Pensions Bill

moved Amendment No. 59: 59: Schedule 1, page 81, line 10, leave out sub-paragraph (2) and insert— ““( ) The assistance may take the form of— (a) loans subject to repayment with interest at a commercial rate, or (b) guarantees or indemnities issued on commercial terms. ( ) Interest is at a commercial rate if it is at least equal to the rate set by the Treasury under section 5 of the National Loans Act 1968 (c. 13) for an equivalent loan.”” The noble Baroness said: My Lords, we come to a slightly more difficult area. In moving Amendment No. 59, I will also speak to Amendments Nos. 60 and 64. These amendments concern the costs of personal accounts and whether those costs should be subsidised. Amendment No. 59 amends paragraph 18 of Schedule 1 and replaces sub-paragraph (2), which says that the Secretary of State can give financial assistance to the trustee corporation in any way he likes. This is clearly intended to cover the possibility of subsidy to the trustee corporation. My replacement sub-paragraph would allow financial assistance only on commercial terms. The noble Lord, Lord Oakeshott, said in Committee that ““commercial terms”” was rather difficult in the context of political funding. I defer to his experience on that rarefied subject but, to meet his point, I have extended my amendment to use the National Loans Act formulation of interest rates as the threshold for a commercial rate. While the financial arrangements surrounding personal accounts seem set to remain a mystery for some time—we will return to that in a later amendment—it seems clear that the trustee corporation will incur expenditure in the early years which will not be matched by income from charges from members. The gap between income and outgoings will be particularly marked if the annual management charge method is adopted for charging on an exclusive basis. The trustee corporation will therefore need money to fund those costs until charges catch up with expenditure. We have no issue with that, but we believe that this money should be by way of loan and should bear a commercial rate of interest in order to avoid a covert subsidy being conferred on the personal accounts pension scheme. Of even more concern to the insurance industry, which will have to compete with personal accounts, is the possibility of a subsidy being paid to the personal accounts pension scheme to support some of its activities on an ongoing basis. In Committee, the Minister revealed—I think, for the first time—the novel contention that the personal accounts scheme will have a public service obligation to accept members into the scheme whom the market finds commercially unviable. The Minister said that it could be reasonable for the Government to compensate the personal accounts scheme for that. We do not accept that the personal accounts scheme involves any element of public service obligation. We accept that EU rules permit the subsidy of public service obligations, but they do not require such subsidy. Furthermore, we are far from clear on whether the personal accounts scheme would qualify as a public service organisation as it is quite unlike any of the public services that generally fall within this term. In the absence of competitively testing the level of subsidy, I believe that the Government would rightly struggle to justify any particular level of subsidy. The Government have said that they want to encourage the continuation and expansion of existing workplace pensions and to encourage auto-enrolment into those schemes, which we have debated in the context of earlier amendments. The commercial pension providers will almost certainly accept a wider range of member, including those at the lower end of the income scale, those who change jobs more often and those who, inevitably therefore, lead to higher servicing costs. Is it fair that the Government could subsidise the personal accounts scheme for accepting such members, but not the alternative auto-enrolment methods of saving? I went back to the Pensions Commission’s report and found no suggestion of subsidy. Its suggestion of charges of no more than 0.5 per cent and possibly 0.3 per cent was made in the full knowledge of the target group of members and their financial characteristics. More importantly, the Government’s White Paper published in December 2006, Personal Accounts: A New Way to Save, while suggesting that short-term costs might be higher than anticipated by the Pensions Commission, asserted at paragraph 4.8: "““The Government is confident that charges in the scheme can be radically lower than those currently offered to … our target group””." There was no mention of subsidy or finance complying with state aid rules, to which the Minister referred in Committee. We suspect that talk of subsidy has arisen only because the costing for personal accounts, about which we know absolutely nothing because of the Government’s obsessive secrecy, is showing that the task of delivering the scheme within the 0.5 per cent charging limit proposed by the Pensions Commission is proving difficult. Rather than own up to that and re-examine whether the PADA-led personal accounts scheme is viable in those terms, the Government are hiding behind hints of subsidy. We do not think that that is the right way to go. Amendment No. 60 is related to paragraph 19 of Schedule 1 under which the, "““trustee corporation may make charges in connection with the exercise of its functions””." My amendment says that it ““shall”” do so. The trustee corporation will incur costs and it needs income to cover them. The current drafting assumes that it might not need to make charges. Clearly, if it receives subsidy, it will not do so, but we need to ensure that the trustee corporation does make charges. That is what Amendment No. 60 seeks to do. Amendment No. 64 deals with PADA’s costs and how they are to be financed. In Committee, the Minister invited me to see the DWP’s estimates as the basis of transparency of PADA’s costs, which I have done. PADA and costs are mentioned, but that is about all. We know that PADA has already been financed by grant-in-aid which will amount to £49 million by the end of this financial year. I do not believe that any accounts for PADA’s first year spend of £13 million have yet been made public; at least, I could not find them. We will clearly not find anything about this year’s £36 million until PADA’s accounts come out some time in the second half of next year. These delays are simply not conducive to transparency both for Parliament and for outside bodies which have an interest in what PADA spends taxpayers’ money on. Amendment No. 64 requires the Secretary of State to lay a report before Parliament in advance of giving further grant in aid or indeed any other non-commercial method of funding to PADA. This goes beyond the technical process of supply via approved estimates, which is a largely meaningless formal parliamentary process since it would require the Secretary of State to give his reasons for subsidising PADA’s work. Unlike the trustee corporation, we accept that a level of subsidy of PADA’s activities might be necessary, and I conceded that in Committee. We recognise that some of its work is related to broader public policy development, and it would be reasonable for the Government to use taxpayers’ money for that. But most of its expenditure will relate to the delivery of an operational personal accounts pension scheme which we do not consider should attract public subsidy. It would be difficult to formulate a ““no public subsidy position for PADA’s work on personal accounts”” rule in this Bill, as some of its activities are almost certainly mixed, so we have instead chosen transparency which brings with it the possibility of early parliamentary scrutiny as an alternative route. I beg to move.