Clause 50

Pensions Bill – in a Public Bill Committee on 31st January 2008.

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Power to provide for a pension scheme

Photo of Danny Alexander Danny Alexander Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey 1:00 pm, 31st January 2008

I beg to move amendment No. 99, in clause 50, page 24, line 10, leave out from ‘State’ to ‘and’ and insert ‘shall establish a money purchase scheme’.

It is a pleasure to be back here under your chairmanship, Mrs. Anderson, with somewhat inclement weather conditions outside. I am sure that our discussion will not be so inclement, and certainly not as inclement as the weather in my constituency, where snow appears to be falling heavily as we speak.

Photo of Danny Alexander Danny Alexander Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey

Good for the skiing, as the hon. Gentleman has said. I will get back to the point.

The purpose of the amendment is to allow the Minister to clarify why clause 50(1) is currently drafted in such a permissive way. My amendment inserts

“shall establish a money purchase scheme”,

which is what the Government intend. There is no doubt about that, although if there is, then the Minister will surprise us all when he responds. My question, simply, is why should the Bill not say what we are establishing as the personal accounts scheme?

I am grateful for some advice offered to me on this point. It has been suggested that, in order for personal accounts to work, the phrasing that the

Secretary of State may establish a pension scheme” is a bit strange, in that it seems to be permissive rather than mandatory, which the Minister has acknowledged by nodding. The scheme concerned must be a money purchase occupational pension scheme. Would it not be better to say so?

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

To clear up any doubts, although I doubt whether there are any doubts, we intend to use the power to create the personal accounts scheme, which will be a defined contribution occupational pension scheme. However, defined contribution occupational pension schemes take a number of forms. Personal accounts will have various unique features, particularly given the target audience, the way in which they will be organised and the way in which we are setting them up. We therefore took the view that rather than having the legislation say that the  pension scheme was of a particular kind—thereby risking someone at some point deciding to take a judicial review as to whether our decisions fitted exactly with a particular definition—it was better to take a broad power and to be very clear about how we intend to use it.

There is no doubt that the understanding of the hon. Member for Inverness, Nairn, Badenoch and Strathspey is correct. That is what we intend, and there has been no deviation from the Government’s intentions. We have set out the power in this way because we do not want to raise legal risks at a later stage by trying to define the scheme narrowly. Personal accounts will be similar, but not identical, to other DC schemes. We should not pretend that it is a particular kind of pension scheme in the legislation, because some might say, “Well, the way you are working does not exactly fit that definition”. That is the only reason why we have taken that view. With that reassurance—the hon. Gentleman is entirely right about our intentions—I hope that he will withdraw the amendment.

Photo of Danny Alexander Danny Alexander Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey

I am grateful to the Minister—I almost promoted him to Secretary of State for a second—for his explanation. The clarification is exactly what I was seeking. Therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

I beg to move amendment No. 25, in clause 50, page 24, line 10, after ‘scheme’, insert

‘which shall commence operation with effect from 1st April 2012’.

The amendment, unlike some, has the attraction of being incredibly simple and straightforward. All it does is to add to the beginning of clause 50 that the scheme should commence operations from April 2012. Since that is the Government’s stated policy objective, I imagine that the Minister will be happy to accept the amendment. I shall sit down now, if that is his intention.

Mr. O'Brienindicated dissent.

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

The Minister is shaking his head so I fear that we have to argue the case a little more.

Mr. O'Brienindicated dissent.

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

The Minister is shaking his head, so I fear that we must argue the case a little more.

From one point of view, the plan is already two years behind schedule. I have dusted off my copy of the final report of the Pensions Commission, chaired by Lord Turner. On page 400, it talks about an implementation time scale for the various reforms and compares international experience. In Sweden, for example, implementation of the new pension system, the premium pension system or PPM, took six years from the report of the working group—presumably the Swedish equivalent of Lord Turner and his colleagues—to the first year of contributions into the funded scheme. That included not only the introduction of the new funded PPM but the re-casting of the state pay-as-you-go system into an NDC system. The report concludes:

“Since we are not recommending such radical changes to the core state system, a more rapid implementation ought to be possible.”

