Oral Answers to Questions

Debate between Steve Webb and Kevin Brennan

Monday 31st March 2014 Commons Chamber

[Steve Webb]

I am grateful to my hon. Friend for his support for our robust action on pension scheme charges. On governance, we recognise that there is potential for conflict of interest in some master trusts. Therefore, in last week’s Command Paper, which I am sure he will have studied, we proposed that master trusts should be subject to the same independence requirements as independent governance committees. We are now consulting on that proposal.

[Kevin Brennan (Cardiff West) (Lab)]

What does the Minister make of the Government’s new Financial Conduct Authority’s first foray into the area of defined contribution pension schemes?

Pension Protection Fund

Debate between Steve Webb and Kevin Brennan

Tuesday 22nd November 2011 Westminster Hall

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

I congratulate my hon. Friend the Member for Cardiff North (Jonathan Evans) on securing the debate and welcome the fact that a number of hon. Members have come to the Chamber to register their support for their constituents who have been affected in the way that he describes. He is right to pay tribute to those who have campaigned on the issue for a long time; I recall many such debates in previous Parliaments. The hon. Member for Cardiff West (Kevin Brennan) was certainly one of the principal campaigners on the issue, on behalf of his constituents. Indeed, Derek Wyatt, predecessor of my hon. Friend the Member for Sittingbourne and Sheppey (Gordon Henderson), campaigned on the issue during his time as a Member of the House, particularly with respect to the link with ASW Sheerness.

As my hon. Friend the Member for Cardiff North rightly said, my involvement goes back a long way. I recall going with Mr Andrew Parr, from ASW Sheerness, and Dr Ros Altmann, to whom my hon. Friend was absolutely right to pay tribute for her role in all this, to see the parliamentary ombudsman way back when. We sat down with the ombudsman and went through all the literature that people were provided with at the time, as well as the concerns about the way successive Governments had said, “No questions asked, company pensions are a good deal.” Essentially, they had said, “Go for it.” As my hon. Friend rightly says, some people lost out very badly. That is, in a sense, how the financial assistance scheme came about.

It is worth reflecting on the sequence of events and the creation of the Pension Protection Fund, and how the financial assistance scheme fits into that universe. The existence of the PPF is germane to my response to my hon. Friend. Rightly, people sometimes ask about what previous pensions Ministers got wrong. One thing that previous pensions Ministers got right was the creation of the PPF. Going forward, people in defined benefit pensions can know that the scheme is paying a levy, that there is a sort of collective insurance and that, essentially, those who see their company become insolvent can expect to receive 100% as pensioners, and 90% as active or deferred members of the scheme.

We can all take some reassurance from the fact that for the sort of scandals my hon. Friend describes—where Governments have encouraged people to save through workplace pensions and then they find that there is an insolvency event and they have lost not only their job, but their pension—there is now pretty good protection in place, although it is not total protection. Insurance schemes tend not to be total, but they are very significant.

One criterion for what we may or may not do with the financial assistance scheme is that I believe it would be wrong to take its principles beyond what the PPF provides. The PPF is a levy-based insurance scheme. It would seem to me to be wrong to say to people whose employers are paying an insurance premium that they will get less insurance cover than those who did not. It is not their fault that they did not, but it would seem to me that that is a logical and coherent position. If we create an insurance scheme and people pay for it, that is what we think is fair provision. Therefore, the financial assistance scheme should not be more generous than the PPF. That, therefore, is part of my initial response to my hon. Friend’s first point about the 2.5% inflation cap. I take his point that we live in times of high inflation, with the consumer prices index at 5.2%, or 5% as the most recent figure. However, if we were to lift the cap on the financial assistance scheme indexation, by corollary we would have to do so on the PPF indexation. If we did not, that would be odd, and we would probably be in court by the end of the day, I suspect. The PPF indexation is funded by the levy payers, so there could be a significant additional cost from removing that cap, which would have to be met by the firms in British industry today that are continuing to run quality pension schemes, or that continue to have liabilities under them. A challenge that we face is the balance between wanting good-quality pension protection and good-quality pension provision. Every time we put a new burden on those who provide final-salary and salary-related pensions, the danger is that another will say, “Forget this, that is just another cost and we will close it.” That is one of the trade-offs.

