Pension Schemes Bill

Debate between Steve Webb and Mark Field

Tuesday 2nd September 2014 Commons Chamber

[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.

Housing Benefit

Debate between Steve Webb and Mark Field

Tuesday 13th July 2010 Westminster Hall

[Steve Webb]

Clearly, there is a differential impact in different parts of London; I do not dispute that for a second. Taking London as a whole, just a little under a third of properties will be available within the caps. Obviously, the figure will vary from area to area, and there are particular issues that affect central inner London.

[Mr Mark Field]

Will the Minister briefly give way?

[Steve Webb]

I will carry on just for now, because I want to respond to as much of the debate as I can.

The question is, how can we appropriately look at this matter? Some of the figures that have been quoted for losers assume that nothing changes and that people will go on living exactly where they are living and making the same choices, but the whole point of the reform is to have an influence on the housing market, and to try to do something about escalating rents.