I want to use this probing amendment to discuss one of the central issues of this Bill: the questions whether and for whom it does or does not pay to save in a personal account. By adding the words “the age of 50”, this amendment addresses the question, which has been raised in both oral and written evidence, of the impact of those aged over 50 at the time of automatic enrolment. I stress that the Liberal Democrats strongly support the principle of automatic enrolment.
The Bill is clearly directed at a large target, including people who work in the private sector who are currently not making any provision for their retirement. In the oral evidence, particularly that given by Adair Turner and the other members of the Pensions Commission, the size of that group—potentially some 12 million people—was made clear. The potential benefits of the Bill for a large swathe of that group are therefore abundantly clear, and I certainly do not seek to question that. However, there are some people, though it is difficult at this juncture to know how many, for whom the question whether it will pay for them to save in a personal account for their retirement is at least an open one. That question relates in particular to how, when they want to “decumulate” and take as a pension the pot of money that they have accumulated in their personal account, that pension interacts with whichever means-tested benefits they are in receipt of—pension credit, for example. We know from previous pensions legislation that by 2050 there will be somewhere in the region of 30 per cent., by the Government’s estimate, or 40 per cent., by the Pensions Policy Institute’s estimate, of people in receipt of pension credit, and the taper is even steeper for housing benefit.
A particular issue relates to people over 50. They will potentially enrol in a personal account late in their working life, and they may therefore have only 15 years, 10 years or even five years in which to accrue savings in their personal account pot. The questions that I have highlighted about how relatively small amounts interact with the means-tested benefits system are particularly acute for that group.
I draw the Committee’s attention to the written evidence submitted by the PPI regarding its assessment of the risks for various groups. The institute broke down the risk into low, medium and high risk of personal accounts being unsuitable. A medium-risk group are single people in their 40s and 50s with low earnings and full working histories. A high-risk group, although they would not be auto-enrolled, which is an important caveat, is single people in their 40s and 50s in 2012 on low-to-medium incomes who are self-employed.
There are particular potential risks for those over 50 who enrol in personal accounts in terms of whether or not they would receive enough money back to make it worth their while. Later, we will discuss other groups and how the advice and information regime that is put in place around personal accounts can help people to make decisions.
I also draw the Committee’s attention to other evidence. Help the Aged, for example, also made the point that it is important to ensure that it pays to save for all those who are auto-enrolled. Help the Aged drew our attention to those people whose state pension records are incomplete, those whose private pension fund value is low and those who are still renting their home in retirement—we will come to the final point later. Help the Aged believes that more needs to be done to protect people in those scenarios.
By tabling the amendment to lower the auto-enrolment age limit, I seek to probe the Minister’s intentions, particularly with regard to those aged over 50, in relation to measures that he might have in mind to ensure through advice, information or changes to the Bill that such people are protected or advised not to get into a situation in which they start saving in a personal account only to discover in retirement that it has not been worth while.
I am grateful to the hon. Member for Inverness, Nairn, Badenoch and Strathspey for explaining his amendment. On the face of it, it is a pretty blunt instrument with which to try to bring about the effect that he has discussed.
We are moving the state retirement age up to the age of 68, so we would be talking about knocking out 18 years, potentially, of earning contributions. For many people at lower wage levels earlier on in their working life, these are very important years of contributions into their personal accounts pot—contributions that would make a significant difference to their lives in retirement. It is probably for that reason that the Equality and Human Rights Commission was worried when they saw this amendment and urged Committee members to vote against it, if it were pushed to a vote. In fairness, the hon. Gentleman has said that that is not his intention. He has raised the whole issue of when it pays to save and I think we will have further debates on this later on. I am happy to see that this is purely a probing amendment.
The hon. Member for Inverness, Nairn, Badenoch and Strathspey said this was a probing amendment and I am happy to respond to it on that basis. It is true that there is concern about the point at which it pays to save. One of the areas that some of the stakeholder groups have raised is people over 50. Someone on median income of about £24,000 would be making contributions into a pension of about 8 per cent.: 4 per cent. from the employee, 3 per cent. from the employer and around 1 per cent. from tax relief. It would take someone on that income about 11 years to get a pension pot of up to £16,000. A pension pot of less than £16,000 could be taken by way of trivial commutation. The result is that people in their 50s who have been saving—providing they do not go above the £16,000—are likely to be significant beneficiaries of this sort of pension scheme. Far from them being losers, they are likely to benefit from being able to take a lump sum and will also have, in terms of their pension credit, a disregard. Many of those who are automatically enrolled would actually benefit even though they are over 50 years of age.
However, what of those who are auto-enrolled, do not realise that problems could arise and have pension pots beyond £16,000? They would be able to take 25 per cent. of the pension pot in a tax-free lump sum; they are making a 4 per cent. contribution, so about half the contribution was theirs. They would then be able to receive the remaining three quarters of their pension pot by way of income. So it is the case that even they would be in a position where they would be able to benefit to some extent from the contributions of both the employer and themselves.
Perhaps this is not the time to have the wider debate on the extent to which it pays to save, because this is a narrow amendment. But as far as people over 50 are concerned, our view is that the majority of those are likely to benefit. There may well be some who, in due course, might fail to benefit, but we are looking at a period into the 2020s before that is likely to arise to any significant extent, so the opportunities to deal with it over the longer term are evident.
I have some wider points that I wish to make in relation to the debate on whether it pays to save, but perhaps I will save those for another amendment.
‘( ) 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.’.
Amendment No. 13 is a probing amendment which seeks to press the Minister on how we are going to deal with the vexed issue of what are referred to as either group personal pensions or workplace personal pensions—GPPs or WPPs.
It is important to put on record the extent of GPP provision at the moment. The excellent impact assessment produced by the Department tells us that in 2005 there were 3.3 million employees who were members of workplace personal pensions, of whom 2.1 million were receiving employer contributions of 3 per cent. or more. The value of total contributions to workplace personal pensions was around £6.7 billion in 2006-07. By any measure, this is a substantial part of the current pensions saving landscape.
I know that the Minister will not want to do anything within the Bill to undermine what is good provision and is for many people—for those 2.1 million workers, in any case—above the minimum employer contribution limit laid down in the Bill. There is a real danger, as far as new employees are concerned, of levelling down—of employees being offered less good pension provision and less than a 3 per cent. employer contribution—if we are not able to find a means of dealing with the current European Union constraint on the UK, which prohibits auto-enrolment of employees into GPPs.
We had a roundabout discussion in the evidence sessions on what we could do about this. The Minister may have alluded to the fact that there are three possible solutions. Most of us, I think, would like the EU to amend current legislation to enable auto-enrolment into GPPs. It seems perverse, given that it was not the original intention of the Commission or of the European Union to forbid workers from being enrolled into good workplace personal pensions, that we have this extraordinary situation. This has nothing to do with being pro or anti-European. I think that many of us on both sides of the Committee, and from all parties, would like to think it possible, in a well-functioning Europe, where there have been some unintended consequences of legislation, that we have good enough relations with our European partners to go there, explain the situation and obtain for the UK some form of derogation.
