Steve Webb: By way of context, it is worth remembering that this is a journey that has been going for several years now. We published a Green Paper, which is long forgotten. The model it contained was commented on and we published a consultation in the summer of that year. The model has been evolving and we have been listening to people for a long time. So in a sense, the White Paper was not our first stab; it was quite an evolved, consultative model.
From that time, we have made changes to the Bill in response the Select Committee, which wanted certainty on the start date and on the maximum number of years that we might use as a minimum qualifying period, so we have put that into the Bill. We received responses from industry about flexibilities on changing their pension schemes in response to the ending of contracting out, so we changed the Bill because of that.
The main thing we have done is on people’s reaction to single tier. To understand the impact of single tier, you need to know how the current system works and how the new one works. Given that part of the argument is that nobody understands how the current system works, a lot of the public response has been based on misconceptions—assumptions that people will lose, although it turns out that they will not. So communication, which has been a theme of a lot of the witnesses so far, is crucial.
We have held a number of meetings with those who advise people—for example, the Pensions Advisory Service, Jobcentre Plus staff and Age UK. We are talking to people who talk to the public, listening to the issues being raised and planning a communications strategy. We have placed a copy of that strategy in the Library and we are doing research over the summer on how best to communicate the single tier to people—what language works for people and what issues they are concerned about.
The only constraint that we have is that we cannot spend taxpayers’ money explaining a system until Parliament has agreed to it, and, of course, the Committee may change the Bill, so if we send out information to people now and the Committee decides that it should be different, we will have to do it again and tell them that it was not what we said. We therefore have a slight frustration, because we would like to say a lot, and we are making progress, but the main thing that we have done since January is to listen to people where there are issues of confusion or concern. We have published a number of clarifying documents, but we will have a whole communications strategy to follow.
Minister, you have sat and listened to the evidence and will have heard a range of views about the new arrangements for qualification for the single-tier pension, and about the new arrangements for inherited and derived rights. We heard from Bryn Davies about Gill, a 53-year-old lady, and how she might be less well off. Baroness Hollis spoke about service wives living overseas with children. What work has been done to identify which groups may be disbenefited by these changes? What are you doing to ensure that those disbenefits are not exceptional?
Steve Webb: One feature of the single tier is that there are lots of levers to pull. You can change the start rate, the indexation, the number of qualifying years and the rate at which you treat inherited and derived rights. You can tweak it in a thousand different ways and we probably have done.
In developing this we have run a model, looked at who the losers are and whether there are particularly unfair losers or large losers and have put in modifications. The classic one would be women who paid the married woman’s stamp who thought that at pension age that they would get a pension based on their husband’s record. We felt it was wrong to say to them a few years before pension age, “Sorry, we have changed the rules.”
At each stage, we have tried to look for significant groups of losers or unfair losers and modified the scheme. Clearly, in a cost-neutral reform that does provide clear benefits to some, some will get less than they would have done. We have tried to take money out of the means-tested side and put it in the state pension side because we think that is more effective.
Clearly, there will be some who will get less than they would have done. The point about service wives is important. When the Government legislated for credits to service wives—I think from 2010—they did it prospectively. So service wives now get credits but historically they did not. I am happy to take that issue away and see if anything can be done about it.
Are you saying that you think that the system is sufficiently flexible to enable those particular creases in the proposals to be ironed out without legislation, or do you think there might need to be future changes to accommodate those concerns?
Steve Webb: We would not ideally want to make future changes; we want to have some stability. There are flexibilities in the system. For example, people can pay voluntary national insurance, so if they are short of the number of years they would like to have, the rules arranged with HMRC for voluntary national insurance have been relaxed in a remarkably generous way. All the time limits and the prices have been relaxed. Voluntary national insurance for those who can afford it—I appreciate that not everyone can—is a very good deal in terms of what you get back for it. That gives people a degree of flex.
The means-tested benefit system remains as a safety net. For example, if someone is widowed, could they be left with no state pension? They could, but they would probably be entitled to one hundred and forty-odd quid of pension credit. So they will get their money through a different route. There are safety nets, flexibilities and transitional protection in the legislation.
That takes us neatly to means-testing. The abolition of savings credit can be seen as being balanced by the benefits of the single tier. Do you think that is fully the case?
