing things out so that if there is a market crash just before someone expects to retire they do not suddenly have their pension income destroyed in a way that they cannot possibly recover from—clearly, that can be smoothed out by reducing the risk profile of investments, as is done now—looks to be a perfectly sensible and attractive way forward. I am a little intrigued about how we can go from having none of those schemes to having them in place, having enough people in them and having enough confidence that people will continue to join them to ensure that the intergenerational thing can work. Some European countries have had such schemes for 60 years and we can see how they work, but the question is how we go from zero to having three generations of people without the first lot thinking that they are taking all the risk for no advantage, although perhaps if their grandchildren join it might all be okay. I am sure that the industry will work out how to devise schemes in a way that will get people involved.

Let me turn to greater flexibility in the pension world. I can see that if we say that we do not think people are sufficiently engaged with pensions to join a scheme we must ask how we can be confident that they are sufficiently engaged to make even more difficult choices when they retire about what they want to do. There is a big difference. I might not be too bothered about pensions when I am 30, as I might have more pressing things to think about such as buying a house, paying for my children or sorting out other stuff, but perhaps when I am closer to retirement age and thinking about what my income will be in six months’ time, a year’s time or perhaps even a little further away, I will probably be much more engaged in the best choices for me and will perhaps be more inclined to go out and look at the various options.

One issue that we have had until this point has been that the option has been to have some kind of annuity that is lower than I would like. If I try to shop around, I find differing levels of things I do not like. That is not a great motivation to go shopping. If I know that I am not going to want to buy any of the things I am offered but I have to, I might as well just default to the first thing I get. There does not seem to be any advantage to shopping around.

--- Later in debate ---

[Mr Mark Hoban (Fareham) (Con)]

I apologise to my right hon. Friend the Minister for missing some of his speech and to the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) for missing his. I had hoped to be here for both, but owing to the length of the urgent question and another engagement outside the House, I could not be. Nevertheless, I am delighted to be here in time to make a contribution.

On the Government’s legacy, as my right hon. Friend said, our pension reforms have been one of our key acts in government. We have done a huge amount to reform the pensions system we inherited and to implement auto-enrolment. The Chair of the Work and Pensions Select Committee, the hon. Member for Aberdeen South (Dame Anne Begg), gives the previous Government credit for auto-enrolment, but my right hon. Friend was right to talk about the practical changes we have made to make it work. He also made the powerful and important point that the take-up rate for smaller businesses during roll-out has exceeded expectations. A lot of people expected the rate to fall, but it should now be recognised that many people currently not saving for retirement see auto-enrolment as a key way of protecting themselves and their families in retirement.

The changes that my right hon. Friend the Chancellor announced in the Budget to give people control over their pension pots in retirement are also important and fit in with other reforms, such as raising the state retirement age, introducing the triple lock and uprating the state pension. We provided a state pension that is both fair and affordable in the long term. We made a change to pension tax relief, too, ensuring that it is both fair and affordable as well. The cumulative effect of those reforms is to ensure that people will save more towards their retirement, that more people will indeed save for it and that they will be rewarded for doing so. We are treating those who retire as grown-ups, able to manage their own money.

The work we have done so far is important, but I do not think the job is done. That is why the Bill is so important. We know that under defined-benefits schemes, those who worked knew that every year of their employment helped to build up a guaranteed pension income—a fraction of their final salary—thus providing certainty. In building up that guaranteed income, once the employee had made a contribution, the cost of providing the guarantee rested with the employer. If the investment return fell, the employers had to increase their contributions; if employees and pensions lived longer, the cost of the changes were again borne by the employer. In a way, of course, that guarantee sowed the seeds of the decline of defined-benefits contribution schemes, as it became increasingly expensive to provide that guarantee to employees. That accounts for the decline in DB schemes over a number of decades.

Under a defined-contributions scheme, it is of course the employee who bears the longevity risks in building up the pension pot. It is the employee who bears the investment risk, too. Certainty in retirement in return for a fixed contribution by the employee has been replaced by uncertainty, the cost of which is borne by employees.

