New Clause 7 — Performance of the Personal Accounts Delivery Authority

Orders of the Day – in the House of Commons at 3:45 pm on 18 April 2007.

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'(1) In discharging its functions under this Part of the Act, the Authority shall ensure that its actions and advice support the following objectives for the scheme—

(a) ensuring that the overall outcome, taking account of the impact on the existing market, is an increase in the number of people saving and the overall amount being saved;

(b) optimising levels of participation and contribution among the target group;

(c) setting an investment strategy in the best interests of members;

(d) minimising burdens on employers;

(e) minimising the impact on other high-quality pension provision;

(f) assuring security of administration;

(g) governing in the best interests of members and beneficiaries;

(h) ensuring that the board acts impartially, prudently, responsibly and honestly;

(i) delivering appropriate levels of choice;

(j) achieving charges that are fair and reasonable;

(k) ensuring the funds are invested in the best interests of the members.

(2) Her Majesty may from time to time by Order in Council make provision for amending the objectives set out in subsection (1).

(3) No recommendation shall be made to Her Majesty to make an Order in Council under subsection (2) above unless a draft of the Order has been approved by resolution of each House of Parliament.'.— [Mr. Waterson.]

Brought up, and read the First time.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

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

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

With this it will be convenient to discuss the following: New clause 29— Winding up of Personal Accounts Delivery Authority

'(1) If the condition in subsection (2) is satisfied the Secretary of State must by order provide for the winding up and dissolution of the Authority.

(2) The condition is that it appears to the Secretary of State that in excess of 29 per cent. of the population over state pension age will, at the time of the introduction of personal accounts, be entitled to claim pension credit or another means-tested benefit.

(3) Subsections (5) to (8) of section 21 apply to an order under this section as they apply to an order under that section.'.

Amendment no. 7, in clause 19, page 21, line 28, at end insert—

'(2A) In discharging its functions under this Part, the Authority shall publish no later than 1st December 2007—

(a) estimates of the percentage of those people without existing occupational or personal pension provision who would be subject to means-testing if enrolled in personal accounts;

(b) estimates of the percentage of people who will be auto-enrolled into personal accounts who can be expected to secure returns of—

(i) £2 or more for every £1 saved,

(ii) £1 or more for every £1 saved,

(iii) less than £1 for every £1 saved;

(c) a breakdown of the target groups for personal accounts that are most at risk of low returns on their savings;

(d) plans how generic financial advice will be delivered to those people who are liable to be auto-enrolled in personal accounts.'.

Amendment no. 3, in page 22, line 6, at end insert—

'(7A) Before issuing guidance under subsection (6) the Secretary of State shall consult—

(a) the Authority;

(b) organisations appearing to him to be representative of consumers;

(c) organisations appearing to him to be representative of employees;

(d) organisations appearing to him to be representative of employers;

(e) organisations appearing to him to be representative of the financial services industry;

(f) such other persons as the Secretary of State considers it appropriate to consult in relation to the guidance.

(7B) A draft of any guidance proposed to be issued under this section shall be laid before each House of Parliament.

(7C) Guidance shall not be issued under this section until after the period of forty days beginning with—

(a) the day on which the draft is laid before each House of Parliament; or

(b) if the draft is laid before the House of Lords on one day and the House of Commons on another, the later of those two days.

(7D) If, before the end of that period, either House resolves that the guidance should not be issued, the Secretary of State must not issue it.

(7E) In reckoning any period of forty days for the purposes of subsection (7C) or (7D), no account shall be taken of any time during which—

(a) Parliament is dissolved or prorogued, or

(b) both Houses are adjourned for more than four days.

(7F) The Secretary of State shall arrange for any guidance issued under this section to be published in such manner as he considers appropriate.'.

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. Will Members who are leaving do so quietly and as quickly as possible?

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

Thank you, Mr. Deputy Speaker. It is a great pleasure to introduce new clauses 7 and 29, and amendment No. 3, which were tabled by my hon. Friends and myself.

New clause 7 is concerned with the design of personal accounts. As you know, Mr. Deputy Speaker, that is the new system that the Government have introduced to encourage pension saving, which is based on the proposals in the Turner report. So that there is no doubt, the official Opposition wish the personal accounts system to succeed, so we wish it to be designed properly. We do not wish to inherit a system that is flawed or designed to fail. New clause 7 is largely taken from that part of the Government White Paper that sets out the criteria for the operation of personal accounts. However, there is a serious philosophical difference between the Government and ourselves on this part of the Bill. They are far too keen to set up the personal accounts delivery authority and leave it to the authority to sort out the detailed design of personal accounts and make all the difficult decisions. We do not see it that way at all. There are serious issues that need to be addressed now, and in the next pensions Bill—there is always another pensions Bill around the corner—by politicians. I am not suggesting for a moment that we should second-guess the experts on the detailed technical stuff, but it is the job of politicians to make decisions about the broad structure of personal accounts and the way in which they sit alongside existing pension provision.

I am delighted that we are supported by such bodies as the Association of British Insurers, which we heard about a little earlier, and the National Association of Pension Funds. The ABI, in its briefing that it produced for the debate, states:

"The Delivery Authority needs sound governance and clear objectives...They should be set out on the face of this Bill, which is not currently the case".

It emphasises the need to

"take account...of the potential impact on the existing pensions market, including the need for a level regulatory playing field; ensure that Personal Accounts are designed to focus on the target market"—

I shall return to that in a moment—

"...and avoid taxpayer subsidy by ensuring all costs are ultimately recovered".

The NAPF says similar things. It believes that

"the PADA should be given clear statutory objectives in this Bill."

It goes on to say:

"In particular, we think it is vital that PADA's objectives include minimising the impact of Personal Accounts on existing good quality pension provision."