Steve Webb: The savings credit story is that, before savings credit, the worry was that you had a state pension that was below the poverty line, which was topped up pound for pound to the poverty line, but that meant that every pound you saved was a pound off your guarantee credit. The Government of the day said, “That is not fair, so having means-tested away your extra pension, we will means-test back some of it.” That is how the savings credit came about. It is the most complicated bit of the benefit system I have ever come across. I have to keep drawing charts on the whiteboard in my office to try to remember how on earth it works.
One consequence is that half the people who are entitled to just the savings credit do not claim it. One of the strange things about single tier when we bring it in is that we have no idea of who would have got savings credit. We know who they might have been, but half would never have claimed it anyway. I think that a bit of the benefit system that is claimed by under half of the people entitled to it is no basis for future retirement income.
Therefore, getting the pension up more or less to the level of the guarantee credit, just above, so that every pound you save has a chance of making you better off is a much better mix. There is a transition in that. We are doing it straight away. Clearly, some people will get less than they would have done. That is clearly true. Getting savings credit out of the system is great as far as I am concerned.
We have heard a lot of evidence this afternoon, and the day before, Minister, about different groups that might be adversely affected. I wonder what steps you have taken to reassure yourself that the revised implementation data, particularly, for single tier allow the pension industry, pension schemes and employers sufficient time to adjust to all this.
Steve Webb: Again, I guess the relevant context is that the 2011 Green Paper mooted a 2016 start date, so we have actually been talking to the pensions industry and employers for several years about all of this. It has been in the wind. It was not a shock when the White Paper came out. The White Paper slipped that start date to 2017 and quickly we pulled it back to 2016. But we have been flagging this for a long time.
I was encouraged by what the CBI said this morning. It reckons its members needed 18 months to prepare, which would be autumn 2014. We agree that they need to see the detail which is in the secondary legislation as soon as possible. I am advised that we will be sharing, informally, draft regulations with employers and pension funds over the summer. We will have consultation later in the year. So that is going well. They want to see the detail soon and I am encouraged that we seem to be well on the track to giving them that detail.
Okay. Just a final thing from me on this bit—a bit of an awkward one, really. Which employees are likely to be adversely affected by the ending of contracting out and, I suppose on a slightly more positive note, which groups will benefit?
Steve Webb: One of the problems with the Green Paper version was that because you had been contracted out in the past, you have a deduction from your state pension, called a contracted-out deduction, and you could never do anything about that. It was just like a stain on your record and it would always come off your pension. The difference with the White Paper version is what we have called “Something for something”: once we have taken that deduction off once, in 2016, you can then earn your way back to a full single-tier pension by future years of work. The advantage, therefore, is that people who have been contracted out have the chance to build up a full pension, which they did not previously have.
We think that, across public and private sector, the vast majority of workers will get more back. Although they will pay more NI and lose their rebate, they will get more back in future state pension accrual than they will lose in NI. That is a tough message today—if you face 1.4%, or whatever it is, out of your pay packet, that is a hit—but you will be building up a full state pension of £144, not £110. The vast majority will benefit. Clearly, some will not—some of the highest earners who will have the biggest rebate and perhaps a short period to recover it—but, overwhelmingly, we think it is a good deal.
What about the self-employed: bringing them into the scope of the single-tier pension? Is the reason for that simply the desire for simplification or do you also think that the self-employed have been treated, to a degree at least, harshly in the past.
Steve Webb: I agree with what Baroness Hollis said about the diversity of the self-employed. It is probably a crude over-simplification, but there is the old self-employed, whose business is perhaps their pension and they can sell it, and so on, and what I call the new self-employed, who a generation ago would probably have been employees in a low-paid job. That latter group is heading for a poor retirement, because all they build up is the basic pension—the £110 and nothing beyond that—and they are unlikely to have a private pension as well. We have to do something. People have known for a decade that we had to do something, but nobody has done anything.
I welcome the fact that those people are brought in, particularly because I have some figures that show that the self-employed’s private pension coverage has been in freefall. Twenty years ago—take full-time self-employed men, because we have the figures—two thirds of full-time self-employed men had a private pension, but now it is one third. There has been almost a straight-line decline. That is real time bomb. Although it was argued at Second Reading that we are being gratuitously generous to the self-employed, they are an under-pensioned group.
The low income self-employed do pay national insurance—they pay class 2 or class 4—and they pay more than an employed earner pays, in their own right. It is not quite as simple as saying, “Self-employed pay low NI and this is a freebie”. It is much more complicated than that.