I cannot believe that we do not have enough friends or influence within Europe to achieve that sort of result. I press the Minister on this point, and would like to hear what the Government intend to do. Neither of the other solutions put forward—involving master trusts or streamlined joining with a focus on achieving good participation levels—is perfect. Both have been attacked or criticised as potential solutions to this particular problem by major players within the industry. If the Minister gets up and wrings his hands and says that good as our relations are with our European partners, it will not be possible to amend the distance marketing directive and the unfair commercial practices directive before 2012, we need to hear now, or certainly on Report, his preferred means of ensuring that we do not undermine and level down this very significant and much-appreciated part of the current pensions landscape.
There are a diversity of views within the industry and among older people’s groups and consumer groups as to whether the Minister should go down the master trust route or the streamlined joining route. Of all the briefs I have read, there seemed to be quite convincing arguments about streamlined joining, provided the participation levels are high. It is for the Minister, however, to tell the Committee how he intends to sort out this particular problem and I look forward to hearing what he has to say in response.
Before I address this amendment, I would like to say to the Committee that if they wish to refer to my constituency using the word Inverness, I shall not be offended. I realize it is a tongue twister, much though I am grateful to the hon. Member for South-West Bedfordshire for his repeated efforts.
This amendment raises an important issue. It is carefully constructed to draw attention to a genuine difficulty which the Minister has been working hard to try to resolve. There are a number of conflicting pressures. One of the things this amendment would do—though the second part of it, by allowing the Department to withdraw the terms with which it is applicable, seeks to limit this—is nonetheless to dilute the principle of automatic enrolment. I accept that this is one way this issue could be addressed but it would not be my preference because the principle of automatic enrolment seems to be a central feature of this Bill. Ideally one would wish for the principle of automatic enrolment to be applied to the WPPs or the GPPs—I am not sure which is the best term to use.
I do not know whether the hon. Gentleman will be coming on to this later in his remarks, but I wonder if he could address the specific issue of levelling down for the many people who have good levels of contributions. The average level of contribution is 6 per cent. in GPP schemes. That is double what personal accounts are proposing.
The hon. Gentleman makes an important point that I was about to come to. The first point is to maintain the principle of automatic enrolment. The second is to not undermine the many millions of people—the hon. Gentleman gave the correct statistics—who benefit from high quality workplace personal pensions. If this Bill was to undermine that provision or to make businesses think that this was not an appropriate way for them to deliver pensions for their staff in future that would be seriously damaging. The Minister is caught between those two imperatives.
The way out of this—I am grateful to hear this from the Conservative Benches—has surely to be the European solution. The Minister has said in other forms, and he may say again today, that four years is not sufficient time to negotiate appropriate changes in the European directives. A Government clear in their commitment to the European Union and seeking to exercise influence by turning up to the relevant meetings on time and making its case, and who work closely with their European partners, surely should be able to negotiate such a change on the basis that this is an unintended consequence of European legislation which was designed for other purposes.
The two directives were not designed to prevent the sort of sensible pensions reform that has been proposed in this bill, but were introduced for good reasons relating to a range of other areas in the consumer sector. I know the Minister himself has raised this matter at European level, with the Commission and elsewhere. I do not know to what extent he has encouraged it to be raised at an even higher level, potentially even by the Prime Minister at European Councils. But an appropriate degree of influence and effort should be applied at the European level to get what is, technically, a complicated change, but nonetheless one which—though in the gamut of European legislation is relatively insignificant—has great importance for the people we are talking about in the context of this amendment.
I would like to hear more from the Minister about the steps being taken at a European level to win on this issue. It is also the case that the more streamlined processes that are being proposed in the reform treaty would help this sort of thing.
Given his own party’s enthusiasm for Europe, and in particular for denying the British people a referendum on the Lisbon treaty, is he not a little disappointed that our European partners seem so unwilling to move quickly on what is, in any view, an unintended consequence of one or two European directives?
I am not clear yet whether discussions have got that far, since I have not heard more from the Minister about the details of the negotiations he has had. It does not seem at all that this is something that has been blocked by our European partners: it seems to me that the sense of the scale of the task within the UK Government has led to an attitude of despair. They are saying that this is something we simply cannot do in time, and therefore we are going to have some discussions but not necessarily take it much further.
What I am arguing for is that, if necessary, it should be escalated up the diplomatic chain, so that more pressure can be applied. The European Commission—and this may surprise some hon. Members—can move quickly when it is under pressure to do so. I suspect that there are many other countries in the European Union that are caught in very similar situations to us in terms of the demographic change and the lack of pension provision and so on. They are not necessarily proposing the same measures, but we might actually see that the changes we are seeking to make would assist them too.
I do not, therefore, accept that this is something that has been blocked at a European level. I do not know, for example, whether the Minister has had conversations with people in the European Parliament, who deal with these matters in their committees, to see if there is a route through that body that could help us with this problem. As the hon. Gentleman has made absolutely clear, there are potentially millions of people who will be affected if we do not get this one right. I hope that the Minister will not give up on the European solution, and I would be grateful if, in answer to this debate, he elucidated in some detail the various steps he has taken to try to reach agreement at that level. That seems to be the best way to solve the problem which this amendment has rightly highlighted.
Clause 3 is very important—one of the most significant in the Bill—and deals with automatic enrolment and the duty on employers. Subsection (5) creates an exemption for employers using workplace personal pensions from the duty of automatic enrolment. We are not currently satisfied that under the distance marketing directive, and the unfair commercial practices directive, automatic enrolment is possible into a personal pension which is commercially based. It is possible in relation to a trust-based scheme and it is possible in relation to the scheme we are setting up, personal accounts, which is going to be trust-based.
However, in relation to contract-based schemes, there is a serious question about whether or not we can be satisfied that it is possible to enrol on that basis. I am choosing my words with care. I am not saying that it is not possible to do it. Let me again elucidate carefully what we have done in relation to the European Union. I am conscious that others will read what we say here and if hon. Members wish a fuller discussion it may be better that it take place through the usual channels.
The advice we got was that we needed to approach this with great care. In particular, we did not want insurance companies to take undue risks in relation to the contracts that they entered into. We therefore put the subsection into the clause to enable us to create an exemption. The principle of automatic enrolment is enormously important. Our preference is that employers should be able to automatically enrol into both trust- and contract-based schemes, basically insurance company pension schemes. Our concern about the two directives means that at this point we cannot give the insurance industry the reassurance that it would like, and which we would like to give.
We are looking at the directives with great care. One of the directives is due for reconsideration in—I think—2011. However, reconsideration involves consultation in a number of European countries, agreement on any changes and then implementation. That would probably take us beyond 2012. That is why we want the provision here, to see if we wish to go down the route of an exemption for the insurance-based schemes.
WPPs are an enormously important, and a growing, part of the pensions market. As the hon. Member for South-West Bedfordshire indicated, they account for around 47 per cent. of current private pension membership. That represents around 3.3 million employees, involving total contributions worth around £6.7 billion each year. There are 2.1 million members of WPPs with an employer contribution in excess of 3 per cent. While the hon. Member for South-West Bedfordshire is right in relation to a 6 per cent. average, some employer contributions are actually less than 3 per cent, and some of them are considerably more than that. WPPs vary considerably in quality, but they will all be obliged to comply with the 3 per cent. minimum employer contribution.
