HL Deb 24 June 1999 vol 602 cc1136-76

House again in Committee on Clause 1.

Lord Higgins moved Amendment No. 11:

Page 2, line 11, leave out from ("to") to ("and") in line 12 and insert ("a minimum contribution level of £10 per month,")

The noble Lord said: The purpose of Amendment No. 11 is to raise the issue of what contribution those subscribing to a stakeholder pension can make. The Committee will be aware of widespread comment in the press that the Government intend that it should be set at a minimum level of £10 per month; in other words, £120 per annum. This raises a number of questions on which it would be helpful to have the views of the Government. This matter is also related to the earlier debate about the costs that might be involved in the provision of stakeholder pensions. It also looks forward to later amendments related to the extent to which advice will be given by those who provide such stakeholder pensions.

One must express hesitation about the figure of £10 which appears in the amendment in the light of press comments on the position of the Government. At £120 per year, for someone who provides a stakeholder pension of 1 per cent—we discussed this matter just before the adjournment—the cost allowed would be only £1.20. If one is a minimum contributor it seems unlikely that one will get very much for the sum of £1.20.

At the other end, the question arises: what kind of pension will one get for a minimum contribution of £10 per month? In that context, one raises yet again the issue of whether the pension that one gets is likely to be sufficient to provide a pension in excess of the minimum guaranteed pension proposed by the Government, which one understands is to be index-linked. Clearly, if an individual did not reach that level with the subscription just mentioned it would be money—I was going to say—down the drain. Without using Mr Frank Field's exotic expression, that would be roughly where it would go.

Of course. the Minister may well argue that one is unlikely to be making the minimum contribution throughout one's working life and that the expectation is that people will probably contribute significantly more. Even so, if the amount contributed is significantly higher, calculations suggest that even, say, for someone aged 21 on an income of £12,000 a year, with the salary rising by 2 per cent over inflation and a contribution of 10 per cent of earnings to the scheme, the total contributions will he only some £85,000. That would produce an estimated income in retirement at today's purchasing power of about £11,700, plus what is left, if anything, of a basic state pension. That would presumably be scarcely seen as a reasonable return on the investment made over one's life.

I am sure the Minister has alternative figures which we can consider. But certainly the minimum contribution level and indeed the level of contributions which may be expected by people above that level raise serious questions as to whether encouraging low-earners to go into this scheme will be a worthwhile investment. I should be grateful if the Minister could comment.

Baroness Hollis of Heigham

The amendment would put on the face of the Bill details of the minimum contributions that schemes can require stakeholder pension scheme members to make. We expect to set out these details in regulations. I am sure that the noble Lord will agree that the matter is much better handled in that way. I could explain the purpose in one phrase: this is meant to be a ticking-over contribution. Perhaps I may enlarge on that point.

Subsection (7) provides that schemes must allow members to make contributions as they think appropriate. This means that members will be able to contribute such sums as they wish, either on a regular basis or as and when they can. The subsection also provides a regulation-making power to prescribe minimum contribution levels and other restrictions on the making of contributions.

The Green Paper made clear our intention that schemes which require minimum contributions should not be able to set them above a specified amount. Our recent consultation document proposed that no scheme should be able to require a minimum contribution of more than £10. This low limit will ensure that people who can afford only modest contributions are not ruled out from joining a stakeholder pension scheme. I am pleased that the noble Lord's view of an appropriate minimum level is consistent with ours.

We have also proposed in our consultation document that there should be no requirement for contributions to be made at a specified frequency—for example, once a month, as suggested by the amendment. One of the key flexibilities that we want to introduce into stakeholder pensions is the freedom for individuals to make contributions as often as they wish—that is, by regular payments or by a one-off payment. We want them to be flexible enough to adapt to circumstances.

For example, regular and monthly contributions may be the most appropriate arrangement for those in work. However, they may lose their job and be unemployed for a time. If that happens, we want them to be able to continue to make modest contributions—perhaps £10 or £20—as and when they can afford to while they are looking for work. Likewise, we want to make sure that people who take a career break to raise a family—they may take three or four years out while they have a couple of children—can continue to make one-off contributions from time to time, possibly from freelance earnings or in some other way; we want them to be able to make a modest contribution while they are out of the labour market. And we want to cater for people who may wish to make irregular lump sum payments—for example, if they should inherit money or if they wish to make a contribution from their savings.

In the consultation document we have invited views on the compatibility of the minimum contribution rule with the variety of ways in which schemes may collect contributions. I could discuss that if necessary, but essentially I entirely agree with the noble Lord that a £10 a month regular minimum contribution over many years will not produce a faintly satisfactory pension. But the point is that the provision allows a welcome flexibility for exactly those people that the stakeholder pension is designed to cater for: those who may be in and out of work, those who may temporarily drop out of work, those who may have temporary childcare responsibilities and the like. They can then have the option of making good that low level of contribution in their later contributions.

As I said originally, it is a sort of ticking-over contribution which we think offers much needed flexibility so that we keep people within the pensions system rather than have them drop out altogether. I hope that in the light of that explanation the noble Lord will withdraw the amendment.

Lord Higgins

There are two points here. If the Government suggest that minimum level which I understand is the figure they are suggesting now, presumably it may subsequently be adjusted for inflation and so on. The question nonetheless arises whether any provider of a stakeholder pension is prepared to take on the paper-work and so on involved, given that the charge it would be allowed to make would he about £1.20 a year.

Baroness Hollis of Heigham

I obviously did not make myself clear. We do not expect people to go into a scheme and pay £10 a month. What we expect is that people who are in a scheme may lose their job and want to keep ticking over by dropping down to a contributory rate of £10. It may also be a way of enticing people on very low pay to make a start.

Nobody disputes the noble Lord's assertion about whether, at £10 a month and with the level of charges that would need to be made, a viable pension would be produced. But the provision does produce flexibility to enable people who may be temporarily out of the labour market, temporarily unemployed, looking after children or whatever, to keep a scheme ticking over. Then hopefully they will be encouraged to make good that shortfall later. No one is suggesting setting up a new scheme for somebody for the most part on £10 a month. It may be the case on one or two occasions, but it is much more likely to be a drop-down rate rather than a starter rate.

