New Clause 6 — Existing pension provision

Orders of the Day – in the House of Commons at 6:15 pm on 22 April 2008.

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'In accordance with its functions under section 69 of this Act, the Personal Accounts Delivery Authority must, to the best of its ability, minimise any adverse effects from its activities on existing, good quality occupational and personal pension schemes.'.— [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 Sylvia Heal Sylvia Heal Deputy Speaker

With this it will be convenient to discuss the following amendments: No. 29, in clause 3, page 2, line 28, leave out subsection (5) and insert—

'( ) Subsection (2) does not apply if there are prescribed arrangements under which the jobholder is entitled to become an active member, with effect from the automatic enrolment date, of a qualifying scheme which is a personal pension scheme of a prescribed description.

( ) An order will be made under this section to prescribe the terms under which it is applicable, and the basis on which its application may be withdrawn with respect to specific scheme providers or employers.'.

No. 20, in clause 70, page 34, line 25, after 'in', insert 'existing'.

No. 21, page 34, line 25, leave out 'qualifying' and insert 'occupational and personal pension'.

No. 17, page 34, line 26, at end insert

'among those on low incomes and who are not currently saving enough for retirement.'.

No. 22, page 34, line 26, at end insert

', and the Authority shall at no time seek to provide financial products beyond the scope of personal accounts;'.

No. 23, page 34, line 29, after 'on', insert 'existing'.

No. 24, page 34, line 29, leave out 'qualifying' and insert 'occupational and personal'.

No. 18, page 34, line 38, at end insert—

'(g) the best interests of prospective members in the period prior to 2012 are served;

(h) the level of savings shall be increased as well as the number of existing savers, and that in general better retirement incomes are achieved.'.

No. 19, page 34, line 41, at end insert—

'(4) The Secretary of State shall collect and publish appropriate data annually, and will consult with the industry, to measure the extent to which the Authority has achieved these principles in carrying out its function.

(5) The Secretary of State shall by regulation identify the data and targets to be sued for this purpose.'.

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

This is another group of amendments that is rather like one of those cars that can be bought at certain scrap yards that have the front of one car and the back of another. The amendments refer to two distinct issues, so I shall separate them immediately. New clause 6 and all but one of the amendments are concerned with levelling down, which is the other massive issue that lurks throughout the Bill. I shall come separately to amendment No. 29, which is on another matter that was important in Committee: workplace pensions and group personal pensions.

What do we mean by levelling down? We mean a scenario whereby, with the advent of personal accounts, finance directors advise their board that participation in their own defined-benefit pension scheme could double almost overnight, with the cost implications that that would carry. Companies that had not already closed their existing defined-benefit schemes to new or even existing members, assuming that there were any such companies by that stage, would then take the opportunity to say, "Well, we are closing our scheme now, but there is a perfectly good new scheme called personal accounts, backed by the Government, that we would point you in the direction of."

If I have learned anything doing this job as shadow Pensions Minister, it is that there is an active desire on the part of large tranches of the population not to know anything about pensions, or to find out what level of contribution they should be paying and what pension such a contribution would produce in later life. There is almost an unwillingness to engage in the issues. At almost every seminar to which I am kindly invited, some academic seems to get up and say that he or she has done a study and come to much the same conclusion—that the vast majority of people in this country do not really engage in the pensions issue. Almost any effort from any quarter to try to improve that situation has to be welcomed. However, when the moment comes, many employees may simply not inquire whether it would be sensible to move from a DB scheme run by their employer, in which the level of employer contribution may be much higher than is envisaged under personal accounts, and what difference it would make to their pension.

This is not, by any stretch of the imagination, an attempt to reopen the Turner settlement, which was based on a series of compromises and took into account different views, including those of the CBI and all sorts of others. However, let us remember that an overall contribution level of 8 per cent. will not deliver a very comfortable retirement. It is a massive step forward for people who have no provision at all at the moment and should have, but there is concern that the mere arrival of personal accounts will have an effect on existing, more generous pension provision.