The impact of the switch from DB to DC would have been mitigated if contribution rates had remained unchanged, but the impact of the transfer of risk has been compounded by the reduction in the level of contributions. The most recent Office for National Statistics figures I have seen show that the total contribution rate for DB schemes is 19.2%. The rate for DC schemes is under half that, at 9.4%. What does that mean in practice? As the Department’s own figures show, 11 million people between the age of 22 and state pension age will not save enough to deliver an adequate replacement income in retirement. Employees have thus seen a reduction in contributions to their pension schemes; they bear risks previously borne by their employer; and they bear uncertainty about the income they will enjoy in retirement.

Where does this Bill fit into that picture? Defined ambition can, through guarantees, help to provide greater certainty in retirement. I think the second area where these schemes can have merit is in maximising the return on pension contributions for members. The collective nature of defined-ambition schemes creates economies of scale on the costs of running a pension scheme, which should help to improve the overall returns for employees. Furthermore, the open-ended nature of a collective scheme can change the investment strategy of a fund. For an individual scheme, as the employee moves towards retirement, the fund’s objectives move from seeking capital growth towards locking in gains already made, providing greater certainty about the size of the member’s pension pot. An open-ended scheme and particularly a collective scheme should shift the investment strategy towards capital growth and away from simply locking in growth—a point to which I shall return in a minute.

The second area where defined ambition will help is through the use of guarantees to deliver more certain outcomes for employees. As I said, one of the merits of DB schemes for employees is that they guarantee an income. Depending on the scheme, people will know after a year’s service that they will have “banked” an 80th or a 60th or a 40th of a year’s salary or the salary on retirement. With a DC scheme, all people know, in effect, is that they have made contributions of X and made net investment gains of Y; and while the pensions statement will project a monthly income in retirement, it will be based on how much more they will contribute, the investment gains between now and retirement and the annuity rates at the point of retirement. The only thing known for certain about that projection is that it will be wrong.

The contrast between DC and DB schemes is stark; the question is whether we can bridge the gap between the certainty of DB and the uncertainty of DC. The Government’s vision of DA or shared-risk schemes is, to quote the Government response to the consultation,

“to secure a guarantee on the income that will be received in retirement, that builds up gradually during the savings period”.

There is a great deal of merit in that. The employee has visibility and certainty of income in retirement. That is one of the great assets of DB schemes. That helps people to see how much they will have in retirement and, crucially, helps them plan for retirement. However, the crucial distinction is that, in defined-ambition schemes, the employer’s contribution is fixed. Therefore, if the income is guaranteed, the cost of that guarantee must be borne by the scheme members.

I would like to understand a bit more what the Financial Secretary expects those guarantees to look like and how he expects them to be financed. What proportion of the pension does he expect to be guaranteed? Presumably, in the same way that insurance companies have to provide solvency reserves for the guarantees that they issue, defined-ambition schemes will need to provide reserves to fund the guarantees.

I think it will be the case that the higher the guaranteed element, the greater the shift in asset allocation away from risk seeking and capital growth towards capital protection—in effect the challenge facing individual DC schemes but on a collective basis. Who will design the rules for determining the reserves to be held against the guarantees? Will it be the Pensions Regulator or the Prudential Regulation Authority? Will it depend on whether the scheme is trust or contract-based?

I believe that these measures create opportunities for a new model of pension scheme. That model will smooth some of the rough edges of the transition from DB to DC schemes. It should help to reduce the risk for employees. However, it is not without its challenges. For it to work effectively, schemes will need to reach a critical mass in terms of membership to enable the economies of scale to work their way through and to ensure that there is a sufficient flow of people coming into and out of the scheme—that there are new members and those new members balance the number of members ceasing to be active members. The formula that drives the payouts from the scheme will need to be carefully thought through to ensure intergenerational fairness, so that younger members are not subsidising pensioners.

In the Netherlands, schemes have been established on a sectoral basis reflecting the social model there. That helps to deliver the critical mass needed for the schemes to obtain economies of scale and smooth investment returns. How does my right hon. Friend the Minister think schemes in the UK will achieve that scale? Does he envisage that schemes will be built on a sectoral basis, or does he envisage some master scheme being set up that will be open to all businesses?

[Steve Webb]

I am enjoying my hon. Friend’s characteristically well-informed speech. To reassure him on industry schemes, when we visited the Netherlands to look at how the system is run there, we came across the Dutch tulip growers scheme. I can reassure him that we do not have such narrow definitions in mind.