Lord Higgins

The expression "tick-over" rate which the noble Baroness used is perhaps a convenient way of describing it. As she says, it may also be a start-up rate. None the less, I would have thought that there must be some minimum level below which, on average, a provider was not particularly keen to take on all the administrative hassle and so on for £1.20 a year.

The other issue is whether ticking it over at that rate will provide a pension which is in reality worth anything at all because it is below the minimum income level which the Government propose. Presumably it is possible to do the calculation to show how much one would have to pay into a scheme in order to produce the Government's income level. Indeed, that would be a rather useful calculation to have done generally because it would clarify the situation. One of our concerns, as I pointed out in an intervention during a speech by the noble Lord, Lord Goodhart, is that people will be deterred from saving at all or find that they have had a very bad deal. Then one is into mis-selling territory if they do not know. I leave on one side the issue concerning the disabled which we shall come to later.

It would be helpful to have this figure because it would give people some idea of whether it is worth while ticking over, for example, or going for a period. Obviously for the arithmetic one must make certain assumptions about whether the contribution is paid regularly or spasmodically. I presume the Government have done the calculation, and it would be helpful to have the figure.

Baroness Hollis of Heigham

I am not sure that it is a realistic figure that the noble Lord has asked for. People on such a low income that £10 a month is the only realistic contribution they can make to a pension scheme will not be in the stakeholder pension; they will be in the state second pension, an unfunded scheme for the low-paid earning less than £9,000 a year.

What we are talking about here are the circumstances of people, perhaps at the beginning of their working lives, expecting to make increased contributions and getting them into the pension habit. People in work who became unemployed—took time out—in the old days stopped their pension contributions. But we are allowing a tick-over. We do not expect a £10 a month contribution or sporadic lump sums of £20 here and £30 there to be a sustainable basis for a pension scheme, but the provision gives a flexibility to people whose incomes or earnings are somewhat erratic but who none the less feel that it makes sense to remain in the stakeholder framework rather than the state second pension. That is all that we are doing with it.

Lord Higgins

We have the same problem as with Amendment No. 1. We do not know exactly what the position will be on the state second pension.

Perhaps I may press the Minister. She may be unable to give the answer now. There are two cross-over points. What level of contribution on average floats people out of the state second pension into a stakeholder pension? At what level of contribution on average, on some reasonable expectation about the lifespan of the individual, would it not be worth while contributing because one runs into the problem of the guaranteed minimum pension? I should have thought that that can be calculated. It would be helpful to know.

8.30 p.m.

Baroness Hollis of Heigham

If the noble Lord is serious in his request, he must write to us with a list of the assumptions that he wants us to build in. That would include, for example, inflation and what has happened to the equity market in a funded scheme; it would have to make assumptions about that man's or woman's earning capacity, and so on. I am not sure why the noble Lord is pressing us on this. This is a drop-down rate or an early start rate for someone who will remain within the stakeholder pension.

We have already said today that the state second pension will be expected to cover people up to between £9,000 and £12,000. But between £9,000 and £18,000 or £20,000 it makes sense go to into a funded scheme. At £20,000 one is almost certain to be in an occupational scheme or able to afford an adequate personal pension.

I do not see why there is any problem about cross-over points. But if the noble Lord wants us to do some calculations and will specify the assumptions he would like us to include we shall have a look at them. However, as posed his question is unable to be answered.

Lord Higgins

I accept that one has to make assumptions. I shall give further thought to that.

My concern is that people should not invest in a stakeholder pension and find at the end of the day that they receive nothing. We need to have some parameters within which the scheme operates. Let us see whether we can make progress on it. Subject to that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 12:

Page 2, line 12, leave out ("and other restrictions as may be prescribed,") and insert ("up to a maximum of £5,000 a year of the proportion of earnings which may be relieved of income tax if invested in an eligible pension scheme for a person of the relevant age in accordance with current Inland Revenue rules, whichever be the higher,")

The noble Lord said: Perhaps the Minister can confirm that it is suggested that we should link this amendment with other amendments, including the amendment tabled by my noble friend Lord Freeman.

Baroness Hollis of Heigham

It is the same issue about concurrence, dual membership and tax relief. It is essentially a tax relief issue.

Lord Higgins

As the noble Baroness rightly said, Amendment No. 12 has some tax implications. I think that I am right in saying that at present the maximum figure which has been suggested by the Government is £3,600. We are suggesting—it is an arbitrary figure—that we should raise that to £5,000 to establish exactly what the situation is with regard to taxation.

Other amendments raise the question of whether one should be allowed to be in more than one scheme. As we understand, one is not allowed to have both a stakeholder pension and another pension. I believe that that is the case, whether or not the individual has more than one occupation. But no doubt the noble Baroness can confirm the Government's position.

First, if an individual has two unconnected jobs, each of which has a stakeholder pension scheme, is it permissible for contributions to be paid to both stakeholder schemes where the aggregate contribution to both amounts to more than £3,600? If not, how does each employer know the amount of contributions to the other scheme? If there is an overall limit, on which scheme does the restriction apply? We need to know the relationship in dual employment.

My second question relates to additional voluntary contributions. What is the position as regards the £3,600 limit, which I understand is an aggregate contribution limit, so far as concerns AVCs? Does that limit apply in that case too? No doubt as the matter has been raised also by my noble friend Lord Freeman he will have a number of additional points to make in relation to dual membership. I leave him to spell those out. I beg to move.

Lord Freeman

I speak to Amendment No. 17. Because it is a probing amendment, I make plain that at the appropriate time I shall not move the amendment. I hope that the Minister will accept my comments on Amendment No. 17 as part of this debate.

My concerns relate to the rights to dual membership by individuals in a single employment. It is beyond doubt that so far as concerns Inland Revenue rules, if one has two or more employments one might have different pension provisions. For example, one might be in an occupational pension scheme for one's main employment. One might have a personal pension scheme at present; or some other form of pension provision for other employments. My concern relates to single employment and rights to dual membership.