The discussions that we have had more recently with Europe are a little more optimistic than our earlier indications. I am always cautious in approaching institutions to ask a question because the answer may be broader than the question asked. Therefore, we want to have some view of the likely answer if we are to pursue, with any degree of pressure, the question suggested by the hon. Member for South-West Bedfordshire. In other words, are we able to go ahead with insurance company contract-based signing up and automatic enrolment?
We wish to make further approaches and see if we can find a way through to the conclusion that we all seek. In the meantime I am engaged in some detailed and helpful discussions with the ABI to see if we can reach an agreement with regard to an exemption. The discussions are going well and I am hopeful that we will be able to reach an agreement, although we may not be able to do so. However, I can give no undertaking in relation to that. We need to talk not just to the ABI but to other stakeholders. When we heard evidence last week, it was clear that a number of witnesses had serious concerns about breaching the principle of automatic enrolment. I am very conscious of the extent to which those people have concerns. We need to take those concerns into account in the negotiations that we are having with the ABI.
We need the exemption to enable us to have the opportunity to complete negotiations with the ABI—to see if it is possible to create an exemption. The exemption would only be necessary if we could not automatically enrol into contract-based schemes. We will continue to look at the issue with the European Union—again, I am being careful with my words as far our discussions are concerned. In due course, we may take a view that it is best to wait until 2011 and have the discussions then, or it may be that we can move forward and have some discussions in the coming weeks. I will attempt to keep the Opposition spokesmen informed, through the usual channels, of the extent of those discussions, as and when they take place. That is essentially where we are.
Before the Minister leaves the European point—I appreciate the care with which he is choosing his words—the Liberal Democrats would be happy to discuss the involvement of MEPs in the different groups to try to advance a solution more quickly, should it prove helpful to go through the European Parliament.
I am grateful for his offer, but we are dealing with a legal issue rather than a case of political negotiation or pressure and we need to look at it in that context. That is not the primary issue, which is what the directive obliges us to do, and whether we are able to do certain things within those terms. It is, essentially, a legal issue.
Like the hon. Member for Inverness, Nairn, Badenoch and Strathspey, I am grateful for the Minister’s full response on the matter, because the issue is important. The Minister said a number of times that the directives are not due to be reconsidered until 2011. That is a full three years away. Many of us in the Committee are surprised that there does not seem to be a mechanism for pushing something up the agenda if it is a significant issue to many millions of people in this country. Is he able to say anything further to the Committee about how we could perhaps bring forward the reconsideration of such matters?
We would only want to do that if our current discussions led us to a conclusion that we did not want. Let us take this step by step. Let us investigate the legal issue and whether or not it is possible to get some comfort from our discussions with the Commission. If we can, it may well be that we do not need to do what he suggests.
In any event, is it possible to raise things before 2011? Yes, it is. It is obviously much more difficult, because we have to engage all the members of the EU, to get their agreement and then to push it up the agenda. That of itself takes significant amounts of time, and we would probably run into 2011 in any event. My concern now is that we have insurance companies out there that want to know where they stand. They do not want to know where they stand in 2010, 2012 or 2015; they want to know now. They want to know during the course of the next few months and years. Are they able to expand their business significantly? I want to give them as much reassurance as I reasonably can. Our aim is to maintain good quality pension provision. Often that is likely to be insurance-based as well as trust-based. We want to ensure that the issue of levelling down is not presented to employers. It is an issue here.
If an employer were making a contribution in excess of 6 per cent. to a good-quality, contract-based pension scheme and, as a result of the way in which these particular clauses operate, was obliged to change significantly the way in which his pensions were dealt with, he might well decide to level down. My objective, therefore, is to see whether we can minimise, in so far as we reasonably can, the prospect of levelling down.
The aim is to see whether we can keep things pretty much as they are for cases where there is a good-quality pension scheme with an employer contribution above about 6 per cent., an issue which we will come to in a few minutes. That is my aim, although I do not know whether we will be able to do it. We have some time during the course of this year to explore these issues and to see what the best approach is, and to discuss an exemption, if necessary, with the ABI and other stakeholders. That is the approach the Government are taking. I know it has broad support among stakeholders, although as we have heard during the course of evidence-giving, many of them are concerned that we should minimise any breach of automatic enrolment, whereas the members of the ABI want to minimise any disruption to their market. In both cases, the principle position of the stakeholders is entirely understandable and justifiable.
The hon. Member for South-West Bedfordshire also asked about master trusts and streamlined joining. Some insurance companies already offer master trust-based pension schemes, and would therefore be in a position to expand those schemes. Those who offer those types of schemes also offer contract-based joining, which they tend on balance to prefer. Some of the other insurance companies currently only operate contract-based schemes. They have concerns about the nature of a switch to master trusts. Some of them take the view that this would produce disruption for employers. Some of the other stakeholders, such as the National Association of Pension Funds, have done some work on this and think it would not produce that level of disruption. There is still some discussion going on with the ABI and others to try to ascertain what the precise level of disruption would be if some of the contract-based pension funds were converted to trust-based pension funds.
The general idea of a master trust scheme is that the trust is created within the insurance company, not with the employer. That enables automatic enrolment into the schemes under that trust, creating minimal disruption for the employer, and therefore there would not be the circumstances in which the employer would be likely to level down. The aim is to see whether some of the insurance companies would wish to move to that type of master trust scheme. If they take the view—which some have—that they do not wish or do not feel able to move to master trusts, then they are presented with a difficulty if there is no exemption, because they would either have to convert to master trusts or some of them would lose some of their market. That does concern me greatly and that is why we are in the business of negotiating it very seriously with the ABI and others.
Let us see how those discussions go on. I think I have outlined the various ways in which we are trying to clarify the issues, to pursue options if we do not get the answers we want, and to see whether there are other ways in which the insurance companies could proceed. We would need to be provided with a reassurance that we would get sufficient numbers of people engaging in pension provision to say that we could exempt them from automatic enrolment. The insurance companies need to identify employers with whom they have good relationships and be able to find opportunities with those employers to sell good-quality pension schemes to the employees. The employees would then need to sign up in numbers in excess of those we would have got if there had been automatic enrolment.
We do not want a situation in which we do not apply automatic enrolment—in which we have, in other words, an exemption—and as a result do not get sign-up to pension schemes. We need to get that sign-up. The exemptions themselves could create some difficulties for insurance companies, because they will then want to engage only with employers from whom they know they are likely to get a certain level of sign-up. If they cannot get that sign-up, they may well decide they do not want to continue to engage with particular employers. There would however be opportunities for them to sell their product on a broader basis after 2012, because automatic enrolment will mean for those insurance-based companies that employers will be in the market looking for provision. If there were an exemption, they may well find a much bigger market in which to sell their products. In business terms, both insurance-based schemes and trust-based schemes will probably benefit quite significantly from providing pensions after 2012, because the market will be significantly expanded.
I am very grateful to the Minister for his very full response to this section of the debate. The ABI has provided a briefing in which it estimates that going down a master trust route would have administrative costs of about £350 million and might lead to a churning of policies between the providers and a consequent re-broking cost to the industry of around £1 billion, and that a switching in workplace pension provision would actually damage the policies themselves, causing a loss of “embedded value” of around £4 billion to £5 billion. What is the Minister’s and the Department’s estimate as to the accuracy of those estimated costs?
