The amendments all aim to achieve the same thing, so I apologise if there is a certain amount of confusing duplication involved. We intend that either or both of those bodies—if either, preferably PADA—should, within 12 months of the passing of the Act, and at other times in the future as directed by the Secretary of State, publish a report analysing the impact of the new scheme, which is set up under clause 50. It should examine rates of take-up, persistency and contributions to the scheme, and set out appropriate options for managing the financial risks associated with different outcomes. We also suggest that the authority should obtain independent actuarial advice and publish that at the same time. This is all to do with having the maximum transparency as we head to the starting point of personal accounts, hopefully in 2012.
It will probably be convenient if I deal now with the broader general issues and hopefully obviate a stand part debate, as is common practice these days. It is interesting that in only the past few days, the delivery authority has published its consultation on a possible charging structure. It set out four options: first, an annual management charge when members pay a fixed proportion of the funds under management each year; secondly, a contribution charge when members pay a fixed proportion of each contribution that they make into personal accounts; thirdly, a joining charge—a one-off, up-front fee on joining the scheme—which might be fraught with problems; and, fourthly, a combination of a lower contribution charge with an AMC. I am sure that responses to the consultation will be flooding in. It runs until 22 April, which is a generous period, and the delivery authority will publish its responses to it by 15 July.
While it is important to set out the options for how the charges will be structured, it is impossible at this stage for those running PADA to have an idea of the size of the charges, and I shall come to that in more detail later. In its brief on the amendment, AEGON states:
“In setting the charges to be applied to personal accounts, the Delivery Authority will need to make a set of assumptions around take-up, persistency and contribution levels for the new scheme”,
hence the thrust of the amendments. It goes on:
“Unlike a group personal pension or a trust-based scheme backed by an employer, there is nobody ‘standing behind’ the scheme, so the questions arise as to how any shortfall in revenues will be covered.”
That brings us neatly on to public subsidy and the so-called level playing field.
So far, the Government have been insistent that the scheme will not require public subsidy. I dug out the comments of the Minister for Pensions Reform when he gave evidence to the Committee on 17 January. When I asked him about public subsidy, he replied:
“In terms of public subsidy, our aim is that personal accounts should operate in the same way as most other pension schemes. They would not have a level of public subsidy which would be unacceptable. Indeed, it is the role of the members to pay for the operation of that pension scheme.”
When talking about getting the costs down to 0.3 per cent., he said:
“I made it clear in my evidence to the Select Committee that it may well be 0.5 per cent., at least initially.”
When referring to the budget for PADA, the Minister drew attention to the £21 million for 2007-08, for which we voted during the passage of the Pensions Act 2007, and said:
“We will look at what costs PADA will need in the future, and it has an ability to raise funds if it needs to do so...I want to make sure that once we get beyond that and into the personal accounts board and having an NDPB running a pensions scheme, we will have an organisation that is primarily self-funding.”——[Official Report, Pensions Public Bill Committee, 17 January 2008; c. 113-14, Q138-39.]
We agree. However, obviously the costs are clicking up already. In answer to a written question that I tabled the other day, the Minister said that expenditure on consultancy advice about implementing the personal accounts system had amounted to £6.6 million up to the end of October. Will the Under-Secretary update that figure? A great deal of money has been, and is being, spent. It would be interesting to know how much of the £21 million originally voted for PADA has already been spoken for.
The Government’s policy is clear: the scheme must be self-funded. That means no hidden subsidies, no sweetheart deals, no low-interest loans and so on. We will come on to the specifics later on. The brief from AEGON continues:
“But in the absence of such subsidy, the only recourse would be to borrow potentially large amounts of money. In the absence of other income streams or a sponsoring employer,” which clearly this scheme will not have,
“this borrowing could only be funded by increasing charges to scheme members.”
It touches on the possibility that
“charges may rise in the future”,
and that calls into question one or two of the options, especially the joining fee set out in PADA’s recent document about its charging structure.
Amendment No. 65 would place a duty on the trustee corporation and PADA to publish a report that examines the issues in detail and sets out how different scenarios for take-up, persistency and contributions will be managed. In short, it would give the Secretary of State a power to require updates from the authority. That would enable a new Secretary of State in an incoming Government—hopefully a Conservative one—to ask for further actuarial analysis ahead of the expected, although by no means certain, go-live date of 2012.
The proposed reporting duty falls some way short of that required of trustees of a defined benefit scheme, as set out in the Pensions Act 2004. However, it goes beyond that required of a normal defined contribution or money purchase scheme. In view of the strong public interest about the new system of personal accounts, and the potentially massive importance of it to many millions of people, the approach strikes the right sort of balance.
I shall set out one other important issue, which was again raised by AEGON. In welcoming the consultation announcement about the charging structure, it said:
“it is encouraging to see a clear acceptance that a flat annual management charge is not the obvious starting point.”
That point is worth making. AEGON also said that it was
“puzzled as to why PADA believes there are commercial sensitivities over publishing its financial modelling.”
I take the opportunity to note that the consultation on charging structures has been financed by PADA. It would be helpful to have the Under-Secretary’s input and to hear his thoughts on the four options, on why PADA cannot publish its financial modelling, and on how difficult it is at this stage for it to have financial modelling, given that it is very difficult to predict the actual costs so early in the game. On that basis, I commend the amendment to the Committee.