Amendment No. 17 refers specifically to rights to dual membership of occupational pension schemes and a stakeholder's pension. It seemed to me that that is where the issue particularly arose. For the sake of my brief arguments, I define an occupational pension scheme as a defined benefit—for example, a final salary scheme.

At present, under Inland Revenue rules it is effectively impossible under tax law for those in single employment to have dual membership. It has to be one or the other. The noble Lord, Lord McIntosh, referred to the change in the law in the 1980s. He was right to describe it as presenting a problem to some in the sense that those in an occupational pension scheme have to leave that scheme in order to set up their own personal pension plan for that employment. Indeed, employers were not allowed to make it a mandatory condition of employment that one had to join an occupational scheme; otherwise one would have been in the situation of trying to promote personal pensions and effectively being unable to offer them to those in single employment. I believe that dual membership makes sense.

At Second Reading on 10th June, the noble Baroness, Lady Hollis—I shall paraphrase the essence of her helpful comments—said that the issue was complicated, that discussions were taking place with the Inland Revenue, that Her Majesty's Government were reflecting upon the issue of dual membership and that their mind was not closed to the issue. All that is extremely helpful. The issues may have moved on, and it may be that some resolution is close at hand. There are further stages to the Bill in this House. If it is not possible to resolve the matter tonight I hope that before Third Reading it will be possible to resolve the issue. I think that it is important to those in the industry. I do not speak for them but I am well aware of their concerns. Those who make provision and those who provide need to be clear about the position.

Why is the Inland Revenue involved? Why is tax law relevant? There is control over the deductibility of pension contributions by employees and employers. The noble Lord, Lord Peston, is not in his place but he seemed to argue for no tax restrictions on deductibility. I think that that is asking too much. There are laws in place. If one allows today unlimited provision for pensions in the future one will lose tax revenue. It will be recouped when the pensions are paid, but the short-term cash position is disadvantageous to the Government.

I would argue that a limited degree of relaxation is called for. I agree with my noble friend Lord Higgins that a simple way of relaxing provision is to allow those in one employment to have rights to remain in an occupational pension scheme whose tax rules are complicated and different from the simple tax provision for which the regulations will provide for stakeholder pensions—an upper limit of £3,600 or whatever. That is tax deductible, no questions asked: a lump sum provision by the employee. There is room to permit an employee to have both tax deductions under the different regimes that would apply to a stakeholder pension—I imagine that we are talking only about an employee's contributions and not an employer's— and an occupational pension scheme.

Why? There are two simple reasons I want to put to the Minister. I assume that we shall find a number of examples of employer-funded pension schemes, whether they are defined benefit or money purchase, to which the employee can make contributions and which cover employees in the salary range £10,000 to £20,000. The Minister earlier implied that one was dealing with a continuum of pension provision into which one could neatly fit different categories of people. She is largely right, but I am afraid there is some overlap. There are a number of examples of smaller companies, particularly in the engineering industry, which are employing people at £20,000 per annum, which are providing an employer-funded contribution pension scheme, and they should be encouraged.

Therefore, I am pressing the issue of dual membership for two reasons. First, in order to avoid the awkward decision when someone is coming out of self-employment, or employment where there is no employer-funded pension scheme, into full-time employment where there is an employer-funded pension scheme, avoiding the difficult decision as to whether he should continue his stakeholder pension. The economic arguments might be in favour of ceasing contributions to the stakeholder pension scheme and going into the employer's pension scheme. Frankly, in some cases it may be sensible to continue to top up one's stakeholder pension scheme. The figures that I have seen which indicate or moot a maximum contribution level of £3,600 per annum—that is, applying the normal 15 per cent tax deductibility rule—would give a salary of £24,000. Fifteen per cent of one's salary at £24,000 a year is quite a large sum. But if one was in an occupational pension scheme and was paying 5 or 6 per cent, with the employer paying perhaps 10 per cent, there would still be sufficient room to top up one's stakeholder pension scheme by 9 or 10 per cent of one's salary.

In the real world, many people will wish to maintain contributions to a stakeholder pension scheme throughout their working lives. It provides continuity. One needs to make contributions over a great number of years in order to have a meaningful pension. Ten pounds a month—£120 a year—even with a full working life, will provide only a modest pension of perhaps £10 or £15 a year. That is the pension one would get on retirement at 60 if one made that contribution for 20 or 30 years, given normal annuity rates.

The second and more important reason for the arguments lying behind my amendment is to avoid the problem referred to by the noble Baronesses, Lady Castle and Lady Turner, and my noble friend Lord Higgins. It is to avoid the problem of some employers closing their own schemes, to which they make contributions, and saying, "We have to provide introductions and advice to facilitate a stakeholder pension scheme in our little company or factory. We are going to stop our scheme. We don't have to make a contribution. Times are hard. Here is your scheme to which you as an employee will contribute."

The noble Lord, Lord McIntosh, said that all good employers will wish to keep their employer contribution scheme in order to attract people to the company. The Association of Consulting Actuaries, in a sample of 572 companies, reported that 12 per cent stated that they would close their scheme under the Bill as presently drafted. Perhaps that is an exaggeration, but every time an employer ceases making a contribution to an employer contributory scheme, however generous that may be, it is a retrograde step. Dual membership is a very modest way of increasing total contributions to pension provision in later life and maintaining employer responsibilities at the same time.

8.45 p.m.

Lord Goodhart

I rise to support both the amendment which have been introduced and to speak to my own amendment, No. 20. That amendment covers two issues. First, can a member of a stakeholder pension scheme use that scheme as though it were a personal pension and make contributions up to the Inland Revenue limits, even if they exceed the £3,600 proposed limit on stakeholder contributions? Secondly, can a member of a stakeholder pension also be a member of another scheme? As we have heard, the first issue is dealt with by Amendment No. 12. The second issue is covered by Amendments Nos. 17 and 18.

