HL Deb 24 June 1999 vol 602 cc1157-76

(" The Treasury shall publish annually a decision tree showing the relationship between stakeholder pensions and all other types of pension and other forms of saving to enable employees to decide what is the most appropriate form of provision for retirement for them to make.")

The noble Lord said: This amendment was my own idea. I have subsequently discovered that the Government have had the same idea. I believe I am right in saying that, in the Green Paper or elsewhere, the Government have suggested providing such a decision tree.

Clearly, individuals are to have a wider choice of products than ever to enable them to provide for their retirement. Some of those products are appropriate for people in certain income groups—for example, between the well known limits of £9,000 to £18,500 or so—while others will find it more appropriate to go for the state second pension, and so on.

It is important that, as soon as the stakeholder pension becomes a live issue for individuals, as well as being able to assess whether that is appropriate for them, they should be able to take into account the other government products, in particular the state second pension. They should be able to decide whether there is a more appropriate form of provision than the alternatives that are set before them. Even at this early stage perhaps the Government will consider producing a decision tree of this kind. Individuals can then decide whether one option would be better for them than another.

A further dimension is required in relation to timing. One of the problems is that, as I understand it, the stakeholder pension will not be up and running until 2001. The expectation is that the state second pension will not be up and running until some five years later. Despite the noble Baroness's earlier remark about the legislative timetable, the estimate of five years after the stakeholder pension for the state second pension has been generally accepted, albeit apparently to the noble Lord's surprise. So there is also a sequential problem, as well as one of timing, about whether people should take up a particular form of provision now rather than later.

That is important in this sense. If people defer making any provision for, say, two or three years early on in life, that has a far more dramatic effect on the actual pension that they will receive than if they were to lose the final two years of pensions contributions for simple reasons of compound interest and so on. So I hope that the Government will consider this proposal, not in a formal sense but by way of a general publication. It would certainly be more valuable than the one we discussed in relation to the first amendment by the noble Baroness, Lady Castle, which seems grossly over-priced at £5. A decision tree would give individuals a better idea of how to deal with this matter. We need to encourage people to make provision.

Leaving compulsion on one side, it is quite apparent that in 20 years' time it is likely that a large proportion of people will still be on means-tested benefits rather than using the result of their own funded pension. We need the best information we can have and I hope that the Government will undertake to do that. I beg to move.

Lord McIntosh of Haringey

We are very much on the same side; we are in favour of good quality and understandable information and advice. We are also in favour of decision trees. I do not know whether the noble Lord saw the Explanatory Notes to the Employment Relations Bill. For a 40-page schedule on recognition procedures, it had four decision trees. That was the only way in which I got even close to understanding what the schedule was about. So I am in favour of the format as well as the objective of what the noble Lord proposes.

However, decision trees will not be a complete substitute for advice. We think it is right to consider whether a change in the balance between information and advice could reduce overall costs. A decision tree, together with clear supporting information, will enable many people to make an appropriate choice for themselves. But there will, inevitably be some people who, as I said—although the noble Lord did not believe it—will need more detailed, individual advice, particularly those who have already taken out a personal pension. The decision tree will direct such individuals towards taking appropriate advice.

I understand the concerns that underlie this amendment. We made clear in the pensions Green Paper published last year that we would work with the Financial Services Authority and the industry to develop appropriate arrangements for the provision of information and advice to prospective members of stakeholder pensions. We want to consider the scope and contents of the decision trees; whether there should be a single standardised decision tree; and who should be responsible for making it available and ensuring that it remains relevant and up-to-date.

Where we part company, I am afraid, is that we are not convinced that a government department is best placed to develop and issue this information, which is what the amendment proposes. It may be more appropriate for schemes to be responsible for decision trees, as they will be able to build in tailored elements such as where individuals can go for more information. Any information the schemes provide will, of course, be subject the normal FSA regulation of marketing material to ensure that it is accurate and not misleading.

We are seeking further views on these issues. I would not want to pre-empt the outcome of that consultation by ruling out any options at this stage. This work is going ahead, and we shall shortly be issuing a consultation paper setting out our proposals for the provision of information and advice. I hope that that will convince the noble Lord that it is right to withdraw the amendment.

Lord Higgins

I am grateful for the sympathetic response from the Minister. I believe there is a case for it being a government publication and I am glad that the Minister is prepared not to rule it out at this stage. It is important that the Government should take some responsibility for introducing the new products and ensuring that people understand them and make the right choice between the options. "Choice" is the crucial word. Subject to that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 [Registration of stakeholder pension schemes]:

Lord Higgins moved Amendment No. 22:

Page 2, line 30, at end insert— ("() the premiums received will provide a pension in excess of what will be provided by the minimum pension guarantee;")

The noble Lord said: Amendment No. 22 stands in my name. Noble Lords opposite may be right in saying that it should have been grouped with some of the other amendments. I was confused because it comes in a different clause and I misunderstood your Lordships' procedures.