The report then talks about New Zealand, where, even more surprisingly, the report of a working group was followed only nine months later by a budget commitment in principle, with implementation planned for just two years after that. It talks, however, about the possible slippage of that time scale, which I think has been true. The report importantly concludes that

“the Pensions Commission believes that it is reasonable to plan on the assumption that the NPSS could be in place and receiving first contributions by 2010.”

The NPSS was the original proposal that was replaced by personal accounts. We are already two years out from that date.

Being a sad person at heart, I was listening to Radio 4 between Christmas and new year and caught a bit of the “Money Box Live” programme, presented by the estimable Paul Lewis, a great expert who has followed many of our debates closely. He was interviewing Tim Jones, the new chief executive of PADA, who has given evidence to the Committee. He pressed Tim Jones hard on the implementation date for personal accounts. I managed to obtain a transcript of the interview. Paul Lewis said:

“There is an awful lot to do, isn’t there?”

Pausing there, I think we can all agree with that. He went on:

“This scheme is scheduled to start in April 2012, just over four years way. Is that a realistic target?”

Tim Jones replied:

“The honest answer to that is I don’t know yet.”

Paul Lewis then said:

“So there might be a delay?”,

to which Tim Jones replied:

“Well, it’s not a delay because I don’t know yet.”

He then talked about reviewing matters as the incoming CEO:

“I understand the desire for 2012 and so far I’ve not seen anything that says it’s unachievable, but I need to do that review and when I’ve done that review I’ll then be able to have a conversation about what a proper date is.”

The key part of the interview was where Tim Jones said:

“Because this is so hard what’s critically important is not exactly when it starts but that it starts well when it starts.”

In the final exchange, Paul Lewis said:

“So there is a possibility that in a few months time you’ll be going to ministers and saying my view is we cannot start this when you’ve scheduled it—April 2012. It will have to be another date in the future?”

To which Tim Jones replied:

“There is that possibility, yeah”.

Since then, Mr. Jones’ apparent concerns have to some extent been dissipated. In the oral evidence sitting, I asked him about the commencement date. He said:

“The policy intention is that the personal accounts scheme will launch in 2012, and it is my job, and the delivery authority’s job, to meet that intention. We have no evidence at this stage that that is unachievable.”——[Official Report, Pensions Public Bill Committee, 15 January 2008; c. 7, Q11.]

Indeed, when I raised the matter at Question Time only the week before, the Minister said:

“we intend it to begin in 2012, and the chief executive has been informed that that is what we intend.”—[Official Report, 7 January 2008; Vol. 470, c. 6.]

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

The Minister can read it out himself with the proper emphasis. I do not know whether you have ever seen the film “Downfall”, Mrs Anderson, about the last days of Hitler in the bunker, but the situation is reminiscent of the phantom divisions that were sent out to attack the Red Army and that were told not to come back alive if they did not win.

We still have a contradiction here. Let me stress that the official Opposition want the scheme to start on time. We want it up and running in 2012. Earlier would be nice, but nobody who has met Mr. Jones could be anything but persuaded by his massive competence and experience in these matters and by the extent to which he and his chairman, Paul Myners, appreciate the scale of the task they are facing. Nothing quite like this has ever been tried before, which I recall is a line from the movie “A Bridge Too Far,” but we will not go down that route.

So it is a massive challenge. There is still a missing link between what the Minister told Mr. Jones and what Mr. Jones told Paul Lewis. Very honestly, like any successful man of business, Mr. Jones has apparently initiated a review in his new job. He has the office furniture, he has the chairman, he has one or two non-execs, and things are gradually picking up, but he has reviewed the state of play. I have the impression that that review is taking a while, and it has certainly not been concluded yet. I would like the Minister to tell us about his understanding of the situation, because despite the slightly greater confidence that Mr. Jones exuded when he came to this Committee compared with the confidence that he exuded at the end of last month, he is clearly still in the midst of this review.

