This interesting group of amendments raises some subtly different issues. Amendment No. 61 continues on from the previous debate and would insert into schedule 1, where it says,
“The trustee corporation may make charges in connection with the exercise of its functions”,
an obligation on such a body requiring it to make charges. That is sensible in terms of bringing revenue into the trustee corporation.
Amendment No. 43 relates to clause 62 and I will return to it in more detail later. It is a probing amendment that would insert a provision to the effect that the annual management charge should be
“no more than 0.3 per cent. per annum.”
Amendment No. 52 sweeps up a lot of what was debated under the previous two groups. The amendment would make it clear that all costs incurred by the authority in establishing the pension scheme under clause 50 of the Bill
“shall be recouped through charges to members over a period of five years from 2012.”
I shall deal with this matter first in some detail. Debate has raged for the past hour or so about what “long term” means. The Minister is adamant that the scheme is intended to be self-funding in the long term, but we would be much more comfortable with the expression “medium term”. I am the first to admit that one cannot be absolutely clear-cut at this stage, but we need some idea, in very broad terms, of the Minister’s thinking.
In amendment No. 52, I have plumped for a period of five years up to 2012. That might be over-optimistic or about right. However, it is important that rather than just having vague ministerial assurances that the scheme shall be self-funding in the long term, we have some idea about the time scale in which PADA and the board are meant to get themselves into equilibrium in respect of their costs and charging.
Even if we cannot resolve the matter today, it has to be resolved fairly soon. I have already mentioned the PADA consultation on the charging structure, which says that it will reach a conclusion, following that consultation, by July. As the Minister has already conceded, that would make little sense if it did not also have a fairly clear idea by then about the likely costs that it will have to recoup. It will be interesting to see where we are going on the percentage charge, as well as on the form of the charge. However, as I have already argued, it could knock for six straight away the option of a one-off joining fee for lucky first-time members joining in the first wave, as it were, which may be wholly unrealistic in terms of the recovery of the total costs over the long term that the Minister keeps talking about.
Although I do not want to press amendment No. 52 to a Division, I am still pressing the Minister hard, as we did with the last group of amendments, about what the Government have in mind. I do not mean any ill will to the Minister’s career prospects, but by the time this is all hammered out, the Minister will certainly be long gone. He will probably be doing something much more exciting; he might even be in opposition—who knows? However, we must have a clear idea of what current Ministers consider should be the period over which the scheme washes its face.
Amendment No. 43 draws attention to the level of charges, which is an important point of principle. Without wishing to go back too much into the mists of time, a fundamental principle of the Turner report—the report of the Pensions Commission—was that personal accounts should be a low-cost vehicle for people who are not presently saving for their retirement. The dynamic in that principle is that the low cost should be delivered by what Lord Turner calls an advice-free model. There will be an opportunity later to discuss the sort of advice available. As we have heard, Otto Thoresen and his group are labouring long and hard to come up with an answer on so-called generic advice. It remains a fundamental policy objective of both the Pensions Commission and the Government that the charges are kept as low as possible.
Interestingly, the latest briefing of the Association of British Insurers says:
“The ABI is pleased to see that the Conservatives propose to debate scheme charges, via their amendments to Clause 62. We understand the amendment is probing in its nature, and intended to stimulate debate around scheme costs...The key principle guiding all decisions the Government takes on Personal Accounts must be that all costs incurred in establishing and running must be recouped from scheme members through charges as they are in any other occupational pension model”—
I made that point in the previous debate. The ABI states further that Tim Jones, the new chief executive of PADA,
“is already on record as having noted that a 0.3 per cent. Annual Management Charge...is too ambitious, and AMC of 0.5 per cent. or higher is likely to be more realistic.”
It would be interesting to hear the Minister’s thoughts on such matters and to find out whether he is still hoping for a 0.3 per cent. figure.
The ABI touches on the consultation on the charging structure and states:
“The ABI has already publicly announced that a hybrid charging model, probably constituting an AMC and another charging structure will be the only way that scheme costs, especially set-up costs, can be adequately managed...It is vital now, that the Government provides public reassurances that all up front set up costs incurred ahead of 2012 are paid for at commercial rates, by scheme members and not from public funds. That includes the large additional resource that will need to be allocated to The Pensions Regulator.”
It is also worth touching on one or two pieces of oral and written evidence that we have had before us. Which? said that it
“believes a low-cost scheme with a target Annual Management Charge...of 0.3 per cent. per year is the most appropriate charging structure because it is simple to understand, comparable with other forms of saving, fair for low earners and will maximise participation in the scheme.”
Mr. Haddrill of the ABI said:
“Talking to PADA recently, I think that it is coming to the view that this 0.3 mantra is the one that is going to be delivered”— that might be a misprint. He continued:
“We always felt that it would be closer to 0.5 or 0.6. The numbers will come out when the numbers come out”.
Mr. Haddrill has a philosophical approach to life. He continued:
“but from our experience of running these things that is where we think it will end up.”——[Official Report, Pensions Public Bill Committee, 15 January 2008; c. 37, Q52.]
It will be fascinating to hear the Minister’s thinking on that and what he is being told by Mr. Jones, as he conducts his review of which we heard something the other day.
In its written evidence, the CBI said:
“keeping management charges as low as possible is essential and unnecessary complexity will drive up costs. Prohibiting inward transfers is an important measure to contain costs, enabling PADA to achieve an annual management charge for personal accounts scheme members that is close to the Turner Commission target of 30 basis points (0.3 per cent. AMC).”
Finally, when giving evidence, the Minister for Pensions Reform said:
“We have been clear in saying that we believe we can get the costs of running the scheme down to 0.3 per cent., although I made it clear in my evidence to the Select Committee that it may well be 0.5 per cent., at least initially. We think that we can keep the costs low and that the costs of setting up the scheme could be met primarily from the private sector.”——[Official Report, Pensions Public Bill Committee, 17 January 2008; c. 113, Q138.]
I am not quite sure what he meant by that. Perhaps the Under-Secretary will enlighten us and comment on the suggestion that the charge may be 0.5 per cent. initially, but might come down later, presumably as matters balance out. Does he think that it is sensible or logical to have a percentage charge that will change over time?
These are all probing amendments, so I do not want to worry the Minister too much. However, they all raise some important issues of principle.