CHAPTER 5 (Hansard, 18 May 2004)

HC Deb 18 May 2004 vol 421 cc837-53 837 Early leavers: cash transfer sums and contribution refunds 101AA Scope of Chapter 5

(1) This Chapter applies to any member of an occupational pension scheme to which Chapter 1 applies (see section 69(3)) if—

(a) his pensionable service terminates before he attains normal pension age, and
on the date on which his pensionable service terminates—

(i) the three month condition is satisfied, but
(ii) he does not have relevant accrued rights to benefit under the scheme.

(2) For the purposes of subsection (1), the three month condition is that the period of the member's pensionable service under the scheme, taken together with—

(a) any previous period of his pensionable service under the scheme, and
(b) any period throughout which he was employed in linked qualifying service under another scheme,

amounts to at least three months.
(3) A period counts for the purposes of paragraph (a) or (b) of subsection (2) only so far as it counts towards qualification for long service benefit within the meaning of Chapter 1.
(4) For the purposes of subsection (1), "relevant accrued rights to benefit under the scheme", in relation to a member of a scheme, means rights which—

(a) have accrued to or in respect of him under the scheme, and
(b) entitle him to the relevant benefits which would have accrued to or in respect of him under the applicable rules if paragraphs (a) and (b) of section 71(1) (and the word "and" immediately preceding them) did not have effect.

(5) References in the following provisions of this Chapter to a member, in relation to an occupational pension scheme, are to a member of the scheme to whom this Chapter applies.

101AB Right to cash transfer sum and contribution refund

On the termination of his pensionable service, a member of an occupational pension scheme acquires a right to whichever one he elects of the following options—

(a) a cash transfer sum;
(b) a contribution refund.

(2) Subsection (1) is subject to the following provisions of this Chapter.
(3) In this Chapter "cash transfer sum" means, in relation to a member of an occupational pension scheme, the cash equivalent, at the date on which his pensionable service terminates, of the benefits mentioned in section 101AA(4)(b).
(4) In this Chapter, "contribution refund" means, in relation to a member of an occupational pension scheme, a sum representing the aggregate of—

(a) the member's employee contributions to the scheme, and
(b) where transfer credits have been allowed to the member and the scheme by virtue of a payment ("the transfer payment") made by the trustees or managers of another occupational pension scheme, the member's employee contributions to that other scheme, so far as they—

(i) relate o the transfer payment, and
(ii) do not, in aggregate, exceed the amount of the transfer payment.

(5) In subsection (4), "employee contributions" means, in relation to a member and an occupational pension scheme, contributions made to the scheme by or on behalf of the member on his own account, but does not include—

(a) a transfer payment by virtue of which transfer credits have been allowed to the member under the scheme, or
any pension credit or amount paid to the scheme which is attributable (directly or indirectly) to a pension credit.

101AC Notification of right to cash transfer sum or contribution refund

This section applies where the pensionable service of a member of an occupational pension scheme has terminated.
The trustees or managers of the scheme must—
1. (a) within a reasonable period after the termination give the member a statement in writing containing information adequate to explain—
  1. (i) the nature of the right acquired by him under section 101AB, and
  2. (ii) how he may exercise the right,
2. and such other information as may be prescribed, and
3. (b) afford the member a reasonable period after giving him that statement within which to exercise the right.
(3) The statement given under subsection (2)(a) must specify, in particular—
1. (a) in relation to the cash transfer sum to which the member acquires a right under section 101AB, its amount and he permitted ways in which the member can use it,
2. (b) the amount of the contribution refund to which the member so acquires a right, and
3. (c) the last day on which the member may, disregarding section 101AI(2), exercise the right ("the reply date").
(4) Information whit may be prescribed under subsection (2)(a) includes, in particular—
1. (a) information about any tax liability in respect of, or deduction required or permitted to be made from, the cash transfer sum or contribution refund, and
2. (b) information about the effect on other rights of the member (whether under the applicable rules or otherwise) of exercising the right.
(5) The trustees or managers may notify the member that, if he does not exercise the right mentioned in subsection (2)(a)(i) on or before the reply date, the trustees or managers will be entitled to pay the contribution refund to him.
Where the trustees or managers of the scheme fail to comply with subsection (2), section 10 of the Pensions Act 1995 (c. 26) (civil penalties) applies to any trustee or manager who has failed to take all reasonable steps to secure compliance.

101AD Exercise of right under section 101AB

(1) This section applies where a member of an occupational pension scheme acquires a right under section 101AB.
(2) The member may exercise the right by giving a notice in writing to that effect to the trustees or managers stating—
1. (a) which of the options under section 101AB(I) he elects, and
2. (b) if he elects for the cash transfer sum, the permitted way in which he requires that sum to be used.
(3) The notice under subsection (2) must be given on or before—
1. (a) the reply date, or
2. (b) such later date as the trustees or managers may allow in his case under section 101AI(2).