My hon. Friend mentioned the indexation provisions specific to the ASW scheme, which were relatively generous compared with some, but, to give a feel for the scale of what we might be talking about, if we were to provide indexation along the lines of the schemes that people were in previously, rather than at a general level, it is estimated that we would add about 30% to the cost. Just one of the things on his list would add significantly to the cost.

[Kevin Brennan (Cardiff West) (Lab)]

I did not intend to intervene, but as the Minister rightly says, in the past he and I were allies at times in working on the issue. We all accept that the deal that eventually happened was not what we would have liked to see, nor was it as adequate as we would have liked—he accepted that at the time—but does he not feel some responsibility at least not to make matters worse, which is what he is doing?

[Steve Webb]

Let me come on to the CPI point, which is what I assume the hon. Gentleman is referring to. Clearly, the Government took a view in summer 2010 as to the measure of inflation that they would use to uprate benefits and tax credits. There is no perfect measure of inflation; clearly, each has its strengths and weaknesses. However, as a new Pensions Minister in 2010, I received angry letters from people asking why their state earnings-related pension scheme had been frozen. Obviously, “It wasn’t me, guv”, as it were, but their SERPS pension had been frozen because “inflation” in the year to September 2009, as measured by the retail prices index, was negative.

We had a bizarre situation. I have yet to meet a pensioner who felt that inflation was negative in the year to September 2009, but, because mortgage rates were falling dramatically, headline RPI inflation was negative and, therefore, people’s pensions were frozen in 2010. CPI would have given them an increase then.

The further paradox was that, at a time of falling interest rates when savings returns were falling—low interest rates are, on the whole, bad news for pensioners, who tend to be savers rather than borrowers—we were using a negative or a low measure of inflation. That did not seem a good fit to us, particularly for pensioners, so the Government took the view that they would measure inflation using the CPI for benefits, tax credits, state earnings-related pensions, the underpin for occupational pensions and, thereby, via SERPS, public-sector pensions, and the PPF. Having decided that that was what inflation was across whole swathes of the what the Government do, it would be odd to have an island where we measured inflation differently.

I fully accept that that reduces the value of the financial assistance scheme pensions—I cannot dispute that—but that was not the purpose of the exercise, and the effect was well down the track from the decision on the CPI. It would, however, have been incoherent to have said that inflation was something different for the financial assistance scheme.

I have met Pensions Action Group campaigners on a number of occasions over many years, as my hon. Friend the Member for Cardiff North said, and I have great respect for what he described as their dignity and for their perseverance in campaigning, which has got the financial assistance scheme to where it is. The switch to using the CPI has reduced the cost of the financial assistance scheme in the longer term—it has had no impact in the first couple of years because we are above the cap on either measure of inflation—but other factors have led us to spend more on the financial assistance scheme than we were budgeting for. Rather than looking at a budget line that allows me some slack, I am having to explain why I am overspending relative to the budget that I inherited. The reason for that is that new schemes come into the financial assistance scheme, or we get data for schemes that we knew were coming in but for which we did not know the details, and we tend to find out that we have greater liabilities, in particular in the short term, than we had thought.

Working out what we will spend on the financial assistance scheme is not a precise science, although it is getting more so. However, it would be wrong to think that somehow the budget line has some slack in it and that we can decide what to spend it on. On the contrary, I am having to make the case in Government that we have made promises to the financial assistance scheme that we need to keep. Therefore, we have to find extra money compared with what we budgeted for.

Pensions Bill [Lords]

Debate between Steve Webb and Kevin Brennan

Tuesday 18th October 2011 Commons Chamber

[Kevin Brennan (Cardiff West) (Lab)]

Why have the Government decided to raise the level at which auto-enrolment will come in? By their own figures, that will affect about 600,000 people, mainly women.

[Steve Webb]

I will come on to that, because Opposition amendments 19 and 20 relate to it. As I said in my introduction, I shall deal with all the amendments in this group, so if the hon. Gentleman will forgive me I will explain our thinking on that matter later.