Perhaps the Minister will share with the Committee what he has been told about how the review is going, including when it is likely to be concluded, what the preliminary indications are, and whether he will publish the advice he gets when Mr. Jones’s review is finished. The eyes of the world are on us and, in particular, Mr. Jones. I have stressed our support for getting on with it in 2012, but the only thing that is worse than not starting on time is having a botched start, which is clearly something that concerns Mr. Jones.

The brief from the Equality and Human Rights Commission states:

“Like the Conservatives, we are keen to see personal accounts ready to commence in April 2012. We are extremely supportive of the new accounts and the benefit that they offer to the target market. It is imperative that the new scheme is in operation as soon as possible to allow people the opportunity to save for their retirement in a way that is not offered by the savings products currently on the market.”

I agree with every word of that. Indeed, the Minister’s own predecessor, now his new boss, made quite a good speech a little while ago when he was in the pensions job, making the point about what we might call the “planning blight” on people’s pension savings between now and 2012. There will be a significant period between now and then when people will still not be saving for their retirement. Such people will miss out on several years’ contributions, the benefit of which they will never be able to make up.

Frankly, the guy in the saloon bar who finds pensions difficult and puzzling will have another excuse for not doing anything at the moment, because he has read that in 2012 it will all be sorted. I am very interested in what the Minister has to say, particularly about Mr. Jones’s ongoing review.

Photo of Danny Alexander Danny Alexander Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey

I, too, heard the comments on the “Money Box” programme that the hon. Gentleman has read out. Being, no doubt, as keen a listener as him—I am sure that all members of the Committee are regular listeners to that programme—I was perplexed and concerned by Mr. Jones’s comments. In due course, Mr. Jones corrected those comments. Perhaps he did not do so as quickly as Admiral West, but it had happened when he gave evidence to this Committee.

Tim Jones is someone with a huge amount of professional skill and is held in the highest esteem and respect by those people he previously worked with, and so the amendment being debated should not be seen in any way as casting doubt on the competence of Mr. Jones and his team at PADA. The question is, if there were doubts in his mind—and he, no doubt, has discussed these with the Minister, and the Minister has reassured him, no doubt, about the deliverability of the timetable—then it is important that the Minister shares the pressures that may exist in terms of meeting quite a tight timescale.

As I understand it, there are a number of steps that need to be completed over that four-year period in order to ensure that the personal accounts scheme can be up and running. The contracting process for the administrative software and people to actually run the administration of the account, because it is quite naturally subject to European Union rules—we return to those and, no doubt, will return to the European Union again at some point—about public procurement. This is a process that—I understand from the procurement side of this—will take at least 14 months, and possibly longer, before that commissioning is completed. I guess, probably quite naturally, that commissioning process cannot start until this Bill has become law.

So there is a situation where, in an unknown period, this Bill will become law—I guess the Minister is hoping for May or June, when it has completed its passage in both houses. There is a period of slightly less than four years, in which that commissioning process has to be undertaken successfully, the team to put it in place has to be recruited and so on—which will take a bit of time—and then there obviously has to be appropriate testing to ensure that the system works perfectly before the start date of the scheme.

There are clearly some significant practical hurdles and tight deadlines that have to be kept to along the way to ensure the target date of 1 April 2012 is met. It seems to be me to be quite right that it should be met but, as the hon. Member for Eastbourne (Mr. Waterson) has quite rightly said, only one thing would be worse than missing the deadline, and that would be a botched launch.

It is quite right that the Minister should have to reassure the Committee that he is satisfied that there is sufficient time for all those practical steps I have  described, and no doubt many other steps along the way to ensure the successful launch of PADA, to be met in the timescale—which will be slightly less than four years by the time this Bill, if it does, receives Royal Assent—so that we can be sure that the deadline the Government have quite rightly set for the launch of the scheme can actually be met.