Minister, when you have done your modellings and costings, looking at the various sensitivities and coming to your choice in the Bill, is that based on an equilibrium model or do you make any adjustment for likely changes in behaviour under the new system and the incentives that it gives?
Steve Webb: It is static in a sense. Without this reform, automatic enrolment would not have been as successful as it is being, because I think the financial press would have run articles saying, “Why bother saving small amounts of money? They will just be means-tested away.” That has not happened; the situation without this reform—the counterfactual—would not look very good.
We have not built in any dynamic assumptions about behavioural change in response to the reform, but all our projections are dynamic in the sense that we look at what we think the world will look like in successive decades, taking account of trends in labour market participation of women, family formation or whatever. It is our best guess about the future, but we are not making any heroic assumptions about changes in behaviour.
If more people decided to become self-employed partly because of the attraction of this reform, or a lot of public sector workers decided to work several years longer than they might so as to get the full single-tier pension, would that not potentially increase the cost of a reform that is intended to be cost neutral? Have those elements been fully priced in your model?
Steve Webb: It is funny—I thought you were going to say that both of those would be good things if they were to happen. If more people are self-employed, entrepreneurial and all of the rest of it, you could argue that that is a plus. If people work longer, in general that is something that we as a Government want to encourage. You have to pay more pension when they eventually retire—I take that point—but you can argue it both ways: the behavioural response will be complex and I do not think there is a bias in our estimates particularly. There is a margin of uncertainty, certainly, but I do not think that there is a downward bias.
Steve, one of the key elements of the reforms is the system whereby there will be a review every six years of the state pension age. Earlier this afternoon we heard from Professor Blake, with his idea for a longevity committee—I have not heard that one before. How are you going to ensure that there is transparency in that decision-making process?
Steve Webb: In a way, this will be a far more transparent process than anyone has ever had before. Rather than the Government announcing a date for a change in the pension age in a particular year, there will be a systematic process: a Government will set a target proportion of adult life in retirement, which will be published. The Government Actuary’s Department will assess what that means for state pension ages, which will also be published; the Government Actuary’s Department is respected and independent. An independently led commission will then look at that and could, for example, say, “The formula might say one thing, but what about healthy life expectancy or different socio-economic groups?” Its report will be published, and any resultant change will require primary legislation, so this place will get to debate it.
There are no secrets here: the principle is published, the analysis is published, the independent commission’s report is published, the Government response is published and Parliament debates the change. It will be far more systematic and transparent than it has ever been before.
This morning we heard from the industry about its need to see secondary legislation quickly. Will you tell us your plans to give the industry that information so that it can have some certainty?
Steve Webb: Yes, that is what I referred to a moment ago, on the preparedness for the end of contracting out. My officials are already drafting that legislation. We are already talking to the industry about it and will publish draft regulations for consultation. That work is ongoing—and at a good pace, as far as I can see.
Finally, there is the six-yearly review, but how long do you feel you then have to give people to allow them to make any amendments and changes to their personal situation?
Steve Webb: Chris Curry of the Pension Policy Institute said that there was an objective basis for saying that a minimum of 10 years was about right. That is what we envisage. We think that the future process would not result in changes to people’s pension age at a notice period of less than 10 years. Of course, we have essentially given the best part of 15 years’ notice of the change to the age of 67 that is in the Bill.
Minister, you referred at the beginning of your evidence to how alive you are to the issue of significant and/or unfair losers. Could you say to the Committee a little about what groups, if any, do you think are significant or unfair losers from this reform, and more widely, who the losers are?
Steve Webb: In a sense, to try to avoid having unfair losers, we put a lot of transitional provisions in the Bill, for example a provision for people who paid the married woman’s stamp and the foundation announced that embodies what you have accrued so far; it would have been unfair to have used the lower number at 2016, for example.
Who are the losers? It is a flat-rate pension, not an earnings-related one. Over the long term, those who would have had the highest earnings and built up the highest earnings-related pensions will get less than they would have done. There will be some who would have got the savings credit who will not get it. We do not know who, because it is a lottery; half of them do not claim it. There is a minority of people who will lose out through the abolition of derived rights.
I take that answer to mean that you would not consider either the 700,000 Group within that to be significant or unfair losers, or indeed the evidence that we heard from the bereavement support network on Tuesday about the loss that bereaved families might face.
