Pensions Bill

Again, the Minister is correct to say that a number of these Lords amendments are minor drafting and technical ones. I do not intend to bang on through every single one of them, but I wish to pick out the ones that are important from our perspective—in particular, our proposed amendment (a) to Lords amendment No. 150. The Minister rightly said that Lords amendment No. 139 was an Opposition amendment, giving the Secretary of State the obligation, rather than just the power, to set up personal accounts. We are all slightly bemused as to why the Secretary of State wanted to give himself wriggle room in respect of not setting up personal accounts. Although there are arguments to be had on the architecture and design of those accounts, it seemed to us eccentric, to say the least, that there should not be such an obligation, and I am delighted that the amendment has been accepted by the Government. The next big issue for Conservatives concerns Lords amendment No. 150 and related amendments. They deal with the public subsidy or level playing field argument, which is familiar to those of us who were fortunate enough to be selected to serve on the Public Bill Committee. As the Minister has said, the procurement process for personal accounts is still in its early stages. We are talking about a brand new design that will perhaps have to deal with 1 million employers and several million new employees, and will involve a major IT contract, leaving aside any other design considerations. It is perhaps an eccentricity of the procurement process that it will be part way through before the personal accounts delivery authority knows exactly how much it will all cost. There are clearly some i's to dot and some t's to cross, because the authority does not yet know, and will not know for some time, how much the scheme will cost, how many customers it will have and how many customers will be left after two or three months, when people who have been auto-enrolled suddenly realise that their pay packet is a bit light and head for the exit. In those circumstances, I concede that it is difficult for PADA to work out its costs, let alone its unit costs. It has always been our approach that this project should not attract any public subsidy, so that there is a proper level playing field between personal accounts—the new kid on the block—and existing provision. We are obsessed with the problem of potential levelling down. We do not see any reason for any provision in the legislation that would appear to give even the hint of an unfair advantage to personal accounts over existing and competing pension provision. Something that has crept into the ministerial rhetoric relatively recently—I do not remember it ever featuring in our debate in this Chamber or in Committee, although I am happy to be challenged on that—is the phrase ““public service obligation””. An attempt is being made to apply it to PADA and its successor, the trustee corporation. Of course, we are familiar with the concept of PSO, perhaps the best and most familiar example of which is the Royal Mail. The basis of its PSO, and therefore of the zillions of pounds that the organisation receives in public subsidy every year, is that I could post a letter today and the Royal Mail would guarantee to deliver it to the far north of Scotland or to anywhere else in the country quite soon; it would perhaps not nowadays be able to deliver my letter the next day. That is a true public service obligation. We do not think—my colleagues in the Lords made this abundantly clear—that there is any justification for applying that concept to PADA or the trustee corporation. That is, in part, the thrust of my amendment (a) to Lords amendment No. 150, which makes it clear that any loan should be repaid at a commercial rate over a period of 10 years. At different times in the debates, we have also tried to make it clear that there should be no basis on which PADA or its successor receive anything by way of grant or subsidy; they should not receive anything but a repayable commercial loan. The PSO justification or excuse is of recent vintage. No mention was made of possible subsidy in the Turner report, which is where this all started, or in the December 2006 White Paper. We are concerned not only about the possibility of unfair competition with existing provision, but about whether we are seeing the beginning of a worry on the part of those who are charged with making personal accounts work that they cannot deliver at 0.3 per cent.—that figure is no longer referred to by anybody—or even at 0.5 per cent. without significant subsidy. I imagine that the Minister would say in her defence that any such subsidy would have to pass the relevant EU rules on state aid, as may well be the case, but our view is that we do not want to go there at all. Her comments echo, almost uncannily, those of Lord McKenzie in the other place. He spoke about"““the Government's intention that the personal accounts scheme will be self-financing in the long term, through charges on members, and delivered at nil cost to taxpayers.””" He went on to say:"““One possible source of financing for these costs could be borrowing””.—[Official Report, House of Lords, 2 July 2008; Vol. 703, c. 343.]" Even so, we are not happy with that as a possibility. Even at an early stage, the corporation will be pulling in significant contributions from its members. There is a clear consensus that personal accounts should wash their own face within a reasonable period, although there might be arguments as to how long that period will be. Crucially, it depends on the consultation, which recently ended, as to the charging structure for personal accounts; I can see that that might affect the period for repayment and so on. We are adamant that any such subventions should be made by way of a proper loan involving a period for repayment and a commercial rate of interest. I hope that I have made it abundantly clear that we reject the suggestion that the personal service obligation applies in this instance. As I said, there was never any suggestion, until recently, that it would apply to personal accounts. The other issue that I wish to discuss for a few minutes is Lords amendment No. 147 and related amendments to do with the review. It has been fairly clear almost from the outset in dealing with the legislation that Ministers were intending—as, indeed, they still are—to have a review of the operation of personal accounts five years after the start date. Of course, that prompts the question whether 2012 will be the start date. I understand that it remains the firm view of the Minister and of Mr. Tim Jones, the chief executive of PADA, that personal accounts will start in 2012. There is to be an element of the phasing in of personal accounts—we do not want a terminal 5 moment, so I suppose we will start with the short-haul flights and work our way upwards. Of course, that worked really well in the context of terminal 5. Lord McKenzie wrote a letter dated 6 November to my colleague, Lord Skelmersdale, in which he made the point about the review. He said:"““We have publicly committed to review in 2017 two of our key measures designed to minimise the impact of the personal accounts scheme on the existing pensions market—the ban on transfers and contribution limits.””" He also makes the point that there will be a person appointed by the Secretary of State—I am not sure exactly what sort of ““person”” the Minister has in mind—who would prepare the report and have a duty to lay a copy of it before both Houses of Parliament. We do not have any problem with that, although I hope it is not churlish to say that if there is an election in 2010 and we are fortunate enough to win it, we will probably have a review then and there, just to see whether everything is going to plan. The review needs to be as wide as possible. I am pleased that it will look at ways of retaining a barrier between personal accounts and existing provision. We have always favoured putting the £3,600 annual contribution cap on the face of the Bill. We have never understood why Ministers, despite declaring that that was their firm intention, have always resisted putting it in the Bill. That is the policy, and we think that it should be applied. Equally, transfers in and out of personal accounts and lump sum payments in would not be permissible. That would be the case for all sorts of reasons, including not just helping to maintain existing provision, but helping Mr. Jones and his colleagues at PADA for whom simplicity is the key word in preparing for the start date in 2012. I hope that, as part of the review, a serious body of work will be carried out—it certainly will be if the Conservatives are in government—on the effects of personal accounts, even in their early days, on levelling down and on existing provision. I do not think that there will be a big bang effect immediately, but there may well be a period of attrition of existing provision in favour of personal accounts. For example, new employees joining a company may find that the existing scheme is closed to them and that they are pointed towards personal accounts. I hope that such a trend will not occur, but if it does, I hope that the Government of the day will take urgent action to deal with it. The massive issue of means-testing is being examined, as I suggested in an earlier debate, and we need to continue to examine it right up to the starting date for personal accounts. It should be monitored regularly. We are keen on a review. If it happens in 2017, as the Bill provides, so be it, but it may well come earlier, depending on the electoral cycle. Broadly speaking, we are content with the amendments, save that we have tabled amendment (a) to amendment No. 150.