Indeed, at a seminar on 16 January this year, which I was not privileged to attend—I cannot imagine what I was doing that day—the Minister told an NAPF audience that the personal accounts system would have

"a specific legal objective of ensuring that the impact on the existing market is minimised".

We need to hear more about whether he has resiled from that position, intends to accept our new clause, or merely intends to put that clear legal objective into the next pensions Bill. The NAPF goes on to say that

"PADA should be set an objective to ensure that it operates in such a way that does not interfere with existing occupational or personal pension schemes."

We entirely endorse that point of view.

On Monday this week, at a seminar organised by Scottish Widows, Mr. Robert Wyllie of Scottish Widows had some trenchant things to say along similar lines. He talked about the target market, the initial capital requirement of between £1 billion and £2 billion for establishing personal accounts, the need to enshrine the lack of a Government subsidy for the delivery authority, and the need for a level playing field. Of the contribution limit, which I will deal with in more detail in a moment, he said:

"Frankly there is no way to guarantee that Personal Accounts will not lead to some degree of levelling down."

At the same seminar, the highly respected pensions guru, Mr. Alan Pickering, said that it was the role of politicians to make these key decisions rather than the people running the delivery authority.

Many of the points set out in the new clause are, I hope, largely uncontroversial, not least because they were, as I say, lifted almost word for word from the Government's own White Paper. I particularly want to concentrate on paragraphs (a), (b) and (e). Paragraph (a) refers to

"ensuring that the overall outcome, taking account of the impact on the existing market, is an increase in the number of people saving and the overall amount being saved", paragraph (b) refers to

"optimising levels of participation and contribution among the target group", and paragraph (e) refers to

"minimising the impact on other high-quality pension provision".

That is because we, and the pensions industry, are worried about mission creep—no reflection on the Minister intended.

The best indicator of that is the Government's attitude to the contribution cap. The Turner commission could not have been clearer in its recommendation that it should be set at £3,000, and the official Opposition agree with that level. It is a ground for genuine concern that the Government inexplicably announced that they wished to increase it to £5,000, which would mean that personal accounts could include nearly 95 per cent. of existing pension savers, thereby straying a long way from the concept of the target audience. We were therefore delighted when in a recent answer at DWP questions the Secretary of State said that he was reconsidering the level of the cap. That is a relief for us, as an increase to £5,000 would be unacceptable and would jeopardise the future of consensus building between the main parties.

Some argue for an even higher cap or no cap. With all due respect, I believe that they are misguided and fail to grasp that the point of personal accounts is to target the unpensioned. We therefore wish to make it clear that the success or failure of personal accounts crucially depends on increasing not only the number of savers but savings overall.

Proposed paragraph (b) is self-explanatory. The point is to optimise participation among the target group as defined in the Government's White Paper. Proposed paragraph (e) expresses our concern about the dangers of levelling down. It is said that some levelling down has already occurred and, with more than 60,000 schemes closed on the Government's watch, that can hardly be denied. The Minister is fond of saying that there is currently nothing to stop levelling down. However, how many companies, having calculated the cost of increased participation based on auto-enrolment, will be tempted to close their existing and more generous schemes and point their employees towards personal accounts? It will be all too easy for the contribution levels inherent in personal accounts to be perceived as the norm, whereas they will not deliver a comfortable retirement.

Much work remains to be done on restricting transfers, exclusions and the sort of quality mark that the NAPF proposes for existing schemes. However, the contribution cap is an important litmus test of the Government's true intentions in the Bill. Do they genuinely intend to target those groups in society that do not save for their retirement, or are they more concerned with the back-door nationalisation of the most successful private pensions system in the world?

New clause 29 deals with means-testing, which is a cancer that eats away at saving for retirement. It can be intrusive and demeaning and it is no guarantee that help will get to those who need it most. Pension credit has tested to destruction the theory that means-testing is the answer to poverty. Some 1.5 million people who are entitled to pension credit do not claim it, and some 2 million pensioners live in poverty in this country. The ABI—I am happy to rely on its views on the matter and on many other issues—stated that much greater clarity was needed on the Bill's impact on future levels of means-testing. That is absolutely right.

There are conflicting views about means-testing, even in Government. The Chancellor is keen to extend the number of people who depend on the state. He has vastly increased the number of people who are employed by the state. Approximately a third of people—more in Scotland—depend on the state for all or part of their livelihood. Nearly 50 per cent. of pensioners are already subject to means-tested benefits.

To their credit, Department for Work and Pensions Ministers, in extolling the virtues of their pension reforms, point to the fact that, if we go on as we are, some 80 per cent. of pensioners will be means-tested by the middle of the century. On any view, the likely amount of means-testing after the reforms will be crucial to the success or failure of personal accounts.

As the official Opposition, we naturally wish savings to be restored to the sort of levels that prevailed under the previous Conservative Government. Will personal accounts achieve that? I believe that the answer depends on whether means-testing can be reduced significantly. It was clear, even before the Bill was introduced, that significant differences existed between the Government's projections on means-testing and those of independent bodies such as the Pensions Policy Institute. It reaches sharply different conclusions from those of the DWP.

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions 4:15, 18 April 2007

I just want to clarify the intention of the hon. Gentleman's new clause. We already have a situation in which more than 29 per cent. of pensioners are means-tested in retirement, and the figure was more than 29 per cent. when the Conservative party was in power. It is also forecast to be more than 29 per cent. in 2012. Is the hon. Gentleman saying that the Conservatives would not introduce personal accounts unless the figure dropped below 29 per cent.? If so, what is their plan to get the figure below that level?

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

I am delighted to tell the Minister that I shall deal with those very points in a moment. He will probably already have guessed, however, that this is a probing new clause, albeit an important one that is designed to squeeze out of him a commitment to reducing means-testing to those kinds of levels. I shall develop the point that he has raised in a moment.

