With this it will be convenient to discuss the following amendments: No. 161, in clause 62, page 29, line 5, after ‘participation’, insert ‘amongst appropriate eligible employees’.
No. 162, in clause 62, page 29, line 5, leave out ‘qualifying schemes’ and insert ‘a scheme established under section 50’.
No. 106, in clause 62, page 29, line 6, at end insert
‘among those on low incomes and who are not currently saving enough for retirement’.
No. 46, in clause 62, page 29, line 18, at end insert—
‘(g) the best interests of prospective members in the period prior to 2012 are served;
(h) the level of savings shall be increased as well as the number of existing savers, and that in general better retirement incomes are achieved.’.
No. 108, in clause 62, page 29, line 18, at end insert—
‘(g) the Authority acts in the best interests of prospective members in the period prior to 2012’.
No. 109, in clause 62, page 29, line 18, at end insert—
‘(h) the Authority achieves delivery of a simple system of personal accounts’.
It is a pleasure to see you in the Chair, Mrs. Anderson.
I should like to continue our discussion on the Personal Accounts Delivery Authority. Clause 61 concentrates on its functions and clause 62 deals with the broad principles under which it should operate. The group of amendments has two aims. Through some of the amendments, we seek to clarify and set out important principles in the Bill. In others, we seek to specify the area in which PADA should operate. It is clear from our debate on clause 61 that we believe that some aspects of the Bill set PADA’s remit too wide, so it is important to set down the clear principles and priorities.
Amendment No. 160 would add to the principles under which PADA should operate. It should have an overriding duty to act in the best interests of members and future members of the scheme. It has a clear job to do and a set time period in which to do it. It should be clear right from the start that its prime purpose is to act in the best interests of members and future members. There is a great danger, given the different relationships among the Pensions Regulator, the Secretary of State and occupational pensions, that PADA could lose focus. Our amendment would prevent that.
Amendment No. 161 also addresses the purpose of PADA and what it should seek to do. Everyone accepts that it will not be appropriate for every eligible person to sign up to a personal pensions scheme. It is vitally important that only those for whom personal accounts are appropriate are signed up. We do not want PADA to go out and try to sign up all and sundry. We know that there is a huge pool of people who currently do not have an occupational pension scheme, and they might well be the target market. Once we have established that, we have to start looking at who is appropriately eligible to be signed up.
It might be a case of simply saying that anyone who earns within a certain range would be appropriate, but this comes down to the debate that I am sure we will have once the Thoresen report is published about what is the appropriate generic advice and information that is provided, and even, as the hon. Member for Eastbourne said this morning, whether the guidance is appropriate. We need to be sure that there is a target market, and we should aim it at the appropriate employees.
Amendment No. 162 would ensure that qualifying schemes—those that PADA will have responsibility for setting up—would fit within clause 50. The use of broad language and talk about qualifying schemes is part of the unfocused thinking that pervades certain aspects of the Bill. We are talking about personal accounts and schemes for people who do not have occupational pension schemes, and we need to define tightly what those qualifying schemes should be. The best way to do that is to use clause 50, which sets out clear parameters for the scheme, if it is to come within the criteria. PADA has a very short life and an awful lot to do, and we believe that some of its remit is too wide. It needs to concentrate on its core objective, and if that is to set up PAs, the Bill should say so.
Amendment No. 106 would insert who the target market is into the set of principles by which PADA operates. That is important. We want to send out clear messages that it is not meant to compete with or replace occupational pension schemes, and that it is for people on low incomes and those who are not saving enough for retirement. This goes back to a discussion on an earlier amendment.
The Equality and Human Rights Commission gives clear figures in its briefing on who should be in the target market. It says that women are under-represented among employees earning more than £33,000, and over-represented among employees earning less than £5,000. Some 43 per cent. of female employees earn between £5,000 and £15,000, and disabled employees are also over-represented in that earning group. Those people are in the target market that we want PADA to concentrate on. This is about ensuring that PADA provides appropriate advice and guidance and that those people are signed up. If there is too much of a blunderbuss approach, the authority will lose some of its effectiveness. Taken with the Minister’s earlier assurance that there will be a review of how people on benefits or low incomes will be affected by various changes, we believe that amending the principles to set out how the measures should operate will send a clear message to people who might sign up to the scheme, and to PADA and the wider market, that this is what PAs are about.
With amendment No. 108, we are saying that PADA should act in the best interests of prospective members. We have talked about the importance of existing members and people who might sign up in the period leading up to PADA completing its work.
Amendment No. 109 also concerns a principle, so we are not talking about an operational matter. We are not prescribing how PADA should deliver its functions, but saying what its principles are. The first principle I stated was that it should protect the interests of prospective employees and scheme members. The second is that it should deliver a simple system of PAs. We want to ensure that we protect the interests of those signing up, and we want PADA to ensure that its products are for those who are most eligible and, predominantly, on low incomes and in certain sectors. Furthermore, the system provided to them must be simple to operate and understand.
We believe that our amendments would strengthen this clause by setting out some very clear principles to which PADA should adhere during the time span. I believe that they are neither unreasonable nor unworkable, nor that we would be saddling PADA with something that it could not deliver. We are trying to ensure that everybody is very clear about what personal accounts are for, who they are for, and how they will be delivered.
Welcome back to our deliberations, Mrs. Anderson.
This and subsequent groups of amendments are very important, so we must give them the attention that they deserve. I am grateful to the hon. Member for Rochdale for setting out his stall, as it were, on his amendments so carefully and clearly. We are totally as one with him on the need to limit PADA’s scope. As I said earlier, it is not that we have got it in for PADA. We simply take on board entirely the mantra of its chief executive, Tim Jones, about keeping it simple. The less that PADA has to worry about, the better, which is why we want to ensure that in achieving its prime objective of delivering personal accounts to the target market on time, in 2012, at the least possible cost and with the greatest efficiency, it is bound very carefully on how it operates and the principles that inform its activities.
We agree with some of the amendments in the group, but not with others. We do not agree with amendment No. 160 because we think that it would put the concept of a series of principles out of balance. The particular principle proposed in the amendment should not be an overriding one. It is important to establish a group of clear, easily-understood principles, none of which are contradictory. Many of the principles flow from Turner, the Government’s White Paper, and some of the debates on amendments that I proposed to the Bill that became the Pensions Act 2007. We need to get the principles absolutely right.
We are quite taken with amendments Nos. 161 and 106, which are both concerned about, and focused on, the target group, which has to be the sensible approach of the Bill. Mission creep, as it has been called, must be resisted at all costs. The Bill is all about getting cheap, easy-to-understand pension cover and savings to the several million people who are not saving anything, or anything like enough.
I think that I can see where the hon. Member for Rochdale is coming from with amendment No. 162, which would make clear which schemes fall under clause 50. That is broadly the right approach. I wonder whether amendment No. 108 is in conflict with some of the other principles or objectives, but amendment No. 109 is right on the money. Again, simplicity has to be the theme throughout this part of the Bill, so we are very much in favour of that amendment.
I shall spend a little longer on our amendment No. 46, which would insert two principles into the list in clause 62, even though it is important that that list it is not too long. The first principle is that
“the best interests of prospective members in the period prior to 2012 are served”,
which ties in with an amendment proposed by the hon. Member for Rochdale. The second principle is also important. Given that it has not been touched on in the debate so far, allow me to spend a couple of minutes explaining what we mean by
“the levels of saving shall be increased as well as the number of existing savers, and that in general better retirement incomes are achieved”.
The latter part of the provision is almost a direct quote from one of the Pensions Policy Institute’s excellent papers on the likely effects of personal accounts, which also examined the so-called at-risk groups.
Although the Minister for Pensions Reform was slightly evasive when I quizzed him during our evidence sessions, I am sure that both he and the Under-Secretary would agree with the proposition that if personal accounts do not deliver more savings overall, as well as more savers, they will have failed. If the Under-Secretary takes great umbrage at that statement, he can always intervene. It is almost inevitable that the system will produce more savers simply by dint of the process of auto-enrolment. Whether that is 4 million or 5 million, or 7 million, 8 million or 9 million, is, to some extent, in the lap of the gods, but there is no doubt that there will be more savers. Issues such as the persistency of the savers are matters that whoever is in government at the time will have to grapple with.
It is worth reminding the Committee that it could be possible, as is demonstrated by one of the PPI’s pessimistic scenarios, for the number of personal accounts to go from zero to a substantial amount, yet for the overall amount of pension savings in the country to fall. Even if they were to stay the same, but be distributed among more people, that would be a failure for personal accounts. We must guard against that.
The second part of the provision states:
“in general better retirement incomes are achieved.”
That goes back to the issue of levelling down. It is important that people do not come out of defined benefit schemes in which, as we know, the average employer contribution is 16 per cent., into personal accounts in which the employer contribution is much less: 3 per cent. It is vital that we retain a Berlin wall between existing provision and personal accounts, which is why personal accounts will not have been a success if they do not deliver generally better retirement incomes than people had heretofore.
In stark terms, for the great majority of people, that means no retirement income versus that delivered by personal accounts. That must be the result of the project and it is why we tabled amendment No. 46. I shall spend less time on proposed new paragraph (g) in the amendment because such matters have been dealt with under another amendment tabled by the hon. Member for Rochdale. I do not need to repeat his arguments, which I support entirely.
It is important that the criteria for the success and failure of personal accounts are clear in the Bill and well understood by Paul Myners, Tim Jones and all those who will be working hard to deliver on personal accounts by operating PADA and functioning under the Bill. I shall be interested to know whether the Minister disagrees with how I have defined the success or failure of personal accounts.
I am delighted to welcome you to the Chair this afternoon, Mrs. Anderson. I am sorry that I was absent last week, but I was not too well. However, I am much better now.
I share the concern of my hon. Friend the Member for Eastbourne about some of the amendments tabled by the hon. Member for Rochdale, but I want to take a slightly different approach from him to the matter of an overriding duty to work in the best interests of members and how far the remit of PADA actually runs. I have sympathy with the view that, if we are asking through the scheme that there should not be a levelling down from existing occupational schemes and that people already enrolled in existing schemes should be encouraged to stay in them, surely PADA’s remit needs to be slightly more widely drawn than that suggested by my hon. Friend. However, the hon. Gentleman is on to something by talking about an overriding duty to work in the best interests of members.
