HC Deb 03 April 2000 vol 347 cc729-81

It being Ten o'clock, the debate stood adjourned.

Motion made, and Question put forthwith, pursuant to Standing Order No. 15 (Exempted business), That at this day's sitting, the Child Support, Pensions and Social Security Bill may be proceeded with, though opposed, until any hour.—[Mr. Kevin Hughes.]

Question agreed to.

As amended in the Standing Committee, again considered.

Question again proposed, That the clause be read a Second time.

Mrs. Lait

Our concern focuses on where the Government have chosen to draw the line. The issue was brought to our attention by the Association of British Insurers: it made its concerns clear to the Government, but they have not yet responded.

We suggest that top-ups are preferable to deeper rebates for defined benefit schemes, given the problems of getting the benefits of those rebates to filter through to lower-paid scheme members. It is less clear why the rebate approach is not applied to occupational schemes that are money purchase or defined contribution schemes. We suggest that the line should be drawn, not between occupational and personal pensions, but between defined benefit and money purchase schemes. Personal pensions might appear superficially more attractive than occupational money purchase schemes because of the deeper rebates. In theory, the S2P top-up should take care of that, but it will be 40 years before anyone sees any more jam.

It is also possible that the current proposals will add to providers' costs. Many insurers have moved out of COSRS, which are contracted out, salary-related schemes, and focused instead on COMPS, which are contracted out money purchase schemes that can run off the same systems as personal pensions and are therefore far simpler to use. We suggest that the Government take another look at the whole issue of COMPS and COSRS to see whether the impact of the stakeholder and state second pension will lessen the attraction of saving for pensions.

We are most concerned about the issue of concurrency. I hope that the Minister of State will display a positive attitude toward changing his mind about concurrency. If he does not, we shall press the new clause to a Division.

Mr. Flight

I rise to add to the points made by my hon. Friend the Member for Beckenham (Mrs. Lait). If the Government want stakeholders to be successful, it is in their interests to permit concurrency. The pattern of employment as it is now developing appears to require concurrency for both money purchase and final salary schemes. There will be an accelerating trend of people moving in and out between permanent employment, subcontracting and self-employment. For such people, there is a high risk of being left with little bits of several deferred occupational defined benefit schemes, so it must be desirable for them to have an on-going stakeholder pension scheme to provide the bulk of their retirement income.

What has happened to LISAs—lifelong individual savings accounts? The danger is that many people, especially those who are not in regular employment, will be underprovided for; at best, they will find their way into the second state pension scheme. However, the concept of a pension tax wrapper—analogous to the old personal equity plan tax wrapper and fairly similar to the individual savings account tax wrapper, whereby everyone can save for their pension, choose the unit trust in which they want to invest, and so on—is a necessary ingredient of the stakeholder system if it is to attract the desired membership.

About 2.8 million of those targeted for the Government's stakeholder pensions are in occupational schemes. The House does not want occupational schemes to be undermined by stakeholder schemes, and it can be argued that concurrence lessens the incentive for businesses with occupational schemes to replace them with stakeholder schemes.

On new clause 19, I echo the point that there is little logic in having completely different regulations for occupational money purchase schemes and personal pension money purchase schemes. Both types of scheme are in essence a pot of money that attaches to the individual. Many complications are caused by the different regulations and many companies are gradually ending their final salary schemes and moving to money purchase schemes. They are tending to move towards group personal pension schemes because they are more flexible. Surely the time has come to put the regulations together. As I have said, we are talking basically about one product.

Mr. Leigh

I have one simple question for the Minister, which I hope I can ask in a couple of minutes. What will happen when stakeholder pensions are made compulsory? I know that the Government would deny that it is currently their intention to make such pensions compulsory, but it is a generally accepted opinion in the industry, and in other circles, that were the Government to win the next general election, one of their early steps would be to make them compulsory.

Incentives are built into the minimum income guarantee system not to save and not to provide for one's pension. The more an individual saves and provides for his pension, the more he falls out of means-tested benefits. There will be so many people tempted for these reasons not to take out a stakeholder pension that it will not make sense from the Government's point of view to make such a pension compulsory. Other systems that have brought in stakeholder-type pensions have made them compulsory.

