Pensions Bill

Excellent. So the refunds will be retrospective, which deals with one of the concerns that, as the Secretary of State knows, we have raised. That has slightly pulled the rug from under the Minister for Pensions Reform, who said only last Monday at departmental questions that"““contributions paid at the time should not be refunded””.—[Official Report, 8 January 2007; Vol. 455, c. 16.]" So he was doubtless in the loop on the discussions, just as I and my hon. Friend the Member for Eastbourne (Mr. Waterson) were. The third issue on which I want to touch is the changes to the state second pension. We accept that these changes are part of the financing package that allows the introduction of the earnings link, while containing state pension spending within a given percentage of gross domestic product. However, there will be a distributional impact on different groups within society, and it is important that those affected by these changes understand them. Essentially, those earning above £34,000 a year will continue to pay national insurance contributions on a growing part of their earnings above that level, but will no longer receive any earnings-related element of pension accrual on those contributions. So the part of the contribution that pays for the earnings-related state second pension becomes a straight tax. Many in this House will be thinking, ““So what? People on £34,000 a year and above can handle that.”” However, because this will be frozen in money terms, over time, the tax will affect everyone on £18,000 a year or more in today’s earnings terms. As Amicus said in its briefing, it will affect people on average and below average incomes. For those who have contracted out of the state second pension into an occupational or personal pension plan, their contracted-out rebates will reduce or end altogether, depending on whether the scheme is defined benefit or defined contribution. So their contributions to their chosen DB schemes will be reduced, and those in DC schemes will be forced to contract back into the state second pension scheme at the very point where it is reducing the earnings-related benefits that it provides. Part of the package that may be, but it will strike many people as an odd way to promote confidence in long-term pension saving, and it has received little or no publicity outside the narrow confines of the industry and the Westminster village. What of the huge cash saving to the Government from abolishing contracted-out rebates? Perhaps the Government could make it clear what the figure is. The White Paper originally gave an estimate of £4 billion, and the briefing that most Members will have received refers to that figure, but the regulatory impact assessment says that it is less than £2 billion. That is a slightly disconcerting lack of precision on the part of the bookkeepers. Whether it is £2 billion or £4 billion, it has not been taken into account in the Government’s overall costing of the reform package. In other words, the Government have not taken into account that cash saving. The Secretary of State has said that it, or part of it, should be used to support pension saving, but we have heard no such commitment from the Treasury. I would be grateful, as would many people outside this place, if the Minister, when he winds up tonight, could make it clear whether the Government intend that that money, or a proportion of it, will be available to support the introduction of personal accounts and funded pension saving, and whether that position has been agreed with the Treasury. The fourth issue that I want to highlight is the proposed change to pension savings credit that will create a band of 100 per cent. withdrawal rate for some of Britain’s poorest pensioners. Those with an income just above the basic state pension with, for example, a tiny occupational pension or small amounts of savings income will be hit the hardest. Almost 1.5 million pensioners will be worse off than they would be under the existing system. For example, by 2010, a pensioner with an annual income just £250 a year above the basic state pension will lose £145 of savings credit. The Government say that that is part of the package, but hitting the very poorest savers is an odd way to encourage saving for retirement among those on lower incomes, and I urge the Minister to look again at that provision. I guarantee that our colleagues on both sides in the other place will want to do so if he does not. Part 3 of the Bill establishes the personal accounts delivery authority with a remit to work up the detail of the scheme that the Government have outlined or propose amendments to it. The promotion of pension saving to the millions of people who are not saving at all or not saving adequately is an essential element of this reform package. My colleagues and I had to think long and hard about Turner’s proposals to use auto-enrolment and compulsory employer contributions to provide a targeted workplace saving scheme focused on the lower paid. Despite the burden the proposals will impose on business, we took the decision to support them and, by doing so, allowed the debate to move on to one about the shape and form of personal accounts. We took that decision because we believed that it was in the national interest for us to do so. But as the debate has moved on, several problems have arisen. First, the level of means-testing projected for 2050 on either model represents a serious disincentive to pension saving. The Government envisage a model based on generic advice only, but it is clear that with 30 per cent. means-testing, let alone with 45 or 50 per cent., many people will be, understandably, confused about whether they would merely save themselves out of means-tested benefits to which they would otherwise be entitled. It is unclear at this stage who will take on the thankless task of giving that generic advice, and who will pay for it. Pension saving will not be right for everyone in a means-tested environment, and in a model free from individual advice, we all have an obligation to ensure that Government do not promote saving that does not pay, with the potential for the mother of all pension mis-selling scandals. The issue cannot be fudged or avoided. It must be confronted head-on. The Government must stop making statements like the one that the Secretary of State made earlier or the one on the Minister of State’s blog that"““even a part-time worker earning £6,000 could receive almost £2 in retirement—getting out double what they put in””." If any pension provider made such a statement, he could expect the regulator’s knock on the door about five minutes later. If we are to have an open and transparent debate about the value of personal accounts and if we are to convince people of their credibility as a long-term savings vehicle, the Government must be disciplined in the way they present the possible returns. When he winds up the debate, I want the Minister for Pensions Reform to give a commitment that the Government from now on will use the same regulated assumptions and restrictions to express projections of returns to savers in personal accounts that regulated pension providers are required to use. In that way, we will hear no more sloppy ““£2-for-£1”” offers; instead, projections of returns to different groups of savers will be expressed in the industry-standard, regulated form.