101AE Permitted ways of using cash transfer sum

(1) This section applies in relation to a cash transfer sum to which a member of an occupational pension scheme acquires a right under section 101AB.
(2) The ways in which the cash transfer sum may be used are—
1. (a) for acquiring transfer credits a lowed under the rules of another occupational pension scheme—
  1. (i) whose trustees or managers are able and willing to accept the cash transfer sum, and
  2. (ii) which satisfies prescribed requirements,
2. (b) for acquiring rights allowed under the rules of a personal pension scheme—
  1. (i) whose trustees or managers are able and willing to accept the cash transfer sum, and
  2. (ii) which satisfies prescribed requirements,
3. (c) for purchasing one or more appropriate annuities,
4. (d) in such circumstances as may be prescribed, for subscribing to other pension arrangements which satisfy prescribed requirements.
(3) For the purposes of subsection (2), "appropriate annuity" means an annuity which satisfies prescribed requirements and is purchased from an insurer who—
1. (a) falls within section 19(4)(a),
2. (b) is chosen by the member, and
3. (c) is willing to accept payment oil account of the member from the trustees or manager of the scheme.

101AF Calculation of cash transfer sum and contribution refund

(1) Cash transfer sums are to be calculated and verified in the prescribed manner.
(2) Any calculation of a contribution refund must conform with such requirements as may be prescribed.
(3) Regulations may provide—
1. (a) for amounts to be deducted in respect of administrative costs in calculating cash transfer sums;
2. (b) for a cash transfer sum or contribution refund to be increased or reduced in prescribed circumstances.
(4) The circumstances that may be prescribed under subsection (3)(b) include in particular—
1. (a) a failure by the trustees or managers of the scheme to comply with section 101AG(2) or (4) in relation to the cash transfer sum or contribution refund, and
2. (b) the state of funding of the scheme.
(5) Regulations under subsection (3)(b) may provide—
1. (a) for a cash transfer sum to be reduced so that the member has no right to have any amount paid by way of cash transfer sum in respect of him;
2. (b) for a contribution refund to be reduced so that the member has no right to receive any amount by way of contribution refund under this Chapter.

101AG Duties of trustees or managers following exercise of right

(1) This section applies where a member of an occupational pension scheme has exercised a right under section 101AB in accordance with section 101AD.
(2) Where the member has elected for the cash transfer sum, the trustees or managers of the scheme must, within a reasonable period beginning with the date on which the right was exercised. do what is needed to carry out the requirement specified in the member's notice under section 101AD(2)(b).
(3) When the trustees or managers have done what is needed to carry out that requirement, they are discharged from any obligation—
1. (a) in respect of any rights (including conditional rights) of, or in respect of, the member to relevant benefits under the applicable rules, and
2. (b) to make any other payment by way of refund to or in respect of the member of, or in respect of—
  1. (i) the contributions, or any payment, mentioned in section 101AB(4), or
  2. (ii) any other contributions made to the scheme, or any other scheme, in respect of the member (other than any pension credit or amount attributable (directly or indirectly) to a pension credit).
(4) Where the member has elected for the contribution refund, the trustees or managers of the scheme must, within a reasonable period beginning with the date on which the right was exercised, do what is needed to secure that the amount of the contribution refund is paid to the member or as he directs.
(5) When the trustees or managers have done what is needed to secure the payment of the contribution refund as mentioned in subsection (4)—
1. (a) they are discharged from any obligation in respect of any rights (including conditional rights) of, or in respect of, the member to relevant benefits under the applicable rules, and
2. (b) if they are required under the applicable rules, or determine in accordance with those rules, to make any payment ("the refund payment") by way of refund to or in respect of the member of, or in respect of—
  1. (i) the contributions, or any payment, mentioned in section 101AB(4), or
  2. (ii) any other contributions made to the scheme, or any other scheme, in respect of the member (other than any pension credit or amount attributable (directly or indirectly) to a pension credit),
3. the amount of the contribution refund may be set off against the refund payment.
(6) Where the trustees or managers fail to comply with subsection (2) or (4), section 10 of the Pensions Act 1995 (c. 26) (civil penalties) applies to any trustee or manager who has failed to take all reasonable steps to secure compliance.

101AH Powers of trustees or managers where right not exercised

(1) This section applies where—
1. (a) a member of an occupational pension scheme does not exercise a right acquired by him under section 101AB on or before the reply date or such later date as the trustees or managers of the scheme allow in his case under section 101A1(2), and
2. (b) the trustees or managers of the scheme have notified the member as mentioned in section 101AC(5).
(2) The trustees or managers may within a reasonable period beginning with—
1. (a) the reply date, or
2. (b) if a later date has been allowed as mentioned in subsection (1), that later date,
pay the contribution refund to the member.
(3) When the trustees or managers have paid the contribution refund to the member—
1. (a) they are discharged from any obligation in respect of any rights (including conditional rights) of, or in respect of, the member to relevant benefits under the applicable rules, and
2. (b) if they are required under the applicable rules, or determine in accordance with those rules, to make any payment ("the refund payment") by way of refund to or in respect of the member of, or in respect of—
  1. (i) the contributions, or any payment, mentioned in section 101AB(4), or
  2. (ii) any other contributions made to the scheme, or any other scheme, in respect of the member (other than any pension credit or amount attributable (directly or indirectly) to a pension credit),
  the amount of the contribution refund may be set off against the refund payment.