If such pensions are made compulsory, what will happen? Will people be forced to take the product? Will they, because the Government are opposed to concurrency, be denied the opportunity to take up an occupational pension? Of course not. I can foresee many difficulties unless the Government make it clear that people will have the choice. What is wrong with choice? The Government are right to insist that people should be encouraged to make some provision for their old age, but they should not be denying people choice when it comes to making that provision.

Mr. Rooker

The hon. Member for Arundel and South Downs (Mr. Flight) made a very important point. Later this year, the Government will embark on their generic advertising of the concept of stakeholder pensions. Providers will be doing their bit for the individual product. We will have to ensure that our advertising does not undermine occupational pensions—we are conscious of that. Mistakes could be made by a slip of a word, for example. I can give the hon. Gentleman that commitment. He raised the matter as an aside but he has made an important point.

We are now getting to technical considerations, and as someone from my humble origins I make no apology for sticking to my speaking notes. We discussed these matters in Committee. In responding to some hon. Members' questions, I must make it clear that the Government have not announced their final conclusions about concurrency. We have stated that clearly. Discussions are still taking place. If it were an easy matter to resolve or if we were ideologically opposed to concurrency and were having none of it, we would have said so by now. However, that is not our position. I hope that hon. Members will accept that sincere response, which I cannot go beyond.

The two new clauses are an attempt to introduce concurrency—to permit individuals to contribute simultaneously to a personal pension and an occupational pension scheme. A stakeholder pension is a personal pension. Secondly, they provide for members of occupational schemes on low and moderate earnings to get all the extra help that the state second pension brings entirely by way of enhanced national insurance rebates.

I shall deal first with the concurrency issue. We have already announced that we will permit concurrent membership of money purchase arrangements. An individual will be able to contribute, within existing limits, to both an employer-sponsored money purchase scheme and a stakeholder pension arrangement, if he or she so wishes.

I am in favour of everyone getting funded to the maximum. People should get as much money as they can from the Treasury to put towards their pension. I make no apology for saying that. It must be the best advice that any Member of Parliament or Minister can give our fellow citizens. There is a system designed to benefit them by enabling them to put money aside—not for a rainy day, but for their pension. Some people take full advantage of the system. Why do not others do so? They should get the maximum benefit in tax relief. If they can make the arrangements, and if they have the wherewithal, people should get funded up to the hilt.

However, there is always the problem of people going over the limit, by accident or as an avoidance measure. The Revenue is concerned about that. As has been said by hon. Members more versed in finance than I am, the Revenue is aware of the difficulties and will take a hard look at changes that may have an unintended effect.

The key issue now centres on concurrent membership of a defined contribution arrangement and defined benefit scheme. We have made it clear that we need to address the issue of high earners. Is it right to allow those who are already contributing up to the maximum limits in their occupational scheme to obtain further valuable tax relief on contributions of up to £3,600 a year to a concurrently held stakeholder scheme?

We do not believe that allowing such a concession would represent a wise or fair use of taxpayers' money. That is what it amounts to: the tax relief is the taxpayers'—the Treasury's—contribution to a person's pension. I say that people should take advantage of all they can get up to the limit and within the rules, but I see no justification for spending taxpayers' money to go above that.

I am advised that the more substantive part of the new clause bears a resemblance to an option put forward by the pensions industry in the very early stages of the consultation exercise on the future contracting-out regime. I can do no better than to quote the response of the Association of British Insurers to the consultation paper: We accept that the issues of practicality raised by this proposal would be a significant barrier to successful implementation, both for the Government and for the majority of pension providers. We have therefore concluded that this approach should not be pursued at this time. It may be helpful to hon. Members if I work through the issues of practicality to which the ABI refers. The new clause as drafted provides for low and moderate earners in contracted-out schemes to have the extra help that would be provided by the state second pension delivered entirely in rebate form and paid directly into a stakeholder pension arrangement. The rebate for low earners would be based on £9,500 and an accrual rate of 40 per cent., and moderate earners would have their rebate based on actual earnings and an accrual rate of 10 per cent. As all the help comes via the rebate, no state scheme top-up would be payable.