I am not in complete agreement with Amendment No. 12 because the first part of the agreement deals with the limit to contributions and puts it at £5,000 a year as against the Government's proposal, which is to impose an upper limit by regulations of £3,600 a year. I agree that it is a good idea that anyone should be allowed to contribute up to £3,600 a year to a stakeholder scheme, provided that that does not exceed his or her total income.

The existing rules on maximum contributions imposed by the Inland Revenue are complicated. It seems that it is a good idea to have a simple rule for relatively small contributions. However, in our view, £5,000 a year is on the high side. While we cannot say that we regard it as a major issue, we would be more in support of the Government's proposed limit of £3,600. That is the point at which the Inland Revenue limits should come into effect.

However, we are in wholehearted support of the rest of Amendment No. 12. Let us assume that a young employee is taken on at relatively low salary. He does well in his job and reaches a salary level where the Inland Revenue limits are more than £3,600 a year. He may well prefer to continue to pay the full amount into the one stakeholder pension of which he is already a member and to make additional voluntary contributions. Is it intended that under the Government's regulations he will be allowed to do that? I can see no good reason why not and I strongly urge the Government to allow it to be done. There is no clear reason that that should not be allowed.

I turn to Amendments Nos. 17 and 18. Alternatively, if the Government are not willing to allow that, or if the individual prefers to be a member of a separate non-stakeholder pension scheme in respect of the sum over and above £3,600, there must be a strong case for allowing the employee to be a member of two schemes at the same time; one a stakeholder scheme and the other some form of approved pension provision. It can be a personal pension or membership of an occupational scheme. If the hypothetical employee cannot do that, the only possibility would be for that employee to transfer his or her existing funds out of the stakeholder pension scheme into a personal pension scheme or an occupational pension scheme, or leave the money in the stakeholder pension scheme as a deferred pension. None of those solutions seems attractive. Furthermore, I believe that that would be both unnecessary and undesirable.

The simple question is: why not allow dual membership? For the reasons clearly explained by the noble Lord, Lord Freeman, Inland Revenue limits are needed. If those limits are not exceeded, why does it matter that those contributions are made partly to one scheme and partly to another? Why not allow the contributions to be made to two different schemes?

I can see technical problems if one scheme is a money purchase scheme, which a stakeholder pension scheme must be, and the other is a defined benefit scheme. That is because the Inland Revenue limits are calculated in different ways. That does not seem at all impossible to me. It should certainly be within the abilities of the high-powered people who staff the Inland Revenue to provide a solution. That is why we have provided, in subsections (2) and (3) of Amendment No. 20, for an immediate right to become a member of a stakeholder pension scheme and another money purchase scheme. Where the alternative scheme is not a money purchase scheme, we have proposed, in subsection (4), that proposals for legislation should be laid before Parliament for consideration at a future date.

Having said that, it seems to me that the principle is clear. We want to make stakeholder pensions as attractive as possible. We believe that it is highly desirable that it should be possible to contribute up to the Inland Revenue limit in stakeholder pension schemes, even if those limits are higher than £3,600, and that it should be possible to have dual membership of a stakeholder pension scheme and a tax-exempt non-stakeholder scheme at the same time, provided that the total Revenue limits are not exceeded.

Lord Higgins

Perhaps I may mix my metaphors and say that I hope that I am allowed two bites of the cherry in such deep waters.

In regard to the transitional arrangements, there are some problems. First, people will be uncertain as to what they will do when stakeholder pensions eventually arrive. Meanwhile they may have engaged in other schemes and there may be considerable disadvantages for them if they have to stop one scheme in order to become a member of a stakeholder pension scheme. In particular, there will be difficulties with regard to the transfer values, if the Government persist in their view that one can hold only a stakeholder pension scheme but not any other scheme at any given time. I hope that attention can he given to the problems of the transitional arrangements, given that it will be some while before stakeholder schemes become operational.

Secondly, how will the £3,600 limit—if the limit remains at that figure—or the £5,000 limit, if that is accepted, be indexed? Will it be indexed in line with the RPI, as is normal with tax indexation, or with wage inflation? If it is the former, the effect will be to reduce annually the proportion of earnings that may be paid into a stakeholder pension scheme where the maximum contributions are being paid. Assuming that wage inflation continues at a low rate, in practical terms that will significantly reduce the pension that someone would expect to receive from the stakeholder pension scheme Summarising that, will it be indexed on the usual tax basis of RPI or wage inflation?—otherwise, the pension will decline as a proportion of what might have been expected.

Thirdly, in regard to AVCs—a matter I raised originally—do the Government feel that people in the scheme can have AVCs in addition to the existing £3,600 or the £5,000 limit? If so, I wonder whether that will require any changes to the regulations of the existing pension scheme arrangements which would seem to allow that to be the case at present.

Baroness Hollis of Heigham

The answer to all the points raised—two raised by the noble Lord, Lord Higgins, and other points raised by the noble Lords, Lord Freeman and Lord Goodhart— is that we are consulting on those matters. Within that context, I believe that we all agree the nature of the problem, including some of the implications in terms of costs and tax limits.

Amendment No. 12 refers to placing on the face of the Bill a maximum limit for contributions to stakeholder pension schemes. We propose a single flat rate of £3,600, or total earnings, whichever is the lower. At the moment we do not propose that people can go up to £3,600 in two schemes. However, that is a matter under consideration and under consultation. Amendment No. 12 seeks to increase this maximum Limit to £5,000, or some other limit based on a proportion of earnings, whichever is the higher.

Given that the target group comprises those earning between £9,000 and £18,000 a year, the limit of £3,600 is, therefore, generous enough to allow them to make significant contributions if they wish. Anyone who wishes to pay in more than £3,600, and who would be allowed to do so under the relevant contribution limits, will still have the option of taking out a personal pension scheme if they do not have access to an occupational scheme. As I say, we are considering the point made by the noble Lord, Lord Goodhart, on AVCs and their equivalent.

On the issue of whether membership of stakeholder pension schemes should be allowed in addition to membership of another type of pension, as is proposed in Amendments Nos. 17, 18 and 20, that is another issue that we are considering in the light of responses. A number of noble Lords have argued—we have heard the arguments put very eloquently—for concurrent membership of a stakeholder and an occupational scheme. We are mindful of the argument that that would encourage more people to join occupational pension schemes when they are offered, but still allow them to keep a stakeholder pension scheme alongside that.

