Clause 194 - Combined pension forecasts

Pensions Bill – in a Public Bill Committee at 5:00 pm on 16th March 2004.

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Question proposed, That the clause stand part of the Bill.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

Before we accept the clause, we want to know the Government's intentions. As I understand it, they are taking reserved powers upon themselves, which may mean that private pension providers and occupational pension providers are forced to provide a combined pension forecast. Of course, many occupational schemes already offer that service. Judging by the figures in the House of Commons Library brief, the Government expect that up to 600 employers and providers will provide 6.3 million combined pension forecasts in the next few years. That is obviously a good thing, although there are caveats about the quality of the information and the ability to forecast pensions many years ahead.

The Government seem to be threatening to take a fairly successful voluntary approach and turn it into a compulsory one. I am sure that the Minister will tell me that they are not about to do that and that they want to make the voluntary system work. However, the clause gives them the power—by regulation, and, perhaps, after just one and a half hours in a Committee on statutory instruments—to force all occupational pension schemes to provide those combined forecasts.

Not all occupational pension schemes are large and have lots of resources and professional advisers. Many of them are small. Therefore, what is the likely impact of the measure? Is there a regulatory impact assessment about the cost to occupational pension schemes of making it compulsory for them to provide combined pension forecasts? What will be the impact on smaller schemes, in which the costs are likely to be

disproportionate and for which the schemes might not currently provide such information? What is the industry's view on making that information compulsory? Again, I am not just referring to the large pension schemes and providers, which no doubt would be happy to provide the information. What about the small schemes, some of which have only two or three members? How would they cope with the burden?

It is important that we ask those questions, not because that scenario is about to happen, but because, if we accept the clause, it could happen. Before the Government take those powers upon themselves, it is important that the Minister and the Government at least understand what the possible impact might be. In addition, what will be—or what is—the liability for the accuracy of those forecasts? If a scheme provides forecasts and they turn out to be inaccurate—perhaps because it made a mistake when providing them, not only because the forecast changed but because the scheme made a mistake in compiling it—is someone able to take the scheme to court over that? What would be the cost of that?

Those are important questions because the backdrop to the Bill has been the decline in occupational pension schemes and, as it has been perceived, and as I would agree, the additional burdens that have been placed on them. Is this measure in danger of being yet another burden? Could it be yet another reason why a company might not wish to provide its employees with an occupational pension, or why it decides to close such a scheme?

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

The clause will enable the Secretary of State to require trustees or managers of an occupational or personal pension scheme to provide scheme members with combined pension forecasts. That means a single notification setting out their forecast entitlement to both state pensions and occupational or personal scheme benefits. A combined pension forecast helps people to make an informed choice and it is another weapon in the armoury in the battle for pensions literacy in Britain. It allows them to take action in good time and to plan and provide for the retirement income that they want. Working in partnership with employers and pension providers—I give the assurance that we are working in such a partnership and that we are listening and learning—the Department recently issued its one millionth forecast. By the end of this financial year, we will have issued them to more than 1.3 million people.

We have achieved the forecasts through voluntary co-operation with our partners and it is our preferred way in which to move forward. However, given the importance of the tool in empowering people to make informed choices, if necessary we shall make the provision of combined pension forecasts a statutory requirement for schemes. The clause gives the Secretary of State a power to do that if the momentum of the voluntary approach slows down. We hope that employers and schemes will continue to sign up to our voluntary partnership, but it is prudent—if I can use that word on the Tuesday before the Budget—to put a contingency in place.

Part of the backdrop is the proper dialogue that is taking place in the pensions debate about a voluntary as opposed to a compulsory route. Some people advance the reasonable argument that there should be compulsion in respect of employers' contributions to pensions. We are resisting those arguments. We have set up the Pensions Commission to monitor and advise on matters. We want to make something of the voluntary approach. I listened with great care to the hon. Member for Tatton. If we cannot demonstrate success with the voluntary approach, those who argued for compulsion will debate the issue more eagerly. I am committed to trying to make voluntarism work, which small businesses need to understand.

The burden-on-business argument can be greatly exaggerated. Let us bear in mind that defined contribution schemes are already required to provide—perfectly properly—statutory money purchase illustrations annually to members of defined contribution schemes. In a sense, the documentation exists and, at present, trustees of defined benefit schemes must provide annual statements containing certain benefit information to an active or deferred member who requests such a statement. Much of the documentation is there. Indeed, it would be startling if it were not. Any regulation will be subject to a full regulatory impact assessment. Before introducing regulations, we shall consult all interested parties and further regulations will follow the affirmative procedure and will therefore be subject to more parliamentary scrutiny.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

Can the Minister give us a sense of what he would regard as the success of a voluntary approach? Is he looking for a large majority of occupational schemes to provide such information? If he were thinking about only half of schemes or 60 per cent. of them, would the Government then move to compulsion? Under a voluntary approach, obviously not all schemes will take such action. I do not expect the Minister to give me an exact figure, but what rate of success does he have in mind?

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

The success of the voluntary approach would be measured in different ways and would not relate to only one measure. We have heard about other measures, but success is whether we can show that more people in Britain are making ''informed choices about pensions''—our phrase—and that more people have a real opportunity to be members of decent occupational pension schemes. Those are the criteria. Within that, we want to assess the impact of different mechanisms, including the one that we are discussing. However, we certainly hope that the scheme would be adopted not only by larger companies, which are easier to convince of its virtues, but by many medium-sized and smaller companies.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

On what evidence does the Minister base his assertion that people have more choice in this country to join occupational pension schemes? All evidence shows that, certainly in final salary schemes, the number of schemes that are open to new members is declining rapidly. According to the National Association of Pension Funds, someone who now joins a company will have less than a one in five chance

of finding an open scheme. On what basis does the hon. Gentleman suggest that the choice is increasing?

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

We could discuss that, but how do we assess the voluntary approach? I said that, on the one hand, the question is whether we can demonstrate that people are making more informed choices and that pension literacy is rising. I went on to say that another measure would be whether more people in work have the opportunity to join decent occupational pension schemes. We are committed to the voluntary approach and we have to prove that it works, otherwise tougher options might be debated.

Question put and agreed to.

Clause 194 ordered to stand part of the Bill.