We would want the ABI to provide some detailed justification of some of those estimates. It is the case that some of the insurance companies which have master trust schemes do not envisage these sorts of costs applying in relation to the master trust schemes, because they simply would not. The question is what the alternative is for the insurance companies. If they are able—as some of them are—to expand their master trust schemes, then obviously the cost for those insurance companies will not be so significant. If they have to do a lot of conversion, I would want to see the actual costs of converting to master trusts, because there is quite a lot of disagreement in the pensions industry as a whole. I include here stakeholders such as the NAPF, who have very different views. I think the ABI’s response to the NAPF would be, “they would say that, wouldn’t they? They are, in a sense, competitors. They are providing trust-based schemes, we are providing contract-based schemes”. Before accepting any of those figures we would want to see a greater degree of justification from the ABI.
I have heard the arguments about the costs. I am not convinced about the size of these costs. I have not seen all of the detailed figures with which the ABI justify its global sums. The figures need a lot more justification than they have at the moment if they are to be presented as reliable. That being said, I do not doubt that there is a significant issue here. The ABI has a serious point and it is one on which, if I am able to accommodate it, I will. I am satisfied that the discussions we have had with it so far have been serious and I hope it will lead to an exemption, which we could use should that be necessary.
I am not as pessimistic about the approaches we might make to the Commission as I was some months ago. Our advice now is that the issues may well be manageable but, again, I am cautious about what I want to say. At this point I am happy to have private discussions with the hon. Gentleman if that would be helpful.
We have had a full and useful debate in this section of our deliberations. These are important issues because of the numbers of employees involved in these group personal pension schemes. There is nothing much more that I can add but I am grateful to the Minister for the full way in which he has responded to the debate.
I beg to ask leave to withdraw the amendment.
With this it will be convenient to discuss the following amendments:
No. 16, in clause 8, page 5, line 7, at end add—
‘(3) The information so given must include whether the jobholder is likely to benefit by reason of being auto-enrolled.
(4) For the purposes of this section ‘benefit’ shall be defined as the jobholder recovering all contributions to the scheme as well as an additional return the extent of which the Secretary of State shall by regulation define.’.
No. 87, in clause 12, page 6, line 24, at end add—
‘(5) The Secretary of State shall report annually on the effect of changes to the qualifying earnings on the impact of means-tested benefits on members of the scheme establised under section 50.’.
No. 104, in clause 58, page 27, line 21, at end insert—
‘(c) to consider the impact of means-tested benefits on members of the scheme established under section 50, and report these findings on an annual basis.’.
New clause 2—Projections of numbers of those on means-tested benefits
New clause 6—Trivial commutation limit
As I said in relation to amendment No. 78, the debate about the extent to which it pays people to save in personal accounts is one of the critical issues that has been drawn attention to by a wide number of stakeholders in the course of the preparation of this Bill. Members on both sides of the House at Second Reading were concerned that, while it is clearly the case that the personal accounts will be beneficial to a large number of people within the target group and that the wider benefits of the personal accounts scheme and the ideas behind it such as automatic enrolment were clear to see, there are critical issues as to whether it will pay certain individuals to save.
One of the answers to that relates to the way information and/or advice is provided. We will come back to the question of information and advice at a later stage in the Bill so I do not wish to dwell on that point now. We believe this matter is very important in answering the question.
Amendment 79 is a modest proposal that I hope the Minister will be minded to accept, given the concerns that have been expressed on all sides of the House. At the very least the Secretary of State should annually provide to Parliament a report on the impact of means-tested benefits on automatically enrolled members of the personal accounts scheme. That would enable Parliament to have on a regular basis the information that it needs to understand whether the concerns raised, which I will go on to, have had the impact that some expected or whether, as the Minister said, the groups concerned were small or the rules—such as with his example of the trivial commutation limits for those aged over 50—have had the effect that he was expecting.
The amendment would enable Parliament to keep a close eye on the situation. As that would be through a report provided by the Secretary of State, the Secretary of State would be able to provide his interpretation and guidance on what he thinks that the information contained therein means. None the less, an issue raised on all sides of the House but about which there is a great deal of uncertainty could be discussed regularly. There is clearly some uncertainty about the issue. Everyone in the House agrees that there are some people for whom it may in the end not pay to save in personal accounts, because of the impact of means-tested benefits on their income in retirement.
In addition to the group of people aged over 50 that we discussed, there are other groups. In that context, I wish to refer to those people who receive other means-tested benefits, in addition to pension credit. The debate has focused on pension credit, because pension credit is the means-tested benefit that pensioners receive, and will continue to receive in large numbers until 2050. Independent estimates, by the Pensions Policy Institute, for example, suggest that two in every five pensioners will be in receipt of pension credit in some respects in 2050; the Government estimate would suggest more like one in three. In either case, that is a significant proportion of pensioners.
However, many pensioners will receive other benefits. One group of concern is those renting in retirement. The housing benefit taper is particularly steep, especially when linked in with the council tax benefit taper—who knows whether the council tax will still exist in 2050, although that is another debate? None the less, those taper rates are particularly steep and would therefore have a dramatic effect on the degree to which pension income would be generated—small for someone who has saved a pot of just over the trivial commutation limits, as described by the Minister. A lot of that income would, in effect, be used to substitute for means-tested benefits. Would those people even be getting back what they paid in?
I noticed a sensible amendment, proposed by the Conservatives, that—in talking about having a more detailed assessment and a measure of what a benefit means—puts forward the idea that a benefit means getting back what you paid in and a bit more. I am sure that a Conservative Front Bencher will go on to explain more what they meant. However, having in the Bill some measure of what benefiting from personal accounts means seems to be a sensible idea.
While the scale of the problem is hard to estimate, none the less the Pensions Policy Institute has highlighted some groups for which it thinks there is a high risk of personal accounts being unsuitable, such as:
“Single people who are likely to rent in retirement and who have no additional savings. These people are likely to qualify for less means-tested Housing Benefit as a consequence of saving in a Personal Account.”
It also refers to
“single people in their forties and fifties...who are self-employed.”
There are also medium-risk groups that have been highlighted by that organisation.
It would be useful if the Minister’s response could give us any information that he has about the extent to which that might be a problem, and the numbers of people involved in particular groups. I accept what he no doubt will say, that it is often hard for any individual to predict what their circumstances will be in retirement, particularly at an early age. Of course that is the case. None the less, we do not want the Bill to get us into a situation where some people can fairly claim that they were strongly encouraged to enrol automatically in a personal account, only to reach the time of retirement to discover that the financial benefits that they receive are not what they were given to expect. We certainly do not want to get into a position where those people are able to make a claim against the Government on that basis. That is why having a proper understanding of the numbers of people and the range of groups that might be affected, and how the Minister wishes to see those groups addressed, would be beneficial. The problem does not affect the many millions of people for whom the scheme is clearly beneficial but if it does affect hundreds of thousands of people then it is very serious; the hon. Member for Eastbourne said that there might be even more than hundreds of thousands. Unless the issue is got right there will be a significant gap in the Bill in its application to the target audience for which it is hoped that the benefits will accrue.