The amendment proposes that the Government and the schemes should ensure that the premiums received will provide a pension in excess of what was provided by the minimum pension guarantee. Despite our earlier debates, we have not had a clear assurance from the Government that that is so. Earlier, the noble Baroness said that we would carry out calculations to give us some indication of what the term is likely to be for any given level of contributions on certain assumptions which I have undertaken to suggest to her. However, we are still worried that people will simply pay into the scheme and that it will turn out not to have a real pay-off because the pension which the contributions provide is less than the minimum pension guarantee. Mr Frank Field stressed that at considerable length. I would have thought that if this amendment was accepted it would ensure that that was the position. But we must be sure that it is not mis-sold, in the sense that the eventual return from the contributions is effectively zero. I beg to move.

9.45 p.m.

Baroness Hollis of Heigham

Amendment No. 22 adds an additional condition for the registration of stakeholder pension schemes. It would mean that for a scheme to register itself as a stakeholder scheme the trustees of the scheme (or other responsible individuals in schemes set up under any possible alternative structure) would have to declare that the contributions paid into the scheme will provide a pension, perhaps 30 years down the line, in excess of the minimum pension guarantee.

The minimum income guarantee provides an essential fall-back for those who cannot save enough to provide themselves with a decent income in retirement. It currently provides an income of at least £75 per week for a single pensioner and £117 per week for a pensioner couple. As resources allow, we shall uprate these in line with earnings. Next April they will rise in line with earnings. Therefore, it is a decent and proper commitment to protect today's poorer pensioners, which is our immediate priority.

We are also looking at ways to modify the rules on capital so as to reward savings. But, as I mentioned in an earlier debate—we tried to group these amendments—the minimum income guarantee is a safety net for those who cannot afford to save for retirement. In particular, the safety net is for those who now have not saved enough in work for retirement, primarily older women who have not participated in the labour force, by virtue of children and so on, compared with women today.

Those who can save will be helped by other parts of our reforms. The new state second pension will give extra help to the lowest earners who currently receive the least from SERPS. However, moderate earners are in a position to save more than the compulsory minimum and to build up funded pensions which can lift them clear of the minimum income guarantee. These are the people to whom we want to give an opportunity to save in stakeholder schemes.

Amendment No. 22 takes a different approach and seeks to require an undertaking from stakeholder pension schemes that they will provide a pension (unspecified) in excess of the minimum income guarantee (unspecified) in years ahead (unspecified). As I explained earlier, this raises a number of difficulties. It requires schemes to look into the future and give an undertaking that a member will receive a pension in excess of the minimum guarantee. Of course, investment returns are subject to a degree of uncertainty. There must also be some uncertainty as to the level of the minimum income guarantee in 40 years' time when the youngest members of stakeholder schemes will retire. I do not believe that this is an undertaking that we can reasonably expect schemes to give.

The amendment also raises an issue about who is liable in the event that the scheme does not deliver the promised pension. I fear that most commercial undertakings would simply not take on the kind of open-ended commitment which is implied by the amendment. It seems to me that the practical effect of the amendment would be to force schemes to accept only members who undertook to pay a level of contributions that could be safely expected to produce a pension well in excess of the minimum income guarantee. That could restrict stakeholder pension schemes to higher earners and undermine our aim of extending good value funded pension opportunities to moderate earners. Further, the amendment does not take into account the basic state pension. Even relatively small second-tier pensions when combined with the basic pension will be enough to lift people above the minimum income guarantee. I remind the Committee that the minimum income guarantee is about £7 or £8 above the basic state pension. The amendment would effectively deny such people the opportunity to join a stakeholder pension scheme.

We are determined to ensure that as many people as possible retire on an income above the minimum income guarantee. The amendment, however, seeks to impose what I fear would be an unworkable requirement on stakeholder pension schemes. It would ask them to speculate as to the situation in 40 years' time and accept liability if their speculation proved unfounded, and to do so on stakeholder pensions alone. No similar requirement is envisaged for other pension schemes, such as money purchase schemes. I urge the Committee to reject this amendment.

Lord Higgins

I confess that I do not find the Minister's response reassuring, in the sense that people may find that some of the stakeholder pension schemes do not provide a level of income above the minimum income guarantee.

I find the reply of the noble Baroness the Minister somewhat surprising because one of the earlier provisions put forward by the Government will tell people on an annual basis what pension they are likely to receive eventually. I have previously expressed surprise at that, for the very reasons that the noble Baroness has just put forward; namely, that considerable assumptions about annuity rates, investment rates and so on are required. But if indeed the noble Baroness and the Government persist in taking the view that they will forecast what pension people are likely to receive as a result of their contributions, I should have thought there would be no problem in the Government equally accepting what the amendment says.

I remain puzzled, not least for the reasons mentioned earlier, because even over a timescale of 18 months one may well be significantly out in one's pension forecast. Therefore, if the Government continue to take the view that they will provide people with an annual statement of the pension they are likely to receive as a result of their contributions, I should have thought that it would not be difficult to balance that—for the individual if necessary to balance it—against the level of the minimum income guarantee.

Baroness Hollis of Heigham

As the noble Lord will recognise from his earlier discussion about employers' liability, there is a big difference between a forecast and a guarantee. We shall be doing the usual print-out saying "Given the current level of contributions, this is what you can expect". That is very different from guaranteeing. We know about some of the situations in which Equitable Life currently finds itself over guaranteeing a return at a certain level 30 or 40 years on. We do not know what the minimum income guarantee may be.