The point of new clause 6 is straightforward: to say that there should be a duty on PADA to minimise the effects of the introduction of personal accounts on existing pension provision. I cannot really see why the Government should not accept a new clause along those lines with alacrity, because it has been pretty clear since the Turner report that we are all on the same wavelength and believe that we should focus on the so-called target group set out by Turner, which is predominantly people who have no existing pension provision. It will be the ultimate tragedy and irony at the same time if, after this process, we end up increasing the number of savers but not the amount of savings, and if all we do is recycle roughly the same amount of savings in the pensions system, or even worse. I shall come to that possible scenario in a moment.

Our approach in Committee, and to some of these amendments, has been shot through with attempts of all sorts to erect a kind of Berlin wall between personal accounts and existing pension provision, whether by banning transfers in and out or by banning contributions above a certain level. It is still a matter of regret that the figure of £3,600 a year, which is firmly on the record as being the Government's position on the maximum annual contribution, is not in the Bill, but so be it. We have tried to put it in the Bill and, in true form, have failed dismally at every attempt. In other ways, too, we have tried to ensure that there will be no interference with existing provision by the new personal accounts system.

We must turn again to our old friend the Pensions Policy Institute, which has done impressive work on levelling down. If I remember rightly, it was funded by the Nuffield Foundation. As the PPI put it:

"Levelling-down refers to the risk that, in response to the Government's proposals, employers may decide to close existing occupational pension schemes that offer more generous pension benefits to their employees and instead enrol employees into the new personal accounts."

It went on to say:

"Levelling-down is an important policy issue."

I entirely agree with that. It is one of the two most important policy issues surrounding the Bill. As the PPI said:

"There is a lot of uncertainty about how employers will respond to the reforms".

It modelled various effects: those of no reform, of employers continuing to offer pensions on their existing terms, of what it calls "cost control", and of the modelled employer response. Those models produced wildly different projections of what could happen. The PPI made the point that without any reforms at all

"there could be a decrease in annual total pension contributions from around £40 billion in 2006 to around £30 billion by 2050."

So on one level, doing nothing is not really a sensible option.

The PPI also looked at the very optimistic scenario of pension contributions increasing by about £10 billion annually. It then considered what it called a

"very pessimistic and extreme scenario" that could involve the shrinking of the market below its current level, even with personal accounts being taken into account. That is an extremely sobering scenario, but, as the PPI continued:

"In reality, employers are likely to respond in a variety of different ways."

It referred to work done by Deloitte and Touche in 2006 showing a possible total annual pension contributions increase of £10 billion compared with a position without the reforms. However, the worrying part is that the PPI then stated:

"But this initial increase could wane over time as employers respond to the reforms by closing existing schemes to new members".

To adopt the expression used by the Minister in the previous debate, I do not think that there will be some big bang, with levelling down happening between one day and the next. Much more likely is that there will be a gradual process of attrition, as people move from job to job and find that pension schemes are closed to new members.

I cannot say what will happen, and neither can the Minister or the PPI. In its written evidence to the Committee, the institute said:

"Overall, the jury is still out as to whether the Government's pension policy will deliver both more people saving and more saving and better retirement incomes...However, the interaction of the reforms with means-tested benefits and the risks of employers 'levelling down' their pension contributions both pose real challenges to the success of the reforms."

That expresses better than even I can the concern lying behind new clause 6 and the other amendments. No one can predict how employers will behave, so any measure that will minimise the effects of levelling down—including the duty in new clause 6 that would require the PADA itself to minimise that effect—is to be welcomed.

A related but separate issue is covered by amendment No. 29. Much concern has been expressed about workplace pension plans and group pension plans. If a solution is not found to the problem posed by GPPs, the process of levelling down could be turbocharged. The industry consensus is that we need that solution now, not in 2012. The National Association of Pension Funds said that the EU's directives on distance marketing and unfair commercial practices may prevent auto-enrolment being applied to workplace personal pensions.

"We believe that the UK Government should continue to seek clarification from the EU on whether automatic enrolment can apply to WPPs in the UK under the proposed reforms. However, if agreement cannot be achieved, the NAPF believes that a solution can be found that would allow auto-enrolment in to WPPs in a manageable and affordable way, by establishing WPPs under master trusts."

The Association of British Insurers shares the concern about the present uncertainty, although its alternative solution is to institute streamlined joining for those in GPPs. Some 2.5 million people are in those pensions, making up some 40 per cent. of all employer provision, and the ABI states:

"We are particularly keen to ensure that these schemes can be preserved within the new system as they tend to offer better arrangements to employees, and continuation will save employers from a costly and complicated review of pensions provision.