The Pensions Policy Institute is looking at a range of the possible extent of pension credit of one third to two thirds in 2050, with what it calls

"a base case of no change from today's level of 45 to 50 per cent.".

This could mean, to quote its document,

"between 4 million and 6 million households eligible for pension credit".

This is precisely why we urged the Government to agree to an evidence session under the new procedures during the Committee stage of the Bill, in order to hammer out these differences and the reasons for them. The Government's own projections show means-testing at about one third, post-reform. I can see that that represents progress from the current levels, but it still remains historically high. Apart from anything else, how will people near the beginning of their careers know whether they will be one of the third, or one of the two thirds? Will not the knowledge that they have a one-in-three chance of being means-tested in retirement have an effect on their behaviour?

We learned with great sadness, however, that the Minister had declined our invitation to hold an evidence session. Instead, he invited us to a seminar on the subject, which is his default position at the moment. There is a real danger of those of us who follow the Bill becoming seminar junkies. Anyway, we all duly turned up and listened to the views of the DWP and the PPI. By the end of the seminar, I was—as F. E. Smith might have put it—none the wiser but much better informed. It was clear that different methodologies were being used by the two contenders. For example, the PPI included the effects of housing benefit, but the DWP did not. Where the PPI failed to score was that, unlike the DWP, it did not have an amazing machine whirring away in the basement to produce its projections.

The nearest that we came to consensus on means-testing levels was the conclusion that there was

"a range of plausible outcomes", which I hardly think was worth the trouble and expense of laying on the seminar in the first place. But there we are; I do not want to seem churlish—how would I fill my days otherwise? But there remains a big gap, and little prospect of closing it. In fairness, apart from the obvious difficulty of projecting figures so far ahead, one of the imponderables is how successful personal accounts will turn out to be.

On the face of it, new clause 29 looks somewhat draconian, as the Minister said earlier. It proposes that if more than 29 per cent. of pensioners are subject to means testing by the time of the introduction of personal accounts, the delivery authority should be wound up. The 29 per cent. figure is a Government figure; they project that the proportion of means-testing will fall from about 45 per cent. to about 29 per cent. by 2050, following the reforms. We take the view—I would be interested to hear whether the Minister agrees—that any higher level than that would seriously jeopardise the future of personal accounts.

As I have said, however, this is a probing new clause—unlike the previous one—designed to draw out the Government's thinking. Does the Minister share our concerns and those of the industry about means-testing? How committed are the Government to rolling back means-testing? How has their thinking developed since the Committee stage and the seminar? I ask those questions not just as a member of the official Opposition and not just in a spirit of consensus on long-term pension reform, although that is important. I ask them also because we do not wish to inherit a system that has clearly been set up to fail. These are issues that need to be addressed now.

Photo of Sally Keeble Sally Keeble Labour, Northampton North 4:30, 18 April 2007

What would the hon. Gentleman count as means-tested benefits? If the aim of the Opposition—who obviously want to be the Government—is to phase them out, I think people would like to know whether they include housing benefit, council tax benefit and the various disability and carers' top-ups.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

The hon. Lady, whose contribution to the Committee was greatly valued, has more or less summarised the benefits that I would include. Council tax benefit, which she mentioned, has a lower take-up than any other means-tested benefit. We should recognise, as a matter of practical politics, that there will always be some means-testing in the system, because there will always be people who are sufficiently poor to need help from means-tested benefits. As I have said, the problem with mass means-testing of benefits such as pension credit is that many people who are entitled to those benefits do not claim them, for whatever reason. I am sure that in our constituencies we all do our best to encourage home visits by the Pension Service, and encourage people to make the telephone call that enables them to fill up the form.

The good news, as the Minister will no doubt tell us, is that after some wobbling on the issue, the Government have confirmed that pension credit will continue to rise in line with earnings for the foreseeable future. We think that both Front Benches, in a spirit of consensus, should aspire to reduce means-testing in the medium term, which may mean committing funds to increasing the state pension even further than is envisaged in the reforms. Those, however, are aspirations rather than current spending commitments.

Broadly speaking, the more means-tested benefits there are and the more people are likely to fall within their ambit, the less the take-up is likely to be and the more people who really need help are likely to receive it.

My amendment No. 3 mirrors an amendment tabled in Committee. It suggests that before the Secretary of State issues guidance under clause 19, he should consult various groups—the delivery authority, obviously, but also bodies representing consumers, employees, employers and so on. What happened in Committee is what is always happening in Committee: a Minister says that the Government are going to take the action anyway and does not see why it should be specified in the Bill, and we say, "If you are going to do it anyway, why not include it in the Bill?" I can tell the Minister now that I do not intend to go to the stake on the amendment today, but I think it was worth bringing it here from Committee.

Amendment No. 7—unusually for a Liberal Democrat amendment—is quite sensible and modest. It would certainly be useful to have such information in the public domain. The amendment touches on the vexed question of " generic financial advice". I am still unconvinced that "generic advice" is not a classic oxymoron, but fortunately the Thoresen review is under way and no doubt it will find a way of squaring the circle. I do not know whether the amendment will be pressed to a vote, but if it is, we may well support it.

I hope that what I have said, particularly about the two new clauses in my name, gives some flavour of what we are trying to achieve. I look forward to hearing the Minister's comments in due course.

Photo of Danny Alexander Danny Alexander Shadow Secretary of State (Cabinet Office) and Shadow Chancellor of the Duchy of Lancaster

It is a pleasure to have become involved at this late stage in such an important Bill. I have observed its progress closely, although my hon. Friend Mr. Laws has been very much in the driving seat.

Let me say a little about amendment No. 7. It dwells in detail on points that Mr. Waterson made in his speech. It seeks to provide a mechanism for clarifying some of the issues he described about the likely extent of continued means-testing under the new arrangements proposed in the Bill and to offer objective analysis of that issue. It also seeks to offer analysis of the likely returns that different groups of people who will be auto-enrolled into personal accounts might expect to receive.