101AI Rights under section 101AB: further provisions

(1) A member of an occupational pension scheme loses any right acquired by him under section 101AB—
1. (a) if the scheme is wound up, or
2. (b) subject to subsection (2), if he fails to exercise the right on or before the reply date.
(2) If the member has failed to exercise any such right on or before the reply date, the trustees or managers of the scheme may allow him to exercise it on or before such later date as they may determine on the application of the member.
(3) Where the trustees or managers determine a later date under subsection (2)—
1. (a) they must give a notice in writing to that effect to the member, and
2. (b) subsection (1)(b) applies in relation to the member as if the reference to the reply date were a reference to the later date.
(4) For the purposes of subsection (3) and sections 101AC(2) and 101AD(2), a document or notice may be given to a person—
1. (a) by delivering it to him,
2. (b) by leaving it at his proper address, or
3. (c) by sending it by post to him at that address.
(5) For the purposes of subsection (4), and section 7 of the Interpretation Act 1978 (c. 30) (service of documents by post) in its application to that subsection, the proper address of a person is—

(a) in the case of a body corporate, the address of the registered or principal office of the body, and
(b) in any other case, the last known address of the person.

(6) This Chapter is subject to any provision made by or under section 61 (deduction of contributions equivalent premium from refund of scheme contributions)—

(a) permitting any amount to be deducted from any payment of a contribution refund, or
(b) requiring the payment of a contribution refund to be delayed.

(7) In this Chapter, except where the context otherwise requires, the following expressions have the following meanings—

§ "the applicable rules" means—

(a) the rules of the scheme, except so far as—

(i) paragraph 3 of Schedule 5 to the Social Security Act 1989 (c. 24) (equal treatment),
(ii) section 129 of this Act,
(iii) section 117 of the Pensions Act 1995 (c. 26),
(iv) section 31(4) of the Welfare Reform and Pensions Act 1999 (c. 30) (pension debits: reduction of benefit), or
(v) section 264 of the Pensions Act 2004,

overrides them.
(b) any provision of any of those Acts which overrides or modifies any of the rules of the scheme by virtue of one of the provisions mentioned in paragraph (a), and
(c) any provision which the rules of the scheme do not contain but which the scheme must contain if it is to conform with the requirements of Chapter 1 of this Part;

member" has the meaning given in section 101AA(5); permitted way", in relation to a cash transfer sum, means any of the ways specified in section 101AE(2) in which the sum may be used; 842 relevant benefits" means benefits which are not attributable (directly or indirectly) to a pension credit; reply date", in relation to a member whose pensionable service has terminated, has the meaning given in section 101AC(3)(c).".'.—[Malcolm Wicks.]

§ Brought up, and red the First time.

1.14 pm

§ The Minister for Pensions (Malcolm Wicks)
I beg to move, That the clause be read a Second time.

§ Mr. Speaker
With this, we may take Government amendments Nos. 147, 156, 157, 159 to 164 and 171.

§ Mr. Wicks
Although the Opposition would prefer me to move the new clause at the end of Blackpool pier, I am—rather conventionally and conservatively—in the House of Commons, which is appropriate.
New clause 24 introduces a new provision that will increase opportunities for pension saving for early leavers. It will give them the choice of a cash transfer sum to be taken to a stakeholder or other appropriate scheme, or a refund of their contributions. Occupational pension schemes can have rules that require employees to be members of the scheme for a specified length of time before they secure rights under the scheme. That is known as a vesting period. Legislation provides that a vesting period cannon be longer than two years.
When members leave a pension scheme after their rights have vested but before their pensions are payable, their pension rights must be preserved in the scheme, or transferred to another scheme or arrangement. However, at present employees who leave during a vesting period may find that the best they can get is a refund of their contributions, less tax. We believe that more employees, especially those who change jobs frequently, should be given greater opportunity to build up pension rights. The new clause will apply to employees who have been members of an occupational pension scheme for at least three months but leave before the end of a vesting period.
The trustees of the scheme will be required to inform the early leavers of their entitlement to the choice between a cash transfer sum and a refund of their contributions. They will have to set out the value of each option, tell the members about the types of scheme to which a cash transfer sum may be transferred, and give them a reasonable time in which to decide. Supplied with sufficient information to make an informed choice, early leavers should, in future, be in a better position to make positive decisions about their pension savings.
Younger people in particular, who may expect to have several relatively short-term jobs at the start of their working lives, may be more attracted to joining a scheme, when one is on offer, if that means that they can start to build up savings for a pension. Hon. Members may recall that, in our Green Paper, "Simplicity, security and choice: Working and saving for retirement", we proposed that rights in all schemes should vest immediately. The quid pro quo, to avoid schemes having to administer very small pensions for many years, was that trustees should he able to transfer small pension rights below a de minimis value to a stakeholder scheme, so long as the member did not object.
843 Consultation on the proposals produced several concerns, to which we gave careful thought. There was much anxiety about imposing extra administrative burdens on schemes and about the risk of trustees facing mis-selling claims if they transferred de minimis amounts without the members' consent. On the other hand, the proposals were warmly welcomed by consumer groups, especially those such as the Equal Opportunities Commission, which took the view that they would be of particular benefit to many women. We therefore drew up the revised proposal as set out in the subsequent paper, "Action on occupational pensions"
We believe that the amendments present a balanced way of improving opportunities for pension saving for early leavers without the disadvantages of the original proposals. They put the focus on individuals making an informed choice about their pension savings. Although we acknowledge that there will be some extra administrative requirements on schemes, they should be less burdensome than the original proposals. Many schemes that operate a vesting period already provide contribution refunds under their own rules. All schemes already have to have arrangements in place to calculate transfer values. The extra administrative load in those cases will be in presenting the options to members. It is not great when compared with the potential benefits for members.
We estimate that funding costs could be approximately £50 million a year for all occupational schemes and that additional administration costs will be around £9 million a year—clearly, with greater impact on companies where there is a high turnover of staff. Those additional costs will of course be incorporated in the revised regulatory impact assessment for the Bill.
On the other hand, the benefits for individuals could be significant. Let us consider, for example, the case of an employee who is a member of a defined contribution scheme for 18 months, earning £20,000 a year. If employee contributions were 3 per cent. of earnings and employer contributions were 4.5 per cent., a refund of contributions would be £900. Depending on investment return, a cash transfer sum might reasonably be between £2,000 and £2,500. That would, provide a significant boost to personal saving for retirement. The clause itself is quite complex because it inserts a new chapter 5 into part 4 of the Pension Schemes Act 1993.