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions 1:15 pm, 31st January 2008

It is important to get personal accounts right—that includes to deliver it on time—but a prudent manager will recognise that events are something, as Harold Macmillan mentioned, that are not always in the control of those who would wish to have them under control. The policy intention is that the personal accounts should be delivered in 2012, and nothing we are aware of at this point would prevent that from happening. That has not changed. I had not tied myself down to April of 2012, but it does seem to be a reasonable date as a target to launch it on. But it may well be that for other reasons there are other times of the year that might be more appropriate. But as far as we are concerned, there is nothing we know that would prevent a 2012 launch.

So that is what we are aiming at; that is what we expect to hit, and Tim Jones has been brought from the private sector in order to ensure that we have a senior executive who is able to deliver a project of this kind on time, on budget, and to enable it to create the mechanisms to deliver personal accounts, bearing in mind that PADA itself will not deliver personal accounts, bearing in mind that PADA itself will not deliver personal accounts. I can give that reassurance.

Tim Jones has a background which has not involved having to weather the uncertain waters of politics, or politicians’ ability to salami-slice words—or, indeed, journalists’ encouragement of what appear to be innocuous comments which are then repeatedly referred to in Parliament. I agree that Paul Lewis is an estimable journalist who does indeed know how to do an interview and get a story, as he did on this occasion. Tim Jones has, however, assured me that he knows of nothing that would stop him from delivering in 2012, and he fully intends to see that that happens. I hope I can reassure the hon. Gentlemen on that point.

The reason I do not want the amendment in the Bill is that we have not fixed on 1 April 2012 as a precise date. That is a reasonable target date for the moment, but it may be better, for all sorts of reasons, including presentation of better dates, to move it a month or two one way or the other. We are still targeting 2012. That is when we expect to deliver, but I do not want to enshrine that in the Bill. Primary legislation is not the place to set out precise dates for implementation of reforms. It is the place to set out the principles of a reform and the approach to reform, and it is only sensible to retain some flexibility in the start date. Who knows what might happen over the next four years, or how the pensions landscape may change?

Photo of Danny Alexander Danny Alexander Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey

I just want to press the Minister on one point to do with the timeline. While I can see his point about not being ready at a particular date, I want to be reassured that he has looked at the public procurement timelines that are involved in this process and is satisfied, given all the legal restrictions on public procurement contracts of this size, that the process can be completed, implemented and tested in good time for a 2012 launch.

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

We know of nothing which would prevent the public procurement timetables from being met within the time scale we are seeking. We do have four years, and that gives us enough time to go through delivery. I have seen how Government procurement—of computer systems and other things—has not in the past always been completed on time. That is also the case in the private sector. I cannot provide a cast-iron guarantee that every independent private company that has a contract is going to be able to do its job perfectly, and therefore it is useful to retain some flexibility.

At the same time, I do not expect them to fail to deliver on the contracts; if we expected that, we would not be signing them up. We expect that those who make arrangements to deliver personal accounts will be able to deliver on their contracts. The time scales are not so tight that they do not have some built-in flexibility, and we should therefore be in good time to be able to deliver this project.

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

I am sorry to say that I am not at all reassured by that answer. First of all, the suggestion that it could even be December 2012, and not necessarily April. I agree with the Minister that April is the logical time to start, because it chimes with the tax and accounting years, and so on. Although Paul Lewis is a prince in his profession, I take the Minister’s point about journalists. I think the Minister’s point about Tim Jones’ comments to Paul Lewis got it the wrong way round. It is because he is not a politician that he does not have that natural guile to try to disguise the reality. That is the point.