PADA is an extraordinary beast. It is a completely new and unique concept, yet it will be giving information and guidance to people. As we discovered at the evidence-taking session in the Boothroyd Room, there will be a lot of media comment about whether a personal account is good or bad for a lot of individual people on low incomes. Given the way in which that publicity will be dealt with and how people will receive and react to it, we cannot see this issue in isolation from what is happening in the pensions market and in the financial services industry in general.
One of the overriding principles that the Financial Services Authority has introduced into financial services regulation in the last couple of years is the principle of treating customers fairly. That is in vogue at the present time and all finance institutions are struggling to come to terms with what it actually means—it is a nice easy statement. Treating customers fairly applies to companies and finance institutions, including many of the pension companies that are offering group personal pension schemes. We know that there as an issue about whether those can be regarded as suitable for auto-enrolment and meeting the European Union directive on distant selling, and the way in which that will be cleared up. To add the principle of an overriding duty to work in the best interests of scheme members, or something similar, would help. It would help the authority and, in the long run, it would provide some comfort to the many millions of people who are going to join the personal account scheme in the years to come.
Today, and even in the next three or four months as the Bill progresses through both Houses, we cannot envisage where all of this will end up. If we were dealing with a charity, there would be clear charity law with similar implications. If we were dealing with an organisation such as an insurance company, for the purposes of financial service regulation, there would be something of this nature in the principles under which it was regulated. It seems that my hon. Friend the Member for Eastbourne and the hon. Member for Rochdale are both on to something with these amendments regarding an overriding duty to work in the best interests of the members of the scheme. This is the only that opportunity we have, as the Bill progresses, to put this measure, or something similar, in the Bill.
There is one other way in which the Minister might consider dealing with the same point, which is to say something similar in clause 63, which relates to the directions and guidance that are given to PADA on how it carries out its duties. This is an important principle that we should grasp. It should be incorporated in the Bill at some point, if not today, as a clear duty of the authority.
Let me add my welcome to you, Mrs. Anderson.
Clause 62—the principles—is an important part of the Bill, and these amendments have sparked an interesting debate. I agree with the aspirations expressed by those who have spoken in support of them. As many have said, they go to the heart of our ambitions for these reforms: more people saving for retirement; more people contributing more and for longer; and, ultimately, higher incomes in retirement. That is all underpinned by the establishment of a simple low-cost scheme focused on those currently without workplace provision.
Although I can sympathise with the aspirations behind the amendments, I suggest that they are not the right way forward. I am not necessarily in disagreement with the points on which hon. Members seek reassurance, but I am not sure that the amendments are the means by which to get there.
I will try to explain why, while taking the amendments in groups. Amendments Nos. 46, 108 and 160 seek to ensure that the authority acts in the best interests of future members of the personal account scheme. We must not lose sight of the fact that the authority is designing and setting up the scheme as an integral part of our ambitions for the reforms. While the interests of prospective members of the scheme are important, we must ensure that the authority has regard to other matters that are important to the success of reforms—including the impact on employers and on the broader pensions industry.
Therefore, I do not agree that there should be one overriding principle, as has been suggested. It is imperative that the authority gets the balance right among the needs of the personal accounts scheme and its members, the overall impact on employers, and the impact on the broader pension industry, including members and prospective members of other qualifying pension schemes. It is only by achieving that balance that we will successfully achieve all the core objectives of the reforms. I agree that the interests of future members are of central importance, but it is not necessary to add a specific principle to achieve that, and that could run the risk of unbalancing other important objectives in the way I have just described. The current principles have been drafted to ensure that the authority takes account of those matters that will be important to prospective members of the scheme.
Does not the Minister think that having regard to other schemes, and the relationship between other schemes, is the responsibility of the Pensions Regulator, not PADA? PADA was created to set up personal accounts. Regulating the whole market is the responsibility of the Pensions Regulator, not PADA.
No, I would not agree. We must think about this while PADA does its setting-up work. PADA is commissioned to design the system that, in the end, the trustee operates and the regulator regulates. In designing that system, PADA must have mind to the principles and ensure that nothing is done at the design stage that would conflict with the ultimate objectives. Therefore it is right and proper that it has regard to those issues.
That is why we have principles covering the need to encourage and facilitate participation, to minimise costs, to take account of members’ preferences in making decisions about investment choice, and to respect diversity. The interests of future members are already at the forefront of the authority’s thinking. It has established a consumer representative committee to provide expert advice on a range of consumer matters related to the personal accounts scheme, such as the charge structure, the investment principles of the personal accounts scheme and, ultimately, the scheme rules. The authority is also in the process of setting up an extensive customer insight and research programme to ensure there is thorough testing of relevant processes by those who are likely to be scheme members.
Finally, may I remind members of the Committee that once the scheme is operating, the trustees who run it will be required to act in the best interests of members and beneficiaries? Clearly, when designing the scheme, it is essential that the authority keeps that in mind.
The hon. Member for Eastbourne revisited the debate about trading down, and the issue of whether we are looking for not only more savers, but more saving. That is inextricably part of the levelling down argument. I would encourage him to recall what Lord Turner said during the evidence-taking session. On that issue, I can tell the hon. Gentleman that if all other aspects of the design of the measure are as we hope, and that therefore up to 7 million people who have not saved before save, it is highly probably that there will be more net saving and not simply more savers.
The measures will limit the extent of levelling down through the provisions on nil transfers in and out of the scheme and the income brackets to which that applies. There will be an opportunity to revisit that in 2017 in the light of experience. I call that the fifth-term review, and perhaps the hon. Gentleman will understand why. Let us consider Lord Turner’s evidence and the private schemes that have a large body of members who work in highly respected companies. There is no evidence to suggest that large schemes such as those will engage in substantial levelling down. Their employer contributions are probably way above the 3 per cent. level, so it will not be in their recruitment or retention interests to engage in levelling down, and our consultations in these early stages have given us no reason whatever to believe that they would do so. Given that, and looking at the potential scale and impact of the number of people participating in the schemes, we will have a substantial amount of levelling up—people will go from zero to having a significant pension.
Of course the objective is to see more people saving. That is relatively easily achieved through auto-enrolment and the other criteria, but one would expect to see more saving, given the reassurances that we have given on previous clauses on levelling down.
We are clearly setting out what we mean by the success of the scheme in the measures that we are debating. The principles and primary intention of those is perfectly obvious. In the first instance, more people must save, because the whole purpose of the measures is to close the gap in pension provision, which is what we asked Lord Turner to look into. That is the central objective: we want more people to save so that they have higher incomes in retirement and so deal with the issues that we asked Lord Turner to address. In addition, given the other dimensions of the reform that we are introducing and the other safeguards, and bearing in mind the principle in subsection (2)(c), we expect to see more people saving. Whether that happens depends on the success at launch stage and how many people come in.
This is reminiscent of this morning when the hon. Gentleman asked for similar assurances. I cannot give them at this stage because the design is not in place and recruitment has not begun. However, I expect there to be more savings as well as more savers.
The hon. Members who spoke to amendments Nos. 106, 161 and 162 explained that they would ensure the personal accounts are properly aimed at, and are promoted to, the target group. I have no problem with that ambition, but the Bill will achieve it. We are clear that the personal account scheme should focus on the target group of moderate to low earners who currently do not have access to good-quality workplace pension provision. We believe that the combined effect of our package of proposals will achieve that. That package includes, as I said in respect of the earlier group of amendments, the prohibition on transfers, the limit on contributions into the personal accounts scheme and the simple qualifying test.
The principles have a key role to play. Clause 62(2)(a) to which the amendments relate requires the authority to consider the encouragement and facilitation of participation in all qualifying schemes. That means that the authority will have to think very carefully before doing anything that discourages the worker or employer from using a scheme other than a personal accounts scheme. The point of that is that personal accounts are intended to complement, not undermine, other good quality provision. By narrowing the scope of that principle, the amendment would have the opposite effect to that which is intended. The authority would be required to have less regard to participation in other qualifying schemes, making it less likely that it would remain focused on its target market.
In addition, it is clear that the authority is already focused on its target market. When the chief executive, Tim Jones, appeared before the Committee, he spoke about the gap in the current pension provisions market. Hon. Members might recall him saying that
“the market correctly recognises that it is a very difficult sector to address because of the very large number of small employers and the costs of approaching it”.
He put the authority’s role beyond doubt, saying:
“It is our job to address that target market.”——[Official Report, Pensions Public Bill Committee, 15 January 2008; c. 17, Q2121.]
It could not have been put more clearly than that.
The scheme will be a success in meeting the needs of the target group, who will typically have less experience of financial products, only if it is kept simple. I again find myself agreeing with the sentiments expressed in amendment No. 109, that the personal accounts system should be as simple as possible. However, I draw the Committee’s attention to what the impact assessment says on this issue on page 71. It explains that one of the key drivers of these reforms is simplicity. It says that the
“scheme must simplify the decisions people are asked to make about their retirement provision and provide an easy way to save”.
Stakeholders feel very strongly about the need for simplicity as a means of focusing on the target group. That came across loud and clear throughout the oral evidence sessions. Paul Myners underlined the point in those sessions when he said:
“Keeping it simple is critical to the successful delivery of personal accounts. Every further bell or whistle that is added to the scheme will have to be paid out of people’s retirement income.”——[Official Report, Pensions Public Bill Committee, 15 January 2008; c. 8, Q33.]
The phrase “keep it simple” that I am using does not appear in the Bill, but I believe that the principles in clause 62 communicate that message. They require the authority to take account of a range of matters that will guide it towards designing and building a scheme that is simple and is focused on the target group.
Finally, I suggest that the final part of amendment No. 46 is entirely in line with the intent of our reforms. As I said earlier, those are intended to increase the level of savings and savers to achieve better retirement incomes. To achieve that ambition, we need to harness and build on what is good now, including the very many good quality pension schemes that are available today. Our reforms will have a positive impact on private pensions saving in the UK with more individuals saving for more pension contributions. I do not believe that that needs to be expressed as a distinct principle in its own right because it is part of the rationale that runs throughout the Bill.