Given the current scale of the GPP market...the potential damage to pension savings is very high."

The association concludes:

"Failure to secure a safe future for GPPs will prompt widespread levelling-down of pensions, something the Government is so keen to avoid. The average employer contribution to a GPP is 6 per cent. If this was reduced to the Personal Accounts 3 per cent. level, some £900 million of contributions would be lost by employees."

That is incredibly important, as losing the more generous provision would give real impetus to the levelling-down process. The ABI goes on to say:

"A solution must be found now—not in 2012.

2012 is still four years away, and uncertainty in the GPP market now means that financial advisers...may hold back from recommending new schemes. The impact of this is very real, especially for middle-age savers—for a 40 year old man, such a break in saving could reduce retirement income by up to one-fifth."

Similar concerns have been expressed by the CBI and by Norwich Union, while the Equality and Human Rights Commission said:

"We are concerned about Clause 3(5)...We understand that the Government is not entirely satisfied that auto enrolment is currently possible into commercially based personal pensions under European directives. The Government has recognised the concern that we and others have and we urge them to continue their discussions with Europe or investigate alternative solutions such as master trusts to ensure the vital principle of auto enrolment is not breached."

It is clear that the Government should pursue a twin-track approach on this matter. They should continue to have discussions inside the EU to see what can be done. Resolving matters such as this usually takes some time, but the Government also need a plan B in case the talks do not work out. We need a workable exemption to automatic enrolment in GPPs, so that we can get the policy aims back on track—that is, to deter levelling down of existing provision, and to encourage people to continue in the schemes and to join them in the foreseeable future.

There is a real worry in the industry, and an uncertainty that cannot be allowed to continue. The concern is that a gap in pension provision could have a real effect on the retirement income of many people. I hope that the Minister will tell us what progress has been made with the EU, and what his fallback position is if the talks do not work out.

The problem of levelling down is a huge one, and I commend the new clauses and amendments to the House.

Photo of Paul Rowen Paul Rowen Shadow Minister, Work & Pensions, Whip 6:30, 22 April 2008

I shall be brief, as Mr. Waterson has covered most of the relevant points. He made the problems to do with levelling down very clear, showing that employee contributions of 6 per cent. could fall to 3 per cent. The Bill is aimed at ensuring that people who currently are not saving for their pensions begin to do so, and we do not want employers to reduce the level of their contributions.

The number of people in the private sector with open defined-benefit schemes has fallen from 5 million in 1995 to 900,000 now, and that is a serious problem. The hon. Member for Eastbourne quoted what the ABI said about the 2.5 million people currently in GPP schemes. The ABI also showed that a person of 24 in a GPP scheme earning £15,000

"who retires at State Pension Age would...receive an annual pension income of £10,000, compared to around £6,500" if he or she had a personal account. If that were to happen, it would completely defeat the purpose of the Bill.

The Minister told me last night that he would speak today about the two EU directives that the hon. Member for Eastbourne mentioned. It is clearly important for the industry that we get a solution to the problems that they pose. If we can ensure that we are levelling up rather than levelling down, we will have achieved our purpose, and we need an assurance from the Minister to that effect. He must also make it clear that the problem of auto-enrolment is being dealt with, as the current interpretation of existing EU directives could have a devastating effect on the industry.

Photo of Mike Penning Mike Penning Shadow Minister (Health)

May I say what a brilliant speech my hon. Friend Mr. Waterson made? That is not to say that he has not made brilliant speeches before. He managed to pull together a great many amendments in one speech. He said at the start of his remarks that he felt as though he were going to a scrap yard, getting several pieces of a car and putting them back together. In north London, that is called a cut-and-shut. I will deal with the cut, if that is okay.

My hon. Friend and Paul Rowen, the Liberal spokesman, talked about levelling down. It is imperative that that does not take place. If the Bill is to introduce new people to pensions that will get them off means-tested benefits, it is crucial that we have a level playing field. Now that we are talking about levels, it sounds as though we have moved from the car breaker's yard to a building site. As I say, a level playing field is crucial. We must give no one an opportunity to cut their responsibilities and make people who are already in pension schemes slip backwards, or to encourage those people to move into the personal account schemes that we are talking about. That is imperative; if we do not ensure that, it will defeat the whole object of the Bill and we will go backwards, not forwards.