Lord Higgins

I shall not be tempted to go down the Equitable Life road, on which I have strong views.

If the Minister is indeed going to take the position that she has just described, such an indication is likely to be highly misleading and of no real value. I was surprised the Government put forward that idea. The noble Baroness said that it was a forecast rather than a guarantee. It is rather like the statement on proposals for taking out pension arrangements, which says that on the assumption of a growth rate of say, 3 per cent, the pension will be so much and on the assumption of a 7 per cent growth rate it will be a different figure. No doubt this was an idea thought up by the previous Government.

Baroness Hollis of Heigham

I do not know about the noble Lord, but certainly any private pension scheme of which I have been aware will normally give an annual statement saying what one's current level of contributions will buy, and projecting that forward. This allows people a sense of ownership of their pot of money, because it is their money. In addition, if they feel that the anticipated level of pension is inadequate, this could encourage them to put extra money into the scheme. So this is about information; it tells people what they can expect and therefore encourages them, if appropriate, to invest more. It is a useful tool. If we were not to produce such information, which private schemes regularly produce for their clients, the noble Lord would be equally critical.

Lord Higgins

Of course, the private schemes do so on very arbitrary assumptions, and mostly assumptions which do not mean very much. As I have said, the noble Baroness may well blame the previous government for producing this scheme, but my personal view is that it is not very helpful. Perhaps we may return to this point.

I find it almost bizarre that the Government propose to tell people what they may expect, when, as we discussed earlier, that cannot be done with a reasonable expectation of accuracy, even over a timescale of a couple of years. But, subject to that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 agreed to.

Clause 3 [Duty of employers to facilitate access to stakeholder pension schemes.]

Lord Higgins moved Amendment No. 23:

Page 3, line 24, after second ("of') insert ("10 or more")

The noble Lord said: This is becoming something of a duologue, or perhaps a trio.

The amendment is about the position of small businesses. In particular, we are concerned about the burden that is likely to be placed on small businesses in putting forward for their employees a specific stakeholder pension. The CBI in particular has expressed strong opposition to the proposals in the Bill which will require firms without occupational schemes to nominate a particular stakeholder pension.

We suggest that those with fewer than 10 employees are unlikely to have the resources which are necessary to decide on behalf of their employees whether a specific scheme is good or whether it is an appropriate form of provision for retirement. Employees may feel disgruntled if it turns out to be the case that the choice the employer made has been wrong, even if the employer is not legally at fault.

I suspect that the vast majority of smaller firms do not feel competent to judge between one scheme and another so far as concerns stakeholder pensions. The CBI has also expressed the view that it is not in the Government's interest to compel companies to put this forward and that the alternative might be that there should be a requirement simply to act as a clearing house: that the smaller employers might agree to collect the contributions but that those should then go into some more general system rather than that they have to nominate a scheme which they are ill equipped to judge. I beg to move.

Baroness Crawley

I hope that the Minister will not take much heed of the amendment. Stakeholder pensions are designed to benefit people who work for small firms and are unlikely to have occupational pensions. Under the amendment, 84 per cent of employers would be excluded from having to give access to stakeholder pensions. Surely the more people able to become members of stakeholder pension schemes, the greater economies of scale and the better value those schemes will be. I understand that the DTI has a small business service which small business can access easily. Under that service from April 2000 there will be assistance with payroll matters, under which heading I assume that this category of pension would come.

Lord Goodhart

I am unable to go as far as the noble Lord, Lord Higgins, on the amendment. We are concerned about the position of small businesses. Under the Tax Credits Bill, these Benches joined with the Conservative Benches to exclude from liability to pay through the wage packet the working families' tax credit. We took that view because we felt that the employees were in no way disadvantaged by it.

In this case the position is not the same. The employees will suffer if as a result they are denied access to stakeholder schemes. Those who will benefit from going to stakeholder schemes are those earning more than £9,000. That is a substantial sum. It is not a large wage but it is certainly more than, let us say, a part-time cleaning lady would receive.

We cannot go the whole way and say that there should be a blanket exemption for any employer who employs fewer than 10 employees. Nevertheless, I think that there is a case for saying that those with smaller numbers may be exempted from some of the provisions in Clause 3. For instance, I see no reason why someone with two or three employers should be required to allow a representative reasonable access to the employee. It would be possible for the representative to approach the employees directly, and therefore there is a case for re-examining the clause and giving a power to modify the provisions in respect of small employers.

There is a power to define "relative employees" which could be used to exclude employees by reference to the number employed by their employer. But that would be inappropriate and would not achieve the purpose. There is a case for saying that regulations could be allowed to modify the provisions of Clause 3 in the case of employers with fewer than 10 employees.

10 p.m.

Lord McIntosh of Haringey

My noble friend Lady Crawley urged me not to take heed of this amendment. I must disappoint her because I take heed of all amendments. That is what I am paid for. However, there are some difficulties with it. They are based on a misunderstanding on the meaning of "employer access" and there has been some exaggeration, not by your Lordships but in the public prints, of the burden which will be involved. Many employees are fortunate enough to work for an employer who runs an occupational pension scheme, so they have been able to join a good value pension scheme through their workplace. Employers see occupational pension schemes as a powerful tool for recruiting and retaining staff.