I hope that I have reassured hon. Members during this important debate that the ambitions behind the amendments are entirely fair, but that there is no need to amplify, amend or extend the statement of principles that is in the Bill. In the light of that, I hope that the hon. Member for Rochdale will withdraw the amendment.
I am grateful to the Minister for his explanation. I believe that it is important, when dealing with principles, that we have discussions like this. Some of the issues that we raised were not clear in the principles in the clause, but I am happy to accept his assurance that they will be there in practice once PADA is in operation. I beg to ask leave to withdraw the amendment.
‘(4) The Secretary of State shall collect and publish appropriate data annually, and will consult with industry, to measure the extent to which the Authority has achieved these principles in carrying out its functions.
(5) The Secretary of State shall by regulation identify the data and targets to be used for this purpose.’.
We are still unpacking the clause and, sadly, we will be doing so for some time yet. Going back to the first part of the clause; instead of a slightly diluted obligation on the authority that it must have regard for the principles set out in subsection (2), we are trying to tighten that up significantly, by saying that it must comply with the principles at all times. There has been a debate about what those principles should or should not be, but we think that there is no earthly point in putting them in the Bill unless the authority is under an obligation to comply with them. That is the purpose of the amendment.
I have already made the point once or twice that we want to send the PADA off into the world with a clear set of orders. It is going on a voyage, and those voyage orders must cover exactly what it has to do, with no diversions or lack of focus on what it is supposed to be up to. I think that Paul Myners and Tim Jones will appreciate that clarity in their mission.
As long as we have established a set of principles—no doubt we will return to the debate about what they should be at another stage of the Bill’s progress—I do not believe that there is any internal conflict between them. As I have said before, I think that they flow from Turner, the White Paper and debates on previous legislation. I do not think that there is any inherent conflict between the different principles or those that the Opposition parties would have liked to put in the Bill. However, there is no point in them being there, unless it is clear that the authority must comply with them. If it does not, it can be called to account by this House as to why not.
Amendment No. 48 is a slightly different matter. After the sub-clause about the authority’s obligation to engage in discussion with public authorities, it imposes two further obligations. One is on the Secretary of State, to collect and publish data annually, and to consult with the industry, to measure the extent to which the authority has achieved those principles in carrying out its functions. The second is that the data and targets involved should be set out in regulation for that purpose. Again, that is not trying to make life unduly difficult for PADA, or for Ministers, but trying to ensure that putting the principles in the Bill is not merely a load of pious aspirations. I hope that in the offices of the chairman and chief executive the principles will be up on the wall somewhere in a prominent position; I shall certainly look for them when we visit their lodgings in due course.
On amendment No. 38, I hope that PADA will realise that the principles are a firm obligation on it to comply with. I hope that the officials will recite them every morning, and ask themselves to what extent they have complied with them. I also hope that they will be aware of the obligation, if we can put it in the Bill, that the data will be looked at regularly and that their performance will be judged against both the principles and the data; there will be targets.
We talk blithely about x million people who may or may not auto-enrol. We talk about how many of those will persist beyond the first two or three pay packets. We talk about the levelling down of existing provisions. We talk about all those things in a vacuum. However, it is essential that these things are monitored very carefully indeed, and that that data is made available so that we can all judge the extent to which PADA has been meeting its targets and operating according to the principles set out in the Bill.
I assure the Committee that if this bunch of Ministers are not prepared to sit on PADA’s shoulders to require that data and to demand a performance-based approach, Conservative Ministers will do so.
It would be nice if amity broke out and the Minister could see the point of accepting the amendments, otherwise he will have to explain to the Committee why he wants a group of principles to be set out in the Bill without a mechanism for ensuring that they must be complied with and for measuring whether they have done so. Those are my primary arguments for the amendment and I hope that the Minister will see the sense of them.
The Minister explained why the principles set out in clause 2 are important and what they will deliver. If they are as important as he says I do not see why there should be any problem in insisting that they are complied with. I agree that if there is a set of principles and PADA is given a set of functions, there must be a performance management structure to measure how far it succeeds in delivering what has been set. Publishing targets and recording performance, as proposed in amendment No. 48, is an important part of the process.
Given the enormity of the task that PADA faces, the fact that it is going into uncharted territory means that toughening at this point is to be encouraged. We can have arguments or discussions about the principles, but once they have been set in the Bill they should—not may—be complied with and performance should be measured. The amendments would allow us to do that and I hope that the Minister will accept them. At the end of the day, it is a sure way of making certain that PADA delivers the task it has been set.
Putting the principles in the Bill shows our commitment to them and provides assurance that the delivery of the reforms will remain focused on these aims, but the principles are not objectives. The intention is not that each of these principles should be achieved in its own right, rather that they must together underpin the authority's day-to-day work and be considered as a whole. Indeed, the very nature of the principles means that they will, at times, require a resolution of possibly competing priorities.
No single principle will necessarily determine the choices the authority makes. It may need to make judgments across the set of principles to reach decisions that provide the best solution to a particular challenge. For instance, when designing the collection mechanism for the personal accounts scheme, the authority will need to find a solution that takes account of a number of factors, in particular how this system might affect employers, whether it will facilitate participation, and how it might affect membership costs. There will not necessarily be one answer that ticks all those boxes, nor one principle that is the sole guide, but the authority will have to consider all of them together, in balance, in reaching a conclusion about how to solve a problem.
Similarly, in making decisions on investment fund choices, the authority will need to balance certain principles. It will need to take account of members' preferences for fund choices and also consider the effect on membership costs so that the provision of investment choices does not get in the way of our aim for a low cost scheme.
We have deliberately chosen to use the phrase “have regard to” because it recognises the balances to be struck between the principles and the need to judge in the round. It also recognises that there will be important and complicated judgments to make. Asking the authority to comply with all the principles at the same time, as amendment No. 38 would do, is simply not practical. It does not allow for the need to consider and strike a balance between them.
On amendment No. 48, I would like to make it clear that, while the principles are not intended to be measurable objectives, there are a number of ways in which the authority will show how it is considering them. Internally, the board of the authority will regularly review how, during the course of its business, it is taking account of the principles. Through its annual report, the authority will provide detail on the delivery and performance of its business. This will include information on how the principles have been considered during the year. Furthermore, the decisions and recommendations that the authority will make, in light of the principles, will be reflected in the scheme design. That will be subject to the oversight of the Secretary of State, and Parliament, through scrutiny of the detail of the scheme order, which will be set out in secondary legislation.
I have explained that the principles are designed to reflect the Government’s ambitions for these reforms. I would also like to assure the Committee that, as with all such reforms, we will be evaluating their impact. We are currently developing plans for an evaluation strategy that will monitor and assess the extent to which our aims have been met. The results will allow us to understand progress towards our aims, including the role that the authority and other key stakeholders are playing in this process.
The Department has an extensive ongoing research and data collection programme which will inform the evidence base for that evaluation. And we are actively engaging with external stakeholders to help improve this evidence base: identifying the key questions that need answering, the key evidence gaps and how best these can be filled. The authority will have an important role to play in contributing to this process. We plan to put in place arrangements that will allow us to monitor the impact of the reforms from 2012 onwards so that we can identify whether there are any areas for improvement. We would expect to undertake a full evaluation after the reforms have bedded in, and thereafter on a continuous basis. We will, of course, publish the key findings of that evaluation.
Furthermore, we have made a public commitment to review a number of policies set out in this Bill in 2017, and we will need to ensure we have the relevant information and analysis to do that. That report will be published and laid before Parliament. I hope that this has clarified how seriously the Government take our assessment of the achievement of our reforms. I want to assure the Committee that while it is not appropriate to measure the authority’s achievement of the principles, we will put a comprehensive range of measures in place to evaluate the broader policy ambitions that sit behind them.
The hon. Member for Eastbourne asked what was the point of having the principles if there is not an achievement mechanism behind them. It is quite a step in itself to put in the Bill, and therefore into legislation, a set of principles. If the Bill secures parliamentary approval, that will become law. Of course we would expect PADA to have due regard to that as we would not expect it to try to operate outside the law. The principles enshrined in legislation have an important status. They may not be the subject of a daily boardroom chanting exercise, but they will most certainly be enshrined in law. It will be possible for all of us to assess how the authority is doing in respect of those principles. I hope that with those reassurances the hon. Gentleman will withdraw the amendment.
I am not sure how reassured I am. The Minister seems to be saying either that some of these principles are contradictory, or that they have varying importance in relation to each other at different times. Apart from setting out law—which I will return to in a minute—we are supposed to give PADA a clear steer as to how, and under what conditions, to operate. What happens if it complies with one or two of the principles and not with the others in making a particular decision?
When the Minister says that we are making law, he is right—that is the point. That is why it must be clear so that no one can be under any illusions as to their obligations. Precisely because it is in the legislation, someone could challenge a decision or a direction of travel taken by PADA and that is why we must make it crystal clear. With all due respect, what the Minister has been advancing is an argument for not having the principles in the legislation.
I remember great arguments during the passage of the previous Pensions Bill. We tabled an amendment that set out a series of principles that would guide PADA. It was not totally dissimilar to this list—in fact, it was lifted almost word for word from the Government’s White Paper. At the time the Minister, now the Secretary of State, argued against it on the basis that we did not want that sort of thing in the legislation. Clearly the Government have relented, or perhaps they took the view that if they did not table it, we would and the argument would begin all over again.
I am open to the argument that we should not put such matters in the legislation because that is not where principles should be placed, What I am not open to, is the argument that we should put them in the legislation but make it clear that it is a bit pick and mix, and that they could become of more or less importance at any given time depending on what PADA wants to do. That is not appropriate.
May I take the hon. Gentleman back to the exchange that he has just referred to about the evidence given during the previous Bill by my right hon. Friend who is now the Secretary of State? My right hon. Friend did not say, as has been suggested, that we did not want them. Rather, the now Secretary of State said that at that stage it was inappropriate to put the proposed objectives in the Bill because they were still being consulted on. It was not because he did not want them.