Photo of Mike Penning Mike Penning Shadow Minister (Health)

I notice that the Minister is nodding, so perhaps I have said something that we agree on. That is unusual for me.

There are shady business men dealing with pensions all over the show. There must not be a back door; there must be no opportunity for them to slide backwards. If there is no independent way to make sure that that does not happen, it is important that the people in charge of schemes make sure that it does not happen. The Conservative and Liberal Democrat Front Benchers have spoken of the evidence that outside organisations with concerns have provided. We must put a stop to the problem, and that is why I support new clause 6. The Minister may well give us very good reasons why we should not add the new clause to the Bill, but if we do not, will he give the House, the country and, more importantly, future pensioners assurances that there will be protection for those already in a scheme?

I am told that I pick on Tesco too often, so I shall refer not to the Tesco pension scheme, which the Minister mentioned, but to another one, on to which people are automatically enrolled; they are on very low earnings, and may be working part-time. One can easily see how that sort of scheme, which has very low premiums going into it, could easily be drawn backwards and be subject to the levelling down to which my hon. Friend the Member for Eastbourne referred, making it simpler for employers to let someone else take the responsibility. That would be disastrous for the Bill, and for the many people whom we are trying to encourage to have faith in pensions. We have to be honest with ourselves; we know from our constituencies that there is not huge faith in pensions. We know all too well how many people who come to our surgeries are concerned about the issue. That is true not just in my constituency, which has been affected by the Dexion situation and occupational pension scheme issues. Pension schemes in general are not the flavour of the month.

The purpose of the provisions is to encourage more people to come into the pensions arena and to have confidence in pensions. If we are to do that, we need new clause 6, or something very similar that will allow people to believe that those who are already in low-income and low-premium schemes will be protected. At the same time, the personal accounts scheme that we are talking about should have the benefit of keeping people out of means-tested benefits. I accept that the Minister is in a very difficult position, as he is trying to bring that about with the consensus that he has managed to get. That would all be lost if we ignored the concerns that have been raised. I will not read out the comments of all those who have lobbied us on the issue; some of them have already been read out. There is a genuine argument to be made, and there is genuine concern that it is all too easy to slip backwards, instead of going forwards, which is what we all want to happen as a result of the Bill.

Photo of John Penrose John Penrose Conservative, Weston-Super-Mare

I want to join the consensus among Members on both sides of the House about the critical importance of preventing levelling down, and therefore of accepting new clause 6 and its associated amendments.

It is worth pausing for a second to understand precisely what we mean by levelling down, as we have been using the term to cover a variety of things. It is worth remembering that, for several years, employer contributions to pension schemes have fallen, not because of the Government's plans for personal accounts, but because of other external factors, partly economic and partly to do with changes in pensions and tax laws. As a result, occupational schemes are already suffering from a degree of levelling down. It is crucial that we do not accelerate the decline and push contributions even further down to the residual, basic level that will be established by the personal accounts. It is crucial that the issue is not left to chance, and that we do not just trust to hope on that point.

Let us imagine the scene in any company's boardroom when the topic of the establishment of personal accounts arises. Companies with occupational schemes could do one of four things in the face of the personal accounts legislation. They could decide not only to make their existing occupational scheme available to everybody in the firm, as the rules require them to do, but to increase the contributions for each of those people. That would be a marvellous solution; I sincerely doubt that many people will opt to do that, but it is a theoretical possibility.

Companies could also opt to keep contributions at the same level, but to broaden coverage to everybody in the firm. That would obviously increase the total cost of the company's pensions contribution, potentially very substantially. I do not know whether that would count as remaining the same; I suspect that we should count it as levelling up, because it would extend existing high-quality coverage to more people. I suspect that everyone, in all parts of the House, would welcome that outcome hugely.

As a third option, a company could decide to maintain its overall pension contribution at current levels, in pound terms, while spreading that benefit among a wider range of people—that is, while extending the scheme to cover everybody in the firm. That would not reduce the total pension contribution made by the company, but it would reduce the amount received by each employee. I do not know whether we are counting that as levelling down. Clearly, on a macro-economic scale, it is not levelling down, but would be maintaining pension contributions at existing levels. I suspect that many of us would not regard that as a bad result; it would extend the coverage of occupational pensions significantly, while keeping them at a high level of quality.