For those who cannot join an occupational pension scheme, the only option has been a personal pension. But as we know, those can be costly and inflexible and shareholder pension schemes will offer a better value option. We want everyone in work to have access to a good value pension scheme through their workplace. That point was made by the noble Lord, Lord Goodhart, when he said that employees would suffer if they were excluded.

Therefore, we have two reasons for framing the requirement on employer access; first, to help stakeholder pension schemes achieve the aim of better value provision; and, secondly, to encourage people to join the schemes. We think it is reasonable that employers should play a part in helping to make this a reality for those employees who cannot join an occupational scheme.

We are not asking very much. Employers should provide information about a stakeholder pension scheme for employees covered by the requirement and allow scheme representatives access to those employees. The noble Lord suggested that that requirement might be waived for small firms. I suspect that it might not happen in any event because a number of scheme providers might consider it expensive for two or three people.

Secondly, they should provide a facility for deductions to be paid to the scheme through the payroll arrangements. My noble friend Lady Crawley rightly reminded us that the DTI small business scheme exists and will provide payroll facilities for deductions.

Employers who offer an occupational scheme to all their employees will not be affected. Other employers will he exempted from those requirements in relation to employees who can join an occupational scheme or those whose employees fall below the national insurance lower earnings limit. We are committed to minimising the impact on businesses and therefore in the Green Paper we invited views on whether the access requirement should be voluntary. We considered the responses we received. We shall be issuing a further consultation on our specific proposals. The Bill as it stands without the amendment would allow us to prescribe exceptions to the access requirement if it became clear that this was justified in the light of consultation or experience. I hope that that will reassure the noble Lord, Lord Goodhart.

However, the amendment is too inflexible and too wide-ranging. It would mean that the requirement would not apply to 84 per cent of employers. Of a total of 1.2 million employers, only about 200,000 have 10 or more employees. Whereas a high proportion of those employers provide pensions, smaller employers are much less likely to offer an occupational pension. An exclusion for employers of fewer than 10 staff would leave out a disproportionate number of the very employees we are trying to reach.

I hope the Committee will agree that we have struck a reasonable balance between the small additional burden on employers and the need to ensure wider access. I hope the noble Lord will not press the amendment.

Lord Higgins

This has been a helpful debate. As the noble Lord, Lord Goodhart, rightly suggests, perhaps the figure of 10 is not necessarily the appropriate number of employees. The Minister and the noble Baroness, Lady Crawley, have suggested that 84 per cent of employers would be excluded on that basis.

There are two separate issues. One concerns whether the employers should provide facilities for making contributions. Considering our discussion a few days ago on working families' tax credit, this is yet another complication with regard to the way in which the companies account for PAYE and so on. The burdens are, yet again, placed upon small businesses by the Government, but one can understand why they believe that it is appropriate that that should be so.

The second question is that of selecting a stakeholder scheme. If there are only three employees, it is debatable whether they are in as good a position to make the decision as the company, which may involve, at most, one or two people. At this stage it becomes a personal matter, rather than a matter for a company as such. The employee and the employer are probably equally qualified to make a choice.

There is also the question of the extent to which—

Lord McIntosh of Haringey

The only argument for the employer making the choice is that, if he makes the selection and offers that to the employees, he will make deductions for one scheme only, whereas if three employees choose different schemes the employer would have to make deductions on behalf of three schemes, which would be more complicated.

Lord Higgins

I am not suggesting that if there are three employees and two employers they could all choose different schemes. That would be pretty unlikely., as I believe the Minister would accept. However, the question is how much variation there will be in the schemes. Given the tight way in which the proposal is circumscribed, it is difficult to see how they will be greatly differentiated, or indeed why the employer should select one rather than another. There will not be many schemes offering the provision of the product at less than 1 per cent on the costs and presumably they will be much the same. I leave on one side trustee schemes involving trade unions and so on. Presumably the small employer will have a certain number of providers who will say that they can make the schemes pay at the level of charges that the Government impose. To what extent the products will be differentiated is difficult to see. The well known system of sticking a pin in a list of names may as well be used.

Lord McIntosh of Haringey

Good capitalist competition will mean that many will beat the minimum conditions set out in our consultation paper and, therefore, there will be real competition.

Lord Higgins

In deference to the noble Lords, Lord Peston and Lord Desai, I shall not go into economists' views on perfect competition. As the noble Lord has described, in the circumstances they very often come up with the business.

On a serious level, it will be difficult for employers to make a choice. Subject to that, I beg leave to withdraw the amendment. I may want to return to the point made by the noble Lord, Lord Goodhart. There is probably a minimum level at which stage it becomes absurd, other than in the context of collecting the contributions.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 24:

Page 3, line 25, at end insert ("but an employer shall in no way be responsible for any consequences which result from the failure or performance of an authorised stakeholder scheme")

The noble Lord said: We have already stressed the difficulty which employers may face in deciding which scheme to go along with. But what is clearly the case is that the employer ought not to be held legally responsible for what happens, either with regard to a specific stakeholder scheme failing—I presume that is not totally impossible because such schemes are not subject to the kind of provisions to which some occupational schemes are subject—or its performance. It may be that the employee feels that the scheme that has been recommended has not performed in the way expected. Therefore, to exonerate employers from the consequences of having been compelled by the Government to choose one scheme rather than another, we ought at least to give them the protection which this amendment seeks to give. I beg to move.