We have also received strong views on the question of allowing membership of a stakeholder pension scheme in addition to personal pensions for those not in occupational pension schemes. A number of noble Lords have argued that allowing contributions up to only £3,600 in a stakeholder pension scheme could raise difficulties when someone would like to pay more because their earnings have risen. It was agreed that if the personal pension contribution based on earnings was higher, it could be inefficient and confusing to have to switch to a personal pension at that stage.

We are considering all these points, but we have to consider the other side of the matter. There is the risk of adding complexity to the operation of stakeholder pension schemes if providers have to check that total contributions, including to a stakeholder pension scheme and an occupational pension scheme, do not exceed the overall limit. There is a real problem concerning the transparency and the tracking of such contributions from the point of view of the Inland Revenue. Some noble Lords have had experience of a similar situation.

If stakeholder pension scheme contributions were allowed in addition to the existing limits on occupational pension schemes, the cost could be as much as £400 million. I could break down that figure if noble Lords were interested, but we have put the figure at that amount if stakeholder pension contributions are allowed in addition to the existing limits on occupational pension schemes. If they are not, there is not much point—because they are capped at the figure of £3,600 and one may as well stay within the stakeholder pension scheme.

A significant part of the costs would arise in relation to those who already use the tax allowance and occupational schemes to the full. I do not believe that they are the main priorities for additional help. So our concern would for those in an occupational scheme wanting to top up with a stakeholder pension rather than doing it the other way round.

9 p.m.

Lord Freeman

Would the Minister be amenable to putting on the record the basis of the calculation of the £400 million? It may be helpful for me to be in touch with her office to determine what the right mechanism for that might be.

Baroness Hollis of Heigham

I suspected that that question might be raised. The assumption underlying that figure is that those people who invest in stakeholders on the free-standing AVC contributions might do this to take advantage of a tax-free lump sum or whatever, and there will be a doubling of current investment levels so the cost in extra tax relief would be £250 million. There are currently around 900,000 free-standing AVC arrangements.

The second assumption is that around 400,000 people are in occupational schemes near to the maximum that they can invest. It is assumed that they would contribute to stakeholders at between 4 and 10 per cent, at a cost in additional tax relief of £100 million. It is assumed that 40,000 of those earning in excess of the current limits for occupational schemes will each contribute the maximum of £3,600 to a stakeholder pension scheme at a cost in additional tax relief of £50 million. Personal pension holders will take the higher of the limits currently applying so there is no additional cost for tax relief above that in the Green Paper estimates. Those are the bases of the assumptions we are making which underpin the figure and calculate that it could be up to £400 million in Inland Revenue tax relief on pension schemes.

The second question that arises, apart from tax concession, is that allowing membership of both a stakeholder pension scheme and a salary-related occupational pension raises the further issue that salary-related schemes are subject to a limit on the final benefit payable as well as a limit on the contributions. We would therefore have to consider carefully how the two regimes could be calibrated within arrangements such as those proposed in subsection (3) of the clause. In seeking to require proposals as to how this could be achieved rather than immediate introduction, the Committee will recognise the difficulties.

To summarise, we recognise where Members of the Committee are coming from and are mindful of the fact that we do not want people having to drop out of stakeholders simply because they have gone up the income scale, nor do we want people hampered by the fact that they are trammeled into one specific scheme. On the other hand, we do not want to add complexity. We are concerned about the cost and we recognize that there may be specific problems with final salary schemes. Having said all that, they are important issues and we take that on board. The Government are giving them careful consideration and in the light of that the Government will shortly be publishing a consultation paper on taxing pensions which bears on these selfsame issues. That being the consequence, I ask the Committee to bear with me and not to press further tonight. When we have this consultation paper out, the basis of our understandings will be seen and we can consider whether there are ways forward on which we can all agree. In the light of that, I hope the noble Lord will feel able to withdraw his amendment.

Lord Goodhart

Before the noble Lord, Lord Higgins, replies, perhaps I can say that I regard this position as deeply unsatisfactory. We have here two very important questions: the right of members of stakeholder pensions to pay AVCs into the pension scheme and the right of dual membership.

It may be adequate if, though these are not on the face of the Bill, we are told what the Government intend to put into regulations. But we are not told that; we cannot be told that because the Government have not yet made up their mind. We are told that there is going to be a continuing consultation process which will no doubt last well beyond the debates on this Bill in your Lordships' Chamber. I find it unsatisfactory that we are asked to legislate on that basis. That reinforces the idea that the proposals in Part I of this Bill are somewhat premature.

Baroness Hollis of Heigham

The Government have a very clear view; that we meant to have stakeholder pensions to a ceiling of £3,600. The Government could have held firm on that view and simply said, "We are not going to move". On the contrary, we are trying to recognize the strength of the arguments put to us tonight and through other representations, and are consulting further to see whether we can move. But when we started off with this Bill we did not expect to be departing from our position of £3,600.

If your Lordships want the Government's position to be always unambiguous, that means that the Government will never listen to any propositions or amendments put forward by the Opposition. I am sure that is not a position that the noble Lord, Lord Goodhart, would wish to espouse.

Lord Freeman

I am grateful to the Minister for putting on record the basis of the calculation and am also cognizant of the fact that if governments are to shift their position, they have to consult, and it is not always possible or desirable for everything to be laid out in an inflexible way to begin with. I do not wish to press my amendment, and reserve the right to come back at a later stage.

Lord Higgins

The Minister gave a reply which in a number of respects is very comprehensive. But I have much sympathy with the view expressed by the noble Lord, Lord Goodhart These are extremely important issues and obviously some degree of consultation is necessary. But we are not in the situation we were on the Tax Credits Bill where there were problems of consulting other departments. This is essentially a matter, as I understand it, between the Inland Revenue and the DSS. We have rather more time than we had in relation to the Tax Credits Bill. We are now only at Committee stage. One would have thought we might reasonably expect the Government to have come to a conclusion on this matter.

