Pensions Bill

Tom Blenkinsop Excerpts

Tuesday 29th October 2013 Commons Chamber

[Steve Webb]

In someone else’s legislation—[Laughter.] Just between ourselves, I encourage the hon. Lady to keep up the pressure across Government, including at Business, Innovation and Skills questions, Energy and Climate Change questions and Work and Pensions questions. To be frank, this issue is not always at the top of the pension agenda, so I welcome the amendments for that reason. I am reluctant, however, to amend the Bill in a piecemeal fashion, when I hope that we can have a more overarching framework affecting company law, business regulation and the duties of trustees not only in pensions but beyond. I am sympathetic to what she is trying to achieve, but we want to do it in a systematic, cross-Government way rather than dealing with just a bit of the issue. I look forward to hearing what she has to say, but I hope that she will withdraw new clause 12.

Scale is important. I do not think anyone doubts that, on average, bigger schemes produce better outcomes than smaller schemes, in the sense that, typically, bigger schemes have lower costs; they have the potential to diversify and pool risk; they have access to investment vehicles that smaller schemes perhaps do not; they have access to better quality investment advice; and they have more experienced trustees. We can see why, on average, a big scheme will probably do better than a small scheme. Just as the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East is searching for golden bullets on independent trustees—

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

Silver bullets.

[Steve Webb]

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

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

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

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

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

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

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