The hon. Member for Eastbourne referred to a seminar that I and many other Members attended. It sought to clarify the difference between various assessments—principally the Government's assessment and that of the Pensions Policy Institute—of the proportion of people who will be subject to means-testing under the Government's proposed pension arrangements. It forecast that the proportion will probably be about 29 per cent.—that is still its central estimate—but the PPI has suggested that about 45 per cent. of pensioners are likely to be subject to means-testing. The seminar clarified the reasoning behind those different estimates. As someone who is not a pensions expert, the evidence seemed to me to leave a wide range of possibilities about the proportion of people who will be auto-enrolled into personal accounts and who will continue to be in receipt of means-tested pension benefits.

That will have a substantial impact on how worth while it is for someone to save in a personal account and on other aspects of their personal circumstances. In particular, it will have a significant impact on the likely returns that people who are auto-enrolled into personal accounts can expect to receive. That is the subject of proposed new subsection (2A)(b), which requires the delivery authority to publish estimates of the proportion of people

"auto-enrolled into personal accounts who can be expected to secure returns of—

(i) £2 or more for every £1 saved,

(ii) £1 or more for every £1 saved,

(iii) less than £1 for every £1 saved".

Clearly, the range of possibilities is wide. My hon. Friend the Member for Yeovil made it clear in Committee that there seems to have been a degree of uncertainty and confusion from the Government about the proportion of people likely to expect those differing levels of returns. On Second Reading, the Secretary of State said in response to a question from my hon. Friend that

"the vast majority of people will be able to look forward with some confidence to receiving £2 back for every £1 put in."—[ Hansard, 16 January 2007; Vol. 455, c. 665.]

Subsequently, the Department for Work and Pensions issued a paper entitled "Financial incentives to save for retirement", which stated that

"the system that we propose, in combination with the introduction of personal accounts, will see the large majority of people...expecting a payback well in excess of £1...for every £1".

There is a substantial difference between a payback of £1 for £1 and of £2 for £1. Looking forward, it might be difficult for Ministers and their officials to work out with any degree of certainty what the returns are likely to be. The purpose of amendment No. 7 is to require the delivery authority to do so.

The timing suggested in our amendment is important. We want the estimates to be brought forward by the authority no later than 1 December 2007. That would ensure that the figures, analysis and information that the personal accounts delivery authority was able to provide through its expert analysis would be available to the House, before it completed its consideration of the Bill that will no doubt be introduced in relation to personal accounts, to inform its judgments about the proportion of those auto-enrolled who will be on means-tested benefits, and the likely returns that they can expect. That information should be in the public domain and before the House so that it can form a big part of the debate.

If 45 per cent. of people are to be in receipt of means-tested benefits, they face some serious risks to saving in the personal accounts into which they will be auto-enrolled. It would be wrong for the House to consider a Bill that would set up such personal accounts without having that important information to hand. We also need to have information about the likely returns of such accounts. Such information is also critical to the marketing and promotion of personal accounts. The hon. Member for Eastbourne mentioned generic advice, but there are big questions about whether saving in personal accounts would be worth while for some people in that category, depending on the outcome in relation to means testing and the returns that they can expect.

When the Minister responds, I hope that he will be able to reassure us about how he intends to ensure that accurate information, which is as near to definitive as possible—or at least based on as wide a consensus as possible—about those two aspects will be made available to the House. That is what we seek to achieve, and I look forward to the Minister's response.

Photo of Sally Keeble Sally Keeble Labour, Northampton North

I am pleased to have a chance to speak briefly in this debate. I understand that the intention of this group of amendments is to probe, but it is important to get away from the loose discussion of means testing, because that could undermine the establishment of the new pensions regime and, more importantly, its role for many of my constituents for whom it will work very well indeed. It will be important in encouraging them to think about saving and making provision for themselves.

I challenge Mr. Waterson about the benefits he was including in the general category of means testing. We have all heard that term endlessly and we have all heard our constituents say that they do not particularly like means-tested benefits. When they say that, they mean particular aspects of the pension credit. By and large, the people who most dislike the means-testing of pension credit are those who are not entitled to receive it. I have never yet heard someone who is entitled to pension credit actually complain about the process for getting it. If we included all the other benefits to which old people might be entitled in the first place, we would strangle the personal accounts at birth, which would be a great shame. That would say to people that either they should rely on personal accounts and self-provision, or that they should be dependent on the state. The reality for many people is that it will be a combination of both.

Many of my constituents will need both forms of provision, because many of them work part time. Others may work all the hours God sends, but they are not on very high wages. The personal accounts will work well for them, but in some instances they will need top-ups. Some of my constituents bought their council houses, and they will not need to worry about housing benefit, but those in rented accommodation will still need housing benefit. I think that they would regard that not as a means-tested benefit, but as part of the income package that they need to get by each month. The same applies to council tax credit and the various disability benefits and carer allowances that some people need to increase their income.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

I am following very closely what the hon. Lady is saying, but has she seen the figures produced by the Pensions Policy Institute? Unlike the DWP, it takes account of housing benefit in its projections of those who will benefit from personal accounts. The forecast shows that men with full national insurance records who rent in retirement will be in the high-risk category. Housing benefit will make a crucial difference for some people, and we cannot just ignore that by saying that personal accounts will be a jolly good thing for most. Factors such as that really must be taken into account.

Photo of Sally Keeble Sally Keeble Labour, Northampton North 4:45, 18 April 2007

I have not seen the PPI figures, although I shall certainly look at them. I asked the hon. Gentleman to tell me what he considered to be means-tested benefits, because I wanted to clarify his party's approach to them. The Opposition have more serious aspirations to government now, so they—and the Liberal Democrats—must say what they understand by the term "means testing".