Lord McIntosh of Haringey

I do not like the noble Lord's arguments, but I have some sympathy with his amendment.

I want to make it absolutely clear that Clause 3 imposes no duty on employers to designate a scheme which performs to any particular standard or to investigate a scheme before designating it. The duty is simply to select a scheme from the register and offer access to it in the way set out in Clause 3. An employer could, of course, choose to do more than this; for example, by meeting scheme representatives or consulting league tables.

An employer might become liable if he misinformed his employees about the designated scheme or misled them. Any such liability would arise under the general law of negligence—as it would at present, for example, if he made any misleading statements about a group personal pension. It would certainly be sensible for employers to make clear to their employees what they are and are not doing in designating a scheme; that is, that they are not recommending it, offering advice about it or any guarantees about its performance. In addition, we hope that employers will take some action, perhaps by notifying the Occupational Pensions Regulatory Authority or informing their employees, if they discover a serious problem with the designated scheme. Such actions would be both proper and prudent.

Notwithstanding this, concerns are still being expressed about employer liability. The amendment therefore seeks to include a statement on the face of the Bill making clear the intention that employers should not be liable for the performance of their designated scheme. I am pleased to say that we will consider whether it would be possible to include such a statement to the effect that Clause 3 is not to be construed as imposing any duty on employers in relation to the performance of their designated scheme. I hope that that positive response will by itself encourage the noble Lord to withdraw his amendment.

However, by expressly including one duty, we do not wish to suggest that others may be implied, even though they are not apparent on the face of the Bill; nor do we intend to exempt employers from their general liability for negligence or breach of contract. So, we shall have to consider carefully whether it is feasible to include such a statement in the Bill and, if so, how it should be worded. I should therefore like to consider the principle embodied in the amendment and I give my assurance that we shall do so. We are taking further legal advice on the issue. In the light of that assurance, I hope that the noble Lord, Lord Higgins, will feel able to withdraw the amendment.

Lord Higgins

That is assurance number two, so we are making rapid progress. It was a helpful remark. The Government recognise that it is particularly unfair for employers to have to take on responsibility for the results of any particular provider of a stakeholder pension which, in effect, the Government are forcing them to recommend. We therefore look forward to seeing the form of words the Government produce at a later stage and hope that that will be enough to meet the point. I am grateful to the Minister for his remarks and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 25 not moved.]

The Deputy Chairman of Committees (Viscount Simon)

Before calling Amendment No. 26, I should point out to the Committee that if it is agreed to, I cannot call Amendments Nos. 27 and 28.

10.15 p.m.

Lord McIntosh of Haringey moved Amendment No. 26:

Page 3, line 26, leave out from ("shall") to end of line 29 and insert ("ensure that at all times there is at least one scheme designated by him for the purposes of this subsection which is registered under section 2 and offers membership to all his relevant employees (whether or not any other scheme registered under that section which does not offer membership to all those employees is for the time being designated by him for those purposes).

Before designating a scheme for the purposes of this subsection the employer shall consult with his relevant employees and any organisations representing them.")

The noble Lord said: In moving this amendment, I shall speak also to government Amendments Nos. 30 and 34. I shall also give the noble Lord, Lord Higgins, an opportunity to speak to Amendment No. 27, to which I shall then respond.

Amendment No. 26 makes is clear that an employer can ensure that "at all times" he has designated a scheme which is registered as a stakeholder scheme. That means that employers will be expected to check from time to time that the designated scheme remains on the register. We do not intend that this should impose an unrealistic expectation on employers that they should respond instantly when a scheme is removed from the register. We do not expect the "de-registering" of a scheme to be a common occurrence.

Amendment No. 30 introduces a fifth requirement on employers, although, again, this is simply a clarification of what was originally intended. The amendment makes it explicit that an employer should withdraw his designation of a scheme if it ceases at any time to be registered as a stakeholder scheme. He would then be required to designate a new scheme. This will avoid a situation where a scheme which had lost its stakeholder status continued to be an employer's designated scheme; that would mislead employees. Amendment No. 34 simply changes the wording of the definition of a designated scheme, as set out in Clause 8, to make it consistent with the new drafting in Clause 3(2).

As I have explained, these amendments do not represent a change in the way we intend the requirement on employers to work. The amendments simply make it clear that an employer who is required to designate a scheme should make sure that it is, and continues to be, registered as a stakeholder scheme; and that if it is removed from the register, he must withdraw his designation of that scheme. This will ensure that employees have continuing access to a stakeholder pension scheme.

We want to ensure that we strike the right balance between minimising costs to business and ensuring flexibility for scheme members. We intend to use regulations to ensure that these amendments do not place an unreasonable burden on employers; for example, the powers in Clause 3(1) can be used to give employers a reasonable period in which to recognise that a scheme had been deregistered and to find and designate a new scheme.

