BUSINESS OF THE HOUSE (Hansard, 3 April 2000)

HC Deb 03 April 2000 vol 347 cc729-81 729

§ 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 730 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 731 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 732 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 733 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.

736

Division No. 138]	[10.17 pm
AYES
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

734

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.

NOES
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)

735

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

736

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.