Clause 15
Pensions Bill
10:15 am
Andrew Selous (Shadow Minister, Work & Pensions; South West Bedfordshire, Conservative)
The hon. Gentleman was right in saying that there is a strong similarity between his amendment No. 37 and the official Opposition’s new clause 3; they essentially cover the same territory.
We went over quite a lot of the background of contracted-out rebates earlier this morning. Like the hon. Gentleman, I shall focus on the fact that in the regulatory impact assessment that was published in May last year, the Government confidently asserted that the abolition of contracting out for defined-contribution schemes would
“lead to an immediate cash-flow benefit from the rebate of around £4 billion in 2012/13, rising to £5.1 billion by 2050”.
That raises a major accounting issue. Figure 8.6 on page 100 of the latest regulatory impact assessment shows that the Government have slashed that amount. For both 2008 and 2009, the figure is £1.8 billion; for 2010, £1.7 billion, and for 2011, £1.6 billion. Slightly bizarrely, there is a figure of zero for the years between 2012 and 2050. Perhaps the Minister will comment on that.
The important point made by the ABI and other industry bodies is that contracted-out rebates are a major incentive for private pension saving. Not only does that system encourage people to save for their retirement but it reduces through pre-funding the state’s future pension liabilities. As well as being fair and equitable, it makes enormous sense for any saving to be ploughed back into the pension system. In theory, the money that is saved by scrapping contracting out could be used to increase the state pension or to hold down the future cost of pension provision. The Pensions Commission favoured the latter option, saying that there was a
“good argument that the extra tax revenue...should not be used to fund current pensions”.
The commission felt that the revenue should instead be used to reduce long-term pension costs.
The hon. Member for Yeovil has quoted extensively from the evidence of the Work and Pensions Committee and he is absolutely right to have done so. In its recent report, the Committee said that it
“believes that the Government should be explicit about how it intends to use the increased revenue arising from the abolition of contracting out for Defined Contribution schemes.”
The Secretary of State has undertaken that any savings should be used in one of the ways that I have described. In his evidence to the Work and Pensions Committee on 7 June 2006, he said that
“it would be entirely legitimate and sensible to use the savings that are generated from the DC rebate to support the introduction of the personal cap system.”
I shall be grateful if the Minister will confirm whether that is still the Government’s stated position. Assuming that the Government have not retreated, will he also explain in detail how he intends to utilise that significant saving for the benefit of the whole pension system?
As the hon. Member for Yeovil has helpfully set out, there is a wide range of options for the use of that money. It could, for example, provide additional support for employers, especially smaller employers. It could incentivise them to offer contributions above the default level. When we debate the relevant provisions, we will have a great deal to say about the dangers of levelling down existing pension provision as a side effect of the introduction of personal accounts.
Some of the money could be used to improve public awareness and understanding of the need to save and the incentives that are available. That point was also made by the Pensions Commission. In any event, proposed new clause 3 would require the Secretary of State to report to Parliament every financial year on how the Government have used the revenue saved by the abolition of contracting out.