Pensions Bill

I declare my interest as a director of Scottish Widows, chairman of BUPA and Intrinsic Financial Services, as well as other entries in the register. I have spent all my working life in the financial services industry and have the scars to prove it. For the past two years I have led the Leitch review of the UK’s long-term skills needs. At the same time, I have been carefully following the Government’s policy on pensions. I endorse both the sentiment and the substance behind the amendments in the names of my noble friends Lady Turner and Lady Gibson. The noble Baroness, Lady Noakes, makes very helpful points. The Personal Accounts Delivery Authority has a vital role to play in delivering both the ambition and the implementation of the Government’s pension strategy. The stark reality is that the UK is witnessing steady deterioration and erosion of the number of people on track to live a secure and comfortable retirement. We are a nation divided by our propensity and our ability to save. Too many consumers either simply have no idea about the levels of saving required for a comfortable retirement or they live in disturbing ignorance of the financial reality for even a very modest retirement. The new authority has a key role to play, both in increasing public awareness and education on saving for retirement and in facilitating the delivery of the right advice at the right time. In this regard, it is essential that the authority really understands and takes note of all consumer interest. There is, of course, another major impediment to a secure retirement and it is, in many ways, for many people, the greatest obstacle. That is affordability. Disturbingly, the obstacle of affordability is concentrated among those with the greatest need to save. Solutions to address and remedy this obvious but serious problem lie elsewhere through initiatives on skills, employment and social justice. But that is for another day. To the issues before us, I see two clear challenges to address. First, we must influence and encourage those who can or do save to do more and to make the right level of provision. Secondly, we must support those who are unable to do so. No pensioner in our country should ever live in poverty. Personal accounts have a fundamental role to play in addressing the first challenge, which is increasing the numbers of people saving and the absolute amounts being saved. But personal accounts will stand—or fall—on their ability to broaden and deepen the extent of retirement savings. In other words, they must reach the parts that existing provision does not reach. They must work in tandem with the private sector. Public and private schemes must complement each other. Personal accounts must be genuinely additive; they must not simply redirect savings from other channels. That would be a wasted opportunity and an expensive, pointless exercise. At the same time, it would be damaging if employers used personal accounts as an excuse to reduce their overall contribution levels. In recent years, there has been a significant shift away from defined benefit schemes to defined contribution arrangements, in many cases resulting in a decrease in employer contributions. This inexorable decline must not prevail. However, do not misunderstand me. Despite what one may read, today the private pensions sector is both tightly regulated and flourishing. Millions of people are making substantial contributions to their pensions. Personal accounts must not just coexist with existing private provision. The two must work harmoniously in tandem as part of an overall pensions strategy—neither should benefit, nor suffer, at the hands of the other. I understand the argument that the taxpayer should help to fund the establishment costs of the delivery authority, but at the same time existing providers should not be unfairly disadvantaged by significant or open-ended public subsidy. Like their private sector counterparts, the success of personal accounts will be determined in large part by the quality and relevance of the advice that individuals receive. Make no mistake, advice in what remains one of the most complicated pension systems anywhere in the world will make the difference between success and failure. The Government’s intention to make a generic advice model is needed and, I believe, very welcome. I look forward to the conclusions of the Thoresen review, but I want to sound a note of caution. Generic advice to consumers is by its very nature limited in its application to specific circumstances. The challenge is to be both general yet sufficiently personalised to encourage saving and inform the correct decision. Striking the right balance will be incredibly difficult. We must be alert to the real risks in both the short and long term. I am sure that we all agree that retirement should be a secure period in everyone’s life, not something to dread or feel anguish about. For many people that peace of mind demands a much greater awareness and a willingness to make adequate preparation for the future. For many, that will mean confronting the very harsh reality of making sacrifices today for a more secure and certain tomorrow. This Bill, with effective personal accounts, is a solid foundation on which to build that tomorrow.