Before I turn directly to the practical limitations, I shall say a word about the additional up-front costs arising from that approach. As hon. Members know, we are already putting in an additional £400 million in extra rebates from the outset of the reforms. This figure will rise to some £4.5 billion in 2010. The proposal in the new clause would add to that almost £500 million more in the first year, and well over £1 billion in the second. We must consider whether that is a proper use of taxpayers' money. When we consider the practical application of the proposal, the answer must be no.

Moving on to the operational implications of the proposal, the first point to make is that every employer running a contracted-out occupational scheme would have to ensure that a stakeholder pension arrangement would be available for each member of his work force on low or moderate earnings. At present there are approximately 11,000 contracted-out occupational schemes. All of them would have to submit a stakeholder pension scheme application form to the Inland Revenue if they were also to set up an employer-sponsored stakeholder scheme.

10.15 pm

Employers who run contracted-out occupational money purchase schemes would no doubt find the suggestion that they should open a separate stakeholder scheme a little odd. It could have the effect of forcing all the schemes to switch to stakeholder status or obliging the employer to run two money purchase arrangements. Both mean more administrative work for the employer. Alternatively, employers could simply facilitate access to a stakeholder scheme but they would be responsible for ensuring that their employee had such a scheme. That proposal is part of the access arrangements in the Bill.

Next, all individuals who want a stakeholder account would also need to submit a form to the Revenue. That is necessary to ensure that they receive the rebate due. For a money purchase scheme, delivering the extra rebate would be fairly straightforward. It would simply be paid at the end of the tax year in the same way as existing money purchase rebates. However, the volumes could be enormous and cause the Revenue all sorts of difficulties. The method is far more complicated for final salary schemes. Part of the rebate would be delivered through a reduction in national insurance contributions, as happens now, and part would be paid into a stakeholder account at the end of the year.

We would need to devise a system that picked up both methods of delivery. That would require employers to provide end-of-year information differently from the way in which they currently provide it. The approach would require more and more administration. It is simply not a runner. However, I say that with the caveat that I mentioned at the beginning: we have not made our final decisions.

We are looking for a positive rather than a negative method of tackling the matter. We do not start from the ideological position that we do not want anyone to have any concurrency, whatever their earnings. I cannot go beyond that. However, if hon. Members are still awake, I have given a big enough hint that we are looking for a positive way of dealing with a difficult problem, to enable people to take up their rights to be fully funded and to get as much money out of the Treasury as possible.

Mrs. Lait

I am much encouraged to hear that the Government want everybody to take advantage of concurrency. We want to do everything possible to encourage them to do that. We acknowledge that the drafting of the new clause may not be perfect. However, the Minister is free to use Government facilities to redraft the amendments. To encourage him to do as much as possible for concurrency, I shall press the new clause to a vote.

Question put, That the clause be read a Second time:—

The House divided: Ayes 151, Noes 283.