The fourth option is the one that we are all worried about: a company may decide not to keep its existing level of contributions constant, but absolutely to reduce its contributions, while extending the coverage of the scheme to all employees. We need to be clear that that is the worst possible scenario. I suggest to the Minister—I shall be interested to hear his views—that any of the other three options would be at least acceptable, if not an outright victory, and would allow us to consider that we had avoided levelling down. I hope that he will oblige us by explaining precisely what he would, and would not, regard as acceptable.

There is an argument that the design of personal accounts is, in itself, a good weapon against levelling down. Personal accounts are the budget airline solution to pension coverage; the legislation deliberately sets out to create an ultra-simple, ultra-cheap, no-bells-and-whistles, no-frills product that is not terribly flexible—a good, basic, plain vanilla product that will suit a large number of people who are not currently covered. It can be argued that that in itself will distinguish personal accounts from existing occupational schemes, because those occupational schemes tend to be higher-cost, to require higher contributions and to be a great deal more flexible. They also have a fair number of additional features that personal accounts will not have.

Photo of Mike Penning Mike Penning Shadow Minister (Health) 6:45, 22 April 2008

My hon. Friend touched on an enormously important point when he used a simple analogy to explain the dangers of the scheme. Continuing the budget airline scenario, if he had said to British Airways 10 years ago, "Don't worry, your market is safe because there is no competition, and by the way, there is a budget airline that is going to do Paris for £15 and Barcelona for £14", BA would have laughed at him. What happened, as we know, is that budget airlines have been a huge success and millions of people who were flying with the big airlines and paying a fortune have gone over to those airlines. That is my fear in the pensions context.

Photo of John Penrose John Penrose Conservative, Weston-Super-Mare

My hon. Friend anticipates the point that I was coming to. There is an argument that because personal accounts are an ultra-cheap, ultra-simple alternative, they will not compete with existing occupational schemes because they are designed in a different way and they do not provide the additional flexibility and levels of outcome that occupational schemes provide. However, that assumption has not, to my knowledge, been tested anywhere. As my hon. Friend points out by using the airline analogy, it is possible that there will be a knock-on effect, as budget airlines had on full service airlines.

My concern, and the point to which I would like the Minister to respond, is this: are we trusting to luck and hoping that the difference in design will do the trick, or do we have concrete evidence to guarantee that it will do the trick? If it does not, and we do not have that concrete evidence, trusting to the differences in design will not be enough to ensure that there is no levelling down. We will need more. If that is not new clause 6 and its associated amendments, then what is it? We must have solid guarantees or solid evidence that the differences in design will make a material difference. I hope the Minister will be able to offer us those assurances.

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

Opposition Members have tabled a number of amendments for today's debate and I fully understand the concerns expressed in them. I hope I can reassure them that the Bill as drafted will achieve the outcome that they are seeking. We share the goal of more people saving for retirement, and more people contributing for longer and contributing more for longer.

Photo of Mark Hendrick Mark Hendrick PPS (Rt Hon Jack Straw, Lord Chancellor), Ministry of Justice

My hon. and learned Friend speaks of more people contributing—often people from very poor backgrounds. He knows that some people have been contributing to pension funds for many years, but their pension fund may go bust and they may fall ill with a terminal illness. That is a serious matter, which new clause 22 deals with. I am concerned that we might not reach that proposal in the course of the debate. What is his opinion on the situation that I described?

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

I do not know whether we will be able to debate that new clause, given the issues before us, but I assure my hon. Friend that I am very conscious of the concerns that he expresses about people who find that they have a terminal illness and are unable to make a claim on the Pension Protection Fund if their pension scheme has failed and they are under the prescribed age. I propose to suggest an amendment in due course, to be tabled in another place, in order to ensure that those who are affected in that way can get some sort of help. The aim would be that provided they could show that they meet certain conditions, they would get some significant payment to help them through the difficulties that they faced.

We all want to achieve the aim of getting more people saving, but we need to address the issues arising from the combination of individual inertia and commercial viability, which have resulted in large numbers of moderate to low earners currently not saving enough for their retirement. The Bill provides for the establishment of what has been described as a budget airline type of pension scheme. I am not sure whether I want to follow that analogy too far— [Interruption.] Mike Penning suggests that all the budget airlines have been successful, but Freddie Laker might have disagreed.