[Mr Hoban]

I am not sure that tulips and the Netherlands are necessarily an appropriate model. One of the earliest financial crashes was in the price of tulip bulbs, so it may not be a model to follow. However, the point about sectoral and non-sectoral schemes is important. Other countries have had success where they have had a social model—a relationship between employers and employees—that we do not necessarily see in the UK. There will be questions about how to encourage more employers to come together to create these schemes. Perhaps there is a role for insurers in that regard.

Although these schemes aim to boost returns and offset some of the impact of under-saving, we need to do more to help people save more towards retirement. Auto-enrolment will help to ensure that more people are saving, but as I pointed out earlier, the DWP’s figures estimated that some 11 million people would not save enough to meet the recommended replacement income for retirement. If we look at contribution rates to pension schemes in other countries, we will see that the 8% auto-enrolment rate lags behind the rate in other countries that have established innovative pension schemes. In Australia, the contribution rate to the Super scheme is heading towards 12%, and in the Netherlands—the Minister mentioned the Netherlands, so I feel at liberty to talk about it—the contribution rate to the scheme is over 20%, which is significantly higher. We have some way to go before we match those contribution levels.

I think it would be wrong to contemplate increasing contribution rates before the roll-out of auto-enrolment has been completed, but we should not ignore the fact that people are not saving enough towards their retirement and we need to find ways to help people to build higher contributions. There are ways in which we can do that. We have not done enough to draw on the insights from behavioural economics and initiatives such as Save More Tomorrow, which has been adopted in some parts of the United States, which encourage people to increase their contribution rates when their pay rises, making a commitment today to secure increased contributions in the future. I think we can look at the way in which fiscal incentives encourage those on low incomes to save more towards their retirement, and I certainly think we can support people to make better choices on retirement. That is a significant area that we need to focus on, and it is the last point I want to touch on in my speech.

As I said at the start, we have introduced a series of radical reforms to the pensions system over the past four and a half years. However, to make the most of the freedoms that we need, we must make sure people have the necessary support to make the right choices both when they are building up their pension pot and when they choose to use it. That is why I am very supportive of the guidance guarantee. I know the Government are going to introduce amendments to this Bill, either in Committee or on Report, to introduce the guidance guarantee, and it is an important part of the package of legislation, but we must also think about how we can encourage the industry to go further to provide better guidance both before the point of retirement and afterwards. The decisions we make at the point of retirement are ones we would want to come to as individuals to revisit later on.

We need to find a service that will help those who feel they cannot afford independent financial advice without crowding out independent financial advisers, and we need to give people support to think about draw-down, annuities and the other products that are out there, to help them maximise their income over their retirement, and also to think, while they are saving, about what sort of lifestyle they want in retirement. Too often, people do not think about what they aspire to in retirement. They tend to shape their retirement around how much they have saved, rather than thinking before they retire, “This is what I would like to do. These are the holidays I’d like to have. This is the sort of lifestyle I’d like.” We need to give people more support in that regard.

I also believe we should be harnessing technology to draw together details of people’s savings—not just their pensions, but their individual savings accounts and bank savings—to end the complicating fragmentation of data. That should encourage people to look at the totality of their financial assets and use that information to engage with their retirement planning.

Oral Answers to Questions

Steve Webb Excerpts

Monday 1st September 2014 Commons Chamber

[David Mowat (Warrington South) (Con)]

2. What steps he is taking to ensure that employees will not be auto-enrolled into high-cost pension schemes.

[The Minister for Pensions (Steve Webb)]

As part of our strategy to ensure value for money in pension savings, we announced earlier this year that we would protect members of pension schemes used for automatic enrolment by introducing a default fund cap of 0.75% from April 2015. We will shortly publish more details on the implementation of the charges measures.

[David Mowat]

I thank the Pensions Minister for that answer, and I congratulate him on introducing that cap, which is half the level of the one introduced by the previous Government for stakeholder pensions. Over time, our cap will save pensioners £1 billion a year. Can he confirm, for the avoidance of doubt, that the cap will also apply to older, legacy pension schemes, some of which currently charge up to 2% per annum?

[Steve Webb]

I am grateful to my hon. Friend for his supportive comments. Focusing on automatic enrolment, I am pleased to tell him that we aim to protect as many members of automatic enrolment qualifying schemes as possible, regardless of when they started contributing. From April 2015, the cap will therefore apply both to members of schemes newly set up for automatic enrolment and existing qualifying schemes for auto-enrolment.