Steve Webb: Let us take those two separately, if we may, because they are quite big issues. I entirely understand that our witnesses this morning, born between ’51 and ’53, would like to be part of the single tier, but because they were born before it applies to them, they will not be.
As you will recall, in 2010, the then Government changed the rules very substantially to give pension for 30 years, not 39 years. That was a huge change. Anyone born the day before was completely cut out. There was essentially, notwithstanding the noble efforts of Baroness Hollis, no transition or provision whatsoever. Day before? No. Day after? Yes.
The change that we are making is far less of a cliff edge than that was. As I mentioned, our analysis suggests that the typical woman in this group will get £6 a week less than if her payment was worked out under the other rules, but she will also get her pension at 61, 62 and 63, when most of her younger sisters will get it at 63, 64, 65 or 66.
If you take the whole package—the pension and when you get it—I do not believe that the ’51 to ’53 group are uniquely adversely affected. I think that there are groups before who could make that claim. The pre-2010 women could say, “Well I had to work 39 years, not 30. It’s not fair.” The post-2016 women could say, “I have to work until 65 or 66. It’s not fair.” The ’51 to ’53 could say, “It’s not fair.” Each of those groups has had different pluses and minuses.
Just for the record, we have not changed the pension age or the pension of that group at all, except through the triple lock, where we have enhanced their pension. Compared with rolling the previous system forward, for those 700,000 women, they will get better pensions than they would have done if this Government had never existed.
Steve Webb: Yes, sorry; I got carried away on that one. On bereavement payment, the first thing to stress is that in the next Parliament, we will spend more money, not less, on bereaved families. I have not led on this issue in the Department, but I was always keen to ensure that this was about structural reform, not saving money.
Clearly, there are lots of anomalies in the current system of support for bereaved families, for example the contribution rules and the age cut-offs. There are all sorts of groups who really ought to get some help but do not. One of the things we did was to consult and talk to both the organisations that came to give evidence and others. One of the strong messages that we got back was the crying need for extra help for bereaved families at the point of bereavement.
The initial model that we came up with was a very large lump sum, sweeping away all the ongoing payments and just leaving a huge lump sum. Then the groups said to us, “Yeah, but you would just spend it very quickly, and then where would you be?” So we said, “All right. We will pay that huge lump sum, but we will pay a big lump sum and then 12 monthly instalments of the lump sum.” So it is very much a death grant; that is what it is. If people need ongoing financial support, that is what universal credit is there for.
It seemed to us, listening to bereaved people, that very substantial cash support, a tax-free lump sum and a benefit amount ignored for universal credit purposes were a better way of supporting bereaved families at the point they needed it most, and then ongoing support would be provided through universal credit for those who had not gone back to work. We have listened to people and responded.
That is the structure in the Bill. You can argue about the rates for families with children and families without and, the balance between the lump sum and the monthly payment—there are a lot of parameters you could change—but the Bill does not require any of that; it just provides that structure.
My understanding of the evidence on Tuesday from the Childhood Bereavement Network and associated organisations is that 90% of those who claim bereavement support will get less under the new system than they would have under the old system. Is your argument that, once you include universal credit, it changes the situation?
Steve Webb: No, the 90% number is wrong; it is based on a misunderstanding. I think the organisations accept that the 90% number is wrong. We have published comprehensive estimates today. Broadly speaking, we estimate that it is about half and half. In a sense, because we are not spending any more money, that is the kind of answer you would expect: of people becoming bereaved, 52% will get more than they would have done and 48% will get less than they would have done. We think it is about half and half for bereaved families, with and without children, throughout the whole change.
In what time frame are you operating that assumption? I know that on Tuesday the Childhood Bereavement Network was saying that it is up until the age you stop getting child benefit. My understanding of your argument in the back and forth on Tuesday was that the winners are those who claim for less than three years, and everyone who claims for more than three years will be a loser.
Steve Webb: What tends to happen is that bereaved parents get the lump sum—the bereaved parents allowance—and they tend to come off it after about four years on average. Remarriage is the obvious example of how that happens. The number of bereaved mothers who, 15 years after bereavement, are still getting bereaved parents allowance is very small; they are atypical cases. Such cases exist, of course, but they are atypical. The question I would ask the Committee—I am not sure whether I am allowed to do that, but I do so rhetorically—is this: if you were bereaved, say, 10 years ago, is it sensible for your financial support now to be because you were bereaved 10 years ago, or should you just get the help you need now because of your circumstances now? What we are saying is that bereavement support should be about bereavement and immediately thereafter, and ongoing support should be just because you are a person who has needs, rather than linking back to a bereavement that happened 10 or 15 years ago.