Division No. 138] [10.17 pm
Ainsworth, Peter (E Surrey) Chidgey, David
Allan, Richard Chope, Christopher
Amess, David Clappison, James
Ancram, Rt Hon Michael Clarke, Rt Hon Kenneth (Rushcliffe)
Arbuthnot, Rt Hon James
Ashdown, Rt Hon Paddy Clifton-Brown, Geoffrey
Atkinson, Peter (Hexham) Collins, Tim
Baldry, Tony Cotter, Brian
Ballard, Jackie Cran, James
Beith, Rt Hon A J Davey, Edward (Kingston)
Bercow, John Davies, Quentin (Grantham)
Beresford, Sir Paul Davis, Rt Hon David (Haltemprice)
Body, Sir Richard Day, Stephen
Boswell, Tim Dorrell, Rt Hon Stephen
Bottomley, Rt Hon Mrs Virginia Duncan, Alan
Brady, Graham Duncan Smith, Iain
Brake, Tom Evans, Nigel
Brand, Dr Peter Faber, David
Brazier, Julian Fabricant, Michael
Breed, Colin Fallon, Michael
Brooke, Rt Hon Peter Fearn, Ronnie
Browning, Mrs Angela Flight, Howard
Bruce, Ian (S Dorset) Forth, Rt Hon Eric
Burnett, John Foster, Don (Bath)
Burstow, Paul Fowler, Rt Hon Sir Norman
Butterfill, John Fox, Dr Liam
Campbell, Rt Hon Menzies (NE Fife) Fraser, Christopher
Gale, Roger
Garnier, Edward Ottaway, Richard
George, Andrew (St Ives) Page, Richard
Gibb, Nick Paice, James
Gillan, Mrs Cheryl Pickles, Eric
Gray, James Portillo, Rt Hon Michael
Green, Damian Prior, David
Greenway, John Redwood, Rt Hon John
Grieve, Dominic Rendel, David
Gummer, Rt Hon John Robathan, Andrew
Hamilton, Rt Hon Sir Archie Robertson, Laurence
Hammond, Philip Roe, Mrs Marion (Broxbourne)
Harris, Dr Evan Ruffley, David
Harvey, Nick Russell, Bob (Colchester)
Hayes, John St Aubyn, Nick
Heald, Oliver Sanders, Adrian
Heath, David (Somerton & Frome) Shephard, Rt Hon Mrs Gillian
Heathcoat-Amory, Rt Hon David Simpson, Keith (Mid-Norfolk)
Smith, Sir Robert (W Ab'd'ns)
Hogg, Rt Hon Douglas Soames, Nicholas
Horam, John Spicer, Sir Michael
Hughes, Simon (Southwark N) Spring, Richard
Hunter, Andrew Stanley, Rt Hon Sir John
Jenkin, Bernard Steen, Anthony
Keetch, Paul Streeter, Gary
Key, Robert Stunell, Andrew
King, Rt Hon Tom (Bridgwater) Swayne, Desmond
Kirkbride, Miss Julie Syms, Robert
Kirkwood, Archy Tapsell, Sir Peter
Laing, Mrs Eleanor Taylor, Ian (Esher & Walton)
Lait, Mrs Jacqui Taylor, John M (Solihull)
Lansley, Andrew Taylor, Matthew (Truro)
Leigh, Edward Tonge, Dr Jenny
Letwin, Oliver Trend, Michael
Lewis, Dr Julian (New Forest E) Tyler, Paul
Lidington, David Tyrie, Andrew
Lilley, Rt Hon Peter Viggers, Peter
Livsey, Richard Walter, Robert
Lloyd, Rt Hon Sir Peter (Fareham) Wardle, Charles
Loughton, Tim Waterson, Nigel
Lyell, Rt Hon Sir Nicholas Webb, Steve
MacKay, Rt Hon Andrew Whitney, Sir Raymond
Maclennan, Rt Hon Robert Whittingdale, John
McLoughlin, Patrick Willetts, David
Malins, Humfrey Winterton, Mrs Ann (Congleton)
Mates, Michael Winterton, Nicholas (Macclesfield)
Moore, Michael Yeo, Tim
Moss, Malcolm Young, Rt Hon Sir George
Nicholls, Patrick
Norman, Archie Tellers for the Ayes:
O'Brien, Stephen (Eddisbury) Mr. John Randall and
Öpik, Lembit Mr. Peter Luff.
Abbott, Ms Diane Betts, Clive
Ainger, Nick Blears, Ms Hazel
Alexander, Douglas Blizzard, Bob
Allen, Graham Boateng, Rt Hon Paul