[Barry Gardiner (Brent North) (Lab)]

How concerned is the Minister about savers who want to take advantage of new pension flexibilities being subject to huge penalties in exiting their scheme? What action is he taking to ensure that that cannot happen?

[Steve Webb]

The hon. Gentleman raises an important point. A review of legacy pension schemes is under way, under the auspices of the Association of British Insurers, and the issue of excessive exit fees is part of it. In most cases, the terms of schemes will allow people to access their budget flexibilities, but there may be some where the contract and scheme rules impose a charge, and that is a contract that people have entered into.

[Miss Anne McIntosh (Thirsk and Malton) (Con)]

Locally, auto-enrolment seems to be working smoothly for those on monthly salaries, but it is incredibly difficult for those on weekly wages. Are the Government familiar with that? Is the Minister able to assist in that regard?

[Steve Webb]

We have made a number of changes to make sure that auto-enrolment works as smoothly as possible for the whole diversity of employment scenarios, such as the one to which my hon. Friend refers. The point about automatic enrolment is that where someone who is paid weekly exceeds the threshold once, they should be automatically enrolled. If in a subsequent week they earn below the threshold, nothing happens—no payment is due and no payment is made. If they go above the threshold again, payment is made, but there is no re-enrolment, disenrolment or leaving of the scheme. The complexity is often in perception, rather than in reality. If she is aware of individual employers who have particular problems, I would be pleased, as always, to receive details.

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

May I press the Minister further on the question asked by my hon. Friend the Member for Brent North (Barry Gardiner)? The Government have changed the rules on pension flexibility at retirement, or are in the course of changing them, yet there are members of pension schemes who will face huge exit penalties if they wish to take advantage of those flexibilities. Does he think pension savers in that situation will be comforted by his saying today, “Well, they entered into a contract and they have to put up with it”? The Government are changing the rules, so surely those savers deserve to be able to take advantage of the flexibilities just as much as anyone else.

[Steve Webb]

I do not think that the hon. Gentleman in his heart of hearts really wants these flexibilities. We announced in the Budget the flexibility for people to access their money at 55, in full and in cash if they want to do so. Clearly a minority of schemes—it is important not to exaggerate the scale of this—have contractual terms that relate to the basis on which money can be withdrawn. We are not overwriting the rules of existing schemes, but we are talking to the industry to ensure that as many people as possible can access their cash.

[Nick Smith (Blaenau Gwent) (Lab)]

3. How long the average wait for an assessment for a personal independence payment was on the latest date for which figures are available.

--- Later in debate ---

[Mr David Amess (Southend West) (Con)]

5. What recent steps his Department has taken to support older workers.

[The Minister for Pensions (Steve Webb)]

The Government have abolished the default retirement age, extended the right to request flexible working and given people more freedom in how they draw their pension pots to smooth the transition to retirement. We recently published “Fuller Working Lives: a framework for action”, which sets out the business case for employing older workers, and we have appointed Dr Ros Altmann as the Government’s business champion for older workers.

[Mr Amess]

Does the Minister agree that with changing demographics—for instance, on Sunday 5 October in Southend there will be the largest gathering of centenarians in the world ever—employers should recognise the experience that an ageing population has to offer?

[Steve Webb]

My hon. Friend is quite right that older workers have valuable knowledge and experience and that employers who fail to retain their older workers are losing important skills from their work force. However, I can assure my hon. Friend and the centenarians who will be attending his event in Southend that we do not require them actively to seek work.

[Mr Gerry Sutcliffe (Bradford South) (Lab)]

What will the Government do to support those workers who, owing to the raising of the pension age in some key public services, might not be physically active enough to do their current jobs?

[Steve Webb]

The hon. Gentleman raises an important point. In a world where people will be of working age for potentially 50 years, assuming that they will do a single job for their whole life is increasingly unrealistic. We need to do a great deal more to enable people to transition into less physically demanding jobs. We have recently piloted something called the mid-life career review, which starts people thinking much earlier about what they might be able to do later in life and other courses of action that might be open to them. We also need to challenge employer attitudes, which we are doing.