There are two things we do know for sure, unless the Minister has something up his sleeve. One is that between now and 2012 there will be an election and a new Government—hopefully a Conservative one—and almost certainly a new Minister in charge. Because we have our ambitions to win that election, I take the Minister’s point that a new Minister would have the same concerns about putting a start date on the face of the legislation. I have a sneaking suspicion that some poor devil—it could even be me—arrives on day one after the election as the Pensions Minister and very near the top of his in-tray will be a report from PADA saying we cannot possibly do this by 2012 and these are the reasons.

I think it is time we nailed this down because I have reached the age where I do not like surprises. Let me offer a deal to the Minister. I am prepared not to press this amendment to a Division if the Minister will agree to share with us—and we do have a legitimate interest as the official Opposition—the results of the review that Mr. Jones is conducting. That seems fair. If he wants to suggest doing it on Privy Council terms, I would not object. I do not know what the hon. Member for Inverness, Nairn, Badenoch and Strathspey thinks.

Photo of Danny Alexander Danny Alexander Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey

The suggestion made by the hon. Member for Eastbourne is wholly sensible. If there is a review being undertaken it should be shared with spokespeople for the opposition parties or on whatever basis the Minister thinks is appropriate. This is a critical issue and if there are problems to be identified by PADA I think we, too, ought to know about them.

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

I am grateful for that intervention. It is simply a matter of good governance and of consensus. If this consensus process is to have more than lip service  paid to it by Ministers, on something as important as this and something as nuts and bolts as this—there is no great politics in this issue—we all want to play our part in making sure that this happens on time and properly. I am happy to give way to the Minister but I will not press this to a Division if he is prepared to give us that undertaking.

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

It is a matter for the hon. Gentleman whether he presses this to a Division or not but as I understand it there is not going to be a report to publish or share. What the hon. Member has already done, I understand, is talk to Tim Jones. I would be very happy for him to go and discuss these issues with Tim Jones and Paul Myners. That invitation extends to the hon. Member for Inverness, Nairn, Badenoch and Strathspey. The hon. Members are able to discuss these issues with the managers of PADA, on the basis that any commercially confidential information will be kept confidential. I am not aware of any final report or anything that I am able to share, so I am not in a position to do so.

What there will be is an ongoing process of Tim Jones looking at delivery projections, devising plans for delivery, ensuring that timescales are met and, in due course, revising those timescales and plans to meet managerial issues that normally arise in the development of a project of this kind. Throughout that process, on the basis of consensus, I am very happy that either hon. Member can engage with PADA. Indeed, I know Tim Jones and Paul Myners would welcome that degree of interest from our leading politicians who have shared the process of creating PADA and personal accounts. I hope that provides sufficient reassurance. I fear I cannot go further than that. I hope he can withdraw his amendment but that is a matter for him.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions 1:30 pm, 31st January 2008

I am not sure that takes me a lot further. Let me explain why. Yes, we have already had some discussions with Tim Jones and Paul Myners and have every intention, as do they, of continuing those discussions. It is sensible from both their points of view, as well as ours, that in a massive undertaking like this, which in anyone’s view is going to straddle another general election, the Government and the official Opposition should both be in the loop about what is going on. I was not suggesting that Mr. Jones is going to produce a report of the sort that might be put in the Library of the House of Commons.

However, unless he is doing the review on the back of a fag packet, I assume that he is going to produce some internal conclusions and I assume that he is going to share them with Minister, perhaps just in the form of a two page letter. Even a one-paragraph letter that says, “Not on your life mate, there is no way we can deliver this by 2012, you’ll be lucky to get it by 2015”, would be worrying enough. All I am saying is that the Minister should share that with us as part of the consensus process. Unless the minister can give us that undertaking, I will seek to press this to a division. I do not know if that finds favour with the Liberals as well, but that is my intention. Clearly nobody has a review without coming up with some conclusions, and the results of the review ought to be shared with us. We ought to know anything that the Minister knows.