Baroness Hollis of Heigham

I am grateful to the noble Lord for giving way. I must say that that is an unusually uncharitable interpretation of what I said. I said that the Government went into the discussions when this Bill started in the other House with a clear view: £3,600 stakeholders. In the course of the discussion and also tonight we have had views put, backed up by representations from knowledgeable organizations with whom the Government are in partnership, that we should consider variance on this.

The Government could simply have dug in their heels and said, "Go away. We are not moving". We are not saying that. It is rather unfortunate because we appear to be damned if we listen and damned if we don't.

Lord Higgins

It is certainly not my intention to be uncharitable at all. We fully accept, as the Minister said, that instead of simply producing a fait accompli the Government are carrying out consultations and they will reconsider the position. That is an entirely reasonable view for the Government to take, indeed more reasonable than the one just suggested by the noble Baroness.

But having said that, it is equally reasonable on our side to say that we have a reasonable amount of time before this Bill completes its passage through this Chamber; we are only at Committee stage. And it is not unreasonable to ask the Government to take a view in the light of the consultations and representations. I am sure the outside bodies, which are all extremely expert and erudite in these matters, will be happy to make their representations at a technical level and then the Government can reach their conclusion.

If we on this side of the Chamber agree, that is fine; if we disagree, then we can table suitable amendments. This matter has been running for a good while before reaching this stage. It is not a matter where, other than considering the arguments, the Government need time to make a decision. Indeed, it is a question of sitting down, thrashing the thing out with those who are expert in such matters, and taking a view with which we may then agree or disagree. However, it is not satisfactory to leave the matter hanging totally in the air until after the Bill has received Royal Assent. I am entirely sympathetic to the noble Baroness who is seeking to be helpful. However, as on former occasions. I am seeking to press the Government to get together with officials, and others, and reach a conclusion on the matter.

Before I withdraw the amendment, perhaps I may throw one final stone into the pool—if that is not mixing metaphors even more—and ask the Government whether they would care to consider whether they need to make additional regulations under Section 111 of the Pensions Scheme Act 1993 if they are to fulfil what at present seem to be their intentions. Subject to that, although I do not expect the noble Baroness to reply, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 13 not moved.]

Lord Higgins moved Amendment No. 14:

Page 2, line 18, at end insert ("or other insurance contract,, annuity contracts or pension arrangements which satisfy Prescribed requirements")

The noble Lord said: This is a much simpler provision than the one that we have just discussed. It would ensure that the seventh condition for the definition of a stakeholder pension scheme is amended to ensure that such a scheme accepts transfer payments from a broad range of pension arrangements. There are, of course, difficult issues involved here. However, if people want to transfer their assets into a scheme, it would seem appropriate for them to have the ability to transfer assets of the kind described in the amendment, as well as existing rights in other pension schemes.

There are other issues with regard to the question of accepting transfer payments. My understanding at present is that the Government will insist that the trustees—if they are trustees—of a particular stakeholder pension scheme will need to accept such transfers. However, that position is not the same as that applying to an ordinary occupational scheme. If I remember correctly, an ordinary occupational scheme has the right to refuse to accept transfer payments and, in any event, considerable negotiations have 10 take place as to the actual value of the transferred assets. Perhaps the Minister will be able to clarify that point.

However, as the amendment stands, it seems to be a reasonably flexible approach to having transfers for people who want to take out a stakeholder pension but who already have other assets which they would wish to include in the stakeholder scheme. I beg to move.

Lord McIntosh of Haringey

The minimum standards which we propose should provide members with important reassurance that schemes will, among other things, be flexible enough to accommodate the changes in circumstances that can occur during their working lives. That is why we are proposing that the stakeholder pension scheme members will, if they so choose, be able to transfer rights in other pension schemes to their stakeholder scheme. The ability to consolidate pension rights into a single fund will also make it easier for people to understand the current value of their pension savings. It will also help to avoid the proliferation of a number of small "pots", thus helping to secure better value for members.

Our proposals already require stakeholder pension schemes to accept transfers of rights in occupational and personal pension schemes. Of course, as the noble Lord, Lord Higgins, made clear, there are other types of financial arrangements which are recognized as pension arrangements; for example, retirement annuity contracts and certain other types of annuity or insurance policies. Insurance and annuity contracts, for instance, can be used to give effect to a former employee's rights in an employer's occupational pension scheme. When our proposals for pension-sharing on divorce come into effect, spouses who become entitled to a share of their former spouse's pension will be able to purchase a deferred annuity if, for example, they are not members of a pension scheme at the time. These people may eventually want to transfer such rights into a stakeholder pension scheme.

There is nothing in our proposals which would prevent a stakeholder scheme accepting such transfers under the existing rules. If I have understood the amendment correctly, the noble Lord is simply seeking to build on our proposal so that stakeholder schemes are required to accept transfers from a broader range of pension arrangements.

I accept the weight of the arguments which I believe have prompted the amendment, but I would need to be sure that broadening the requirement would not mean placing undue burdens on stakeholder schemes and that there was no conflict with wider pensions legislation. Therefore, I should like to consider the amendment further. In the light of that assurance, I hope that the noble Lord will agree to withdraw it.

Lord Higgins

This is not only the best assurance: I think it is the only assurance! I am looking forward to further assurances, but in the light of the Minister's agreement to look at this again, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

9.15 p.m.

Lord Higgins moved Amendment No. 15:

Page 2, line 20, at end insert— ("(10) The ninth condition is that approved group personal pensions shall be deemed to be stakeholder pensions for the purposes of this Part.")

The noble Lord said: There are concerns outside that the Government's proposals could be damaging to occupational schemes and group personal pension schemes. The Government seem to have said very clearly, for example, in the Standing Committee on 3rd April that the provider of a stakeholder pension or a personal pension could not be the same. The conditional arrangements could be the same but people should be aware of the distinction between the two schemes.

