I absolutely agree. The system is so complicated that it is hard for any of us to know exactly what we are entitled to. It is scary when a constituent says to me, “You were on that Committee. Explain how this will work.” From my days as an accountant, I know how to write lots of caveats, so I e-mail them back saying “I think it might be this, but I’m not an adviser, I don’t know your actual circumstances,” and so on. Key to this reform being successful and retaining support, therefore, is how we tell people what they are entitled to, what they can do, what they need to do and when to do it by.
There are some useful things in the Bill, including the tweaks to auto-enrolment, which I think we all welcome. It is right to cap consultancy fees for auto-enrolled schemes, because if the state is, if not quite forcing people into a savings system, certainly encouraging them strongly to do so—through the opt-out—the auto-enrolled scheme must be a fair and decent one, and that means not being ripped off by excessive charges. We should be saying, “This is the most you can charge people. You cannot add unnecessary and expensive consultancy fees”. Therefore, the provisions in the Bill are a welcome change, even to a free-market, non-regulatory person such as me. It is the right direction to head in.
The provisions on the transfer of dormant pots are also a step in the right direction. When starting to think what retirement might bring, one wants to know how much pension income has been accrued, but that can be hard. If someone has changed jobs a few times, they will have lots of small pots, which means they will get those strange, complicated documents once a year that they do not understand. Even if they read them, they will not be able to work out what income it will equate to in retirement. If those pots were moved into a single pot, they would get only one statement. If we made that information clear, they might find out that they have accrued only a third of what they want and that they need to take action several years before retirement.
That is a welcome step. I asked the Secretary of State earlier whether we could use this Bill to make changes to the National Employment Savings Trust so that those who choose to use the scheme or their employers
who use it can make those transfers. I am not quite sure what the situation will be for those who think they can transfer their pot but cannot, even though their employer might have chosen one of the best schemes out there. We need to get that clear in the system as soon as we can, so that people understand how that will happen. As the Bill proceeds in Committee and on Report, I hope those changes to NEST can be sneaked in, once the consultation ends. I suspect that some attempts to table amendments to that effect might be made in Committee, if the Government have not quite got there—not that I am saying I will draft them or am in any way qualified to achieve that, which I suspect is well outside my skills.
One issue leading on from auto-enrolment and NEST is the fact that the regulator responsible for auto-enrolment is the Pensions Regulator, yet most auto-enrolment is into contract-based defined contribution schemes, for which the Pensions Regulator has no responsibility. We are in a slightly strange situation, as everyone out there thinks, “There’s a Pensions Regulator,” yet most people’s pension schemes are probably not caught by it. They have no redress to that regulator and instead have to go to the Financial Services Authority, or the Financial Conduct Authority or whatever it is called now—the organisation that did such a good job with the banks that we entrusted it with pensions as well.
I am not entirely convinced that that is the right place, partly because when the FCA gave evidence to us, it did not seem to be giving pension schemes quite the focus that such an organisation ought to give them, as I suspect members of the Committee who were present would agree. There is real confusion out there about who does what in the pensions regulatory system. There is an attraction to having the role of supervising individual pension schemes all in one place—that place being the Pensions Regulator. I accept that the Minister recently replied to the Committee with some sensible reasons why he comes down on a different side of that line, but this issue is worth exploring, to ensure the right protections as more and more people move into contract-based defined contribution schemes, which is a hugely important sphere.
While we are on the Minister’s response to the Select Committee, may I welcome the fact that the start date for the change has made its way into the Bill? I questioned him quite strongly about that on the Committee, because this is a fundamental change to the pension that millions of people can expect, and to have the date slip by some accident or change of policy after the election would be hugely disadvantageous. If the date changes by even six months, that is six months’ worth for people who retired thinking they were getting £143, but who would then drop back into the old system. That would be disastrous, and all those women we have taken out would be dropped back in. I suspect that none of us would fancy that, so having the start date firmly in primary legislation in this Bill has to be right. I welcome the fact that the Minister listened, although I also hope that his power in the Bill to change the date by order is not one that he plans to use. I would have thought that the power should lapse—maybe in March 2015—so that it cannot be changed once we are a year from the start date. It would be awful if less than a year’s notice was given of a slip by six months or something like that.
We also welcome the fact that the Government listened and capped the minimum qualification period. We all accept that it is not right for our taxpayers to provide
pensions to people who had a short stay here or to spouses who have never come here and who, by the time they retire, have had 40 years in a different state and have a pension there. It is not right to give them a small state pension that we have to administer. It is right to say, “If you haven’t paid in for this number of years, then you get nothing.” For that period to be more than 10 years would have been unfair—someone who has paid into a system for 10 years probably deserves something back out. It is right that the Bill has a cap at 10 years and we will see whether the Government choose seven years, 10 years or somewhere in between as the process continues.
I have had a gentle canter through what is in the Bill and some of the things I might have liked to see in it to improve things for people paying into private pensions. I am sure we can explore those as the Bill proceeds.
I am reluctantly content with the idea of increasing the state pension age—I suspect that future Governments might be grateful for this one. However, some kind of mechanism should be put in place to force a review every Parliament or every five or six years to see what the decision has to be. Increasing the state pension age by another year will never be politically popular, as a few hundred thousand people will then be retiring later than they wanted to. However, it would be right and fair to have a transparent mechanism—or transparent-ish: it would only force a review, not be a real power—so that we said to people, “As life expectancy increases, we have to accept that you retire later, and we have to try to keep a sensibly fixed proportion of your life that you can expect to be in receipt of a pension.” If people can understand that principle—“This is the proportion of your life for which you will receive a state pension”—or if it is at least there for them to try to understand, that will be powerfully clear. Rather than suddenly saying, “Actually, we’ve got a big financial problem again; let’s make a change that no one was expecting,” let us set that within some kind of trend.
I welcome the Bill and look forward to it passing through this House. There are some questions about the detail that I am sure we will all want to understand, such as how precisely the calculations will be made, how people will know when they have been contracted out and where people who have been contracted out for part of their working lives will fall between £108 and £143. That will be difficult to understand, but it is important that the Government make that clear. There is clearly a huge role to play outside this place in making people understand what pension they will receive and what they can do about it, which will probably be more important than the debates we have in this place or the agonising over commas and full stops that is to come. I welcome the Bill and look forward to the chance to serve on the Public Bill Committee.
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