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

I am not unhappy that the hon. Member for Eastbourne should know broadly what is going on. I cannot understand quite why he thinks that he is not going to be told the conclusions by Tim Jones. We have ongoing project management. There will be things on paper that Tim Jones works to and there will be plans and proposals that he will have negotiated with the board. I do not know of any reason why he should not share those with the hon. Gentleman. The best approach would be for him to go and talk to Tim Jones about how best he would want to do that. I am not prepared to take it any further than that. There is no wish on our part to be other than appropriately commercially confidential. I have no great problem with sharing basic commercial issues with either the hon. Member for Eastbourne or the hon. Member for Inverness, Nairn, Badenoch and Strathspey providing that they are kept confidential. I have made that clear and I think that that should be enough. It is a matter for him whether he wishes to press it to a vote.

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

I do not want to labour the point—there may be a feeling that I already have—but I have one final thought. I entirely take the point about commercially sensitive information; there is no way that I want or need to have access to that stuff, nor I suspect does the hon. Member for Inverness, Nairn, Badenoch and Strathspey. If the result of the review is a conclusion by Tim Jones, whose judgment and experience I totally respect, that this cannot be delivered on time, I want to know almost as soon as the Minister knows. That is what it boils down to and that is probably why we will have a division on the amendment.

The Committee divided: Ayes 3, Noes 8.

Division number 2 Nimrod Review — Statement — Clause 50

Aye: 3 MPs

No: 8 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

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

I beg to move amendment No. 157, in clause 50, page 24, line 13, at end insert—

‘( ) A scheme established under this section shall not be subject to the requirements to obtain audited accounts and an auditor’s statement about contributions under regulations made pursuant to section 41 of the Pensions Act 1995.

( ) The Secretary of State may make regulations requiring that the trustees of a scheme established under this section—

(a) make a declaration regarding the scheme systems and controls, and

(b) appoint a reporting accountant to review the scheme’s systems and controls and obtain a statement from such reporting accounting about their design and operation.’.

I hope this will not be as controversial an amendment, but it may take a while to explain it and in the course of explaining it, even I may begin to understand some of the finer points behind it. It is a bit tech-y, but here goes.

I take absolutely no credit for this, it is entirely sponsored and put forward by the Institute of Chartered Accountants in England and Wales, a body this Committee should hesitate to argue with on these matters. Amendment 157 seeks to set out exactly what kind of independent scrutiny the Government intends to have for the personal accounts scheme. We can all agree there has to be independent scrutiny and the non-accountants among us might assume that should just mean an annual audit of the traditional kind, which will ensure that the millions of new members in the scheme get their proper entitlement, that the contributions are correctly accounted for and broadly that the administration and financial probity of the whole thing is as it should be. The Institute of Chartered Accountants tells me it is

“very concerned that a national scheme such as the personal accounts scheme cannot be audited within the rules applying to occupational pension schemes” and that the scheme should instead be required to have what it calls

“a controls-based assurance review.”

I hope no-one intervenes to ask me what that is, but I hope I will be able to give a clue later on. I understand there has been some contact with officials on the technical aspects.

Mr. O'Brienindicated assent.

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

The Minister nods, so it may be that he could put me out of my misery now by popping up to say that he accepts the amendment. Let me just explain for the benefit of the Committee and those outside what is behind this.

As I understand it, if we do not have something like amendment 157 the assumption will be that the audit requirements of existing pensions legislation will apply to the personal accounts system. It is not a subject that has been keeping me awake at night, but on the face of it, that appears sensible; apparently it is not. It is partly because personal accounts will be such a different animal from traditional pension schemes, not only because of the order of magnitude but for all sorts of other reasons.

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

It might assist the hon. Gentleman to know that we are still looking at the proposals we have had from the institute. We want to ensure that the method of dealing with the accounts is the best that can be achieved. It is true that this scheme will be of a different scale and type from other schemes and therefore we need to look at the particular scheme. We do not need primary legislation to disapply the provisions of the Pensions Act 1995, we can amend these as necessary either by regulations under section 41 of that Act or under clause 106 of this Bill. I understand his point and we are still considering this, but we wish to look at what is a complex issue in more detail before taking a final decision on it.