New clause 6, which relates to the trivial commutation limit, is designed to probe the Minister’s reaction to a particular proposal brought forward as a way of helping to solve the problem. That proposal is to increase the trivial commutation limit. The Minister quite rightly described how the limit can benefit people with small pots. It has been suggested that an increase in the limit would substantially increase the number of people, in the category under debate, who are able to benefit—those who might otherwise be at risk of not benefiting to a great or any extent from their personal account saving. That would be done by enabling a larger pension pot to be accumulated and then converted in full into a cash lump sum. For example, research by the PPI showed that an increase in the trivial commutation limit from £15,000 to £30,000, with a corresponding increase in the capital limit, could increase the proportion of retirees who would be able to trivially commute their pension pots from 13 per cent. to 22 per cent. Potentially, that could substantially improve the ability of some people at least to get returns from their savings.
I am sure that the Minister in his response will stress the importance of affordability and I am therefore interested to know what estimates he has made of the costs of the proposal and of the number of people who would benefit, particularly those who are at risk of losing out because of the interaction with the means-tested system. For us, the problem lies with the extent of the means-tested system. That is why we put forward proposals in the previous Pensions Bill to move towards a citizens pension which would ensure a basic state pension at a level sufficient to ensure that everyone had a firm foundation on which their private saving could be built. That is not something that we are debating—we are looking at whether there are any technical solutions that can be brought forward to help to address the problem. The increase in the trivial commutation limit is one such technical solution, which may or may not be of assistance.
I would be grateful to hear that the Minister is not under any illusions as to the seriousness of the problem and that it is something he is seeking to address. Otherwise there will be doubts in some people’s minds as to whether saving is worth their while, and that could undermine the extent to which the sensible proposal in the Bill can be successful in the long run. I look forward to the Minister’s response.
I rise to make my first substantial contribution to the debate. It is a pleasure, Sir Nicholas, to be serving under your liberal chairmanship. It was interesting to have a re-run of the citizens pension concept from the Liberal Democrat spokesman. That was perhaps not unreasonable given that his constituency includes Loch Ness—the citizen’s pension is about as likely to make an appearance as the Loch Ness monster.
I think the hon. Gentleman is making the point that he does not agree with a citizen’s pension policy, but that is not to say that it would not have the outcome I seek in the context of this amendment. As for the Loch Ness monster, I hope he is not doubting the importance of that economic asset to my constituents.
Quite right, Sir Nicholas, though it is not unrelated to the presence of several distilleries in the hon. Gentleman’s constituency.
We now enter the twilight zone, as it were: the “funnel of doubt”, as it has been termed by the Pensions Policy Institute. That is a rather sinister expression, but it does underline the massive unpredictability of trying to look, perhaps as far in the future as 2050—certainly many years from our current debates—at the interface between the means-tested benefits system and personal accounts, not least because factored into all that is the likely success or failure of personal accounts and the effect that will have on taking people out of means-tested benefits. I therefore make no apology for dealing at some length with these issues, particularly concerning this group of amendments, because this is one of the two major issues identified by the PPI as being at the heart of this Bill.
This is a key clause, which is, effectively, the other side of the coin of auto-enrolment. We all agree with auto-enrolment; it was, indeed, in our last election manifesto as a way of harnessing inertia to get people saving for their retirement. The other side of that coin, as discussed in the opening contribution by the hon. Member for Inverness, Nairn, Badenoch and Strathspey, is this: what about people who might be well advised not to auto-enrol, or to opt out? We will deal later in some depth with the issue of what advice is going to be made available to these people. I would however say that people are not exactly queuing up to give specific advice: employers are not; the Government are not; the Opposition are not, because they feel they might one day be the Government. There is an unresolved issue of what generic advice would be made available. That is a topic to get into in more detail later in these discussions. It has long been recognised as an issue.
Only yesterday, I stumbled across an interview in the Financial Times last June given by the previous Secretary of State—the right hon. Member for Barrow and Furness (Mr. Hutton). He made the point that there needs to be a major communications effort
“if the introduction of personal pension saving accounts is not to lead to future Governments being accused of mis-selling, John Hutton, Work and Pensions Secretary, has conceded”.
It goes on to talk about the dangers of different outcomes. Quoting directly from the then Secretary of State, it says:
“That is a risk, he says, and it has to be dealt with fairly and squarely. People have to trust the concept and understand that there cannot be an absolute guarantee about the outcome.”
I agree with that.
Changing metaphors from the Loch Ness monster, this problem has patently always been, as it were, the elephant, or the monster, in the room. As we have some vague ambitions to be a future Government—possibly the future Government when all this takes effect in 2012—it is important to get this right. It is fair to say that everybody now accepts there is an issue, and one which needs to be addressed.
Looking first in more detail at our new clause 2, these are all probing amendments, and I support the basic thrust of the amendments put forward by the Liberal Democrats. I think we are all coming at this from different angles but trying to achieve the same broad result, which is to raise the profile of this issue and look at ways it can be dealt with.
We as a party have not lighted on some magic bullet solution. The hon. Member for Inverness, Nairn, Badenoch and Strathspey is clearly taken by trivial commutation. I think it is worth saying that some of these solutions will actually increase means-testing and problems at the cliff-edges of the proposals, so we are a long way off. To be fair, I do not think the hon. Gentleman was pinning his colours to that particular mast as such, but there are any number of discussions and analyses still needed of some of the options that have been put forward.
Looking at new clause 2, I have plucked out of the air a figure of 10 per cent. of the pensioner population who might be in the at-risk groups. At the moment, we are have a pensioner population of about 11.5 million, which by April 2009 will rise to 12 million. Ten per cent. of that is at least a hundred thousand pensioners. It seems to me that if we at this so-called “funnel of doubt,” nobody has any idea how many people are going to be in these at-risk groups. If it starts to be north of 100,000, we have a serious potential problem on our hands. But it may be several hundred thousand or it may be in the tens of thousands; nobody actually knows the answer at the moment.
It is salutary to touch on some of the evidence given in the oral evidence sessions by some of these organisations—particularly by the PPI, which deserves a lot of credit for the consistently thorough, independent and thought-provoking way it has addressed these and other issues over a long time. All our debates would be the poorer without its various interventions. It raises the issue of suitability and its definition. In its written evidence, its says that in its analysis,
“Personal Accounts are defined as being ‘suitable’ if individuals do not lose out as a result of their savings. This is a less stringent definition than ensuring that saving in Personal Accounts is the right thing for all consumers, which would be more consistent with the FSA’s definition of ‘suitability’.”
I appreciate that the FSA is not going to be supervising these personal accounts, but it seems odd that an established definition of suitability—policed by the FSA—is not thought relevant to personal accounts.
The question of suitability is right at the heart of my amendment No. 16 to clause 8, which is about information that has to be provided. We are seeking to extend that obligation to include information about whether the worker is likely to benefit from being auto-enrolled. We define “benefit” as
“the jobholder recovering all contributions to the scheme as well as an additional return the extent of which the Secretary of State shall by regulation define.”
It is a pretty poor state of affairs if it is to be regarded as all right for those who have scrimped and saved to put money into personal accounts from their employee contributions, only to end up no better off than if they had put the money under the mattress.