I stand corrected. However, they did not end up in the Pensions Act 2007, but here we are trying to put them in this legislation. If we are going to do it, we should go the whole hog.
I was grateful for the Minister’s assurances that this information and data would be collected and published in due course. I have one small query: he said that it would start to be looked at after the legislation had bedded in. I wonder if he could perhaps give us a more technical view about when that first amount of data and analysis is likely to emerge. My suspicion is that it would be soon after 2012, if that is the start date, before certain trends began to emerge. The sooner that the Government—whoever they are—can get on top of those trends, the better to avoid the nightmare scenario where we have more savers and less, certainly not more, savings.
I suspect that the information is likely to begin to become available once we receive the annual report. The first point at which the information starts to emerge would be post 2012.
With this it will be convenient to discuss the following amendments: No. 39, in clause 62, page 29, line 5, leave out ‘qualifying’ and insert ‘occupational and personal pension’.
No. 40, in clause 62, page 29, line 6, at end insert
‘, and the Authority shall at no time seek to provide financial products beyond the scope of personal accounts;’.
No. 67, in clause 62, page 29, line 9, after ‘on’, insert ‘existing’.
No. 42, in clause 62, page 29, line 9, leave out ‘qualifying’ and insert ‘occupational and personal.’.
These amendments, for want of a better expression, could have the theme “existing provision, protection of”. I will talk through what they seek to achieve, and then talk more generally about the existing provision in the usual way, trying to obviate the need for a stand part debate.
Amendment No. 66 would insert the work “existing” and tries to tighten up the wording so that we do everything we can to ensure that personal accounts do not have an impact on good quality, existing schemes. It is useful to take amendments Nos. 39 and 42 together as they would both do much the same thing, again with the idea of tightening up the wording significantly for that same aim.
Amendment No. 40 perhaps needs a little further explanation. My own theory, for what it is worth, is that although it is right to focus the personal accounts for the system of PADA in the current phase leading up to 2012 on the basics of this scheme and try to keep it as simple and cost-free as possible, there will be a temptation—I put it no higher than that—for the people running PADA, once the scheme is up and running, the computers are whirring quietly and efficiently, everything is going fine, money is being collected, investment is being made, everyone is happy and there are more savers and savings, to start thinking, “Well, we could be doing more than just offering a vanilla project and should branch out into pistachio and whatever flavours might be available.”
Therefore, I think that it is important to have a point in the Bill that states, “this is as far as you go, and no further” and that the role of PADA is and ever shall be simply to promote personal accounts in the stripped-down, low-cost, post-Turner version that we are debating at the moment, and that is the point of amendment No. 40. Indeed, if the Minister were unhappy about accepting that amendment, that would set alarm bells ringing on this side of the Committee and perhaps further afield.
Amendment No. 67 basically relates to the same theme of protecting existing provision, which came up quite a bit in the oral evidence that the Committee heard. It was even raised in the evidence of the pension commissioners themselves. One of the commissioners, Jeannie Drake, said:
“Although it is necessary, as set out in the Bill, that one of the principles is that the reforms should not undermine good occupational pension provision, which was always the intention of the Pension Commission’s recommendations, you cannot eliminate all elements of potential levelling down in part.”—[Official Report, Pensions Public Bill Committee, 17 January 2008; c. 103, Q126.]
That was the last part of her comments, but it is certainly useful to have her confirmation that it was uppermost in the minds of the commissioners, when they were deliberated on their report, that that should be countered in due course in the legislation.
The National Association of Pension Funds, in its written evidence, stated:
“We believe that PADA should have clear statutory objectives from the start that should be intrinsically linked to the main functions and ensure that the scheme design and implementation does not have an adverse impact on existing workplace pensions. The Bill should be amended to include an objective to minimise, rather than have regard to, any adverse effects that Personal Accounts may have on existing good quality pension provision.”
That is certainly something that we on this side of the Committee would endorse. Joanne Segars of the NAPF, during an oral evidence session, when asked by the Minister for Pensions Reform how best to target those currently without pension provision, replied:
“One of the ways in which we can make sure that personal accounts are adequately targeted is by ensuring that the Bill is crystal clear on this point. One of the things that we would like to see is an amendment to the Bill that, where we are talking about the Personal Accounts Delivery Authority’s principles, makes it absolutely clear that PADA is focusing personal accounts on those who currently have no pension provision.”—[Official Report, Pensions Public Bill Committee, 15 January 2008; c. 23, Q29.]
The amendments are all designed to tighten the Bill’s wording to make the aims and objectives of PADA abundantly clear—if they were not clear already. They would put no finer point on matters than to say that it was hands-off existing provision, and that PADA was not in the business of competing with existing provision and that its role would be straightforward and focus on the target group, and provide basic low-cost personal accounts that are envisaged in Turner, the White Paper and the Bill.
We have always been clear that the rationale for personal accounts is that they will be targeted specifically at those eligible employees with low to moderate incomes who do not have access to a good, low-cost, workplace pension scheme. Our intention is that personal accounts will fill the gap that we have identified in the pensions market. The authority will design a scheme that is simple, low-cost and focused on the target group that I have described.
The personal accounts scheme is not being introduced to replace or undermine good quality pension provision. Instead, it will introduce an additional pension product into the market that we envisage sitting alongside other schemes in an already successful private market. That is the core ambition of our reforms, and it is the reason why the principles are so drafted under clause 62. Subsection (2)(a) requires the authority to have regard to encouraging and facilitating participation across all qualifying schemes. Subsection (2)(c) requires them to have regard to any adverse effect on the other qualifying pension schemes and members, or future members, of those schemes.
Amendments Nos. 39, 42, 66 and 67 would broaden the scope of the principles to cover pension provision beyond that we have defined as qualifying under clauses 14 to 24 to cover existing occupational and personal pension schemes. That would require the authority, in designing personal accounts, to have regard to all existing schemes not only those that satisfy the qualifying test. It would include schemes that did not meet the minimum standards that we consider important in providing for a reasonable income in retirement. That cannot be right, which is why it is appropriate to use the term “qualifying schemes” in the principles.
The Bill defines the minimum standards for a qualifying scheme. The reference to qualifying schemes in the principles therefore makes it plain to the authority that we want to preserve good quality existing workplace pension provision, much of which, of course, offers greater member benefits than the minimum standard prescribed by the reforms. The authority is alive to, and strongly supportive of, that. In carrying out its functions, the authority will need to engage with the industry—those that are providing existing, good quality provision. Indeed, it is already talking to key stakeholders in the industry. Not only does that help to ensure that the authority understands the concerns that other pension providers might have about the scheme, but it helps it to learn from their expertise in its design and operation.
To reinforce our commitment to such provision, clause 62(3) places a duty on the authority to take steps during the implementation phase to engage in discussion with stakeholders about its functions. The authority is currently developing its consultation programmes, which will allow the industry as well as consumers and employers to contribute to its thinking as it designs the personal accounts scheme. I believe that, as drafted, the principles give us sufficient reassurance that the authority will make reasoned judgments in delivering the personal accounts scheme and, in particular, with regard to the effect on qualifying schemes.
I share the wish of the hon. Member for Eastbourne that the private pensions industry, which is working perfectly well for millions of individuals, is allowed to flourish, and that is why we have shaped our reforms in the way that we have.
Finally, on amendment No. 40, which can now be referred to as the anti-pistachio amendment, the provisions in clause 61(2) task the authority with assisting and advising the Secretary of State in establishing the personal accounts scheme and allow the authority to assist in supporting the delivery of the compliance regime of the new employer duties. This sets the legal remit for the authority. It will have no legal authority to undertake any wider activity, including providing financial products beyond the scope of the personal accounts scheme.
My Department will be holding the authority to that task through our stewardship of its business plans and resources, and Parliament will see the emerging results of its work from the annual report and accounts. There is no intention—or legal authority—for the authority to stray beyond the provision of a trust-based scheme and the associated compliance regime, so it is a vanilla provision. I hope, therefore, that the hon. Gentleman will agree to withdraw his amendment.
There is no ice-cream theme at all running through these amendments, but we are attached to them none the less.
It seemed to us, emboldened by the support of organisations such as the Equality and Human Rights Commission, that these amendments made considerable sense for the way in which the clause is intended to read. The first amendment, to clause 62(2)(e), would mean that instead of the clause stating only that
“the preferences of members and future members should, so far as practicable, be taken into account” it would include the words “and need”. With all the respect in the world to members and future members, their idea of what they prefer may not coincide with what they really need, particularly in pensions, where those two often diverge because people may simply not know what is best for them.
The other amendment, at the end of the clause, would add the words:
“provided this can be done at no disproportionate cost to the scheme overall.”
This is an important issue, it is one of those issues where two perfectly legitimate aspirations are in danger of colliding. We can envisage a situation where the enthusiasts among members—the 4, 5, 6, 7, 8 or 9 million new members—might be all for any number of exotic options, in terms of investment funds.
I hear my hon. Friend saying quite right. I cannot remember the figure, but I think that in Sweden something like 200 or 300 options, at least, are available. I do not want to go back to the ice-cream analogy, but that seems excessive. There is a tension here between choice—consumer preference—and cost. I am delighted to say that the EHRC supports both of the amendments.
I certainly agree with the thrust of my hon. Friend’s argument so far, but the question that strikes me is how will the preferences of members and future members be recognised by PADA? How can they initiate a preference? Is it simply the management of PADA that will decide what the preferences might be? I wonder whether my hon. Friend has any ideas about how the Government will require the management of PADA to implement such a clause. How will those preferences come to bear?
My hon. Friend makes an excellent point. Clearly the needs are a matter of judgment for PADA, which hopefully will be stuffed full of the best expertise that money can buy. However, how will members and future members express their preferences? Perhaps the Minister will help us with this point. Can they just write or e-mail in and say, “I would like an emerging economies-based, eastern Caribbean sugar-based, or gold mine-based fund?” How much weight should be attached to such preferences? There might be just a tiny minority of members with an obsession with Bolivian gold or tin mines who try to get a whole fund based on that. However, it is only fair to address their needs because otherwise it puts a kind of brake on their enthusiasm.