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

I am grateful for that indication and although I will go into a bit more detail, I will go into considerably less detail than I might otherwise have done. There will be people out there who will be totally tantalised until the end of time as to what I was coming  to say. Although the Minister’s intervention was partially helpful, and I accept—I think the institute accepts—that it is perfectly possible to deal with this point by regulation, the institute wants a clear idea of where the Minister is going on this. I share that concern.

I will touch upon the main points of concern to the Institute. In a traditional audit of possibly one million employers—of which many thousands will be small employers—often with very mixed and different record-keeping systems and so forth, all the contribution records of all those employers would need to be checked so that an auditor could give an opinion. This is vastly time consuming and vastly expensive. The ICAEW says it is firmly of the view that it would be impractical and that the enormous cost would be of little benefit to the members who would have to bear it. The basic point it is making is that there is a confusion between an audit and an overall check on all internal systems and controls. What would be meaningful for savers and personal accounts would be to call for a third party to check that the administration is conducted properly. It calls this assurance engagement, which looks at all the internal controls—operational as well as financial.

There is a precedent apparently. According to the institute, following the introduction of internal controls requirements under the 2004 Act—who could forget it?—a number of institutions that work for pensions schemes, trustees in managing scheme administration, scheme investments and custody have adopted this controls-based approach. It says that it would be cost-effective, and will provide the appropriate comfort to job holders and savers. I think the institute has a very good point. Moreover, having a provision whereby this is reported to Parliament, perhaps annually, also makes a lot of sense.

I accept the Minister’s point that this could, and perhaps should, be dealt with by regulation. But the institute could not be clearer in its own conclusions and who am I—or indeed, who is the Minister?—to argue with that expert view? I therefore press the Minister to perhaps be a little less coy about telling us and, in particular, the institute where his thinking is going on this and how he intends to deal with it.

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

Clause 50 enables the Secretary of State to establish the fact that this scheme is a trust which, like all trust-based schemes, will be run in the interest of its members. The Institute of Chartered Accountants in England and Wales has raised this particular issue with my officials; I am grateful to them for the help that they have given.

The amendment seeks to change the way in which the Pensions Act 1995 applies to the personal accounts scheme. It is based on the premise that the requirement for an auditor’s statement about contributions would be costly and difficult to compile due to the sheer numbers of employers participating in the scheme. We acknowledge that this is complicated by the fact that the employers in the scheme are likely to be small employers who may not necessarily employ an accountant. An auditor may not be satisfied that contributions have been paid properly and would therefore only be able to compile qualified accounts, which would not be of much benefit to the members.

The principle of proper accounting is paramount and all equivalent schemes should be subject to the  same, or effectively the same, level of scrutiny and transparency. That is an important point. As part of having confidence in personal accounts we need to ensure that we do not have a situation where either the accounts are unduly qualified or, alternatively, a system of accounts which raises questions about personal accounts.

The institute has a point in terms of its view, but as yet, we are not necessarily convinced that its approach is one that we can sign up to wholeheartedly. There may well be other options that we wish to examine before reaching a final conclusion. I have been assured that officials are looking at this issue with care. They have not yet reached a final conclusion, but it is safe to say that they have considerable sympathy with the concerns of the ICAEW and they are to let me have advice in due course about whether the approach favoured by the ICAEW, or an alternative approach for dealing with the problem they have identified, would be the best way forward. We could then deal with that through regulations. I hope that with that reassurance the hon. Member will be able to withdraw his amendment.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions 1:45 pm, 31st January 2008

I am grateful to the Minister for reassuring me. He has put my mind—and, I hope, the institute’s—at rest to the extent that this is being looked at very carefully. There is considerable sympathy for the proposal, but also an underlying acceptance that we cannot just work on the basis of the existing audit requirements and that there has to be a solution. This is one of perhaps two possibilities. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 50 ordered to stand part of the Bill.