§ Mr. Steve Webb (Northavon) (LD)
That example is in the guidance notes that have helpfully been provided to Members. Rather than giving the figures of £2,000 and £2,500, as the Minister has just done, the notes cite a figure of the order of £2,385", which is quite precise. Are these amounts determinate? The Minister's figures had a range of about a quarter. Is there a formula involved, or do we not know what the figure will be? Perhaps there is some discretion as to how much will be involved. I am slightly puzzled by this discrepancy.

§ Malcolm Wicks
It will defend on returns on investments, and things of that kind. The information note gave a very precise figure, and perhaps we have very precise calculators at the Department for Work and Pensions. I have now given the House a range of between 844 £2,000 and £2,500, which might be more realistic. If I can give the hon. Gentleman more guidance in writing, I will do so. The main point that I am trying to make is that, in introducing this choice, we are determined that the individual making the choice should have proper information, because a transfer will often be the most sensible option for a younger person, or anyone else, to choose. The differences between taking the money, as it were, and the transfer value will be quite considerable.
Part 4 of the Pension Schemes Act 1993 deals with protections for early leavers. The new chapter 5 contains many of the provisions that apply to current rights to transfer values for members whose rights have already vested by the time they leave pensionable service. I assure the House, therefore, that the significant length of this clause does not represent some new substantial burden of regulation. It is rather a self-contained section of legislation in which some of the existing requirements on transfers are brought together to underpin the new option for employees. This forms a complete legislative guide for schemes to operate.
The clause provides that the scheme's trustees or managers must give early leavers sufficient written information for them to be able to make a choice of taking either a contribution refund or a cash transfer sum, as I have just noted. They must be given a reasonable period of time to make this decision. The notice issued to them must have a date by which they need to confirm their choice in writing. A code of practice produced by the regulator will set out what is a reasonable time, and the regulator will be able to impose sanctions on trustees or managers who fail to comply with the obligations in the legislation.
If a member elects to take a cash transfer sum, the trustees must ensure that it is used in a way permitted through this clause. Permitted options include transferring the sum into another occupational pension scheme, transferring to a stakeholder scheme or other personal pension, or purchasing an annuity. The clause also provides that, if a member fails to inform the trustees or managers in writing of his choice by the reply date, or any later date allowed, the trustees may by default pay a contribution refund. The scheme will not then be left with an obligation to hold on to small amounts of pension and maintain records of them for an indefinite period.
I believe that these new provisions will be of significant benefit to early leavers in future, and I commend them to the House. I should add that amendments Nos. 147, 156, 157, 159 to 164 and 171 are technical consequential changes-to existing definitions, for example—as a result of new clause 24. I ask hon. Members to accept the amendments.