--- Later in debate ---

[Steve Webb]

The hon. Lady raises an important issue. That is one of the arguments against a six-month waiting period, but those things are a matter of judgment. She used an interesting phrase when she mentioned the payroll departments of small firms, but of course a typical small firm does not have a payroll department, and will struggle with those provisions. We are trying to ensure that the scheme has flexibility, so that we take small firms with us rather than have them resenting the scheme. The waiting period is important in that respect.

Finally, on amendments 19 and 20 and the earnings trigger, which the hon. Member for Cardiff West (Kevin Brennan) mentioned, the Bill originally proposed that we auto-enrol at around about the national insurance floor, which is a bit more than £5,000, uprated in today’s prices. There were two problems with that. First, there was no de minimis provision, so employers would have auto-enrolled people for pennies a week. If the floor were £5,000 and a person earned £100 a week—£5,200 a year—they would be enrolled on the £200 above the £5,000. Under the legislation that we inherited, the contribution at the start would be 1%—£2 a year, or 4p a week. There might have been the odd adverse newspaper story had we required small firms to enrol people for 4p a week, so we took the view that we had to put the threshold up.

The obvious threshold to use—common thresholds are attractive to employers—is the PAYE threshold. Although we will look at the prevailing situation and make a judgment each year, the broad idea behind aligning with the PAYE threshold is that if businesses have to run PAYE for somebody, auto-enrolment will be a reasonable duty. Below that level, it is inappropriate.

[Kevin Brennan]

Further to that point, if the Government raise the PAYE threshold, as they have previously announced, will auto-enrolment be triggered at that higher threshold? Would not that deny millions of people—those who would benefit the most—the benefits of auto-enrolment?

[Steve Webb]

As we have made clear, people still have the right to opt in to auto-enrolment, but obviously the bulk duty will be at the tax threshold. There is a trade-off: we can have a low threshold, but that results in people being brought in for what are technically known as piddling amounts of money, for which the costs are disproportionate. The tax threshold appears to us to be broadly the right level, but as the hon. Gentleman will be aware, we have discretion in the Bill to look each year at the labour market and at what has happened to earnings and prices, and to make a judgment. That is the broad direction of travel, as recommended to us—

Oral Answers to Questions

Debate between Steve Webb and Kevin Brennan

Monday 13th June 2011 Commons Chamber

[Steve Webb]

My hon. Friend is right that keeping a home adequately warm is an important part of the standard of living of pensioners. That is why it is included in the broader measure of poverty that we will introduce. I echo the words of my right hon. Friend the Energy Secretary, who said at the weekend that faced with double-digit price rises, we would encourage as many people as possible to shop around so that they do not have to pay those prices and can use the market to their advantage.

[Kevin Brennan (Cardiff West) (Lab)]

The previous Government tackled pensioner poverty with great rigour and success. How can we be assured that in changing the measures of pensioner poverty, the current Government are not simply trying to cover up a failure of their own policies? What assurances can the Minister give the House about the changes?

[Steve Webb]

I am grateful to the hon. Gentleman for his question. The idea of measuring pensioner poverty in terms of material deprivation is supplementary to the income measures, and we will continue to publish both. I am sure he would accept that being just a penny or two above an arbitrary income level does not mean that people have a good standard of living if they are isolated or lonely. We aim to address all facets of pensioners’ quality of life.

Oral Answers to Questions

Debate between Steve Webb and Kevin Brennan

Monday 14th February 2011 Commons Chamber

[Steve Webb]

I am grateful to the hon. Lady for raising that point. I can do no more than quote my right hon. Friend the Chancellor, who told the House in November:

“The Treasury is working with the Department for Work and Pensions on potential pension reform that could simplify pensions and provide a boost to pensioners for many years to come.”—[Official Report, 16 November 2010; Vol. 518, c. 726.]

How right he was.

[Kevin Brennan (Cardiff West) (Lab)]

8. What steps he is taking to increase the number of apprentices employed by his Department.