I digress slightly, but one of the saddest cases that ever came to my advice surgery was a constituent who had been very badly injured in a car accident. He had been paid compensation through the legal process and had invested every penny in channel tunnel shares, which was a bizarre decision, given that they became worth a fraction of what he paid for them. Obviously, he had not had any advice—not even generic advice.
I was just talking about the support from EHRC. It says:
“The design of a good quality default fund that meets the needs of the majority of the target market is critical.”
We all know in our heart of hearts that the vast majority of funds, and the vast majority of members, will end up in the default fund because, rather like auto-enrolment, it does not involve any conscious decision.
The EHRC goes on to say:
“We think there is a difference between consumers needs and preferences in that an individual may ‘prefer’ to choose a risk averse fund for their saving...but perhaps as a young person with 40 plus years of pension saving ahead of them may ‘need’ to be in a higher risk fund at the beginning of their saving period in order to get the best returns at the end. The structure of the default scheme must reflect these individual needs.”
That is an important point because an element of risk is important. We seem to be turning into a risk-averse society, but high risks often bring high returns. It goes on to say:
“It is also important to have a degree of consumer choice”—
I would agree with that. It says:
“These choices may be based on an individuals’ religion or belief, or their ethical beliefs. A Sharia compliant fund should be part of the basic choice of funds.”
The Minister might wish to give a personal view on that point, but I think that there almost certainly should be a sharia-based compliant fund. Whether that will work out as a good investment in the long term is another matter.
The statement then refers to research carried out by Which?, which
“suggests that consumers could be confused if a large number of funds are available through personal accounts. We believe that managed choice with a limited number of funds, graded by risk is the best option for consumers. If consumers request other options then we believe in order to keep costs down for everyone, they should be expected to pay a fee, as should those who wish to frequently change funds.”
That raises an interesting issue that I will not dwell on now, but although I have not read the PADA consultation on the structure of charging from end to end, I do not think that it touches on that possibility. If people want to go to exotic funds, or to change funds on a regular basis, perhaps they should pay an additional fee.
I wonder if my hon. Friend spotted the briefing from the TUC, which drew attention to the fact that:
“The UK Pension Protection Fund and ... the French Fonds de Reserve pour les Retraites and the New Zealand Superannuation Fund are also signatories” of the United Nations principles of responsible investment. Those are big national schemes. Does my hon. Friend think that it might be useful to ask the Minister whether that is something that PADA will be following?
I am grateful to my hon. Friend for that point. He speaks with some knowledge on these matters. Yes, I would be interested to hear the Minister’s comments. We will have a debate fairly soon on the UN principles of investment.
Alternatively, there might be people who are desperate to invest in things such as arms manufacturers because they might get a higher return. What I am trying to get at is that choice could be the enemy of simplicity and keeping costs down. I would not like to see scores of different funds, bearing in mind the extra costs involved in people changing funds and having different funds available. The vast majority of people will end up in the default fund in any event.
Again, I am grateful to my hon. Friend for allowing me to press him—and, through him, the Minister—on the implications of the various funds. Depending on how many there are, what will be the reporting requirements on growth? Will we know how much these funds have grown by each year? Will we then be able to assess which have done better and which have done worse? What will be the impact on the owners of the funds? They might wish to swap funds if they could see that their default fund was not performing as well as the new emergent economies fund. Could this eventually lead to some kind of public action when there was disappointment that the default fund, which the majority of people were in, had not performed as well as another fund, which was in the public domain and that some people might feel they were wrongly advised not to join?
My hon. Friend touches on an important and sensitive issue. The more choice there is, the more people may be tempted to go into higher risk funds to get a higher return. However, as the adverts always say, shares can go down as well as up. She will be well aware that one of the debates that is running in parallel to the Bill is about advice. No one is queuing up to give people advice about these investments—certainly not the Government, Governments in waiting, or employers. We thus have to wrestle with this slippery concept of generic advice, whatever that may mean.
It is perfectly possible that people will emerge 10 or 20 years after the setting up of personal accounts saying, “I have not got a very good return. I went into Bolivian tin mines and I have no money left,” or, “I went into the safe old default fund and I might as well have put the money under the mattress.” Those are extremes, but it is a measure of that sort of risk that people are going out of their way to avoid giving advice on this.
What it probably boils down to at the end of the day is a reasonably limited choice. After all, there is nothing to stop people investing for their retirement in ways other than personal accounts and opting out and getting specific advice—or not, as the case may be. They could throw the dice, if that is what they want, get into more traditional pension schemes, or have a self-invested personal pension. Those options are not going to go away as a result of personal accounts. It comes down to a relatively small number of credible, well managed funds giving an element of choice, particularly relating to religious and ethical beliefs, and a very well managed default fund, which I predict will probably end up with at least 90 per cent. of all the invested funds.
“One of the underlying principles behind personal accounts is that they should be simple and costed appropriately for members. While it is desirable that members’ preferences on investment choice are taken into account, where those preferences involve a higher cost than the most popular/mainstream investment choice it is right that these should not raise the cost of membership for all members and that additional costs should be borne by those taking advantage of the costlier option(s).”
Again, that echoes what the CEHR was saying.
The Minister might not feel able to say at this stage, but the question of whether extra charges could be imposed for people with exotic and changeable preferences—at least in their investment life—could feed into consultation on the structure of charging. An element of churning should be discouraged, if at all possible. That is what is behind the amendments. They are designed to be helpful and to try to protect the position of members of personal accounts so that not only their preferences, but their needs, are taken into account, and so that any excess costs generated by numerous choices and changes of funds are not borne by the entire membership, the vast majority of whom will end up, in any event, in the default fund.
With regard to subsection (2)(e), which deals with investment in funds, it is important that we discuss some of the principles on which that will be done. The next amendment that we will consider takes that further, but these two amendments are key. I certainly have no problem with what the hon. Member for Eastbourne is seeking to do because I think that it is fundamental that any investment meets investors’ needs. That presumably means that there will be sufficient growth in the funds to justify the investment.
I believe that it is right and proper that PADA and its successor, the trustees, report on how the funds invested on their members’ behalf are progressing. Equally, it is useful and preferable to take into account different preferences, and I agree with the hon. Gentleman that those will come down to a few based on ethical or religious grounds. If the personal accounts are to have the broad approach that we want, the investment portfolio needs to have that option within it so that a member can see that it does not conflict with their religious beliefs or particular ethical concerns. Those are two important principles that the amendment has allowed us to express so that they are clear in the Bill.
The third principle is that any investment should not necessarily come at disproportionate cost. If I may continue with the ice cream analogy, a friend of mine was encouraged to invest in vanilla growing in Uganda a few years ago. The price that Uganda could obtain was relatively high at the time, so he judged it to be a successful investment. Of course, as soon as he and others pumped their funds into it, the price collapsed and he lost his investment. It is very important to consider that there is an opportunity cost to investment. Such a cost cannot be disproportionate, or the fund will not achieve what it is set out to do: to provide an income in retirement that many people would not otherwise have.
This has been an interesting and helpful debate. As with other trust-based occupational pension schemes, investment-related decisions for personal accounts will be the responsibility of the trustee corporation, which will have a duty to act in members’ best interests—that is established in law, of course. Investment choices will not be a matter for Government.
Prior to the appointment of the scheme’s trustees, the delivery authority will undertake initial work on the scheme’s investment approach and develop a draft statement of investment principles for the trustees’ consideration. The principles that will underpin that and all the authority’s work are set out in clause 62. I am sure that members of the Committee will agree with the sentiments behind the amendments and I hope that they will be reassured to know what the principles are designed to achieve.
Personal accounts will be a success only if they focus on and meet the needs of their target market. That applies not only to investment choice but to all aspects of the scheme's design. It is one reason why we set out the authority's guiding principles in the way we have done; they will run through all that the authority does and reflect the Government's ambition for pension reform.
In developing the personal accounts investment approach, the full range of guiding principles will apply, which will mean the authority having regard to members' preferences and to the other principles, including encouraging participation in qualifying schemes, minimising member charges, and respecting the potential diversity of members and future members. The hon. Member for Bromsgrove asked how the preferences are established and I can tell her that PADA will soon begin the consultation process with the public to establish more information on that subject.
I am grateful to the Minister for letting me know how the preferences will be established. There may also an argument for having only one fund and saying that those members who do not like the principles on which the fund is being invested can be transferred to another scheme offering the investments that they want. That would be simple, it would not add to the cost and there would be great clarity about the way forward.
I do not agree with the hon. Lady, who usually speaks in favour of more choice, but in this case seems not to want any. Although it is not for the Government to anticipate the investment preferences of individuals coming into these schemes, we know at this stage as a matter of general understanding rather than anything specific that some groups will want certain criteria in their investments. If we were to say that those criteria cannot be met because there is only one fund, it would result in a lot of extra people opting out and possibly having nowhere else to go to achieve the investment for their pension that we want them to have.
To maximise the opportunities of people staying in this scheme and deriving its benefits, it needs to be able to meet at least a minimum range of choices and discretionary options that individuals may have in respect of minimum requirements for their pension fund but we do not expect a large number. The hon. Lady may recall Tim Jones, saying in evidence to the Committee on 15 January that he envisaged a number of funds, perhaps going into double figures. He quoted quite small double figures and certainly ruled out the notion of 50, 100 or anything like that. That is his expectation and we can probably go with that.
A consideration of members' needs will therefore already be embedded in the authority's work to prepare the scheme’s investment strategy. For example, research has shown that the way in which investment choice is structured can make a significant difference to participation in pension savings. While some investors like to have fund choice, too much choice could lead to confusion and higher rates of opting-out amongst others. That is exactly the type of issue the delivery authority will need to consider when developing the scheme's investment approach and thinking about how best to encourage and facilitate participation.