§ Mr. George Osborne (Tatton) (Con)
This is the first of the 28 Government new clauses that my hon. Friend the Member for Havant (Mr. Willetts) talked about and the first of those that have not been subjected to adequate parliamentary scrutiny. At least we know that one new clause—new clause 23—has been subjected to adequate scrutiny, because I introduced it in Committee, where the Government objected to it but they have now brought it back. Unfortunately, new clause 24, which is one of the most significant new clauses, has not had adequate scrutiny. As the Minister said, it gives employees who have been with a company for just three months the ability to take with them, when 845 they leave, a refund or a cash transfer sum of the kind that is currently available only to those who have been employed for more than two years.
Of course we want to encourage people to build up pension provision. It is generally recognised on both sides of the House that people are not making adequate provision for their pensions and that younger people often make no such provision because they think that it is something that they can delay until they are settled into employment later in life. I certainly see the merit, therefore, in helping people who change jobs quite often in their younger years to build up a pension provision, although there are already products such as personal pensions available to help them to do that. With the Government's proposed changes to the taxation of pensions and the idea of a lifetime limit, for example, it will also be much easier—one hopes—for people who change careers consistently to build up their pension provision. I recognise, however, that the proposal is worth considering.
The Equal Opportunities Commission, Age Concern and the Fawcett Society have all pointed out that the measure could disproportionately help women. We discussed pension provision for women in Committee and we all agreed that it needed to be improved, although we disagreed on how that might be done.
Why has the new clause been tabled so late in the Bill's passage? I am afraid that that will be a theme for the next hour, because the measure did not come out of the blue. Nor—unlike new clause 34, which we shall discuss tomorrow—has it required crisis meetings in the Government, the bringing together of different Departments and the brokering of an agreement by the Prime Minister. It was in the Green Paper and was then amended and put into the White Paper, so why was it not included when the legislation was introduced in the House of Commons? Why was it tabled only at the very last moment, a couple of days before Report? The explanatory notes were given to Members only yesterday or this morning, depending on when we received the letter. In fact, I am not sure that I received the letter at all; I had to photocopy the one that had been given to my hon. Friend the Member for Eastbourne (Mr. Waterson)—but do not worry, I have read it anyway.
Because the measure has been introduced so late, the Government have not allowed outside organisations to make comments and criticisms or question the new clause's drafting. The Minister knows only too well that that is an important part of the legislative process. It is not simply a question of Ministers and Opposition spokesmen arguing things out across the Dispatch Box; the parliamentary process allows us to raise these issues in Parliament on behalf of outside organisations such as trade unions—I know that some hon. Members will speak on their behalf today—pension fund managers and many others. That is simply not possible when important changes such as this are introduced at the last moment.
Will the Minister say more about the significant changes that have taken place between the publication of the Green Paper, the White Paper and the Bill? He touched on the matter earlier when he said that the proposal in the Green Paper for immediate vesting was 846 objected to by employers, although it had been welcomed by consumer organisations and people representing employees. Will he tell us more about the practical nature of those objections, because some of them will apply to people who have been working for only three months?
Will the Minister also explain why he has dropped altogether the proposal in the Green Paper for schemes that have to administer very small amounts of pension to be able to transfer the de minimis amounts to a stakeholder pension' There will still be people on low incomes who will have de minimis amounts after three months and the administration of a large number of such pension schemes could place significant burdens on the pension provider, the cost of which will have to be picked up by all the ether scheme members; there is no such thing as a free launch.
1.30 pm
I asked the National Association of Pension Funds for its view but, like the rest of us, it has struggled to keep up with the Government's new clauses. It stressed that its initial comments did not represent a settled NAPF view, but it highlighted some interesting concerns, saying that the 3 months vesting period could potentially cause large problems for an employer who has a large turnover of staff. The result will be lots of mall value benefits being vested and significant ongoing admit of these benefits as a result. A lot of the detail around the transfer value is to be prescribed so it is difficult to comment on the basis to be used. The power to transfer out must be given full protect on and effective ways to do this will need to be stated. But, of course, we do not know what these are yet. It continues: How viable is the transfer out of very small benefits and are other providers willing to accept these small values? Are there providers who will accept the value of someone who has been in employment for only three months? The NAPF also pointed out that the original two-year vesting requirements were suggested precisely because of those potential problems.
In the Green Paper, the Government said, optimistically, that the proposals could help employers to retain staff. That claim was subsequently dropped in the White Paper and the Minister did not repeat it in the House, because it might have exactly the opposite effect. The pension rights offered by a company are often an incentive to remain with a company for the long term, but these measures could give a perverse incentive that allows employees to leave after three months without having to make a commitment over a longer term. Someone will not be as settled in employment after three months as they would be after a year or two. Perhaps the Government could ex plain the three-month figure.
I know that, elsewhere in the Department, 13 weeks is the definition of sustainable employment in new deal programmes and the like. What is the reason for three months? What assessment have the Government made of the impact on employers' ability to retain staff? Have they any evidence to back up the claim made in the Green Paper? What are the costs? The Minister said that the measure did not represent significant extra burdens for schemes, but what is the evidence for that? We have not seen a full regulatory impact assessment, but there 847 will be administrative costs for schemes. I know that the Minister mentioned that in passing but he did not give hard figures. Perhaps he would undertake to provide us with a proper regulatory impact assessment.
Has the Minister considered something that was floated by the Government themselves? There may be a perverse incentive for employers to introduce waiting periods; in other words, periods after which an employee could join a scheme. In effect, that would defeat the object of the new clause. A company could take on a new employee but say that he could not be a member of the pension scheme for at least two years.
Flexibility and enabling people to build up pension funds while they move jobs is important. We are not against the principle of the new clause, but a huge amount of detail remains to be fleshed out. As it has been introduced so late in the process, it is difficult for the Opposition to undertake the scrutiny that is needed.