Old people do not respond well to being told, "This is good, but that is bad. You can have your personal accounts, but not the other benefits." Some of them will say, "Well, I might be auto-enrolled into the scheme, but I am going to opt out. To get by, I need X, Y and Z, and this, that and the other. Thanks very much, but this savings stuff is not for me."

It is important that we encourage people to make good self-provision, but we must also recognise that some people will need top-ups of various kinds. There is nothing shameful about that, as that is not means-testing: rather, it shows that the state is doing what it should do—that is, supporting people who make self-provision and making sure that people receive help according to their needs, with dignity and proper services in retirement.

Photo of Lynne Jones Lynne Jones Labour, Birmingham, Selly Oak

I cannot agree that what my hon. Friend has described is not means-testing, although I accept that means-testing is very important and I would not want the incomes that very poor people receive to be reduced. I appreciate her opposition to the Conservative amendment, which is supposed to be a probing one, but what is her opinion of the Liberal Democrat proposal, which I think is very reasonable? It would merely ensure that information is provided to people so that they can decide whether personal provision through an auto-enrolment scheme is worth while.

Photo of Sally Keeble Sally Keeble Labour, Northampton North

I agree that the Liberal Democrats should also tell us what they mean by the phrase "means-tested benefits", but the existing advice systems are supposed to be able to provide the information to which my hon. Friend refers. Independent financial advisers are supposed to give people advice on benefits—goodness knows how!—but, equally, advice is also supposed to be given to them by the agencies dispensing the benefits. Those arrangements are designed to ensure that people make decisions based on what is in their best financial interest. We should not label as "means testing" all state support that takes into account someone's personal finances. For instance, the carers allowance, or the carers or disability supplements to pension credit, are not examples of means testing: instead, they offer—in a dignified and proper way—substantial support so that people in retirement can have a decent standard of living.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

I am grateful to the hon. Lady for giving away again. She is being very generous, but does she agree that a proportion of people will always be better advised, for a variety of reasons, to opt out of personal accounts because their circumstances mean that they will not be any better off, in the long run? Does she also agree that that raises the conundrum, which has still to be sorted out, about the sort of advice people will get under what Lord Turner has called an "advice-free" model?

Photo of Sally Keeble Sally Keeble Labour, Northampton North

What the hon. Gentleman suggests is a bit like telling people on the welfare to work scheme that it is better for some of them to remain unemployed and simply live on benefits. We want a system that encourages people to provide for themselves, which means that we must show robust support for self-provision. However, we must also recognise that this is not an either/or choice, as people who make private provision will also need top-ups. We must not suggest that it is some kind of disgrace to apply for the other benefits, or that it is degrading to do so because of the implied element of means testing. What we have to do is provide support that is appropriate to need.

Photo of Sally Keeble Sally Keeble Labour, Northampton North

I will, but then I must make progress, as I am not sure when this section of the debate is due to finish.

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. The knife falls at 5.22 pm. Although I am loth to intervene at this stage, this is not a general debate about means testing and its wider ramifications; it is specifically about the Pensions Bill. I mention that so that it might concentrate Members' minds a little.

Photo of Danny Alexander Danny Alexander Shadow Secretary of State (Cabinet Office) and Shadow Chancellor of the Duchy of Lancaster

Thank you, Mr. Deputy Speaker.

As Ms Keeble knows, in the context of the Welfare Reform Bill, the Government have been considering how to make sure that it is worth people's while to go to work. The point of our amendment to the Pensions Bill is to ensure that objective information is provided both about the proportion of people in means testing, which includes pension credit, council tax benefit and housing benefit, and about the returns they are likely to receive, so that people can decide whether it is worth their while to save. Some people could be worse off if they chose a personal account, so it would be irresponsible to advise them to pay into one.

Photo of Sally Keeble Sally Keeble Labour, Northampton North

New clause 29 is specific, which is why I pursued the point about what a means-tested benefit is. Although I realise that it is a probing proposal, it states that the delivery authority would be wound up if

"in excess of 29 per cent. of the population over state pension age will, at the time of the introduction of personal accounts, be entitled to claim pension credit or another means-tested benefit", but it does not say which means-tested benefits. The hon. Gentleman says it would include council tax benefit and housing benefit, as well as other benefits, but we need some clear indication of what the Opposition are talking about. Is the aim of proposal to probe exactly what the Government and the Opposition mean by means-tested benefits?

On a similar point, the hon. Gentleman that his party got things terribly wrong over the winter fuel allowance. They said, "This is something extra, but we actually want just one payment." In fact, pensioners said, "No, we want things that are appropriate to our needs", which is why they like the winter fuel allowance. It would be wrong to say that because many people need top-up benefits in one form of another we should not have personal accounts. The accounts are important because they will give people a personal entitlement. However, if people need top-up payments to give them a decent standard of living in retirement, with particular forms of support related to their personal circumstances—be they carers, disabled or non-home owners—it is important that they can obtain that support.

I am sure that my hon. Friend the Minister will say that we should not vote for the new clause—indeed, the hon. Member for Eastbourne may withdraw it. However, it is wrong for the Opposition to try to muddy the water and, in the process, make people worried about claiming the benefits they need to maintain their standard of living and to which they are fully entitled and the state is absolutely right to provide.

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

This has been an important debate, with good speeches from Members on both sides of the House. People will be watching it from outside this place, even if Members are not thronging to the Opposition Benches.

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

Well, there are infinitely more Members on the Labour Benches.

The amendments deal with the role and operation of the delivery authority and have allowed us to discuss important issues to which I will turn later in my speech. In their substance, however, they treat the delivery authority as though it would take decisions on personal accounts, whereas all that we are setting up under the Bill is an authority that can advise the Government so that the Government can take those decisions. Although I realise that these are probing amendments, on the issue of whether we should set objectives for such an advisory authority, it is quite clear that those objectives should be for Government—exactly as Mr. Waterson said in his introductory remarks.