Some people have raised the fact that, apparently, kinship carers get a longer period of adjustment, as it were. Although universal credit is available, for the most part it immediately plunges people, unless they have very young children, into quite a stern regime of looking for work.
Steve Webb: I think that is fair comment. If you are bereaved and have young children, there is no work expectation. A period of time is built in during which there is no work expectation, but over time we would expect Jobcentre Plus advisers and others to be sympathetic to people coming in and to recognise their circumstances. We are all human beings. If they meet someone who is bereaved and it is clearly inappropriate to press them to work, we would need to recognise that. On the other hand, there is some suggestion that, at an appropriate time, re-engagement with the labour market might be healthy and constructive. We have to try to get that balance right. We will train our advisers in that new regime.
Do you think you have that balance right, given that the adjustment period is relatively short? With all due respect, the atmosphere within jobcentres is getting a lot tighter. They say, “You have to have your CV before you get any money,” and all the rest of it. That does not sound like a very flexible system for people.
You have received quite a wide range of representations on small pots and automatic transfers. Have you heard anything that might be a clever solution that clearly improves on what is in the Bill? Are there downsides that outweigh the gains of the alternatives?
Steve Webb: We have heard from several consumer organisations that have said, “We don’t want money transferred from a good scheme to a bad scheme,” and I could not agree more. They wrote an open letter to me—before I received it, I read in The Times that they had written an open letter to me—and we invited them in. We had a meeting with them, and we ended up violently agreeing that people should not be able to transfer money from a good scheme to a bad scheme. As I think one of our witnesses said, what are we doing letting people be auto-enrolled in bad schemes in the first place? The challenge for us, and we are publishing in the next week or two a consultation on quality standards in these schemes with regard to things such as governance, is that we have to ensure that people cannot be enrolled in poor schemes—period.
There will of course be some variation between schemes; there is bound to be. Over the course of 11 jobs, for example, you might be auto-transferred from one with a slightly higher charge to one with a lower charge, but that will even out over a lifetime. Two things have not come up. One is that auto-transfers are optional, so it is not mandatory; it is by default. But if you say, “No, I like my old pension scheme; please leave my money there,” that is fine, we will do that. So the first thing is that you have an opt-out. Secondly, the bit that people miss is that this is about people engaging with their pensions. If the money follows you and each time you change jobs you build up a bigger and bigger pot, you engage with your pension savings. If it goes off to some organisation that you have no relationship with and that you have never heard of—it is little amounts of money—and then you have another pot somewhere else, you are never going to engage. So it is about more than tidying up; it is about engagement.
We have heard a lot of evidence about short-service refunds. What are the implications for employers and pension schemes of the abolition of short-service refunds? Why did the Government decide that that was a necessary step to take?
Steve Webb: We are keen that when you put money into a pension, it turns into a pension. The problem with short service is that you work for a firm that has a trust-based pension scheme for less than two years; you change jobs and the traditional practice was that the money came out again. You got your contributions back and the firm’s contributions helped to offset the cost of the scheme, so that was up to two years’ worth of work that never turned into a pension. If you had several such jobs, you got no pension for 10 years or whatever. In a world of “pot follows member”, where the stranded pots simply move, so there is not an issue about the schemes being left with small amounts of money, the need for short-service refunds goes, anyway. We were pleased to get rid of them. I was struck by the number of times you have asked that question. You would struggle to find anybody who did not think it was time we did it.
Steve, we all know that pension regulation is already burdensome, complicated and complex. The Bill makes amendments to the pension protection arrangements and places additional responsibilities on the regulator. Could you tell us what your overall aims are in that respect and what you think are the benefits?
Steve Webb: I will flag two things. One is the issue of the Pensions Regulator remit, which is in the Bill, and the other is an amendment that we have now tabled on the Pension Protection Fund. The amendments are on the desk over there. I will say a few words about them because it seems appropriate.