§ Mr. Webb
We welcome the spirit of new clause 24. The people affected by regular job moves or short-term employment will tend to be younger people and, perhaps, women in particular. One of the legion of reasons why many women have poor private pension rights in retirement today is a problem that we are trying to deal with through new clause 24: the fact that they may never have entered a scheme or that, if they were part-time, they had fewer rights then full-time workers. Many of those things have been changed but the new clause deals with something that remains a problem: the fact some people never get into a scheme for long enough to build up a decent pension right.
My wife left the NHS pension scheme after a fairly short period and, as they used to say, took out her superannuation. As a result, she will accrue smaller occupational pension rights. Obviously, she married wisely, so that should not be a problem but—abstracted from my present circumstances—we want women to have good pension rights in their own right, not least because they might not end up being married to their present husband as pensioners. Anything that gives people in short-term jobs, and women in particular, better pension rights has to be a good thing in principle. We welcome the principle of the new clause.
Before the thoughtful speech of the hon. Member for Tatton (Mr. Osborne), I had written down, "Why now?" The Minister referred to "Action on Occupational Pensions", the While Paper that we were not allowed to call a White Paper that was published about a year ago. Why has the new clause appeared at this point in the proceedings when it is so difficult to make a serious assessment of it? it is not driven by the EU directive or by the tax simplification in the Finance Bill, which is the reason why so many parts of the process have been late.
What has been the problem? Were the drafters so busy with the other things that the Government have done that this was deemed a low priority and had to be done late in the day? I am concerned that this has been slipped in, as it were, especially given that we are all sympathetic towards the measure. I do not think that the Government want to avoid scrutiny of it; I am sure that they do not.
I intervened on the Minister to get an understanding of how much people can transfer across. In the worked example given by the Minister—someone on £20,000 a 848 year, with 3 per cent. employee contributions and working for 18 months—one can see that, if they have their money back, they get £900, but I am puzzled as to where the cash equivalent transfer figure comes from. I thought that if they got £900, presumably the tax relief would have been considered. If one put £900 into a pension fund, it would be grossed up by the amount of tax relief, presumably, and would be worth more than £1,200. If one then added back in the value of the employer contributions, one would get a figure of about £2,500, rather than the £2,385 we have been given. The figure is not clear.
New clause 24 alone takes up six pages—one can see why we sought to divide the House on the timing of debates—that none of us really understands. [Interruption.] I am sure that the Minister does understand it; I absolve him from that, but the rest of us are struggling. For example, subsection (1) of proposed section 101AF, which is headed, "Calculation of cash transfer sum", says: Cash transfer sums are to be calculated and verified in the prescribed manner", which we have not seen.
It is apparent that dozens and dozens of regulations will be associated with the dozens of new clauses that the Government have tabled. That raises a serious issue that we might as well deal with now, rather than at every single new clause. Presumably, there will be a substantial burden on the parliamentary drafters in the Department who produce the regulations, which are the law of the land just as much as the new clauses. Have additional staff been taken on by the Government? Have the Government obtained additional parliamentary drafting resources to deal with the vast range of regulations that will be needed to support the new clauses? Given that we want this measure included—we want early leavers given good opportunities to build up pension rights—we want it to be included as soon as possible. If the Government have a couple of dozen regulations to write, we might have to wait a long time. I hope that the Minister can reassure us that his Department has the capacity needed to produce the detailed regulations required.
There are also worries about the scrutiny of those regulations. I am not aware that they will be subject to the affirmative resolution procedure. The chances are that they will be among the many negative resolutions that just appear on a list, about which many of us think, "Can we be bothered to try to force an hour and a half on that, when we can't amend it anyway?" I am worried about the Department's capacity to produce the regulations in a timely manner and in a way that will allow people to make useful comment.
My point on the cash transfer sums is that they must be definitive. To produce the figures given to us in our briefing notes, the Department must have had in mind a formula or structure for the sums. For the benefit of the wider audience who read our proceedings, will the Minister put on record the Department's current thinking on the way in which the transfer values will be calculated? A quite precise figure was given in our briefing, but the Minister implied that there would be a large range of possible transfer values. It would be helpful if the Government's thinking could be placed on record now so that, if there is a problem, actuaries and 849 others who understand such matters far better than we in the House do can make early representations to the Government to allow them to do the best job possible when the regulations appear.
I have a further question on calculating cash equivalent transfer values. Are they intended to be actuarially neutral? In other words, is it intended that the amount of money that I will be given to put into a new pension if I leave my old one will be simply the equivalent of the money that I have put in, the money that the employer has put in and the return that we have had on it, or is some concept of incentive built in? Are the Government adding a bit at the expense of other scheme members or is there a slight penalty? Under the regulation in new section 101AF(3)(a), "amounts" may "be deducted in respect of administrative costs in calculating cash transfer sums",
which involves something of a penalty element. Apart from that, is it intended that the transfer values should be actuarially neutral or is there some reward? The Minister hinted that there would be some reward for taking the money and reinvesting it in a new pension. Presumably, any such reward would be to the detriment of other scheme members if it were other than actuarially fair. If that were the case, we would object, so I hope that the Minister can clear up that point for us.
We want improved provision for people who leave early and, ideally, we want the money that they already have in a pension scheme to go into a new pension scheme, rather than just paying for a foreign holiday. That has to be the right direction. However, as will no doubt be remarked again this afternoon and during the coming three days, much is still being left to regulations of which we have not yet even seen drafts, so I hope that the Minister can give the House and the wider audience a clearer idea of the Government's thinking on these matters.