[Nick de Bois (Enfield North) (Con)]

Although unemployment in my constituency is down a welcome 35% and youth unemployment is down by 40%, unemployment among those over 50 has stubbornly not reduced by the same rate. Will the Minister therefore endorse and welcome Enfield North’s first online older employees forum, which we have set up, along with our older employees forum and jobs fair on 26 October?

[Steve Webb]

I am very pleased to hear about the activity in which my hon. Friend is engaged. We are not asking for charity as regards employing older workers, and we often find when we talk to employers that many of them get it already. They realise that recruiting and retaining older workers benefits both young and old in the work force, and we want to see a lot more of that.

[Fiona Mactaggart (Slough) (Lab)]

Why does “Fuller Working Lives” not recognise the difference in the experience of older women workers and older men workers? Older women are about four times as likely to be carers and the biggest pay gap is between women and men over 50. What are the Government doing about that, apart from appointing Ros Altmann?

[Steve Webb]

I wonder whether the hon. Lady has read the document, given that one of the key groups on which we focus is carers. We specifically state in the document that carers face particular barriers in the labour market and that is why we need more flexible employment, such as our extension of the right to request flexible employment to all workers as of this year.

[Nia Griffith (Llanelli) (Lab)]

6. How many people were awaiting a work capability assessment on the latest date for which figures are available.

--- Later in debate ---

[Robert Flello (Stoke-on-Trent South) (Lab)]

7. What progress he has made on the introduction of face-to-face pensions advice.

[The Minister for Pensions (Steve Webb)]

Our summer response to the consultation “Freedom and choice in pensions” outlined the policy and legislative details underpinning the implementation of the guidance guarantee. We will bring forward amendments to the Pensions Schemes Bill to introduce the guidance guarantee, and the Treasury implementation team continues its extensive service design work. We will publish an update note on the project in the autumn.

[Robert Flello]

Despite the announcements made in the summer, I understand that the pensions industry continues to express considerable concern about funding the guarantee levy, whether the service will be ready in time and how the scheme will operate. I understand that there is also widespread concern among consumers about how the scheme will operate and whether it will be ready in time. Given that this is perhaps the most important decision that people will face in their lives—it is certainly one of the most important decisions—and that there is concern that people will receive guidance and think it is advice, or that the guidance will not be comprehensive enough, what will the Minister do to ensure that the proposal works properly and quickly?

[Steve Webb]

We are actively engaged in making those preparations, but we entirely accept that the time scale is tight. I contrast our proposals with the current situation, in which hundreds of thousands of people reach an age at which they choose whether or not to buy an annuity and get no guidance, advice or help whatever. This will be free. The guidance will be independent and will be face to face if people want that. It will be a vast improvement on what currently happens.

[Paul Burstow (Sutton and Cheam) (LD)]

Given that this decision is one of the most important that people make, and that one point they will consider is how they might meet the costs of their long-term care later in their old age, will the Minister take the necessary steps to ensure that this advice covers how to make the right decisions on paying for long-term care?

[Steve Webb]

My right hon. Friend has a strong track record on long-term care and making it affordable—he and our right hon. Friend the Minister of State, Department of Health, have introduced legislation on that. On the guidance guarantee, I have to be slightly wary of trying to jemmy in large numbers of different topics, but it is clear, as my right hon. Friend says, that retirees need to think about financial liabilities later in retirement. The guidance conversation offers an opportunity to start that process and to signpost people to places where they can find further information.

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

8. What steps he is taking to limit the availability of benefits to migrants from other EU member states.

New State Pension

Steve Webb Excerpts

Tuesday 22nd July 2014 Written Statements

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

I committed to publishing the proposed rate for increments derived from the deferral of a new state pension when I had advice on what would be an actuarially fair rate.

Earlier this year the Department commissioned the Government Actuary to provide a report on the actuarially fair rate of increments for those reaching state pension age on or after 6 April 2016 and choosing to defer their state pension beyond state pension age.

I am pleased to confirm the report has now been received from the Government Actuary. Following careful consideration of the information provided, the proposed new rate will be one-ninth of 1% for each week the state pension is not claimed. This means a 1% increase for every nine weeks of deferral or around a 5.8% increase for each full year.

It is my intention to bring forward draft regulations later this year, under the powers in the Pension Act 2014, which will set out the proposed rate. These regulations will be subject to the affirmative procedure.

In line with my commitment to the House, I will place a copy of the report in the House Library.