I want to turn to the points that the hon. Gentleman made. First, on amendment No. 3, he has slightly misunderstood the kind of guidance that we are talking about. As I said, the delivery authority is going to be advisory. It will support the Government in understanding the operational and commercial implications of policy options. It is therefore right that the Secretary of State is able to issue appropriate guidance from time to time, but a lot of that guidance is going to be fairly trivial. It will be on the format and presentation of the advice, and who should be consulted within the Department for Work and Pensions or other parts of Government. To specify that such ad hoc guidance must be subject to a length parliamentary process would impede the ability of the authority and the Secretary of State to move flexibly and quickly. Indeed, to suggest that for this initial short phase we should have a 40-day delay every time we want to issue guidance would be verging on the sclerotic and would be quite disproportionate. It is quite right that that advice should be given on a basis that people can look at. We want to make sure that we continue on the basis of the open and consultative process that we have had to date. But it would be a mistake for a formal relationship and formal commitments in relation to publication and consultation with Parliament to be included in the Bill.

With respect to new clause 7, we agree with the spirit of what the hon. Gentleman is trying to do. As he was kind enough to say, he has, one might say, plagiarised—

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

Pillaged, even. He has paid homage to the objectives that we set out in the White Paper. In formulating our policy, we are of course conscious of those long-term objectives, but I repeat that we are not setting up the personal accounts scheme through the Bill.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

If all that is true, why does the job description of the chief executive of the personal accounts delivery authority, which the Minister kindly sent to me, say that part of the chief executive's role is to

"Turn a strategic vision into a successful initiative" and to

"Help evolve the business to meet its strategic objectives."

Where is he to find that strategy?

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

The chief executive is to advise the Secretary of State on the decisions to make around that strategy. The objectives that the Secretary of State is following will bind the chair and chief executive of the delivery authority. That is quite clear. It is right in this phase for the objectives to bind the Government. When, subject to the will of Parliament, we have the opportunity to debate this matter in a further instance, we will be able to see exactly what those objectives are. I am sure that the hon. Gentleman and I will delight in talking about this matter in Committee, yet again, in what will be a sort of franchised version of "Groundhog Day" by then.

We have finished our consultation on the White Paper, and it is important that we feed the responses into the development of the policy and that we respond appropriately to the people who have responded to our consultation. We are looking at the consultation responses and it would not be right to pre-empt that by setting objectives for the scheme before we have responded formally to the White Paper consultation.

The hon. Gentleman will be glad to know that we are working with the Pensions Policy Institute—his favourite think-tank—on a consultation event. I will be announcing another seminar to keep his diary occupied. He and Members on the Liberal Democrat Front Bench have been assiduous in attending these seminars. [ Interruption. ] Yes, sometimes even more assiduous that the Government. We thank them yet again for the spirit in which they have engaged in this policy, as well as their indefatigability. As I said, we are creating another seminar for their delectation. The PPI will help us to debate the objectives for the scheme and how members' interests can be made central to it. We would be happy for hon. Members to take part in the discussion. Other hon. Members can come along too. I agree that it has been valuable to discuss whether we should have objectives, but I hope that the House will agree that actually setting objectives in this Bill would be getting ahead of ourselves.

The hon. Member for Eastbourne mentioned the issue of levelling down and I would like to repeat my previous assurances that personal accounts will complement rather than compete with existing pension provision. There is no intention—the hon. Gentleman asked for reassurance on this—to nationalise the pensions industry by the back door. Parts of the pensions industry work extremely well and we want to build on that. We also want to ensure that we can extend the benefits of those parts of the industry that are working well to the rest of the population in order to ensure, for example, that everyone has the chance to get a matching employer contribution.

We believe that we have developed a package of proposals that will help us to achieve precisely that. They include a prohibition on transfers, a limit on contributions and a simple scheme exemption test. We hope that that will keep the scheme focused on our target market of low to moderate earners. We will continue to work with stakeholders on additional ways of achieving that.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions 5:00, 18 April 2007

Is the Minister in a position to tell us—in the light of our and other representations and the original recommendations of Lord Turner and his colleagues—whether he and the Secretary of State have reached a conclusion on the amount of the contribution cap?

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

The hon. Gentleman and I have spent so much time in each other's company that he can read my speech even from his sedentary position: that was precisely the issue to which I was about to come. As he knows, the level of the annual contribution is something on which we are consulting. As my right hon. Friend the Secretary of State has made clear, we are reconsidering the matter in the light of the responses. However, we want to look at those responses in the round.

The hon. Gentleman will have received representations about the issue from his new-found friends, the Association of British Insurers, but representations have been made from a range of directions. The Engineering Employers Federation said that there should be no cap at all; the TUC, the Equal Opportunities Commission, Age Concern and other organisations backed the £5,000 limit; while others said that it should be £3,600 or £3,000. For once, I stayed rather longer than the hon. Gentleman at the seminar at the Scottish Widows event on Monday, so he will have missed hearing Jeannie Drake say that the Turner commission would be perfectly happy with the £5,000 figure.

It is not a question, as some have claimed, of the Government being at odds with the Pensions Commission. The question is really how to achieve the twin goals of focusing the scheme on the target market while also allowing people to make extra contributions if they want. The Pensions Commission has always been very clear that the level of automatic enrolment is a minimum for people to contribute. We want to give enough headroom for people to be able to contribute above that and achieve a higher pension in retirement. We want to balance that with the aim that we have stuck to of targeting the scheme at the market. We will look in great detail at the responses to the White Paper and come back with proposals, which we will be happy to discuss with Opposition Front Benchers, to achieve that balance.