These principles reflect our intention that the personal accounts scheme should be a low-cost scheme, which is necessary to maximise the returns on members' savings; it is particularly important if the scheme is to meet the needs of those for whom it is being created. Therefore, the cost of the proposed approach to investments will be fundamental to the authority's deliberations.
The hon. Member for Eastbourne and the hon. Lady asked about scheme hopping, which would be an issue if members were jumping from one fund to another on a regular basis. However, that is not likely, given that this is a default option for people who do not want complication in their pension investment but just the reassurance that there is a long-term, low-cost investment that will give them a better income in retirement. People understand that pension investment is long term investment and are not likely to be jumping regularly between funds. More sophisticated investors operating on discretionary margins would tend to do that more than core investors.
The hon. Member for Eastbourne asked whether PADA is considering in its consultation the charging implications if people jumped funds. It is examining such matters and he will find reference to them on page 218 of the consultation document. I hope that my assurances are sufficient to encourage Opposition Members to withdraw their amendment.
I agree with the Minister. The debate has been interesting and useful. We should not be getting ahead of ourselves because ultimately more clever investment managers than us will be sorting out the matter. However, it has been helpful to have had some of the issues out in the open air and to have had a look at them. On that basis, I beg to ask leave to withdraw the amendment.
The amendments would add a new paragraph (g) to subsection (2). The hon. Member for Carmarthen, West and South Pembrokeshire and I are seeking to achieve similar outcomes. I shall begin by explaining what the amendment would do and then say what it would not do, because there is some confusion within the Department for Work and Pensions about that. I shall explain its positive advantages and how it will meet the Government’s wider agenda and the benefits for long-term investment for those members for whom we want personal accounts to be successful.
We want to put into an investment strategy through the UN principles some cognisance of environment, social and governance principles when investments are being made. We do not want to dictate the total strategy. The Department for Work and Pensions has said that it is not for the Government to set the investment strategy. On 11 June 2007, when discussing the then Pensions Bill, Lord McKenzie of Luton said that
“it is not appropriate to commit the authority to follow a specific objective”.—[Official Report, House of Lords, 11 June 2007; Vol. 692, c. 1532.]
I do not believe that the inclusion of the amendment would tie PADA and the trustees to a particular range of investment paths or to a particular strategy. The UN principles are voluntary and aspirational. They are regarded as a tool kit by which fund managers can measure the investment that is made. I hope that the Minister will not repeat what has been said by his Department. The amendment does not seek to dictate what should be invested, where and when.
Taking on board our earlier discussion, it is clearly important that the needs of members are paramount. My example of investment in vanilla in Uganda is appropriate. It may be good for the farmers in Uganda to invest in growing vanilla, but if there was no economic return from that particular investment, it clearly does not do any good to the personal accounts of members. The UN principles do not prescribe that we always have to go down a particular route. They are aspirational.
With regard to the benefits of the Government’s wider agenda, it is clearly important that the Government’s key goals and aims are somehow demonstrated through this sort of investment and others in every piece of legislation we introduce.
The Government have got a clear strategy on tackling climate change. One might ask what that has to do with investment. Clearly, when talking about environmental investment there are positive ways in which investment in certain schemes, through an ethical funding mechanism that the UN principles suggest, can be successful. Information that was provided in relation to pensions suggests that Insight Investment, working with UK house builders, improved the sustainability of the houses they were building against WWF criteria from 47 per cent. to 68 per cent. in one year. That is an example of where the Government’s objective on meeting the challenge of climate change runs alongside the Fund’s investment of securing a return. Given that most pension investments are medium to long-term investments, as the Minister said earlier, I put it to him that we clearly need to set a direction on ensuring that some of our wider social and governance objectives are achieved.
Another example of where investment can perhaps support Government policy is the treatment of AIDS in Africa. GlaxoSmithKline has now reduced the cost of the antiretroviral drugs that it has made available in South Africa, but that would not have happened without the Government and investors in GlaxoSmithKline saying that there was a wider, long-term benefit to be achieved, both in getting a return for the company through the sale of the drugs and in meeting some of the Government’s wider objectives, which in this case is ensuring that the treatment of AIDS is dealt with as a matter of priority.
I am interested in the argument that the hon. Gentleman is advancing, but while I see the benefits of some of the examples he has given, I wonder, in the light of his own party’s policy on nuclear energy, for example, whether the guidelines that he is trying to impose on the Minister mean that a company that was investing in nuclear energy would not be the kind of company that would have power to invest in it.
The words that the hon. Lady used illustrate some of the misunderstanding about adhering to UN principles. We are not saying on every occasion, “You must do X because it is ethical”, or whatever. We are saying that it is a set of principles and a toolkit that sets out a broad sense of direction, and it comes back to the point that was made earlier and which I think is fundamental to any decision: a company has got to meet the needs of its members and secure an adequate return.
I happen to believe that investment in nuclear power will prove to be hugely expensive and will not secure the Government’s broader objectives or deliver what might be delivered in the case of electricity. I believe that it will end up being hugely subsidised by the Government because the private investment will not be successful enough to secure the return needed to generate invested.
However, that is a different argument to the one that I am trying to advance, which is that there should be a set of principles on environmental, social and governance issues on the face of the Bill. That does not mean stating what always must be done, as Lord Mackenzie and the statement from the Department for Work and Pensions attempted to say. Rather, they would be a set of principles, and in the long term they would achieve that. If the PPF fund and BT, which has a large pension fund and many commitments, can sign up to the principle, along with—as the hon. Member for Eastbourne said—the main French and New Zealand pension schemes, why cannot we make a similar statement of principle by introducing this scheme to broaden pension savings for the vast majority of people?
It is only a principle, it is not a strategy or diktat about what can be invested in and what cannot, but it sets a clear direction and allows the Government to ensure that their actions are in tune with their broader objectives. I hope that the Minister will support the amendments—they are not mischievous, they do not seek to detract from anything else that is achieved in the Bill, but they set a clear direction for the future that chimes with everything else the Government want to achieve.
I will speak to amendment No. 159 tabled in my name, which, as the hon. Member for Rochdale has indicated, is in line with his amendment. The aim of my amendment is to require the authority to be a responsible investor and to take environmental, social and corporate governance issues into account in its investment decisions.
It is sad that we still need to argue and make the case for ethical investment in terms of its performance, compared to, not mainstream investment perhaps, but other investment. All the evidence shows that mainstream investment occasionally, and sadly all too often, makes serious mistakes. I do not know how many pension funds had invested in Enron or WorldCom or Tyco, but clearly, massive losses were incurred because of serious irregularities in the corporate governance of those companies, in the financial irregularities that led to their collapse and, in certain circumstances, the imprisonment of those company leaders.
That could perhaps have been prevented by those pension funds taking a keen interest in the corporate governance of those companies. I note that the Investment Management Association published a guide to ethical and socially responsible investment funds. With regard to the performance of ethical funds, its advice to consumers states
“you don’t have to sacrifice investment performance when investing ethically”.
Last year, an ethical fund managed by Co-operative Investments was the best-performing fund in the UK all-company sector. Investing ethically and taking environmental, social and corporate governance issues into account, does not mean that there will be a bad return—far from it. First, it gives protection in terms of corporate governance issues. The example of vanilla-growing in Uganda may have been environmentally and socially very good, but perhaps the problem was a lack of corporate governance. Quality performance does not have to be sacrificed when making ethical investments. All the companies that have been invested in and that have high-quality leadership, actively consider environmental and social issues and protect and enhance shareholder values. That is what we all want to happen particularly, as I mentioned earlier, with the default fund.
The earlier debate about how many other funds there are was interesting, but let us be honest: the vast majority of the investment that will be made by the contributors to the personal accounts will go into a default fund. They are not going to say, “I want my money to be invested in this particular area.” There will be a substantial amount of funds going into that default fund, so the authority and the trustees are going to become a significant investor in the economy. Their decisions will send a clear message to British companies, and other companies outside this country, about what is expected of them; setting an example, as the hon. Member for Rochdale said, in relation to climate change or human rights, and generally sustainable development. It is likely that other UK asset owners and other pension fund managers will follow suit and we will get a mainstreaming of ethical investment happening. That would be welcomed by both sides of the Committee, particularly the Government because of their commitment to sustainable development and investment in the long term, not just in the UK, but in Africa and the developing world.
I would hope that, as the hon. Member for Rochdale has said, we are not being prescriptive here; we are saying that the authority must have regard to ethical investment principles. That way, we will get investor protection and good performance for this fund.
We have had an interesting debate on this important subject. I am grateful to the hon. Member for Rochdale and my hon. Friend the Member for Carmarthen, West and South Pembrokeshire for contributing constructively in the way that they have. I reassure them straight away that, to use the phrase of the hon. Member for Rochdale, I certainly do not regard the amendments as in any way mischievous—these are important issues.
Investment-related decisions in trust-based occupational pension schemes are the legal responsibility of the trustees, who must act and are bound by law to act in the best interests of their members. However, prior to the appointment of the personal accounts scheme trustees, the delivery authority will undertake consultation and research in developing the scheme’s investment approach and draft an initial statement of investment principles for the trustees’ consideration.
Amendment No. 110 would require the authority to adhere to the UN principles for responsible investment in making its investment recommendations to the scheme’s trustees. Amendment No. 159 is similar, but would extend in general terms to international best practice. In practice, the amendments would have little effect as they relate to the authority, which does not have responsibility for investment-related decisions and therefore can only make recommendations to personal accounts trustees. If we were minded to place that kind of requirement on the scheme, this would not be the place to achieve it.
I appreciate that there is an increasing interest in the importance of responsible or ethical or sustainable investment—it has various adjectives—but I do not think that the Government should intervene in decisions on how people’s pension savings should be invested. That is a matter for their choice and a matter for the expert, independent trustees to decide. It is a decision for which they should be responsible and accountable. There is movement in the direction that the hon. Gentlemen wish; I understand that there are currently 21 UK investment managers signed up to the UN principles, but it is up to the managers at the trust level to take on board those principles, not for PADA.