We are committed to consulting further with employers' representatives and the pensions industry on the details of the requirement. Our consultation document on this will be issued shortly. I commend the amendments to the Committee. I beg to move.

Lord Higgins

The Minister has set out the reasons for the Government's amendments, which, on the whole, would seem to be sensible with regard to the situation where a designated scheme ceases to be designated. To that extent, I think that those amendments are appropriate. As regards Amendment No. 27, I do not propose to move it at this stage. Nevertheless, it deals with a point that we may wish to consider further.

On Question, amendment agreed to.

[Amendments Nos. 27 to 29 not moved.]

Lord McIntosh of Haringey moved Amendment No. 30:

Page 3, line 46, at end insert— ("() The fifth requirement is that the employer shall, if any scheme designated by him for the purposes of subsection (2) ceases to be registered under section 2, withdraw his designation of the scheme (but this requirement is not to be taken as implying that he cannot withdraw his designation of a scheme in other circumstances).")

On Question, amendment agreed to.

[Amendment No. 31 not moved.]

Clause 3, as amended, agreed to.

Clauses 4 to 6 agreed to.

Schedule 1 agreed to.

Clause 7 [Reduced rates of contributions etc: power to specify different percentages]:

[Amendments Nos. 32 and 33 not moved.]

On Question, Whether Clause 7 shall stand part of the Bill?

Lord Higgins

This clause is concerned with reduced rates of contributions and so on. This is a complicated issue, and I have not tabled any specific amendment to focus discussion on it at this stage. However, I think it would be helpful if perhaps the Minister could outline precisely what the intention is as regards reducing the rates of contribution and altering the percentages in particular places.

We shall of course come to some very complicated clauses later in the Bill with regard to contributions, but perhaps the Minister could outline what she has in mind for the purposes of this clause.

Baroness Hollis of Heigham

I am happy to do that. Clause 7 sets out the treatment of national insurance contributions for the members of stakeholder pension schemes. As your Lordships will be aware. pension scheme members who have contracted out of SERPS are liable for a lower rate of national insurance contributions. The way in which this happens in practice varies according to the type of scheme. Some members pay a lower rate of contribution; others pay the normal rate but have part of their contributions related to the scheme; some schemes contain an element of both. For simplicity, I propose to refer here simply to "rebates". although the mechanisms will vary according to the type of scheme.

Stakeholder pension schemes will fall in legislative terms into one of the two existing general categories of pension schemes. They will be either occupational pension stakeholder schemes or personal pension stakeholder schemes. As a result, much of the existing legislation for contracting-out will apply to them automatically. So there is already provision in the Pension Schemes Act 1993 about the arrangements for contracting-out and for rebates to be paid. But existing legislation only provides for a rate of rebate to apply to money purchase occupational schemes and a separate rate of rebate to apply to personal pension schemes. Both may vary with age. It does not, of course, currently make further separate provision for stakeholder schemes as these are a new development.

This clause provides a power to set different rebates for stakeholder schemes. Rebate rates are set by the Secretary of State in the light of advice from the Government Actuary. The rates of rebate reflect the cost to the scheme of providing benefits to the value of the state benefit forgone by contracting-out. The Government Actuary takes into account, among other things, the expense level of schemes since these affect the cost of providing an equivalent benefit to that which has been given up.

The clause would enable a different rate of rebate to be set for stakeholder pension schemes if it should be appropriate to do so. The presence of this power does not mean that we necessarily intend to set different rebates. Decisions on rebate rates for stakeholder pension schemes will be taken later. We expect to lay the appropriate orders by April 2000, a year in advance of their introduction, as is required under existing legislation. But the clause ensures that a different rate could be set for stakeholder pension schemes if it was judged necessary and desirable to do so. Should this be appropriate, the clause also allows different rebate rates to be set for personal pensions, whether or not they qualify as stakeholder pensions, according to when the member joined the scheme.

Clause 6 provides an important flexibility for setting rebate rates in the future. Its powers may not always need to be used in practice but it is prudent to include them here to allow the most effective use to be made of significant public resources in the form of national insurance rebates.

Lord Higgins

The Committee will be grateful to the noble Baroness for that explanation. As I understand it, the clause is essentially a precautionary clause to enable the Government to alter the rates of contributions. However, I wonder whether the Minister could clarify the relationship between that clause and the ones that appear much later in the Bill, in particular Clauses 68, 69, 72 and 73 which are concerned with contribution rates.

I am not quite clear why the provisions of Clause 7 appear at this stage in the Bill rather than later. This is a rather complicated matter. Last year when the Government—wrongly, in our view—altered the rules in relation to advance corporation tax there were implications for rebates and contribution rates which had the rather perverse effect of encouraging people to move from personal pensions back into SERPS, which the Government did not intend.

I seek to understand this issue. As I say, it is not a simple one. I seek to understand what will be the effect of changing these rates of contribution to enable the Government to set reduced rates. I am not clear about the relationship between this provision and later clauses which mention other contributions by employees. However, that may be due to my ignorance of the matter. Nevertheless, I still have some difficulty in ascertaining exactly what the Government have in mind.