Anderson, Donald (Swansea E) Bradley, Keith (Withington)
Anderson, Janet (Rossendale) Bradley, Peter (The Wrekin)
Armstrong, Rt Hon Ms Hilary Bradshaw, Ben
Ashton, Joe Brinton, Mrs Helen
Atherton, Ms Candy Brown, Rt Hon Nick (Newcastle E)
Atkins, Charlotte Browne, Desmond
Austin, John Buck, Ms Karen
Banks, Tony Burden, Richard
Barnes, Harry Caborn, Rt Hon Richard
Barron, Kevin Campbell, Alan (Tynemouth)
Bayley, Hugh Campbell, Ronnie (Blyth V)
Beard, Nigel Campbell-Savours, Dale
Beckett, Rt Hon Mrs Margaret Caplin, Ivor
Begg, Miss Anne Casale, Roger
Bell, Martin (Tatton) Caton, Martin
Benn, Rt Hon Tony (Chesterfield) Cawsey, Ian
Benton, Joe Chapman, Ben (Wirral S)
Bermingham, Gerald Clapham, Michael
Berry, Roger Clark, Rt Hon Dr David (S Shields)
Clark, Dr Lynda (Edinburgh Pentlands) Hughes, Kevin (Doncaster N)
Humble, Mrs Joan
Clark, Paul (Gillingham) Hurst, Alan
Clarke, Charles (Norwich S) Hutton, John
Clarke, Eric (Midlothian) Iddon, Dr Brian
Clarke, Tony (Northampton S) Illsley, Eric
Clelland, David Jackson, Ms Glenda (Hampstead)
Clwyd, Ann Jackson, Helen (Hillsborough)
Coaker, Vernon Jamieson, David
Coffey, Ms Ann Jenkins, Brian
Cohen, Harry Johnson, Alan (Hull W & Hessle)
Coleman, Iain Johnson, Miss Melanie (Welwyn Hatfield)
Colman, Tony
Connarty, Michael Jones, Rt Hon Barry (Alyn)
Cook, Frank (Stockton N) Jones, Helen (Warrington N)
Cooper, Yvette Jones, Jon Owen (Cardiff C)
Corbett, Robin Jones, Dr Lynne (Selly Oak)
Corbyn, Jeremy Jones, Martyn (Clwyd S)
Cousins, Jim Kaufman, Rt Hon Gerald
Crausby, David Keeble, Ms Sally
Cryer, John (Hornchurch) Keen, Alan (Feltham & Heston)
Cunningham, Rt Hon Dr Jack (Copeland) Kemp, Fraser
Kennedy, Jane (Wavertree)
Cunningham, Jim (Cov'try S) Khabra, Piara S
Dalyell, Tam Kidney, David
Darling, Rt Hon Alistair Kilfoyle, Peter
Darvill, Keith King, Andy (Rugby & Kenilworth)
Davey, Valerie (Bristol W) King, Ms Oona (Bethnal Green)
Davidson, Ian Laxton, Bob
Davies, Geraint (Croydon C) Lepper, David
Dean, Mrs Janet Leslie, Christopher
Dismore, Andrew Levitt, Tom
Dobbin, Jim Lewis, Terry (Worsley)
Donohoe, Brian H Liddell, Rt Hon Mrs Helen
Doran, Frank Linton, Martin
Eagle, Angela (Wallasey) Lock, David
Eagle, Maria (L'pool Garston) Love, Andrew
Edwards, Huw McAvoy, Thomas
Ennis, Jeff McCabe, Steve
Reid, Rt Hon Frank McDonagh, Siobhain
Fisher, Mark Macdonald, Calum
fitzsimons, Lorna McDonnell, John
Flint, Caroline McFall, John
Follett, Barbara McGuire, Mrs Anne
Foster, Rt Hon Derek McNulty, Tony
Foster, Michael Jabez (Hastings) MacShane, Denis
Foster, Michael J (Worcester) Mactaggart, Fiona
Foulkes, George McWalter, Tony
Gardiner, Barry McWilliam, John
Gerrard, Neil Mahon, Mrs Alice
Gilroy, Mrs Linda Marsden, Gordon (Blackpool S)
Godman, Dr Norman A Marsden, Paul (Shrewsbury)
Goggins, Paul Marshall, Jim (Leicester S)
Golding, Mrs Llin Marshall-Andrews, Robert
Gordon, Mrs Eileen Maxton, John
Griffiths, Jane (Reading E) Meacher, Rt Hon Michael
Griffiths, Nigel (Edinburgh S) Michie, Bill (Shef'ld Heeley)
Grocott, Bruce Miller, Andrew
Grogan, John Moffatt, Laura
Hall, Mike (Weaver Vale) Moonie, Dr Lewis
