- '.—(1) A person shall be able to hold both a stakeholder pension and an occupational pension concurrently and without financial penalty.
- (2) Any rebates or extra monies that may be payable to a person, and which are greater for Stage 1 of the State Second Pension than for SERPS, shall be paid into a stakeholder pension.'.—[Mrs. Lait.]
§ Brought up, and read the First time.
§ Madam Speaker
With this it will be convenient to discuss new clause 19—Use of rebates and extra monies—
- '.—( ) Where rebates or extra monies are payable they shall be applied as follows—
- (a) rebates shall be paid into Contracted Out Money Purchase Schemes; and
- (b) extra monies shall be applied to Contracted Out Salary Related Schemes.'.
§ Mrs. Lait
I am afraid that these new clauses are rather technical, but I shall try to be as brief as possible.
New clause 18 relates to the principle of stakeholder pensions' concurrency with other pensions. The Government have recently suggested that they did not want concurrency, but that they would consider it for people on lower earnings. Why is it not a good idea for all people to use concurrency if they have the ability to pay and if it falls within the amount that they can use tax free?
The objection is that concurrency would mean a tax break for the rich. Many people, whatever their income, do not put enough money into pension schemes to give them a reasonable retirement income, and I suggest that if there is scope in the tax system for them to use up more money on pensions, it is, to say the least, shortsighted not to allow them to use stakeholder pensions to do so.
728 There are a number of other arguments for concurrency which I shall briefly deal with. The first is simplification. Concurrency would reduce the need for individuals to get advice on whether they should stay in or join an occupational scheme. The second argument concerns the complication of additional voluntary contributions. Stakeholder pensions could replace AVCs and freestanding AVCs because they would be better value for money.
Concurrency would also simplify regulatory issues, because there would not be the same need for stakeholder scheme providers to police members' employment arrangements. It seems odd to use the word "inertia" about pensions, because the last thing we want is for people to be inert when it comes to providing for themselves. However, there is an argument for making inertia work for, rather than against, pension provision. It would be easier for somebody to continue to pay into their stakeholder scheme when they joined an occupational scheme.
Another argument that has reared its head before is that there would be a potential for mis-selling if somebody opted out of a good occupational scheme because there was no concurrency. Concurrency is also useful for a flexible labour market and it would help existing schemes. There is plenty of scope for people to take up concurrent stakeholder pensions, because the average private sector employee in an occupational scheme contributes 4.7 per cent. of earnings to that scheme, so there is plenty of room for a stakeholder pension on top.
The arguments against concurrency relate to revenue loss, but there will be future savings to the Government on means-tested benefits. People are not already using up all their legal entitlement to pension contributions, and as we work on the basis of people paying tax as they get money out of their pension scheme, more tax will be paid in the longer term, because we will have better-off pensioners.
There are strong arguments for concurrency, and it has been recommended by bodies as disparate as the TUC, the Engineering Employers Federation and the National Association of Pension Funds. I urge the Government to reconsider concurrency on the basic policy principle of ensuring that as many people as possible take up as much of their pension entitlement as they can.
The second part of new clause 18 deals with rebates, and it, too, aims to encourage people to make better provision for themselves. There may be rebates in excess of those for SERPS which could be paid into a stakeholder pension. They would be small sums, but a stakeholder pension is designed for such sums. That would be a sensible way to enable people to use their allowances and, with concurrency, would help people to make pension provision. It would also be a useful pensions vehicle for large numbers of employees.
New clause 19 deals with where the line is drawn between the use of rebates and the use of top-ups to offset the impact of the state second pension. The proposed dividing line is drawn between occupational and personal pensions. That would sacrifice the level playing field between different sorts of pension—personal, occupational and stakeholder—but during the consultation process, the Government found that maintaining the level playing field would impose excessive administrative burdens and complexity.