On the Pensions Regulator, there is clearly a balance to be struck. If you are a member of a company pension scheme, you want to be confident that you are going to get your pension. In an ideal world, you want the pension to be fully funded, so that if the worst came to the worst and the firm went to the wall, you have got your pension. We know that that does not happen.
We do not live in a perfect world; there are times when schemes are underfunded. Asking for them to be sorted out overnight would not be right, so periods of recovery are allowed for, and there is a balancing act. You want to make sure the pensions are provided for, but you do not want to kill off the company, because that does not help anybody. There has been a slight sense that that balance had got slightly out of kilter and that valuations based on current—quite extraordinary—conditions were producing very high measure deficits, and then trustees were saying, “Oh my goodness! We have this huge deficit. We want huge amounts of money off the firm,” and the firm was saying, “Yes, but I want to employ people and invest.” Trying to get that balance right is a challenge.
The new remit says that the regulator, as well as having to make sure that there are fewer calls on the Pension Protection Fund and that the pensions actually get paid, has to also have regard for the growth of the individual firm: so not taking money off the firm that would have enabled it to be in a better position to pay the pensions in the long term for a short-term filling of the gap. We consulted widely on this and on other things such as changing the way valuations are done, and there was not much support for that. But I think that this has been quite well received. Industry has received it well, but it will take time. It will be a slightly different balance.
We need to make sure that the regulator takes account of what Parliament is saying, but without swinging to the other extreme whereby firms do not put enough money in, they go to the wall and we have all these underfunded pensions. They then make a claim on the Pension Protection Fund, which then has to be paid by a levy on schemes. I think it is just about slightly redressing the balance in the current circumstances.
On the Pension Protection Fund, we have tabled amendments on the Pension Protection Fund cap, which are available to the Committee. The issue is that when people draw a pension under the Pension Protection Fund and are early retired, a cap applies to their compensation. We have found people who had worked all their life for one firm, and who had been drawing their pension before the firm went into liquidation, and their pension suddenly halved overnight, which is pretty brutal. A whole series of hon. Members came to see me with constituents, and it just felt like that was not what the previous Government meant to do through the cap.
We have therefore said that if someone works for a firm for more than 20 years, we will put 3% on the cap for each additional year, so someone who has worked for 40 years will get 20 lots of 3% on the cap. That means that people who probably have no other pension—if you work for a firm for 40 years, the chances are that is the only pension you have—will get more of the pension they should have got. At the moment, it is only a few hundred people, but they have been disproportionately affected, so I hope the Committee will welcome that change.
With the Chair’s permission, I just want to take up a couple of issues that have partly been discussed but not elaborated on. First, Steve, on cost neutrality, we often hear it said that the Bill is cost-neutral, but my understanding is that upwards of £5 billion a year will flow to the Treasury in terms of increased national insurance contributions from 2016. Is the Bill cost-neutral?
Steve Webb: Cost-neutral, yes. The cost of providing pensions and pensioner benefits will be as it would have been for the next 25-odd years. Is there a national insurance revenue? Yes. The Chancellor has indicated that some of that will pay for the national insurance allowance that lots of firms will get, I believe, from next April. Firms will pay less employer national insurance, so that will help with jobs. Some of the money will go to help pay for the Dilnot social care proposals, but some will flow to the Exchequer. Obviously, as you appreciate, public sector employers will have to find additional money. It will be for a future Chancellor and a future spending review to decide how that money is spent.
Just to clarify for my own benefit, the new system costs the same as the old system, except that, under the new system, an extra £5 billion or so accrues to the Treasury every year. Is that correct?
Thank you for that. The second issue is healthy life expectancy, which Baroness Hollis raised. I was struck by her evidence on that, and I wondered what your view was.
Steve Webb: It is an important point, and the Government are looking carefully at Lord Filkin’s report on ageing, which is a valuable contribution. The difficulty with looking at healthy life expectancy is that it costs exactly the same to pay a pension to a healthy person as it does to an unhealthy person. If we do not put pension ages up because there are more people, somebody has to pay, and the somebody is our children and grandchildren. The point of increasing the state pension age is to be fair between generations, as Professor Blake said. We envisage that increased longevity will go partly on longer retirement but mainly on longer working life. It will not go wholly on longer working life, so there will be more retirement, even in this new world, although it may well be the case that a slightly higher proportion of that will be less healthy retirement. On a human level, you can see that point, but from a fiscal point of view, the bill is the same, and we have to do something about the bill.