§ Peter Bottomley (Worthing, West) (Con)
If new clause 24 and its associated amendments had been introduced when the Bill was first laid before the House, I could have consulted actuarial adviser Mr. Gordon Bayley, but sadly his memorial service will be held on Thursday at St. Lawrence Jewry. The Society of Actuaries memorial notice to him shows that he was one of the people who helped to build up the pensions industry in a massive way at the National Provident Institution, because he saw that the effect of tax on pensions would allow great growth in the provision of second pensions. Both main parties now agree that that is the way to go forward where possible, and the only reason to introduce the new clause is to allow the best value to come from what remains of second pensions.
This is not the debate in which to discuss every other matter on which adjustment is necessary but, just to mention one or two, we have not solved the problem of the overseas pensioners in half the world who do not even receive upratings on their state pensions. That might be lawful, but it is a totally unjustifiable penalty on British pensioners living in the old Dominion countries, such as Canada, South Africa and Australia. Nor does this measure deal with the problem of the second wives of officers married before 1973. However, what we can do on this measure is to give in some detail the questions that the Government must answer.
850 One of those questions, on actuarial fairness—I am sure that Gordon Bayley would have asked me to ask this—is whether we are dealing with fairness simply in terms of the contributions made by the employer and employee, or whether we are talking about an actuarially fair share of the pension fund itself. If, for example, I am affected, and my pension fund has for some reason been invested incredibly wisely, will I receive a greater amount in the cash transfer than if I had been in a pension fund that had not been invested with particular success?
1.45 pm
If there are adjustments in relation to taxation, can the Government say now whether the rates prescribed will be the tax rates that exist now or a collection of the tax rates that have existed since the time when I was a member of a pension scheme? If I may use a small example—I shall not take it too far, because it is not important—I have an expectation in 2009 of receiving £351 a year from the successor to the pension fund that I was in before I entered the House of Commons. I used to put neon lights outside theatres and cinemas in the west end, and the old Signs Department for which I worked, which became part of Mills and Allen, and is part of the united pension plan, will apparently give my estate £250 if I die before 2009, and will give me £351.47 if I survive long enough.
I am interested to know whether people like me will, in principle—I have had the chance of earning a pension here, so I am not concerned about the pennies—have a gain to their pension fund because they will not have to have those little pots, which will be accepted as a reason why the Government are introducing this measure. The question is whether the transfer value in is the same as that which an actually would volunteer as the transfer value out. In the days when, in the private sector, I was responsible for the interests of pensioners and prospective pensioners, that was the question that I put. I would ask not only how much a company would give in transfer to a person who wanted to leave but how much prospective pension entitlement it would want to give to a person in these circumstances in the future, and see whether the actuary gave the same answer to both questions.
I hope that there will be some way, in consultation with the actuarial profession, insurance companies and pension managers, it which Ministers will be able to give a clear answer to that question. I do not think that it will be possible for them to give one today, because there has not been time to go into the details, but that is one question that needs asking.
A further question is on the tax treatment of pension funds. We will tie round this Government's neck until they go from office—which I hope will not be too far away—the fact of their taking away what was £5 billion a year from prospective pensioners. The study by John Littlewood for the Centre for Policy Studies shows that, although the economy may not have done too badly during the past seven years, the stock market, which is where many pension funds have gone, has gone down in real terms. When we are talking about the calculation for the transfers, we have to realise that one of the inglories of the present Government is the way in which 851 they have diminished the funds that pensioners have held on their behalf. I hope that the Government are suitably ashamed of that.

§ Malcolm Wicks
I shall try to deal with some of the points raised by the hon. Member for Worthing, West (Peter Bottomley) in a moment, although I shall not be drawn too far on the period before he entered the House of Commons when, as I understood his story, his name was in lights above west end cinemas. Perhaps I have deliberately misunderstood that, although I think that it led to an issue about transfer values.
I shall first deal with some of the questions of the hon. Member for Tatton (Mr. Osborne), who is not in Blackpool but in the House of Commons. I am pleased to see half of his Front-Bench team here. He asked, not for the first time, why the new clause was late. There is no specific answer to that question. although the reason relates to the general answer that I gave when we were discussing the motion on the three days of debate: we have been under a great deal of pressure to get the Bill into shape because of the demands for the protection that it offers to come into force as soon as possible. Because of the need to consider the issues surrounding the pension protection fund, and the more recent concerns about Allied Steel and Wire and other workers and the regulator, this measure has had to take its place in the queue in terms of time for consideration and drafting. I am afraid that I can add nothing more on that.
The idea of simply doing away with vesting periods altogether has been touched on. The Green Paper proposal that such periods no longer be permitted was coupled with the proposal that trustees be able to transfer de minimis amounts to a stakeholder pension. Those proposals received a mixed reception and we are concerned that they would impose excessive funding and administrative costs on schemes. The provisions in the new clause strike a reasonable balance for both schemes and members, and fully support the promotion of informed choice in pension saving. It is a question of striking a balance and we hope that we have got it right.