I hope that I have answered the points raised in the debate about personal accounts and the scheme. The remainder of the debate has focused particularly on means-testing, so I would like to spend a few minutes on that subject. The argument about means-testing often sets up what I believe to be a false choice between whether we should or should not have means-testing. The truth is that all parties know that, whichever Government are in power and whatever scheme they come up with, there will always be a certain amount of means-testing. The question is therefore not whether there should or should not be means-testing, but what the right balance between universal benefits and means-tested benefits is and how fast we should taper away those means-tested benefits.

I believe that the argument about means-testing is very simple. The argument that I shall seek to develop in the rest of my speech is that we are trying to give people the ability to provide for themselves in retirement and to be well above the level for means-tested benefit. The poverty prevention level or safety net will be there for people if their life does not work out as they hoped and they are not able to make sufficient provision for themselves in retirement.

I also want to bust a couple of myths about means-testing, because the Opposition sometimes talk as though means-testing has exploded in the past few years. The truth is that the proportion of pensioners who claim means-tested benefits is far lower than in the past. Today, about a third of pensioner families claim means-tested benefits; in 1979, nearly two thirds did so. If our pension system has been affected by the level of means-testing, it should have been affected positively by the trends that have occurred. Indeed, the proportion of pensioner families who claim means-tested benefits has fallen since 1997. The question is not what that has done to saving today, but what we can do to encourage saving in the future. That is exactly what the Pensions Commission considered.

It was never our intention to continue the current policy framework indefinitely. It was introduced to deal with a problem that we inherited—the level of pensioner poverty—but we recognise that, if it had continued indefinitely, as the hon. Member for Eastbourne said, almost 80 per cent. of pensioners would have been entitled to pension credit in 2050. That is exactly why we never intended to continue it for that length of time.

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

No, the figure is not going up, exactly because of the Bill, but if that happened the vast majority of the generation starting work today, who would retire in 2050, would expect to be affected by means-testing once they reach retirement. The reforms recommended by the Pensions Commission and implemented by the Bill address that situation. They make the basic state pension and the state second pension more generous, so that individuals with a good contribution record will be able to retire on £135 a week from their basic state pension and state second pension—well above the level of the pension credit—and their private savings will come on top of that.

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

If the PPI's higher estimates for means-testing were to prove correct and the Minister were to conclude that they were correct, would he be unhappy with that?

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

When the hon. Gentleman is Pensions Minister in 2050, or even in 2040 or 2030, he will be able to deal with that. We have clearly set out a set of policies that we want to make work. The reason why I am slightly reluctant to answer his question—something that he may have spotted—is that it is a question of what the right balance to reduce poverty is. It is not about picking an abstract number out of thin air. For example, as was persuasively pointed out by my hon. Friend Ms Keeble, the Front-Bench team could just say, "We will get rid of council tax benefit and housing benefit." That would reduce means-testing in retirement by a huge proportion, but they would not want to do that because it would push people into poverty unjustifiably. Therefore, we should all aim to create a policy that delivers the right balance between universal benefits and means-tested benefits to ensure that people do not fall into unacceptable levels of poverty.

People will be able to work or care for their whole lives to get to £135 a week, and the Bill will introduce that important change. People can get to that £135 through a full life of caring, and caring contributions will be put on the same footing as working contributions—something that is extremely welcome—but their private savings will come on top of that. Many long-term savers in personal accounts can expect to get returns of at least £2 for every £1 initially invested by the individual.

Danny Alexander asked whether we could give more definitive projections than that. We will publish further research on the issue, but we will not be able to give definitive projections to people because we cannot tell someone at the age of 22 what their working life will be, any more than we can tell them whether they will be disabled in retirement, whether they will be renting in retirement or, indeed, whether Government policy will have changed when they retire.

The hon. Member for Eastbourne quoted the example of someone in rented accommodation. Would he really advise people in 2012 not to save when they are 22, because they thought that they might be renting and relying on council tax benefit or housing benefit in retirement? We have no way of knowing what the policy will be in 40 years' time. We can all seek together, through the Bill, to create a consensus, but I warn particularly Liberal Democrat Members about looking for a level of certainty that is so great that it makes the scheme impossible. If the Liberal Democrats want to sign up to automatic enrolment, as I believe that they do, they will have to accept that we will be giving people a reasonable understanding of their future, rather than a perfect 20:20 prediction—no one could aim to do that.

The large majority of people can expect a good return from personal accounts, but pension credit will provide a safety net of about £119 a week if things go wrong. The key aspect of the reforms is that someone starting off work after personal accounts come in will know that if they work or care for most of their working lives and pay into an account, they will retire on significantly more than the means-tested minimum.

The Pensions Commission did not suggest eliminating means-testing and nor does any commentator or party in the House. Instead, there is a consensus that we should have a safety net to prevent unacceptable poverty in retirement, which is what pension credit becomes thanks to these reforms. The proportion of people entitled to pension credit will be reduced to less than 30 per cent. by 2050. There will thus be two main groups of people who will benefit from pension credit: those whose working lives did not turn out as they hoped and were not able to make contributions through working or caring to lift themselves above the means-tested level; and, just as importantly—and inconveniently for the policy of the Liberal Democrats—people who get more than £119 in retirement because they are disabled or caring for someone, or because they have other costs. We teased Mr. Laws in Committee to tell us whether he planned to take money away from that second group of people, but I assume that he will continue to duck the question, given that that issue is the fatal flaw in his proposal.

We believe that our proposals strike the right balance between universal benefits and means-tested benefits. We are happy to consider any suggestions that Opposition Front Benchers might make, but in truth there are only two ways in which we could reduce the proportion of people on means-testing. The first way would be to increase the basic state pension to the standard minimum guarantee level of £119 a week, which is somewhere near the policy of the hon. Member for Yeovil. However, without making offsetting changes, that would cost £20 billion, or 5p on income tax. If it were not enough that such a policy would be unaffordable, it is worth noting that it would not get rid of means-testing. It would reduce means-testing by only about a quarter, so while £20 billion would be spent, the hon. Gentleman would still have to decide whether to support automatic enrolment because of, for example, the question of housing benefit, or the situation for people who got more in retirement because they were disabled. Perhaps he will tell us whether he would take money off the people whom we have been discussing for so long.