Baroness Hollis of Heigham

There is no connection at all between these issues. However, if the noble Lord has further worries on the matter and he wishes to write to me, I shall be happy to write back in greater detail. However, as I say, these are unconnected issues.

Clause 7 agreed to.

Clause 8 [Interpretation and application of Part I]:

Lord McIntosh of Haringey moved Amendment No. 34:

Page 6, line 8, leave out ("under") and insert ("for the purposes of")

The noble Lord said: This was spoken to with Amendment No. 26. I beg to move.

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendment No. 35:

Page 6, line 16, at end insert— ("() The Secretary of State may by regulations make provision for a stakeholder pension scheme which—

  1. (a) is of a prescribed description, and
  2. (b) would (apart from the regulations) be an occupational pension scheme,

to be treated for all purposes, or for such purposes as may be prescribed, as if it were a personal pension scheme and not an occupational pension scheme.")

The noble Baroness said: This is a technical amendment that clarifies the definition of a stakeholder pension scheme. It will ensure that the appropriate provisions of existing pensions legislation are applied to stakeholder pension schemes. In particular, it will ensure that occupational pensions scheme legislation will apply to stakeholder pension schemes only where appropriate.

Stakeholder pension schemes will fall, in legislative terms, into one of the two existing general categories of pension scheme. They will be either occupational pension stakeholder schemes or personal pension stakeholder schemes. As a result, much of the existing respective legislative arrangements will apply.

Public discussion has tended to focus on personal pension stakeholder pension schemes. But, as I have explained, the Bill also allows for employers who would like to offer a stakeholder pension scheme as part of their occupational pension arrangements to do so. They will be able to set up their own stakeholder scheme if they wish to, rather than rely on an external scheme. However, these arrangements will apply only to "traditional" occupational pension schemes.

There is a slight possibility that, because of the way in which a stakeholder scheme has been set up, it could fall under the definition of an occupational pension scheme under the Pension Schemes Act 1993, even though it was not set up, or funded, by any employer. This might arise, for example, where a scheme was restricted to persons in particular types of employment. There is a risk that in these cases legislation appropriate only to schemes sponsored by employers might apply. In particular, employers of those who joined such a scheme might find themselves unnecessarily caught by that regulation.

We want to make sure that in such cases the appropriate legislation is applied. It would not be right, for example, for employers in such circumstances to have to be consulted in relation to the scheme's statements of investment principles, as is required by Section 35 of the 1995 Act; nor do we intend, in such circumstances, that employers should have any role where trustees modify scheme rules, as in Section 68.

I should stress, however, that all trust-based stakeholder schemes will be subject to appropriate regulation and supervision by OPRA by virtue of Schedule 1. This amendment will not change that.

As I say, this is a highly technical but clarifying amendment. I commend it to the Committee. I beg to move.

Lord Higgins

The noble Baroness is right in saying that this is a technical amendment. However, on hearing her comments on the amendment, my initial feeling is that it is an appropriate amendment for the Committee to accept. It appears that a stakeholder scheme may inadvertently become an occupational pension scheme. An example could be where a group of employees in a particular profession all have a similar stakeholder scheme. That would be regarded, in some sense, as an occupational scheme, with the consequences outlined by the noble Baroness.

Obviously very different considerations need to be taken into account so far as concerns occupational schemes as against stakeholder schemes. The provisions of the previous pension Act, which were introduced post-Maxwell, were extremely stringent. OPRA also imposes very important restrictions and regulations on those operating in occupational schemes. It would not seem appropriate, in general, for those to apply to a stakeholder scheme. On the other hand, as the noble Baroness pointed out, trustee stakeholder schemes will require regulation which is not appropriate to a stakeholder scheme run, for example, by an insurance company.

Following the debates today, we still have a certain lack of clarity between schemes which are trustee schemes and ones which are not. Can the Minister say what provisions she has in mind for trustee schemes? Clearly, the full range of requirements imposed on occupational schemes would not be appropriate. For example, as she has rightly pointed out, they will not be required to produce a provision for investment principles. With occupational schemes, it takes a long while to work out what the investment principle should be and to submit it to the appropriate authority, and so on. At least the Minister has suggested that that is the position.

Presumably, a stakeholder scheme which has trustees will require some regulation as far as concerns its investment principles. Can the Minister say to what extent the trustee stakeholder schemes will have the same regulations as occupational schemes, and to what extent they will not?

10.30 p.m.

Baroness Hollis of Heigham

I shall have to write to the noble Lord on the detail. I think perhaps he may be missing the purpose of the amendment; that is not what the amendment does. He has raised perfectly legitimate questions, but not ones generated by the amendment. If he will allow me, I shall write to him on the particular points about trustee responsibility.

Perhaps I may expand and make this clear. The proposed amendment will ensure that the occupational pension scheme regulation will apply to stakeholder pension schemes only where appropriate. Perhaps I may give an example, which I possibly should have done in my speech. A stakeholder pension scheme might be set up for persons in a particular form of employment—a scheme for plumbers, a scheme for hairdressers or whatever. That scheme may not be set up or funded by any employer as an occupational scheme would be. We do not want that occupational pension scheme regulation with respect to employers' duties to apply in these cases. It would not be appropriate in these circumstances, for example, for employers to have to be consulted about the investment principles or to have any role where trustees modify the scheme rules. I do not know whether that helps the noble Lord, but that is what we are doing with the amendment.