§ Mr. George Osborne
On a related point about which I forgot to ask the Minister earlier, what happens to police officers and firemen, for example, in unfunded public sector schemes who leave after three months? Is the police service or fire service required to provide a cash transfer?

§ Malcolm Wicks
If I may, I shall come back to the hon. Gentleman on that point.
During the discussion of transfer values, it was almost implied—although not by the hon. Gentleman—that we have invented a new concept but, of course, we have not. Transfer values have been around for a very long time—since before the name of the hon. member for Worthing, West was in cinema lights. Essentially, the answer to the question of how they are calculated is the same as the answer to the general question about transfer values. We are not establishing a new concept. Indeed, as some of us know, many people in public sector schemes can already transfer money from one scheme to another type of scheme, so I would imagine that such an arrangement is perfectly possible. For the sector as a whole, we concede 852 that a reasonable time should be allowed for people to make use of their pension rights, but in our view that period should be three months. Two years was too long.
The hon. Member for Tatton asked whether certain providers will accept very small investments. We accept that very small amounts might cause disproportionate administrative costs, which is why an employee will have to have been in a scheme for three months to qualify for a cash transfer sum. Such a provision reflects the argument about where we should draw the line in terms of a time period. However, so far as people who have been in a scheme for up to two years are concerned, we are not talking about trivial sums, especially where such a person qualifies for more than one cash transfer sum from a succession of employments.

§ Peter Bottomley
Can the Minister tell us, either now or later, whether the three-month period applies not only to full-timers but to part-timers?

§ Malcolm Wicks
It is very important that we give equal rights to part-time and full-time workers, so the answer to the hon. Gentleman's question is yes.
On the cost burden of the schemes, I did in fact give the figures during my opening speech. I am pleased to reiterate that the estimated administrative cost is £9 million a year and that the actual cost of the new pension rights could be some £50 million a year. It is clearly important that a fully revised regulatory impact assessment be published before this issue is considered in another place, and that is what we shall do. Essentially, cash transfer sums are based on the rights that the individual would have accrued in the occupational pension scheme but for the vesting rule. I do not pretend to be an actuary myself, but if any Member requires more detail on the actuarial niceties of the provision, I am happy to supply it.
I should make clear to the hon. Member for Northavon (Mr. Webb)—I thought that I had already done so, but perhaps the point was missed—one of the differences in terms of choice. During the period in question, an employee can choose to take out their contribution but not the employer's. Of course, because the transfer value is going to be used for pension purposes, it includes both the employer's and the employee's contribution. That will help to explain the arithmetic to the hon. Gentleman. [Interruption.] He looks doubtful, but we shall put new batteries in our calculator and provide him with any further information that we can.

§ Mr. Webb
I am not sure that the Minister has responded to the point that the hon. Member for Tatton (Mr. Osborne) made about the danger of the new clause being circumvented by certain schemes. If a given scheme has to count someone in straightaway, new rules could be set up that prevent someone from being in the scheme for the relevant period. Is there not a danger that the new clause could indeed be circumvented in the way that he suggested?

§ Malcolm Wicks
I think that one or two such schemes—in which one serves a probationary period, as it were—already exist, and I regret that fact. Of course, this issue touches on a wider question. The Government 853 are committed to what we call the voluntary approach to spreading good practice and to encouraging and enabling employers to have proper pension schemes; we are not in the business of compulsion. However, many urge that approach on us, and the Pensions Commission will one day report on such matters. The logic that follows from the hon. Gentleman's question requires that we move towards compulsion, but that is not where we are at the moment.

§ Mr. George Osborne
I am grateful to the Minister for giving way, and to the hon. Member for Northavon (Mr. Webb) for pointing out that the Minister has not in fact answered my question. Indeed, in talking about some of the representations that they had received, the Government raised this issue themselves in their White Paper. They said: There were a number of concerns, not least the extra administrative burdens that would arise and the risk that these might prompt employers to introduce waiting periods, which would be a regressive step". The Government have not answered a question that they themselves posed.

§ Malcolm Wicks
Such a step would be regressive, but the question is whether the Government should be able to legislate to prevent that from happening. As I said to the hon. Member for Northavon, that raises the wider question of compulsion. We do not want to go there, but of course, the door remains ever open.
It is very useful that the hon. Member for Northavon is prompting the hon. Member for Tatton on certain questions. Given that the Conservative Front Bench is only 50 per cent. full and that the shadow Minister of State cannot be here today, such co-operation is important.
In the light of my comments, I ask that the new clause be accepted.
Question put and agreed to.
Clause read a Second time, and added to the Bill.