Legislation already requires trustees to state the extent to which, if any, social, environmental and ethical considerations have been taken into account, when preparing and reviewing their statement of investment principles. That requirement will also apply to the personal accounts scheme, but it is not right to go any further than that. We are already setting the personal accounts scheme a significant challenge: to provide effective and low-cost pension saving to millions of people who do not have that opportunity at the moment. We should not restrict its hand any further in how it goes about doing that.
However, I can assure the Committee that the authority and the trustees of the personal accounts scheme will consider the best interests and preferences of members and future members, and take account of appropriate best practice when carrying out their investment duties. Hon. Members speaking in support of the amendments may be reassured to know that both Ministers from the Department and staff from the delivery authority have had meetings and discussions with the UK Social Investment Forum on exactly the matters indicated by hon. Members. Therefore, with what I hope that they would regard as reassurances, on what is an important issue—
I am grateful to the Minister for giving way just before his conclusion. From what we have heard in the evidence sessions and again today, there seems to be a commitment to a sharia fund. The Minister may correct me if I am wrong on that.
I and other members of the Committee would be reassured if at least one of the funds on offer complied with the UN principles and general environmental, social and corporate governance principles. If the Minister is able to give some comfort on that, it would be useful.
With respect, that is not for me to decide. As I said in response to an earlier debate, PADA is about to begin a considerable consultation process with potential scheme members and the public, on their preferences. It must do so, in honour of one of the principles that we have just debated. A strong desire may emerge from that process to have a fund similar to that which the hon. Gentleman described, but the Government cannot be prescriptive about that.
We may hope and expect that certain types of fund will emerge, but it is not for me or for only us in this room to say that. We have to have regard to what the members who will go into the schemes may want. Yes, we have an indicated an expectation that there will be a sharia-based account, for the obvious reason that we can clearly identify one group of people, many of whom may be coming into the scheme, with very specific religious requirements for their investments. Therefore, one could easily anticipate that.
Demand for a specifically ethical or sustainably-based fund may also emerge, but I cannot anticipate, recommend or call for that. We can only speculate about what type of funds there may be. Again, we need to bear in mind the general expectation of keeping the costs, the system and the choices simple. We do not expect there to be too many funds for people to choose from.
We all understand the point about the sharia funds and the religious obligation and feelings of those potential investors. However, we live in a diverse society. Many clergymen and ministers, for example, may also feel strongly that the dictates of their Christian faith would cause them serious problems with being auto-enrolled into a scheme not compliant with the UN principles, or not having the option to do that.
The Minister is flagging up that there is likely to be a sharia scheme, but he cannot go any further in committing on any other scheme. I am a little uneasy, because that seems to acknowledge the genuine and legitimate needs of one section of constituents, but perhaps to ignore the needs of a considerable amount of others.
I do not think that that is the case. I take what the hon. Gentleman is saying, but to try to reassure him and my hon. Friend the Member for Carmarthen, West and South Pembrokeshire, let me draw their attention to one of the principles in clause 62(2)(f). We have had hardly any debate about it, but it is an important additional principle. It calls on the authority to have regard, among the principles it is considering, to diversity among members and future members of such a scheme, and for that diversity to be respected. It does not specify who or which categories should constitute that diversity . It is a catch-all call to respect diversity, given that that is enshrined in the principle. I think that that captures the point that he is making and places an obligation on PADA to think about those aspects when it is designing the scheme.
I completely understand the reasons why Members who have spoken in support of these amendments want to see that happen. We will all have personal views on our individual investment preferences and our own ethical judgments about what is acceptable and what is not, but the Government will not do this. As I have tried to argue, PADA is not the right vehicle to be assigned to this undertaking, either the UN one or a more general one. That in the end comes down to the trustees managing the schemes. I hope that the hon. Gentleman will accept those reassurances and agree to withdraw his amendment.
There were three points in the Minister’s remarks. The first relates to subsection (2)(f) and diversity, and that is very much a diversion. It is certainly not what the two amendments were about. We understand that there may be a sharia fund and various other funds that deal with particular religious issues that respect the diversity of the UK. However, I do not accept that some of the points that we were making are necessarily covered by that provision.
Secondly, the Minister said that he did not believe that PADA was the appropriate body to be covered by an amendment that says that when policies are drawn up, notice should be taken of the UN principles. I have to disagree with him. Between now and 2012, PADA will be the authority that will draw up the whole basis on which personal accounts are to be administered. In 2012, or slightly later, the trustees will take over. However, right at the beginning, surely it should be possible to express a commitment to a set of UN principles. I have laboured the point all along that this is not about prescribing investment strategies or where things should be put. We are laying down a set of principles.
I come from Rochdale and the co-op principles on which the modern co-operative movement was set up were written by people from Rochdale. They are very clear. A number of statements set out what the co-op in Toad lane wanted to achieve when it was set up in 1848. I believe that, in setting up PADA, a clear set of principles about how we are going to invest should be laid down right at the beginning. I cannot see why the Minister is reluctant to do that. This is an important issue. We have argued that it is possible to invest with principles and make money. If the Pension Protection Fund can sign up to that, and if New Zealand and France can also sign up to that, I cannot see why we cannot.
We are Parliament and we are setting a direction. We can tell the trustees and PADA what we want to achieve. This is all about doing certain things. It is about ensuring that people save more and that they have a better pension when they retire, but it also should be about saying that while we are about doing our business and investing this money, we will look to certain principles that we believe are right and proper. I keep saying that they are only principles, not diktats, but they are very clear. As the Minister has not given us any assurance that something along these lines will be introduced later, it is important that we have a vote on the amendment.
May I urge my hon. Friend the Minister to look at the amendments? There is genuine feeling about them, particularly bearing in mind the experience of similar funds throughout the world that do not appear to have a problem with signing up to the principles. Perhaps we could reconsider the matter and return to it on Report.
Colleagues on both sides of the House feel strongly about including the principles. I do not think that they will have a detrimental effect. They will have a positive effect, particularly on the default fund. As the hon. Gentleman rightly points out, paragraph (f) refers to diversity. Perhaps those who want a far riskier option could request that a separate fund be set up for them, but for the vast majority of people who want sustainable development and a decent pension that has been responsibly invested in for the long term, I am sure that we can find a way of including the principles in the Bill. I ask the Minister to reconsider the amendment and perhaps to come back to it on Report.
I was not intending to take part in this debate. First, I pay tribute to the hon. Members who tabled the amendments. They discussed them in a measured way, and the diversion into the history of the co-op movement was fascinating as well. I do not know whether either amendment will be pressed to a Division, but I do not think that my party is minded to support them. However, we support the underlying principle. There will almost inevitably be a sharia-based fund—I do not think that it would be possible not to have one, and I am not saying that there should not be one; I think that there should be one—and I agree with my hon. Friend the Member for South-West Bedfordshire that there has to be something equivalent for people with broadly Christian or other ethical views.
Ministers, and certainly PADA, should take away from this debate the Committee’s strong feeling that such an option should be included in some shape or form. I am not sure that either of the amendments is quite right, partly for the reasons that the Minister set out. We will not support either of them in a Division, but we support the principle and would like to hear more about it, perhaps at a later stage of the Bill’s passage.
I urge caution on hon. Members who might be inclined to press the amendment to a Division, although I understand entirely the motives for raising the issue and I do not have much in the way of personal disagreement with anything that they have said.
Let me first say that I will convey what has been said to PADA—rightly so—so that it can take it on board. PADA is thinking about the investment principles and working on them, and it is right that it should hear what this Committee has said on the subject. However, it will also want to think about the potential implications of putting into legislation what the hon. Member for Rochdale seeks, and I would certainly urge it to do so.
Although all of us in this room can perhaps almost instinctively sign up to the notion of such an investment, we should be careful about speaking for everyone and potentially proscribing funds that might emerge or form part of the whole suite on offer. We might have a set of ethical views, but it will be important for others to be in the scheme and to have these funds. They may not share our views, and they are entitled not to. We must not do anything that could proscribe them from investing in something that they want to invest in, just because we do not feel comfortable about it.
I urge the Committee not to cross the important line between thinking about the principles that relate to the architecture of the scheme and ensuring that it delivers its fundamental objectives of including people and giving them a decent income in retirement, and moving into an argument about the values for such a scheme. I want to be cautious about that, although I am fully in sympathy with the UN objectives. Although I might wish to adhere to them myself, I would rather transfer the debate to PADA and ask it to reflect on the principles as well as on the implications of what could be done. That would be the right place to give further thought to such matters.
Bearing in mind what has been said, does my hon. Friend think that, by the time that we discuss the Bill on Report, PADA will have reached such a point in its deliberations that he will be able to inform the House in a way that would be helpful to all hon. Members and give them the reassurance that the majority of members of the Committee clearly need?
My hon. Friend is helpful. I cannot give him an absolute reassurance now because I have not had the opportunity to discuss with PADA the stage that it has reached. However, I hope that it will be of assistance if I give him an undertaking that we shall collect a view on the subject in time for when the Bill is discussed on Report, which hopefully will inform further deliberation. It is reasonable for me to obtain such information for him.
Given what I have just said, my other reassurances and the fact that I respect greatly the arguments advanced by members of the Committee, as well as having personal sympathy with them and regard for the wider issues at stake, I ask the hon. Member for Rochdale not to press the amendment to a Division. We can then pursue such matters with PADA, which is the appropriate body to reflect on what has been said.
I am grateful to the hon. Member for South Ribble for his intervention. The Minister’s statement was reassuring. I am happy that details of our debate will be passed to PADA and that, by the time that we discuss the Bill on Report, we shall have information on its particular line. I must say that if we do not receive such reassurances on Report, I will table a further amendment, because we feel strongly about the issue, which I am sure the Minister appreciates from our debate. I beg to ask leave to withdraw the amendment.
‘(g) clear and robust information and generic advice should be available to members and future members of the scheme’.
The amendment moves our discussion on a stage further to the heart of last week’s debate, to which I have no doubt we shall return. The Minister knows that, regardless of what the Thoresen report may conclude—presumably by the time that we debate the Bill on Report—the Liberal Democrats have made clear all along their serious concerns about ensuring that the appropriate people sign up for personal accounts and that they receive the right advice.