We want to provide a basic scheme that will be of sufficient quality to enable people to save for their future and provide them with a reasonable income. The key problem is what happens in relation to the current better employers' schemes—not all of them are better—where the employer may be making a bigger contribution and may find that with personal accounts, the minimum contribution will cost him less. The employee may even be making a bigger contribution to an existing scheme and may find a smaller contribution to a personal account temporarily advantageous to him and his family.

How are we to prevent levelling down? The straight answer is that we cannot prevent it. We can reduce the likelihood that it will happen and take reasonable steps to mitigate the factors that might cause it. We have already discussed one of the ways of doing that: restricting transfers in and out of personal accounts. Someone with a current pension scheme will not be able to transfer in at the start of personal accounts in order to level down. Also, we are not looking to have people transferring out of personal accounts. Preventing people messing about and transferring in and out is a mechanism to reduce the likelihood of levelling down.

Also, there is a maximum contribution annually that people can make—£3,600. Many people will want to make a higher contribution, but we have indicated that on 2005 figures that is the level of annual contribution that we want. We have carried out surveys of employers to ask what they are likely to do if they have the option of continuing with their current scheme or moving to personal accounts. Surveys suggest that most employers would stick with what they have. No doubt some employers will see an advantage in levelling down, and I cannot give the guarantee that John Penrose seeks from me, that it will not happen. However, the scheme designs that we have put in place will reduce the likelihood of its happening and hopefully mitigate the possibility of its doing so on a significant scale.

The other way in which we have tried to deal with the matter is keeping the scheme simple. The hon. Member for Weston-super-Mare said that it was important to keep these things simple, and I agree entirely. So does Paul Myners, the chairman of the Personal Accounts Delivery Authority. In his evidence to the Committee, he said:

"Keeping it simple is critical to the successful delivery of personal accounts. Every further bell or whistle that is added to the scheme will have to be paid out of people's retirement income." ——[Official Report, Pensions Public Bill Committee, 15 January 2008; c. 8, Q33. ]

That is exactly right. It is a view that is broadly shared. It is also one of the ways in which we can reduce levelling down. People have requirements from their pension scheme. If the scheme on offer is kept simple, and if it will provide some of the bells and whistles with a higher contribution, we envisage that they are likely to stay with it.

The hon. Member for Weston-super-Mare asked how we would measure an acceptable outcome. We want to ensure that we get considerably more people saving. The aim—we need to look at the ambitious end—is to have up to 9 million more people saving, and up to £10 billion more saved. If, as Mr. Waterson has suggested, more people were saving but no more was being saved, it would not be a successful outcome. We need more to be saved, and we need more people saving. We need outcomes where pensioners are basically better off, which is why we are all involved.

The Bill makes it clear that PADA is primarily tasked with setting up the scheme. The principles provide the operational framework within which it will carry out that task, and they are fundamental to how it will design the scheme. The hon. Member for Eastbourne has acknowledged in the drafting of new clause 6 that the authority cannot be tasked with achieving each principle in absolute terms. The principles are there to guide it in setting up the scheme.

The combined effect of the principles and the package of proposals elsewhere in the Bill is to focus personal accounts on the target group I mentioned and to provide safeguards in scheme design that will minimise adverse effects on existing good-quality provision. In setting out those principles, we are asking the authority to consider the effect on future members of the personal accounts scheme, the overall additional burdens on employers and the impact on the broader pension industry, including members and prospective members of qualifying pension schemes.

We must be realistic. Inevitably, there will be competing priorities, and the authority will need to make judgments about the suite of principles that it needs to deal with to provide the best solution in the circumstances, which is why we have used the phrase "have regard to". For example, the authority will need to evaluate the various options for investment fund choices in the light of members' preferences for fund choices and membership costs. It will need to consider the options carefully, so that the provision of investment choices does not get in the way of our aspirations for a low-cost scheme.

Clearly, we cannot predict precisely how individuals, employers and industry will respond to the introduction of those reforms. We are seeking to ensure, in so far as it is possible, that we get the best impact out of personal accounts without experiencing the problem of levelling down. It is an important issue, which is why we have always made it clear that personal accounts are being introduced to complement, rather than replace or undermine, other good-quality pension provision. The Bill will introduce an additional pension product.