The hon. Member for Inverness, Nairn, Badenoch and Strathspey has already touched on the at-risk categories. Again, this is work that the PPI has refined over a significant period, with a traffic light approach of red, orange and green to depict people who are either at low risk, medium risk or high risk. It is interesting that it makes this comment in its written evidence:
“The Government’s test is that individuals should get back at least the value of their own contributions, (but not necessarily the value of their employer’s contributions, real investment returns or the tax relief) protected for inflation.”
“This suggests that the Government would only be concerned about individuals in the PPI’s high risk group.”
This is slightly to repeat what was said by the hon. Member for Inverness, Nairn, Badenoch and Strathspey, but the high-risk group includes single people renting in retirement with no additional savings and single people who will be in their 40s and 50s in 2012 on low to medium incomes who are self-employed. It also refers to those who have a high level of personal debt. That is probably a typical instance. For instance, a female worker on low income and with high credit card debts would be extremely well advised not to opt in to personal accounts, but there will no one advising her to opt out.
The hon. Member for Inverness, Nairn, Badenoch and Strathspey touched on some of the options put forward. Two or three have been proposed in recent months, all with the fingerprints of the PPI on them. One, at the behest of the Equal Opportunities Commission, as it then was, was a suggested increase to trivial commutation and capital limits. The significant cost of that is set out in some detail, and the Minister may want to comment on the Government’s attitude to those projected costs.
Another variation, sponsored by the B and C scheme, is the pension income disregard. That, too, has a certain superficial attraction. A figure of, say, £12 a week may be disregarded as income for pensions, but it brings with it the question of whether one is trying to extend means testing or to roll it back; another question is what happens at the edges.
The fundamental point is this: where do we go from here? Broadly, the attitude of the PPI and others is that they have taken things as far as they can without access to the Government’s model. Indeed, at the oral evidence sitting last Thursday I raised that issue with Niki Cleal and Chris Curry from the PPI. At the moment, they cannot identify the number of people likely to be in what they signalled as at-risk groups. In his evidence, Chris Curry said:
“In the UK, there is only one model that works in that particular way: the PenSim 2 model run by the Department for Work and Pensions.”——[Official Report, Pensions Public Bill Committee, 17 January 2008; c. 59, Q84.]
That, it seems to me, is where we are at the moment in developing some concept of public policy on the question of means testing.
I return to the question of whether it is important. We believe that it is. I am pleased to say that so far there seems to be almost total unanimity among those who have given written and oral evidence that the issue needs to be addressed. It is fair to say that there are variations in how seriously witnesses put in it the context of the personal account, but everyone seems to agree that it needs to be addressed—and in the reasonably near future.
It is not gratuitously provocative to say that the consensus process has been through a rocky period recently. Our attempts to flag up the issue were met, at least for a time, by Ministers being upset with us because we were rocking the boat and undermining the possible appeal of and confidence in the new personal account system. However, we have gone beyond that. It is now clear that everybody, including Ministers, agree that the matter has to be addressed.
I shall cite one or two comments given in written evidence. The Equality Commission, talking about pays to save, spoke of there being
“a strong risk of too much media attention around the risk of it not paying to save. The impact of this could be a lack of confidence in Pas and encouragement of individuals to opt out.”
It then stated:
“The Government should commit to a public report on the pays to save issue”,
as outlined by the hon. Member for Inverness, Nairn, Badenoch and Strathspey. The commission said that it should include information on the number of individuals at risk, the trade-offs between reform and the general effect of the relationship with the means-tested benefits system.
Age Concern also makes the point. It says that there are concerns that some people may find they are little better off from saving because of the interaction between means-tested benefits and private provision. It believes that that is an important issue and it went on to talk, unsurprisingly, about the need for a much higher state pension. One of the issues that we are trying to draw out from Ministers in other amendments is whether they have reached their conclusion about when they intend to restore the link with average earnings for the state pension. Finally, Age Concern said that the Government should set up a review of the options to ensure that saving pays. We agree with that, and Mr. Mervyn Kohler made some similar points in his evidence for Help the Aged.
We seem to be in a situation where everyone now agrees that there is an issue. Let me quote the final arbiter on many of the issues, Lord Turner, who in his evidence—regarding the different approaches to tackling the issue—said:
“I still think that those issues are worth looking at.”
That is an important influence, and certainly the approach that we have been taking.
The good news is that the Government have had a change of heart. I am delighted to say that we have been having initial discussions about how we could best approach the various proposals on a cross-party and entirely constructive basis. I commend the Minister in particular for his approach to that. Ministers have moved some distance on the issue in recent days and weeks. I have never believed that we could resolve the issue during this Committee. What we have been at pains to do is to flag up our concerns, and those of many outside organisations and bodies, and to be reasonably assured that somewhere in the bowels of the Department for Work and Pensions the Pensim 2 model is whirring way, trying to look at some of the potential solutions.
I am not naive enough to think that the Pensim 2 model has all the answers. We know, for example, that it has one fatal flaw. It takes no account of housing benefit, which, if you look at the PPI work, is crucial to some of the projections about at-risk groups. I am sure it has other flaws as well, but it is the only game in town for approaching the issues. I am committing myself and the official Opposition to being as helpful and constructive as possible and to work closely during the life of the Bill and also beyond to try to find solutions to the problem. As we all march bravely towards 2012—if that indeed is the implementation date for personal accounts—we can put our hands on hearts and say to people that, broadly speaking, they are going to be better off by saving or at least be able to identify more clearly those groups that would be best advised—through the mechanisms of generic advice, which is another debate—to opt out, as set out in the Bill.
Those issues are very important; they transcend political divisions. We will do what we can to help. We are not unaware of the limitations of the model, nor of the massive uncertainties summarised by the PPI’s expression “the funnel of doubt”. We want to see a solution and we are confident that Ministers do as well. Sooner or later we will hammer something out but it will involve looking closely at some of the ideas—trivial commutation, capital disregard and pension income disregard.
Even in the last week or two there has been a further new suggestion from Legal and General, I think, about “flexing” the £16,000 cut-off between income and capital. I am not sufficiently into the detail to see what difference it could make, but it is a useful suggestion that ought to be run through the modelling to see if it brings any benefits to all the people who I think are determined to try to help. We are signed up to the post-Turner consensus on pensions reform. We are determined to ensure, as far as is practicable, that the reform will work and deliver a better retirement for millions of people and that there will not be major problems with people who should not have joined up in the first place. That clarity should be available not after 2012 but in the run up to 2012 so that misguided journalists do not write stories which will put off people who should be enrolled and give support to unscrupulous employers who may use such articles to discourage their eligible employees from becoming enrolled.
I hope that that is helpful in setting out our attitude to our new clause and our amendment 16. I support the thrust of what the hon. Member for Inverness, Nairn, Badenoch and Strathspey said. This is all an attempt to tease out from Government what their attitude is. I see it as a constructive attitude and one which we support.
I am grateful for the way in which the Opposition spokesmen have set out their case. This is an issue which we need to debate in a serious way. It is not a new issue. In each of our constituencies there are people who have bought into second pensions through private pension schemes and they find that the pot of money and the returns they get from their pension mean that they are below the pension credit level. Therefore they have to top up their second private pension with pension credit.