The dialogue you had with my colleague, Sheila Gilmore, about bereaved families ended with you saying the onus would be on the Government to make sure Jobcentre Plus acted in a compassionate or sensible way. What guarantee can you give this Bill Committee that that will happen?
Steve Webb: Bear in mind that these reforms do not even come in for several years, so it is not like this will all happen imminently and we are not ready for it; we have several years to make sure our colleagues in Jobcentre Plus, on the front line, who are dealing with bereaved families, do so in a sensitive way. I am happy to give my undertaking that we will use our best endeavours to make sure that is exactly what happens.
My final point is on small pots. Steve, your defence of “pot follows member” is that people would default only if they did not exercise a choice, but do you not agree that the reason why auto-enrolment has such support across political parties is that it operates on the basis of inertia and an understanding that, historically, most people have not exercised their choice on pensions? Therefore, as a defence of “pot follows member”, hoping that people will have the chance not to default into a worse scheme is probably not the best basis for future policy.
Steve Webb: The default is that the transfer takes place, and we think that that will overwhelmingly be in people’s interests. If they leave the money behind, we know that they may lose it, or it may be so small that they cannot buy a pension with it. Under the current rules, at least, they may face additional charges or an investment strategy that does not work for them, because they no longer work for the firm. There is a whole raft of reasons why the default of the transfer is overwhelmingly the right thing for people.
We simply have a safety net: if somebody is really attached to their old scheme, knows about it and values it for some reason, they are able to opt out, but, as you rightly say, we cannot assume that they are pensions experts, which is why we will default them into the thing that is overwhelmingly in their interests.
Steve Webb: No, I think that it is part of the case. If you move from a firm that clearly has an outstanding, excellent, award-winning pension that you really understand, like and want to stay part of, we will let you do that. We will not force you not to.
May I just say for the record, Mrs Main, that I have got slightly ahead of myself on which amendments we have and have not tabled? The amendments that we have tabled are all excellent. The PPF cap ones have not been tabled yet, but they will shortly be tabled.
I was struck by the evidence from Professor Blake earlier. He was much more optimistic about the idea of pension pots in relation to which people would not be transferred from a good pot to a bad pot. He was much more optimistic about rules that could be brought in to ensure that charges were low, and were efficient and effective. What is your view of that evidence? What can we do to bring that sort of system into fruition?
Steve Webb: We are consulting on quality standards for automatic enrolment in two stages: one imminently, on the way schemes are run or governed and that kind of thing; and in the autumn, we will consult on other aspects of quality, including charges. As a result of all that, we will set out quality standards for automatic enrolment, so everybody who is automatically enrolled will have to be enrolled into a scheme of a minimum quality standard. People will then be auto-transferred to schemes of that requisite quality.
I want to sound a slight note of caution about worshipping at the shrine of scale. It sounds obvious, does it not? We do not want 40,000 small, sub-scale pension schemes; we just want half a dozen big ones, and that would be great. There is a slight caveat to that. I accept that we certainly do not want 40,000 small, sub-scale schemes, but, on my analogy with the electricity market that Greg kindly quoted earlier, it is not obvious that a market with half a dozen big players that get on with each other is good for the consumer. There is a bit of an issue there.
The other thing is that I talked last night to a major employer, which said, “No, I don’t want to be part of a big multi-employer scheme, because my employees look like this, they have certain needs and I want an investment strategy that meets them. If we were part of some big amorphous scheme, how could a one-size-fits-all investment strategy work for my employees?” If you think about a firm with a young work force and another firm with an old work force, each will want a different investment strategy. Bung them all in a single scheme with a common investment strategy, and it will not work for either of them.
Scale is great—cost-effectiveness, good governance and all the rest of it are great—but scale is just part of the mix.
Adjourned till Tuesday 2 July at twenty-five minutes past Nine o’clock.
Written evidence reported to the House
PB 07 Peter Wells
PB 08 Canadian Alliance of British Pensioners
PB 09 Joy Palmer
PB 10 Eileen Brown
PB 11 Philip Hampson
PB 12 Thelma Brown
PB 13 Lorraine Hart
PB 14 Dr Lawrence Renaudon Smith
PB 15 Gina Loxam
PB 16 National Union of Rail, Maritime and Transport Workers
PB 17 National Pensioners Convention