This is the core of our ambitions, so the principles require the authority to have regard to encouraging and facilitating participation across the qualifying schemes. When Tim Jones gave evidence to the Pensions Bill Committee, he discussed the gap in the current pensions market, stating that

"the market correctly recognises that it is a very difficult sector to address because of the very large number of small employers and the costs of approaching it".

He made clear the authority's role, saying:

"It is our job to address that target market". ——[Official Report, Pensions Public Bill Committee, 15 January 2008; c. 17, Q21 .]

We are focusing on the target market. However, other individuals who are not quite in the target market, such as the self-employed, may find in particular circumstances that they want to contribute as both an employer and an employee and build up a pension pot and personal accounts. We are happy for the self-employed to do that.

There is an issue about people who are not employed. At the moment, they would not be able to use personal accounts. We want to see whether we can get a situation where we can prevent levelling down and make sure that we keep the current provisions for employers, so pension schemes continue. There is an element of employer inertia as well as employee inertia—we expect most people who are in pension schemes to stay in them. Employer inertia means that if an employer has got a pension scheme, we expect them by and large to stick to it.

On workplace personal pensions, amendment No. 29 relates to the treatment of insurance-based products. I want to make it clear that that is an issue for Ministers and Parliament to decide and does not relate to PADA principles. Workplace pensions are an important and growing part of the pensions market. As the hon. Member for Eastbourne has said, membership of workplace personal pension schemes forms around 47 per cent. of current private sector pension membership, which represents around 3.3 million employees involving a total contribution of around £6.7 billion each year. There are 2.1 million members of workplace pension schemes with an employer contribution of 3 per cent. or more.

We are currently in the process of seeking clarification from the European Commission that from 2012 automatic enrolment into workplace personal pensions is compatible with European consumer protection legislation. We continue to support the Pensions Commission's aim of automatic enrolment across all employers and all workers, and we hope that the work that we are doing with the European Commission will allow us to maintain that position. However, it is difficult to be precise about the timetable for resolving this issue with the European Commission. It is therefore essential that we retain flexibility within the discussions with the Commission. That is why we have a provision in the Bill to enable us to create an exemption, as the hon. Member for Eastbourne has indicated, from the employer duty automatically to enrol employees using workplace personal pension plans. If activated, that exemption would provide employers who meet the prescribed requirements and offer their jobholders membership of a qualifying workplace personal pension with relief from the duty automatically to enrol, provided that they use an enrolment process prescribed in the regulations.

The issue is difficult, and I am grateful for the way in which the hon. Members for Eastbourne and for Rochdale (Paul Rowen) have approached it—I have briefed them privately on the situation in more detail. I am also grateful for the contributions from a range of stakeholders outside government, including the Association of British Insurers, the National Association of Pension Funds, the CBI and the People's Pensions Coalition—we all share the same aim. There is, as the hon. Member for Eastbourne put it, a plan B, but I would rather stick with plan A and see whether we can deliver it.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions 7:00, 22 April 2008

I am grateful to the Minister for his summing up, particularly his helpful summary of amendment No. 29, which raises some important issues. On levelling down, I am pleased that he has conceded that the aim is to produce not only more savers, but more savings. We must keep our eyes on the ball, because it would be an utter disaster if we were to end up with the same amount of savings or, even worse, with the Pensions Policy Institute scenario in which fewer savings are redistributed around the system.

I do not know whether I always talk about budget airlines when I compare the personal accounts system with other pensions—it is, perhaps, the vanilla option. It is important to keep in mind that it is designed to do something for people without any provision at the moment. The Minister said that we cannot prevent levelling down. Technically, that is true, but it is equally true to say that at the moment there is nothing stopping levelling down from happening. The real concern is whether the introduction of personal accounts will encourage levelling down when it is coupled with other issues, such as the pensions regulator's consultation on longevity assumptions. One of the PPI scenarios is absolutely disastrous: the one that shows personal accounts reducing the pensions savings pot, which would be an appalling result. It is important to raise that issue, which is one of the twin major concerns behind the Bill in not only our view, but that of many other people.

The debate has been useful. The issue is ongoing and we will continue to debate it. No doubt the Minister will have more news for us in due course about group personal pensions. In the meantime, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.