As I say, fears have been expressed outside that the position of the pension schemes, in which the noble Lord, Lord McIntosh, is very expert, could be adversely affected. Perhaps the noble Lord could tell us whether, in his view, this is so or not. I beg to move.

Lord McIntosh of Haringey

The noble Lord, Lord Higgins, is of course right in saying that I am a supporter of group personal pension schemes and I am particularly in favour of those schemes in which employers contribute as well. The Government are also in favour. We are pleased that our proposals for reform are already having a beneficial effect for those seeking to provide for their retirement.

We have no wish to undermine good-value existing provision, where it exists, but personal pension schemes do not have all the features which will make stakeholder pension schemes a good deal for their members. We believe that stakeholder pension schemes, because of all the tough conditions we have set out for them, will provide better value and a more flexible alternative for many of those who cannot join an occupational pension scheme.

The proposed minimum standards will ensure that all stakeholder pensions will offer low minimum contributions as well as the flexibility to stop and restart contributions without additional charge. As much as I liked my own group personal pension scheme, it did not do that. The requirement for stakeholder schemes to have a government structure which ensures that they are run in their members' interests is particularly important and is fundamental to our proposals.

We are prepared to consider alternative arrangements, provided that they are capable of delivering a similar outcome for scheme members. We are determined that stakeholder schemes shall be run in the members' interest. Personal pensions, even group personal pensions, often fall short of the high standards that we expect from stakeholder schemes.

It has been suggested that the availability of a group personal pension scheme should be enough to exempt an employer from the proposed requirement to provide access to a stakeholder pension scheme. We are keen not to discourage good-quality provision and we want to consult further on our specific proposals with regard to the way in which we could best incorporate these arrangements into a new regime. We know that many employees will already have started to pay into a personal pension, and we want to ensure that they are not disadvantaged.

As part of our programme of further consultation we shall shortly be publishing a consultation document on the details of the requirements for employers. This will include proposals on how to incorporate group personal pensions into the new arrangements, including whether there should be an exemption from the employer access requirement for group personal pensions where certain conditions are met. I hope, on that basis, that the noble Lord will feel able to withdraw his amendment.

Lord Higgins

We understand that the Minister is sympathetic on this point, but we shall need to consider the various issues that he has just raised. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 16:

Page 2, line 20, at end insert— ("(10) The ninth condition is that the scheme shall provide to anyone who applies to join the scheme full and accurate advice as to how a stakeholder pension would benefit the applicant compared to other types of pension and shall tell the applicant that they have up to twenty eight days to cancel the application without cost or penalty; and an applicant to a stakeholder pension scheme shall have up to twenty eight days from receiving the said advice to canceling the said application without cost or penalty.")

The noble Lord said: My understanding was that the Government were suggesting—I have no reason to dissent from this—that Amendments Nos. 16, 31, 25 and 29 should be taken together.

Lord McIntosh of Haringey

We have been informed by the noble Baronesses, Lady Castle and Lady Turner. that Amendment No. 29 will not be moved—if that would help the noble Lord in his speech.

Lord Higgins

I was not proposing to make a speech on behalf of the noble Baroness, Lady Castle. I would not presume to rise to that level of oratory which we have seen during the course of the day. The real problem here is that, having regrouped it, I have lost sight of some of my most important notes. However, I shall seek to counter that! Essentially, here we have Amendment No. 16 first of all, which says that the ninth condition of the scheme shall provide anyone who applies to join the scheme with full and accurate advice on how the pension would benefit the applicant, compared to other types of pension, and telling the applicant, in simple terms, that they would have up to 28 days to cancel the application if they do not like it.

We are concerned about the level of advice. The reality of the situation is that the stakeholder pension adds to the list of products which are available to those who are seeking to provide for their retirement. In addition the Treasury is putting forward its proposals for LISAs. Further, there are the proposals for state second pensions. There are occupational pensions involving either final salary or defined contributions. There is the whole question of personal pensions and so on. There is now a plethora of products, and individuals will find it difficult to choose between them. We suggest that individuals will need advice. We cannot seem to obtain a clear response from the Government as to how they believe this advice should be provided. They have swayed back and forth on this matter. Either they have said that advice is not really necessary in this area or that advice is necessary only in relation to stakeholder pensions; or they have accepted that advice is necessary but they have not indicated how it is to be provided or who will provide the resources to enable the advice to be given.

It has been suggested that the figure of 1 per cent of funds under management per year will not be sufficient to enable those who are providing the pensions to give a great deal of advice. Earlier the noble Lord mentioned including commission within that figure. That suggests again that a provider of a stakeholder pension may seek to promote his stakeholder pension rather than someone else's. Amendment No. 16 seeks to provide adequate advice to anyone seeking to join a scheme.

Amendment No. 31 states that, the employer shall require a certificate from the designated scheme to the effect that none of his employees will be admitted to membership of that scheme without evidence that the employee has taken independent advice in relation to his pension provision". The individual concerned will have to obtain that advice. That may involve him in expense. We are not clear as to the Government's position on this matter.

Amendment No. 25 states that, the employer shall confirm with the Department of Social Security that the stakeholder pension scheme he proposes to designate is the most appropriate form of pension provision for his employees", as against one of the many alternative products which I mentioned a moment ago.

This matter raises important issues. The Government appear uncertain about it in their own mind. I shall not burden the Committee by quoting from ministerial statements, but they appear to vary as regards the giving of advice in this area and how important they think that is. Certainly we on this side of the Chamber believe that such advice is important. There are real dangers that an individual may take out a stakeholder pension and then find either that it is not the most appropriate form of pension provision for him or that it is a bad buy, not least because of its implications in relation to the minimum income guarantee. We have discussed this matter many times already today. I beg to move.

Lord Goodhart

I have some reservations about the matter of advice in this area. Advice is certainly important for people who are investing substantial sums in pensions. Of course they can afford to pay for advice which is proportionate to the amount at issue. However, advice is expensive. Most of the people at whom stakeholder pensions will be targeted will be extrernely reluctant to pay for advice. If it is provided at no immediate cost to them by means of funding it out of the stakeholder scheme, that will impinge upon them sooner or later because it will add to the costs of the scheme.