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

Does the Minister agree that the more modest—and certainly more affordable—measure of bringing forward the timing of the introduction of the earnings link to next year from a vague date between 2012 and 2015 would, according to his figures, reduce means-testing by 5 per cent. by 2015?

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

My point is that whatever was done in the direction that the hon. Gentleman suggests, we would still have means-testing in the system. His proposal, which might end up being more modest than the one that I have read out, would cost £20 billion and increase income tax by 5p, but it would reduce the proportion of people on means-tested benefits in retirement by only a quarter. He knows very well that he would thus be in the same position on automatic enrolment. He wants to be able to say that he would increase the basic state pension, but he knows full well that that would not deal with the issue that he has identified.

Photo of Lynne Jones Lynne Jones Labour, Birmingham, Selly Oak

My hon. Friend expresses the view that it would cost £20 billion—a year, I presume—to bring the basic state pension up to the level of pension credit. Will he place in the House of Commons Library the calculations that he has used to derive that figure?

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

I will do so happily, provided that the hon. Member for Yeovil also tells us what he would do about the 80 per cent. of people who, in 2050, would be getting more than £119. If the hon. Gentleman wants to tell us what he would do about people who got more than that amount because of disability or carers premiums or their state second pension—if he wants to tell the public that his plan is to take that money away from them—we will be happy to put that information in the Library. We are very happy to put it in the Library anyway, but I was trying yet again, rather pathetically, to get the hon. Gentleman to tell us what his policy is.

The other way to reduce means-testing, of course, is to take money off poor people. The Tories seem to be saying that they do not want to increase the basic state pension, but they want to reduce the level of means-testing. The only way they could do that is by taking money off poor people, and I do not think that that is what they are planning to do. I am happy to let the hon. Member for Eastbourne intervene on me if he wants to. If that really is the Tories' policy we are happy to debate it with them; otherwise, the House will have to conclude that they want to make a noise about means-testing in general, without having any proposal to change what the Government are doing. We are happy to have that debate. We think that our proposals strike the right balance between enabling people to save for themselves and providing a safety net for them to fall back on—a safety net that has lifted 2 million people out of pensioner poverty since 1997.

Amendment No. 7 would require the delivery authority to publish analysis of the interaction of means-testing with personal accounts as well as plans for the delivery of generic financial information. That would place an unnecessary extra pressure on the delivery authority in its initial stages by requiring it to carry out extensive and complex analysis in a short time and to duplicate some work already being undertaken in other areas. The Department for Work and Pensions and other experts will be providing much of the information that the hon. Members for Yeovil and for Inverness, Nairn, Badenoch and Strathspey are after. Indeed, we plan to invite them to a further series of seminars to discuss the information base over the next few decades.

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

My officials have suggested a series of five seminars to which we could invite Front Benchers. I am happy to strike a bargain with the hon. Gentleman: if he wants to tell us how he is going to take money off disabled people and carers, we will invite him to all five seminars; otherwise, I propose to invite him to just two.

We do not believe that it would be right to place that burden on the authority. We believe that it is right to have a proper information strategy and to look at what we can do to improve people's financial capability. We are working with Otto Thoreson and the Treasury on a study to research and design a national approach to generic financial advice, and rather than a false debate about means-testing, in which the House knows that what we are talking about is where that balance should be struck, we should have a real debate about how to make that generic information and advice work so that people can make informed decisions about their future.

The debate has shown that personal accounts and automatic enrolment are of great interest to Members. Much of our debate has focused on the substance of personal accounts, and there will be opportunities to discuss that following our response to the White Paper, which will be published soon, and, subject to the will of Parliament, in legislation in the next Session. Rather than pre-empt that, I urge Members on both Front Benches not press their amendments and new clauses and instead to comfort themselves with the thought of the seminars that we will be holding between now and then so that they can table amendments in the next Session.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

If the Minister thinks that he can threaten me by upping the rate of seminars to which he is going to invite me, he is absolutely right. I am seminared out, and the prospect of no fewer than five on one small subset of the issues is more than flesh and blood can bear.

I have already made it clear that new clause 29 is a probing new clause and it has served its purpose, up to a point. Amendment No. 3 is not sufficiently important to press to a Division. However, I feel strongly about new clause 7. The Minister ought to feel equally strongly about it because it is largely looted from the wording in his own White Paper, so I do not understand why there is a problem putting that in the Bill. We have concerns, and it is not just us; the industry shares those concerns, as I said in my speech. On that basis, I would like to press new clause 7 to a vote.

Question put, That the clause be read a Second time:—

The House divided: Ayes 217, Noes 293.

Division number 92 Orders of the Day — New Clause 7 — Performance of the Personal Accounts Delivery Authority

Aye: 217 MPs

No: 293 MPs

Aye: A-Z by last name

Tellers

No: A-Z by last name

Tellers

Question accordingly negatived.

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. I understand that a number of Members were unable to register their vote on this occasion due to a malfunctioning door. I am having that investigated so that it should not cause problems for any future Divisions.

Photo of Patrick McLoughlin Patrick McLoughlin Shadow Chief Whip (Commons), Opposition Chief Whip (Commons)

On a point of order, Madam Deputy Speaker. I appreciate your launching that investigation. Will you ensure that the results are relayed to the House, because there is no doubt that a lot of Members who wanted to take part in that Division were unable to do so, and we must ensure that such an occurrence does not happen again?

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

I fully understand the hon. Gentleman's point. We do not want such an event to happen again, and I have no problem whatsoever in informing the House of the results of the inquiry.