Andrew Smith – 2002 Statement on the Pickering Review

The statement made by Andrew Smith, the Secretary of State for Work and Pensions, in the House of Commons on 4 July 2002.

With permission, Mr. Speaker, I should like to make a statement on the Pickering report that was published this morning.

The report is the culmination of nine months of hard work by Alan Pickering and his team. I should like to thank him and also everyone who took the time and effort to submit their views—some of whom are here today.

In his report, Alan Pickering acknowledges the encouragement that he received not only from my right hon. Friends the Secretary of State for Transport and the Minister for Pensions, but also from the right hon. Member for Hitchin and Harpenden (Mr. Lilley) and the hon. Members for Havant (Mr. Willetts) and for Northavon (Mr. Webb).

Pensions simplification has to be at the heart of any strategy to encourage greater pension provision. We need to deal with the complexities built up over the years by successive Governments.

Alan’s report makes 52 recommendations. The key ones include: a new pensions Act to consolidate all existing pensions legislation; a new more proactive regulator; a better, more targeted approach for communicating with pension scheme members; more flexibility to modify schemes; allowing employers to make membership of their occupational pension scheme a condition of employment; and the ending of compulsory indexation for defined benefit pensions, and compulsory survivors benefits.

The report, together with Ron Sandler’s proposals, announced by my hon. Friend the Financial Secretary on Tuesday, represents the first stage of a comprehensive review of occupational and personal pension provision.

The Government will take a radical look at the issues, together with the results of the Inland Revenue review of tax simplification, when that is completed. In the autumn we will come forward with our proposals in a Green Paper.

That will initiate a wide-ranging consultation. It will look at private pensions policy in the round, including the opportunities open to people around retirement, and will set out the Government’s proposals to enable people to build up more pension savings.

Alan Pickering’s report covers complex issues and includes some tough choices—the inevitable dilemmas faced by all simplifiers. The report presents challenges to us all: employees and their unions, employers and commercial pension providers, the Government and the Opposition. I believe that we will need to be guided by the following principles and objectives, grounded in a long-term approach: fairness; security in retirement; informed choice for consumers; simple and proportionate regulation; ensuring that incentives are effective and well understood; promoting employment among older workers; and flexibility to give individuals more choice about the pace at which they retire from the labour market. I hope that we can secure all-party agreement on those matters.

The Government believe that pension provision should be based on partnership, which can secure lasting buy-in from all key players. We must strike the right balances between sometimes competing goals. We want the simplicity that enables people to make informed choices without stifling product innovation and competition. We want a proportionate regulatory framework that provides sufficient security for savers while making it worth while for employers and commercial providers to make available good pension products. We need to ensure that we remove unnecessary barriers to employer provision and employer contributions. We also need to make it easier for people to save and make it easier to sell pension products, as Ron Sandler’s report proposed on Tuesday. We need to achieve all that and more against the remorseless arithmetic that tells us that, because we are living longer and want to maintain a good standard of living in retirement, we need to save more or work longer, or a combination of both.

We wanted Alan Pickering to present a strong challenge to the degree of regulation around private pensions. He has done that—he has made some valuable proposals for simplifying pensions legislation and reducing administrative burdens on both schemes and employers, cutting costs and simplifying choices for individuals. His recommendations also present some tough choices. Take, for example, his recommendation that employers should have the choice to make joining a company pension a condition of employment. Some 16 per cent. of people who could benefit from a company pension scheme currently choose not to do so. Compelling people to join would restrict their choice, but against that consideration, we need to balance the beneficial effects for schemes and the overall effect on extending pension coverage.

Alan has also made a number of specific recommendations on easements of legislation—in particular, repeal of section 67 of the Pensions Act 1995. Again, that throws up a tough choice. The recommendation would mean that, if employers faced funding constraints on their scheme, they could have an option to reduce future funding costs rather than close the scheme. Of course, that would remove an absolute guarantee against the consequences of change, but might well secure a better outcome for members and the future of the scheme, set against the alternative of its closure.

Alan also recommends an end to compulsory indexation of pensions and removal of compulsory survivors’ benefits as a condition of contracting out. On first reading, those proposals are not attractive. They go against the drive of the past 30 years to price protect pensions and to enhance survivors’ benefits, but again, in the light of the report, we will need to look carefully at all the consequences.

As well as the big themes and recommendations to which I have referred, a number of more modest issues are addressed to my Department and others. For example, they include improving the way in which contracting out is administered; streamlining procedures and reducing general administrative burdens; looking at ways better to provide advice through the workplace; and improving information going to pension scheme members. Those recommendations have considerable merit, and subject to the responses that we receive to the report, I intend to take them forward.

In conclusion, I believe that Alan Pickering’s report offers clear options for simplification and makes a valuable contribution to the debate that we need to have on the next stage of pension reform. We need to face up to the tough choices that he sets out. In seeking to simplify the future we must also face up to the—in many ways harder—challenge of simplifying the past, in that we need to simplify the different regulations that have built up over the years. Otherwise, we will end up adding yet another layer to the existing layer cake of regulation and complexity.

Alan Pickering’s proposals are radical, ambitious and pragmatic. I urge hon. Members, the public, employers, trade unions and pension providers—all those whose partnership is essential for effective pension reform—to give them full and constructive consideration. The Government certainly will. The acid tests for the Green Paper must be increasing the level of savings for retirement and making a secure occupational pension accessible to as many people as possible.