Hamilton, Fabian (Leeds NE) Morgan, Ms Julie (Cardiff N)
Harman, Rt Hon Ms Harriet Morley, Elliot
Heal, Mrs Sylvia Morris, Rt Hon Ms Estelle (B'ham Yardley)
Healey, John
Henderson, Doug (Newcastle N) Mountford, Kali
Henderson, Ivan (Harwich) Mullin, Chris
Heppell, John Murphy, Denis (Wansbeck)
Hill, Keith Murphy, Jim (Eastwood)
Hinchliffe, David Murphy, Rt Hon Paul (Torfaen)
Hoon, Rt Hon Geoffrey Naysmith, Dr Doug
Hope, Phil Norris, Dan
Hopkins, Kelvin O'Brien, Mike (N Warks)
Howarth, Alan (Newport E) Olner, Bill
Howarth, George (Knowsley N) O'Neill, Martin
Howells, Dr Kim Osborne, Ms Sandra
Hoyle, Lindsay Palmer, Dr Nick
Pearson, Ian Squire, Ms Rachel
Pendry, Tom Steinberg, Gerry
Perham, Ms Linda Stevenson, George
Pickthall, Colin Stewart, David (Inverness E)
Pike, Peter L Stewart, Ian (Eccles)
Plaskitt, James Stinchcombe, Paul
Pollard, Kerry Stoate, Dr Howard
Pond, Chris Stringer, Graham
Pope, Greg Stuart, Ms Gisela
Pound, Stephen Sutcliffe, Gerry
Prentice, Ms Bridget (Lewisham E) Taylor, Rt Hon Mrs Ann (Dewsbury)
Prentice, Gordon (Pendle)
Prescott, Rt Hon John Taylor, Ms Dari (Stockton S)
Prosser, Gwyn Taylor, David (NW Leics)
Purchase, Ken Temple-Morris, Peter
Quin, Rt Hon Ms Joyce Thomas, Gareth (Clwyd W)
Quinn, Lawrie Thomas, Gareth R (Harrow W)
Radice, Rt Hon Giles Tipping, Paddy
Raynsford, Nick Touhig, Don
Reid, Rt Hon Dr John (Hamilton N) Trickett, Jon
Roche, Mrs Barbara Truswell, Paul
Rooker, Rt Hon Jeff Turner, Dennis (Wolverh'ton SE)
Turner, Dr George (NW Norfolk)
Rooney, Terry Turner, Neil (Wigan)
Ross, Ernie (Dundee W) Twigg, Derek (Halton)
Rowlands, Ted Twigg, Stephen (Enfield)
Roy, Frank Walley, Ms Joan
Ruane, Chris Ward, Ms Claire
Ruddock, Joan Watts, David
Ryan, Ms Joan White, Brian
Salter, Martin Whitehead, Dr Alan
Savidge, Malcolm Williams, Rt Hon Alan (Swansea W)
Sawford, Phil
Sedgemore, Brian Williams, Alan W (E Carmarthen)
Sheerman, Barry Williams, Mrs Betty (Conwy)
Short, Rt Hon Clare Wills, Michael
Simpson, Alan (Nottingham S) Winnick, David
Singh, Marsha Wood, Mike
Skinner, Dennis Woodward, Shaun
Smith, Rt Hon Andrew (Oxford E) Woolas, Phil
Smith, Angela (Basildon) Worthington, Tony
Smith, Jacqui (Redditch) Wright, Anthony D (Gt Yarmouth)
Smith, John (Glamorgan) Wright, Dr Tony (Cannock)
Smith, Llew (Blaenau Gwent) Wyatt, Derek
Snape, Peter
Soley, Clive Tellers for the Noes:
Southworth, Ms Helen Mr. Jim Dowd and
Spellar, John Mr. Robert Ainsworth.

Question accordingly negatived.

  1. New Clause 36
    1. cc736-9
    2. Annual increase in basic retirement pension 1,403 words, 1 division
  2. Clause 30
    1. cc739-45
  3. Schedule 4
    1. c745
    2. ADDITIONAL PENSION 182 words
  4. Clause 33
    1. c745
    2. REBATES 47 words
  5. Clause 36
    1. cc745-6
  6. New Clause 25
    1. cc746-50
  7. New Clause 32
    1. cc750-4
  8. New Clause 30
    1. cc754-66
  9. Clause 40
    1. cc766-71
  10. New Clause 21
    1. cc771-7
    2. WAR WIDOWS' PENSIONS—ENTITLEMENT 3,363 words, 1 division
  11. Schedule 9
    1. cc777-81
    2. REPEALS AND REVOCATIONS 2,174 words
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