The amendment would ensure that there was another particular principle in the delivery authority’s targets: to make sure that clear and robust information and generic advice are made available to all future members of the scheme. The Minister knows from our earlier discussions that we are concerned about such matters. I am aware of the differences between such advice and information, but nevertheless I believe that, for the target group that we are discussing, we will have clear advice and—given what the hon. Member for Eastbourne said earlier—probably guidance. We do not want to see people signed up for the scheme when they should be paying off their debts and would be better off doing so. I accept that it is not for PADA to provide that type of advice, as bodies such as Citizens Advice already give such information. Nevertheless, the availability of clear and robust information and generic advice should be a clear principle for PADA, and I hope that the Minister will accept this amendment as a clear principle.
I just want to pin down what the hon. Gentleman means by “clear and robust”. Is he crossing the line into advocating specific advice? It seems to me that the only distinction worth debating is that between generic and specific advice. All the weight of opinion is that no one is going to be in the business of giving anything but generic advice. That was the view of the Thoresen review, and that is what we will hear about in March—I think that that was the latest indication. I wish the Thoresen review well with that.
However, as I understand it, nobody but nobody is volunteering to give specific advice, by which I mean giving a particular individual, on the basis of their own circumstances, advice on whether or not they should be auto-enrolled. Is the hon. Gentleman suggesting that such advice should be given?
Certainly not. I do not want to see the type of individual advice that adds to costs and that does not necessarily deliver. By “clear and robust”, I mean advice that is simple, that is easy to understand by the target audience, that is not over-complicated, and that will stand the test of time. Obviously, circumstances will change, but in terms of robustness, the advice must point in certain directions. What are the advantages of signing up to this particular pension scheme? What will someone achieve by doing so?
Therefore, when I am talking about “clear” advice, the advice must say, “If you do this, you will get that,” always accepting the caveats about pension schemes. However, the advice must not mislead, or be over-generous about what the benefits of a scheme might be. Also, it must not be too underwhelming. It must be very clear for people in these circumstances, who may be on the margins and for whom it is debateable whether they should go into the scheme or not. It must be clear about what the advantages are for the target group.
By “it”, does the hon. Gentleman mean a leaflet, a website, or something else? I am interested in how he thinks that he can ensure that the target group will read this information and take it on board.
Also, Ministers used to say, “Put in a pound and you get two pounds back.” I think that we have broken them from that habit because that was fundamentally misleading, and we would not want anyone to sue Ministers or the Government, would we? However, does the hon. Gentleman have some idea about giving people an idea of what their return is likely to be? If so, how would he manage that, given all the evidence that we have about at-risk groups in the target group?
The hon. Gentleman raises two issues, the first of which is where people get the advice. There will need to be a mix of sources from which advice can be obtained. Some people will need to talk to someone, but they might only be a tiny minority—I am thinking about people with special needs, for example. There are particular circumstances in which although the advice might be generic to a particular group, that type of advice will not just be available in a leaflet. There are other people who would be quite happy looking at a website. With many pension schemes, people are now able to put in figures and see what the returns are suggested for various options.
The clear point is not, “You put in one pound and get two,” but that there is a range of possibilities based on how the market may perform. If that sort of advice is given, people will be able to make their own decisions. The problem in the past was that the advice was too black and white. The advice must be robust, by which I mean that it must stand up to the test of time. It must be clear and not over-complicated. It must be understood, although I accept that that is a difficult issue. It must be generic to different groups because there are different types of people with different needs.
Perhaps I am pre-empting what Thoresen will say, but, nevertheless, our reason for raising this matter now is that my party has all along made clear its concerns about having appropriate advice and ensuring that only the appropriate groups are signed up for personal accounts so that they are not used as a vehicle for mopping up people for whom there might be a better option. That is a difficult circle to square, and no doubt we will see what Thoresen has to say, but the purpose of the amendment is to flag up some of our concerns about how this whole issue will be dealt with. We believe that it will be fundamental to the success of the scheme and its successful implementation.
As we have already discussed, we place the highest importance on the information strategy that will be put in place to support this reform. Clause 8 recognises that individuals will need access to relevant and accurate information about the effect of the new employers’ duties in relation to them. The clause requires regulations to set out what that information should include.
The amendment would create an additional principle for PADA: to ensure that clear and robust information and generic financial advice is made available to members and future members of the scheme. I listened carefully to what the hon. Member for Rochdale thought that he meant by robust. There was a lot of content, but it was not altogether clear. I think that he can see that when we dig into the word, it brings a lot of complexities with it.
The amendment is unnecessary because the existing principles are designed with the intention of keeping the interests of future members at the centre of the scheme. It is inconceivable that the authority could do that without providing good and clear information. In addition, the personal accounts scheme, as with other qualifying schemes, will be required to provide a wealth of information on its features, costs and benefits. All occupational schemes are required to provide information to prospective and active members in line with the occupational pension disclosure regulations. Failure to comply with that legislation could incur a penalty charge from the Pensions Regulator.
It is worth reiterating the information that must be provided because this list goes almost all the way, if not the whole way, towards providing what the hon. Gentleman is looking for. The information must provide: the conditions of eligibility; relevant joining processes; how contributions, tax relief and benefits are calculated; arrangements for making any additional contributions; survivor benefits under the scheme; transfer rights within the scheme, when they exist; the period of notice to terminate membership; what benefits are payable under the scheme; an annual illustration of benefits at retirement; and procedures in the event of any dispute.
The authority is well aware of the importance of providing information relating to personal accounts. Indeed, at the evidence-taking sessions we heard Paul Myners, the chair of the authority, say that it
“will be working hard to develop highly effective communication” and that its consumer and employer representative committee
“will be specifically charged with giving us advice on issues relating to communication and the provision of information.”——[Official Report, Pensions Public Bill Committee, 15 January 2008; c. 10, Q6.]
The amendment does not refer just to information. As we have heard, it refers specifically to generic financial advice being made available to members. It might be helpful if I clarify the distinction between the terms as it goes to the heart of what the hon. Gentleman has been saying. Information is not tailored to a specific individual and could be provided in a variety of forms. Generic financial advice is not regulated and does not recommend specific products, but it is, or can be, tailored to individual circumstances. If we accepted the amendment, the authority would need to consider the provision of generic advice to members of the personal accounts scheme. The reforms have been designed so that the decision to remain in a pension is simple, because of the employer contribution. We recognise that some people, but by no means all, may want generic advice when auto-enrolling. A number of existing bodies, such as the Pensions Advisory Service and the citizens advice bureaux, already provide a professional, well trusted and respected generic advice service. The Thoresen review and the Government’s forthcoming action plan on financial capability will assess the need to add to those services that are already available.
There may be a peak in demand around 2012, which is the launch point for this type of service for those automatically enrolled into personal accounts under qualifying schemes. I can reassure the hon. Gentleman that we will work with stakeholders, expert organisations and the authority on how best to ensure that that potential peak demand is met. I therefore hope that he will withdraw the amendment.
Unless I am severely provoked.
Like so many of our amendments, this is a blindingly straightforward statement of the obvious. Regardless of the syntax, clause 62(3) is eminently sensible and no doubt it will cast as wide a net as possible. However, I want to be clear that among those public authorities will be Opposition parties, especially this Opposition party. If one believes the opinion polls—I never do—we might have to implement all this in the run-up to 2012. The Minister made a crack earlier about the fifth-term review, a prospect that is beyond imagining. In any event, whoever is in power, it seems sensible that this should be a long-term project. It has massive implications for millions of our citizens, irrespective of who they vote for, or whether they bother voting at all. Therefore, it is very important that matters proceed on a consensual, cross-party basis. Normal relations have been resumed with Paul Myners and Tim Jones, and I am looking forward to regular and constructive meetings with them, which parallel those with Ministers, just to hear how they are getting on, and especially to hear about Mr. Jones’s famous review, although we do not want to go there again.
It is important to get the principle across, although I do not care whether it is in the Bill as long as the Minister says, “But of course.” If he approaches the amendment with his customary humility, he will realise that the term “Opposition parties” may one day include him.
The amendment comes at an appropriate time, because it gives us a little light relief from what has been a serious debate for a considerable number of hours. I am interested to hear the hon. Member for Eastbourne say that he does not care whether the amendment is made to the Bill, because that is what his amendment calls for, but I shall address his point. To move an amendment and then say that one does not care whether it is included in the Bill, which is what the amendment was called for, is in today’s analogy known as a wafer-thin argument.
During the development of the policy, from the Pension Commission through to the White Papers, we have invited and welcomed to the debate the involvement and contribution of all stakeholders. We have had seminars, consultations and discussions, and as the hon. Gentleman rightly said, it all included Opposition Members. The situation’s long-term nature, and the broad agreement across political lines and other opinions, are critical to the success of pensions policy, and as we move towards the implementation of the reforms, developing and designing the infrastructure and the detailed legislation that will support it, we expect the Department, the regulator and the authority to continue with their open and transparent outlook, and to work collaboratively with stakeholders to deliver the best solutions, as they have done hitherto. There is no reason why they should depart from that at all.
Clause 62 demonstrates our commitment to that issue. It requires the authority to continue with that open approach as it carries out its work in designing and implementing the personal account scheme, and works with the regulator on compliance. Even without that statutory requirement, the authority already demonstrates its desire to be inclusive and involve stakeholders in the consideration of options. Paul Myners made it clear during the evidence sessions that the authority will be an open and transparent organisation that is available to anybody who wants to make representations to it. It has already established a consumer representative committee, whose members include Age Concern, the TUC, the Financial Services Authority, the consumer panel, the advisory services and Citizens Advice, among others. The group has a remit to provide advice to the authority on a range of consumer matters relating to the design and specification of the personal accounts scheme.
In all such consultation, I am sure that the authority will seek the views of Opposition Members; indeed, I understand that they have already had meetings with the authority, which I welcome. It has an essential part in securing an agreement about decisions that will affect employees in this country for many decades to come. I do not think that it is necessary therefore to state explicitly in the Bill the requirement for that engagement, and neither does the hon. Gentleman. Given that, I hope he will agree to withdraw the amendment.