It is therefore an issue currently. Nobody suggests that the pension providers should compensate people but there are ways in which it is possible for individuals to ensure that they minimize any disadvantage. Trivial commutation has already been discussed at length—up to £16,000. There is also the opportunity to take a tax-free lump sum of up to 25 per cent. of the pension pot. There are ways in which people are able to deal with this issue and I will come on to some of the others in a moment.
One in six people are automatically enrolled in pension schemes today—private pension schemes in some cases, public pension schemes in others. Automatic enrolment of itself is not the new factor, although arguably the scale on which it occurs will be different after 2012. Because the Government are now legislating, we have to recognise the significance of the issue and we do so. I am grateful in particular to the hon. Member for Eastbourne who acknowledges that the Government have looked seriously at this issue and we will continue to do so. I will set out how we intend to go forward in due course.
As this is an important issue, I will set out at length the Government’s approach. Before that, I will deal with new clause 6 because this suggests a significant increase in the trivial commutation level. I will separate this from the broader discussion. Issues around finance and trivial commutation in particular are matters for Finance Bills. That matter will be dealt with by the Chancellor in a Budget or another announcement. It is not something we propose to deal with in the course of the Pensions Bill.
The hon. Member for Inverness, Nairn, Badenoch and Strathspey should be careful in suggesting that trivial commutation is just a means of helping people who may lose out in relation to pensions. It is also potentially a tax loophole, which some might exploit in order to minimise their contribution as taxpayers. We need to approach trivial commutation with great care, because it has not only some beneficial effects but some disadvantages, of which we should be aware. I therefore cannot recommend any support for new clause 6.
Let me move to the broader issues. We had strong evidence in relation to pays to save from a wide range of witnesses, but there was consensus in that evidence that in the course of considering the Bill, we should keep in perspective what is a complex issue. Whether it pays to save for a second, private pension is not just an issue for this Bill; it is a wider issue. It is not just about personal accounts. That is an extremely important point to make, because there has been some press comment that suddenly a problem will arise as a result of personal accounts. In fact, the problem is there now and will arise in relation to many other types of private pension provision. It is not particular to personal accounts, but those accounts are directed towards low and moderate-income people, so we need to be aware of that issue when discussing them.
Governments always need to strike a balance between alleviating poverty and incentivising savings. The Government look for that balance in relation to all their policies. We seek to alleviate poverty and protect people against unpredictable events—in other words, to provide a safety net if people fall on difficult times or if they are merely poor because of their inability in the past to earn a substantial income. We seek not only to provide a safety net, but to encourage all individuals to take some personal responsibility for their retirement income and not just to leave it to the state. We have the element of the safety net, we seek to have people look to their individual responsibility and we seek to have regard to the overall need to operate according to affordable and sustainable public finances. The Government need to balance all three elements in relation to this issue.
With regard to alleviating poverty and providing a safety net, means-tested benefits ensure that individuals can safeguard themselves against severe poverty and relative poverty. We have been able to lift more than 1 million pensioners out of relative poverty in recent years. Means-tested benefits are an important part of our welfare system and our safety net.
Our reforms in the Pensions Act 2007 start to address some of the issues about whether it pays to save, because they make significant changes to the state pension system, enabling about 90 per cent. of both men and women to get a full basic state pension. The proportion of women who currently get it is about one third. We need to increase the percentage significantly. We will do so from 2010 and we will see those numbers increase significantly after that. They will move up so that, by 2025, 90 per cent. of women will be receiving the full basic state pension. That is an important change with regard to the points that have been raised today.
As a result of being able to receive a full basic state pension, many pensioners will not need pension credit. That is one of the significant changes that we are making. The percentage that we anticipate will be claiming pension credit will fall significantly to about 30 per cent.—less than the third to which the hon. Member for Inverness, Nairn, Badenoch and Strathspey referred. The state pension will be more generous and easier to achieve. The issue that we are discussing now will be significantly assisted by improving the incomes of pensioners as they get older and as the provisions come into effect.
Incentivising savings is the next issue that I want to discuss, because about half of pensioners are currently on means-tested benefits and in receipt of income from private pensions as well. Our reforms are aimed at strengthening incentives to save and incentives to take individual responsibility by enabling each pound saved to be matched by provision from the employer and the tax system. We estimate that between 4 million and 8 million people will be saving for the first time, and between 6 million and 9 million people will be saving more than they do at the moment. That will be a significant incentive for people to continue to save and to build up strong pension pots. At the moment there is inertia in terms of saving. People do not save because they do not get involved in the system. We want to reverse that so that they will get involved in the system, and if they want to get out of the system they have to take action to opt out. Inertia therefore will work in favour of saving, and not against it.
We aim to target our reforms at those most in need of help: the low and moderate income earners who at the moment, in many cases, are not even able to get involved in an occupational pension scheme. We want to do more to ensure that people know it pays, in retirement, to save. We have made some important changes in the benefits system, which I mentioned earlier in passing. I want to return to those. It is not just things like trivial commutation that will help people on low incomes: savings credit is an element of pension credit which prevents a pound-for-pound clawback of benefits such as we saw before 1997 and enables people to know that, if they are saving for their private pension, some allowance will be made for that saving when they are claiming pension credit. Together with the 25 per cent. tax-free sum and trivial commutation, we need to factor in this issue of savings credit in terms of pays to save.
For the majority of people who are automatically enrolled, who do get involved in either personal accounts or another pension scheme, we expect to see significant improvements in later life. We know from our surveys that the vast majority of people who are not now saving for a pension still want a higher return than the state will provide for them when they retire. They want a higher income. What we are saying is, essentially, that we as a state will provide only so much, and they will have to lift themselves above that level if they wish to go beyond it. That means that they have to save for themselves.
The hon. Member for Inverness, Nairn, Badenoch and Strathspey asked for whom will it not pay to save. We had some very significant evidence during the course of the evidence sessions last week, particularly from Professor John Hills, who is widely regarded as the foremost expert on this issue in the UK today. As a member of the Pensions Commission, he has done very valuable research in relation to this issue, and we all must regard his views as having a great deal of weight. He made the very important point, backed up by Lord Turner, that there are some people who will have saved who end up on pension credit, just as there are now. It is difficult to predict who these people are. If I remember Professor Hills’s evidence correctly, he said that the only way to predict who would lose out in the long term would be to put together a system that interrogated people at great length about their detailed circumstances.
There are so many imponderables—so many variations, so many life-events that change people’s circumstances—that being able to predict at the point of auto-enrolment whether they would lose at retirement would be so difficult that getting that information would not be sensible given the amount of investment required. In any event, having to answer those sorts of questions would probably deter people.
Lord Turner, in his evidence on 17 January, said that
“you cannot treat the fact that some people post facto will not have done well out of saving as proof that it is a bad idea to advise them to save. An analogy would be that if at the end of the year your house has not been burgled, it does not mean that it was bad advice to buy a household insurance that year. None the less, we have a social commitment to ensure that, whatever mess people’s lives get into, we will pick them up to a certain absolute level of income in retirement.”——[Official Report, Pensions Public Bill Committee, 17 January 2008; c. 98.]