Lord Higgins

I think I have understood it correctly. The Minister gave an example of hairdressers or whatever. Clearly, a stakeholder scheme covering, generically, hairdressers does not have an employer; the hairdressers are either self-employed or employed by some boutique or whatever.

Baroness Hollis of Heigham

It could be a network of small businesses.

Lord Higgins

It could be a network of small businesses, as the noble Baroness rightly said from a sedentary position. None the less, presumably the trustees will have some responsibilities. It would seem appropriate for those to be well defined. If I understand correctly, the Government are not yet clear about what regulations will be imposed on trustee schemes which were not imposed on schemes operated by. say, an insurance company. Can the Minister give some indication of when such regulations are likely to arrive? They will be quite important to the operation of a trustee-based scheme because the whole structure of that part of the scheme will depend on what frame work the Government establish.

Baroness Hollis of Heigham

The noble Lord asked what will be the governance requirements of trust-based schemes. Trust-based stakeholder schemes will be regulated under the 1995 Act by virtue of Schedule 1 to the Bill, where the detail is laid out.

On Question, amendment agreed to.

Clause 8, as amended, agreed to.

Clause 9 [Monitoring of employers' payments to personal pension schemes]:

Lord Higgins moved Amendment No. 36:

Page 7, leave out lines 13 and 14

The noble Lord said: The purpose of Clause 9 is to establish general rules with regard to payments by employers to pension schemes. If I understand it correctly, that is outwith the whole of the stakeholder pension scheme structure. We are seeking to establish rules for monitoring employers' payments to personal pension schemes. I am not an expert in personal pension schemes as against occupational pension schemes. But this would appear to be a new set of provisions which the Government feel are now necessary despite the fact that an extensive pensions Act was passed only a comparatively short time ago.

In this clause the Government are saying that employers, must secure that there is prepared, maintained and from time to time revised a record of the direct payment arrangements which complies with subsection (4)",

and that the record must, on the one hand, show the rates and due dates of contributions payable under the arrangements and, on the other, "satisfy prescribed requirements". The purpose of the amendment is to delete paragraph (b) and the words "satisfy prescribed requirements".

One becomes increasingly worried about the tendency for "prescribed requirements". They seem to turn up on every conceivable occasion and in every conceivable clause. As this is a new proposal, can the noble Baroness indicate what "prescribed requirements" the Government have in mind for which they wish to take powers to make secondary legislation?

Lord McIntosh of Haringey

Clause 9 covers direct payment arrangements, where an employer pays a deduction from an employee's salary, or sometimes an extra contribution, direct to the personal pension. We strongly support such arrangements because they provide for certainty of payment and a steady build up of pension. They are particularly welcome, of course, where the employer is also making a contribution. However, we recognise that there need to be safeguards to protect the employee's interests.

There is already a body of rules which governs the timely payment of contributions to occupational pension schemes, with which the noble Lord, Lord Higgins, as he acknowledges, is more familiar. Clause 9 seeks to put employer payments to personal pensions on broadly the same footing.

Amendment No. 36 would modify subsection (4) of Clause 9, which deals with the record that employers must set up showing details of their direct payment arrangements. The record is the agreement between employer and employee about what is to be paid to the personal pension provider and when it is to be paid. It will also be the means by which the personal pension provider will monitor the payments to ensure that they are made on time. Subsection (4) provides that the record must show the rates of payment and the due dates by which payments are to be made and contains a regulation-making power which will allow for additional features of the record to be prescribed. The amendment would strike that out.

The Government share the concern about burdens on employers. We intend to make the requirements on employers in this area as simple and as straightforward as possible. But in drawing up requirements in this area we must keep in sight the primary purpose of the arrangement that personal pension providers must be able to monitor in a straightforward way that payments have been received on time. We have to take account of providers' views on this issue. We shall be talking to them about it. The regulation-making power will allow for flexibility to take account of the different ways in which employers and providers do business.

We have already recognised one requirement as relevant to regulations. That arises where both the employer and the employee are contributing to the personal pension. The requirement will be that the record shall show separately the employer and employee rates of contribution. We have to distinguish, because it will be possible to have different due dates for employee and employer contributions. Separating the employer and employee contributions in that way is not new. Employers already do it for the purposes of tax relief. Tax relief on the employees' contributions is claimed directly from the Inland Revenue by the provider, so the provider needs to know the amount that represents employee contributions.

The additional requirements will not be onerous. That would not be in anyone's interests. We shall be consulting on the regulations and will listen carefully to the responses. But in order to protect the members of personal pension schemes and offer them the same safeguards—I emphasise that point—as already apply for occupational schemes, we need to set up workable monitoring arrangements. The amendment would damage that. I urge the noble Lord to withdraw it.

Lord Higgins

In the light of the Minister's comments, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 9 agreed to.

Clause 10 [Late payments by employers to occupational pension schemes]:

[Amendment No. 37 not moved.]

Clause 10 agreed to.

Lord McIntosh of Haringey

I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.