Clause 32 - Short service benefit for scheme member with money purchase benefit

Pensions Bill – in a Public Bill Committee at 4:45 pm on 9th July 2013.

Alert me about debates like this

Question proposed, That the clause stand part of the Bill.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

Short service refunds are a feature of trust-based workplace pension provision, whereby people who are members of a scheme for less than two years, for example, can get a refund of their contributions. Although the employer does not get the cash back out, it is in a sense credited to them within the scheme, saving them money. In a way, this is almost the opposite of automatic transfers: if people do not stay with a firm for more than a couple of years, they get their cash back and the firm gets some benefit as well. Crucially, when moving on to their next job, they have not accrued any pension rights. That is the problem. People who have had a series of jobs, working for firms for relatively short periods, sequentially fail to build up pension rights.

In a world of automatic enrolment and automatic transfers, we felt that it went against the grain for some people to put up to two years’ worth of contributions into a workplace and scheme—and their employers—with all that money coming out again and not turning into pension. We really have a problem, because we need to ensure that every penny that goes into pension schemes turns in pension, as far as possible. Short service refunds go against that.

We propose that short service refunds should be ended. I was struck, in the oral evidence, by the overwhelming support for that proposition. A lot of witnesses were asked questions, from a list of questions we asked all witnesses, and I am pretty sure that I did not hear anybody say that we should not be doing this. Even the employers’ organisations, which were initially a little bit wary, recognised that this is not part of the future of pension provision.

Photo of Heather Wheeler Heather Wheeler Conservative, South Derbyshire

I am glad to hear the Minister’s explanation. This is crucial. People move from a firm they have been with for up to two years to get promotion, perhaps, which they think is great, they have a history of working, but they can end up with no pension whatever. It is a superb move, Minister.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

I am grateful to my hon. Friend. We all know people who “took out their super”, as the phrase in the public sector used to be. They took the money out, which at the time was attractive, because as we were observed on clause 30, cash is attractive. But if we are in the business of long-term saving, such refunds have no place in the long term. There is not a date in the Bill, but we envisage ending short service refunds soon after Royal Assent, so 2014 would be the time scale, or shortly thereafter, for pension membership that had generated a refund by that date. Obviously, there would still be refunds after that date, for people who were already in schemes.

It is a gradual move in the right direction, which appears to be warmly welcomed. I commend the clause to the Committee.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

The Minister is right; he took the words out of my mouth. The support in the evidence sessions for the proposal was striking. The hon. Member for South Derbyshire made the point strongly as well. It is a sensible move, which we support. Its logic is straightforward. We know that we have a real pension savings problem in this country. I mentioned earlier that the majority of people who work in the private sector do not have any pension savings and the majority of those who do are not saving enough for a reasonable retirement. In those circumstances, the Government should pull any lever that they can to encourage pension saving. The clause contains one such lever, so we give it our full support.

Question put and agreed to.

Clause 32 accordingly ordered to stand part of the Bill.