I agree with that. We provide a safety net, but we also encourage people to save and to make their circumstances better. For example, with men in particular, statistics show that nine out of 10 men will benefit from saving for a pension, because they will get to retirement. One in 10 will not. Should they not have saved? No one would seriously say that one in 10 men should not have saved in the expectation that they would need to provide for their retirement because they would not reach state pension retirement age. We need to ask ourselves some of the fundamental questions about the level of predictability of people considering whether to save. Also, what information and advice will they need to be given when making a decision about whether to save?
Let me deal with the issue of information, communications and advice. As the hon. Member for Inverness, Nairn, Badenoch and Strathspey has indicated, that is one of the core questions that we must ask ourselves. We will be discussing at length those issues later in the Bill, but let me first make some brief points. Automatic enrolment needs to be a relatively straightforward, simple, user-friendly and inexpensive pension provision to succeed. We all want it to succeed and, to increase levels of take-up, we need to minimise cost. We cannot have detailed interrogations of people or vast amounts of advice-giving.
At this point it is important to place on the record the difference between information and advice. Information is giving people basic information about what the pension scheme will be and some projections of possible outcomes in provision. Advice is giving individuals advice about their circumstances and whether saving is right for them. That advice to individuals can come in one of two forms: as individual advice to a particular person, based on information received from them; or as generic advice, given to groups of people, about what their possible circumstances might be.
Providing large amounts of detailed advice to every single person automatically enrolled is clearly not something either that we need to do with a basic, simple pension system or that is desirable. It would certainly not be financially possible to keep costs low if we were to do that. The decision to remain in a pension will generally be straightforward, but individuals need to have good information. Good information is the key factor in achieving our objective of enabling and increasing levels of retirement savings. A lot of good information and some level of advice are already provided by citizens advice bureaux, the Pensions Advisory Service and the Financial Services Authority, for example. We should not just add new sets of information to what is already there. We will be working with all our stakeholders and expert organisations to develop a coherent and consistent service for providing information and for providing some opportunities to seek advice, where necessary.
I envisage the system operating with an individual being automatically enrolled and getting the basic information about what they are enrolled into. Their pension scheme—be it personal accounts or a private pension scheme—will give them some information. Some may well have particular concerns, but they will be given access to a website, which they can interrogate to find out will happen in their particular circumstances.
Otto Thoresen is looking at the issue of the provision of broader, generic financial advice. He is due to report later this year—we anticipate that it will be around March, before the conclusion of our consideration of the Bill. We want to take account of his findings and recommendations on the way forward on generic advice. That is important. We will also need look at the question of how much further we go beyond that on providing advice. PADA will look at personal accounts, but other pension providers may wish to look at the issue.
Most employers should not be in the business of giving advice; that is not what they are there for. Some employers might choose to do so and might employ a independent financial adviser to advise their employees, but we anticipate that most employers will not choose to do so. They will be given basic information, probably from the pension provider, be it the private scheme or personal accounts, and that is what the employee will receive. The employer would be ill-advised to give advice, because those who do so may well have a legal responsibility for the advice that they give. However, if a person needs advice, they can go to the Pensions Advisory Service or a citizens advice bureau—that is the route that we would direct people to take.
Having said all that, and as the hon. Member for Inverness, Nairn, Badenoch and Strathspey indicated, it is possible that some people, in the end, unpredictably, will be on pension credit, even if they have saved in personal accounts or through a second private pension. The Government looked in detail at how we can prevent such a situation. We looked at trivial commutation and the proposal, for instance, from the Pensions Policy Institute, for an increase disregard on pension credit; and at how to adjust the various tapers, contributions and penalties that relate to various benefits.
All of those measures are expensive and raise significant questions and, as the hon. Member for Eastbourne indicated, they fail to provide a magic bullet. We should continue to evaluate policy measures. It is important that we recognise that there is an issue, but it should not prevent the passage of the Bill, and it certainly should not prevent the introduction of personal accounts. None the less, we need to look at the issue with a great deal of care. I agree with the hon. Member for Eastbourne, who indicated that we have an opportunity to look at the matter in greater detail.
The Government were approached by the People’s Pension Coalition, particularly by Sally West from Age Concern, who asked for a longer-term debate beyond the length of our consideration of the Bill, so that we can look at the pays to save issue. I reassure the Committee that I am working to put in place a process to take things forward and to provide reassurance for the longer term. I am not committing to any policy outline. However, I would be happy to work together with Opposition spokesmen and the various stakeholders for three key reasons. First, we need to evaluate the evidence on who is likely to benefit and who is likely not to benefit by saving. Secondly, we need to consider the interaction between pension saving and income-related benefits in a reformed system, and how that affects incentives. I would like to examine the extent to which we are able to predict the numbers in groups who might be affected. The evidence that the Committee has heard so far suggests that such a level of prediction would be very difficult. If so, let us look at the matter to see how much we can undertake to predict.
Thirdly, we want to look at the various constraints and methods for dealing with this issue through policy changes. We need an evaluation of some of the issues around trivial commutation and other things. I repeat that I make no commitments in relation to outcomes. However, it would be extremely useful, as part of the process of building on our consensus on pensions policy, to have a serious job of work done to evaluate how far we can predict who will be affected, the likely outcomes and how we could change policy in order to affect those outcomes. We need to share knowledge, establish an understanding of the trade-offs, and engage with others over the coming months in shaping how we could have a shared baseline of understanding of the issues with which we have to grapple. I have agreed to Age Concern’s suggestion that we join this group and work with them over the next ten months or so to carry this out and, in due course, to publish a report.
This will not recommend a particular way forward, but will, I hope, look at the various issues, cost them, and put some of the basic information out there so that any further debate on this issue would be much better informed. The various proposals and amendments that have been put forward are variations on the theme of getting information. The Conservatives have indicated that theirs are probing amendments. I appreciate that, and therefore ask that they be withdrawn. I am grateful for their indication that they are happy to engage in the process of evaluation, and I hope we can agree to proceed on that basis rather than by pursuing any of these amendments. The Liberal Democrats have not yet indicated whether they intend to press any of their amendments, but I hope their spokesman, the hon. Member for Inverness, Nairn, Badenoch and Strathspey, feels able to withdraw his amendments.
I will endeavour to complete my remarks before 1 o’clock, but if I need 30 seconds when we return then I hope I may avail myself of that. I am grateful for the Minister’s response. On the trivial commutation point, I entirely accept what he said about that issue. Certainly, if a new group is to be set up to look at these issues in more detail, it is entirely appropriate the issue of trivial commutation should be referred to that group.
I am pleased that we have moved on from the tone of debate on Second Reading, when, frankly, there was some entrenchment on both sides. The way in which the Minister has expressed his points, as well as the substantial suggestion he has brought forward in response to the idea from Age Concern, suggest that there is a new desire, in looking at this issue, to evaluate it properly, to examine the interaction with means-tested benefits, and to look at the level of predictability. The exercise he is proposing— guided, I hope, by Age Concern and some of the independent people who can become involved in this—is one that we on these Benches would welcome, and with which we wish to co-operate.
The Committee he is setting up will produce a report. Clearly, some of these amendments relate to reports to Parliament which Parliament can then debate. While I would be happy to withdraw these amendments, I hope that this report will not be kicked into the long grass, and that Parliament will be able to debate it so that Members in all parts of the House have a chance to express their opinions of what is said. With that, I beg to ask leave to withdraw the amendment.