It seems to me that one of the attractions of the stakeholder scheme—I am not suggesting for one moment that people should not take advice on this—is that if someone does not wish to take advice, he knows that if he goes into a stakeholder pension it may not he the ideal solution for him but at least he will not go far wrong with it. For that reason I am unable to support any amendments which make advice compulsory.

As to the question of commission, I hope very strongly that one of the rules of stakeholder pensions will be that no commission will be paid. It has always seemed to me that commissions are an invitation to institutionalised bribery.

Lord McIntosh of Haringey

I understand the sensitivity of the Conservative Party to the potential for the mis-selling of pensions.

I do not want to underestimate the importance of advice for some people and information for others. Pension provision is a long—term commitment; if people are to be encouraged to make that commitment they need to be aware of the benefits of saving towards a pension. They need to be confident that their proposed arrangement is suitable for their needs and that it is secure. I take the point of the noble Lord, Lord Higgins, that people will be making a judgment not only of stakeholder schemes but between other potential forms of provision.

It is true that good, accurate information and advice will be an important part of the decision-making process for many individuals considering joining stakeholder pension schemes. We want that to be available to all potential members. We are not suggesting that everyone should join a stakeholder scheme without seeking advice. The complexity of existing personal pensions and the way they are run is one of the reasons why people need individual advice at present.

The stakeholder scheme is basically off-the-peg; it is not tailor-made. It is Marks and Spencer, not Savile Row. Indeed, it might even be Marks and Spencer literally as well as figuratively. As the noble Lord, Lord Higgins, said, if we require the schemes to meet the costs of providing advice, that would impose excessive costs. On the other hand, if individuals had to bear some or all of the costs, many could be put off starting a pension altogether. A number of people, like me, are very resistant to financial advice. We do not understand it, and when we do not understand it we do not believe it. There are an awful lot of people in the country like that.

Perhaps I may now turn to the second part of Amendment No. 16. I agree that the existence of a cooling-off period provides important protection. The regulation of marketing and financial advice is a matter for the Financial Services Authority and its rules already ensure that anyone receiving advice on a personal pension—as for any other financial service product—can cancel their application within 14 days. I expect there will be a corresponding cooling-off period for stakeholder pension schemes, but I do not think anybody will go to the stake for the difference between 14 days and 28 days.

I think that the arrangements on which we will shortly be consulting will meet the concerns expressed by the amendment. On that basis, I hope that the noble Lord will feel able to withdraw it.

Amendment No. 31 requires stakeholder schemes to ensure that anyone applying to join the scheme had received independent financial advice when the scheme had been designated by the employer. Employers would have to ensure that their designated schemes provided a certificate guaranteeing that none of their employees would be allowed to join that scheme without receiving independent advice. My argument that advice may be valuable in some cases but not in all deals with the argument for Amendment No. 31.

I do not understand Amendment No. 25. It provides that the employer shall confirm with the Department of Social Security that the stakeholder pension scheme is the most appropriate form of pension provision. That seems to be ambiguous. It could mean that the employer shall confirm with the Department of Social Security in the sense that the Department of Social Security confirms to him; or that the employer reports to the Department of Social Security that it is the employer's view that it is the most appropriate form of pension provision. The wording, confirm with the Department of Social Security", is ambiguous. Unless the noble Lord, Lord Higgins, has any more to say on that point, I think that that is enough to encourage me to resist the amendment, particularly in view of the arguments which I have already put forward, against universal advice.

9.30 p.m.

Lord Freeman

Will the Minister comment briefly on what is probably the best avenue of advice? I refer to the annual pension statement, for which the Bill provides and which I very much welcome. Does the Minister agree that it is difficult to provide initial advice on how much pension provision an individual should make? It is the realisation year by year of how little has been provided that is often the best prompt and encouragement to make provision.

Lord McIntosh of Haringey

I entirely agree with that point. When stakeholder schemes start, there will be no investment record that will be relevant to the decision which the individual has to make. Without that, it is difficult to see a distinction as between stakeholder schemes.

However, the noble Lord, Lord Higgins, had a wider point regarding people who need to make a judgment between stakeholder schemes and other forms of financial provision. I recognise that in some cases, although not in all, that is desirable and even essential. However, his amendments would make it a prerequisite without which one could not enter a scheme. Some people do not fit into that category.

Lord Higgins

Perhaps I may take up the point made by the noble Lord, Lord Goodhart, with regard to commission. In an earlier debate, we referred to the fact that the Bill provides that some of the costs which are to be allowed are commission payments to those providing stakeholder pensions. I agree with the noble Lord. There is a danger that a provider of a stakeholder pension who is paid commission will argue that his scheme is better than other schemes. That is one of the reasons why people will need to take advice. There are two angles to the advice. One is the advice that is needed by the person taking out the pension and the other is the advice that is needed by the employer in deciding which scheme to recommend to his employees. We shall come to that matter in a later amendment.

I did not find the Minister's reply very satisfactory as to whether the Government feel that they should in some way provide independent advice and that the individual should get independent advice. It would seem that the Government's view as far as concerns stakeholder pensions is that people do not need advice.

Lord McIntosh of Haringey

I specifically deny that I have said that on many occasions advice is desirable and even necessary. What I am contesting is the view, required by the wording of the amendment, which is that advice is always necessary.

Lord Higgins

I am slightly puzzled by that reply. The stakeholder pension is a fairly clearly defined scheme. In taking out a stakeholder pension, one either does or does not need advice. My view is that one will need advice. I am not clear where people will get that from.

We may return to this matter at a later stage, after I have looked carefully through what the Minister said and other government statements on the matter. Subject to that, and the point I made about commission, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 agreed to.

[Amendments Nos. 17 to 20 not moved.]

Lord Higgins moved Amendment No. 21:

After Clause 1, insert the following new clause—

    cc1157-76
  1. PUBLICATION OF ANNUAL PENSIONS AND SAVINGS INFORMATION 9,277 words
    2. c1176
  2. Baxi Partnership Limited Trusts Bill [H.L.] 17 words