Stakeholder Pensions (Hansard, 9 October 2003)

§ The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham)
My Lords, more than 1.5 million stakeholder pensions have been sold since their introduction in April 2001—more than half a million in the last 12 months for which figures are available—and we estimate that two-thirds of those have been to people with incomes below £20,000 a year. This is an encouraging start—it is early days—and a sign of confidence in the product.

§ Lord Higgins
My Lords, I thank the noble Baroness for that reply, although I had thought she might realise that, far from being a success, stakeholder pensions are a real disappointment. Of the 350,000 or so schemes which companies were forced to set up, something like three-quarters of them, as I understand it, have no money at all in them. So far as concerns the target audience for stakeholder pensions—those on modest incomes—the figures that the noble Baroness has given are not very good.
More important now, however, should not the stakeholder pensions and those selling them give something of a health warning to indicate the extent to which one needs a large pension fund if the whole of the 453 income is not to be means-tested away on retirement? Estimates of how much one would need in such a fund to avoid that vary from about £84,000 to £142,000. Is it very likely that many people on moderate incomes will accumulate a fund of that size and, if not, are they likely to get nothing back in return for their investment?

§ Baroness Hollis of Heigham
My Lords, I am not sure whether I can answer all those questions in the time permitted. The noble Lord talked first about empty schemes. He will know that those schemes are empty where the employer does not contribute—in such cases, only 13 per cent of employers contribute to stakeholder schemes. Where employers contribute, there is a 70 per cent take-up by employees; where they do not, the take-up is 13 per cent. So I hope the noble Lord will join me in encouraging employers to make a reality of stakeholder schemes.
The noble Lord's second point dealt with whether such contributions from people with modest incomes will produce a worthwhile pension. Obviously, your Lordships may have a very different perspective on this from many of the people I come into contact with who have modest incomes, but even a small contribution, rolled up over time, can make a worthwhile difference.
I was doing some sums this morning. I calculate that someone with an income of £20,000 who contributes just £20 a week—4 per cent of their earnings—produces a stakeholder in retirement of about £100 a week which, taken together with a state pension, means that they would have a replacement income in retirement of around or above 50 per cent. That is not bad for someone on a modest income.

§ Baroness Turner of Camden
My Lords, is my noble friend aware, in view of what she said about the importance of an employer contribution to stakeholder, that one of the reasons why I think there has not been a substantial take-up in the way the Government expected is because there has been not very much in the way of employer contributions? Is she aware that unions are campaigning for employers to make a compulsory contribution to occupational schemes in the belief that only in that way will occupational schemes be saved for a future generation? If compulsion is not acceptable to the Government, could they not do a great deal more to encourage employers to make contributions via the tax scheme?

§ Baroness Hollis of Heigham
My Lords, my noble friend is right to focus on the issue of employer contributions. It is something for something, to coin a phrase. The Green Paper deals with informed choice, but the wider issue of whether employers should be compelled to make a contribution is still in the marketplace. One of the jobs of the Pension Commission, chaired by Adair Turner, on which John Hills and Jeannie Drake also sit, is to encourage 454 best practice—for example, people should only opt out of schemes rather than having to opt in —and see whether similar practice can be spread across the industry.
If that does not work and if, as a result, we do not get the take-up of pensions, part of the Pension Commission's remit is to review again the issue of compulsion.

§ Lord Oakeshott of Seagrove Bay
My Lords, on this critical point of employer contributions, has the noble Baroness noted the conclusions of the Association of British Insurers that: The scale of the wasted effort and cost which employers have put in is staggering". Employers have had to set up 2.5 million "dead letter boxes", as I call them—schemes with not a penny paid in. When will the Government and the so-called Official Opposition recognise that people are not fools? They will not pay into stakeholder pension schemes unless they know that employers have to match their contributions up to a sensible level.

§ Baroness Hollis of Heigham
My Lords, on the noble Lord's first point, I do not think the job is as onerous on employers as he suggests. There are 48 schemes in the market-place—all the employer has to do is draw that to the attention of his employees. It is not an onerous responsibility. However, I agree with the noble Lord about pensions being sold in the workplace, especially to women. They are sold by the employer to the employee. I am sure the whole House would wish employers to make contributions to schemes, whether stakeholders, money purchase or final salary. In that way, we would get a contribution from employees as well.

§ Lord Jenkin of Roding
My Lords, as a Member of Her Majesty's Official Opposition sitting on these Benches, perhaps I may ask the Minister the same question that I asked when the subject last came up. What representations have the Government had from the pensions industry about the inadequacy of the 1 per cent cost limit? Is not this one of the real reasons why the growth of stakeholder pensions has been so much slower than originally hoped?

§ Baroness Hollis of Heigham
My Lords, there is a continuing debate about the level of charges. Ruth Kelly has made it clear that she will take quite a lot of persuasion to raise the levy, but it is not absolutely ruled out. One should not overlook the value for money that stakeholders have brought compared to personal pensions. By forcing down charges, pound for pound, the average stakeholder pension is worth 10 per cent more on retirement than the same money put into a private pension plan at the moment, given average charges. That 10 per cent increase on modest pensions is worth the having, and that reflects the fact that there is a 1 per cent cap on charges. Too often in the past, very substantial portions of low-income savings have gone in upfront charges and not to the person in retirement.