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Mr. Webb: I bring the hon. Gentleman back to amendment No. 80, which he started to describe. I accept that it is desirable for advice to be available and that the giving of advice should be encouraged, but, as I read it, amendment No. 80 makes it compulsory to take advice. Is that his intention and should people be forced to take advice, even if they are well informed and do not need it?
Mr. Davies: Amendment No. 80 makes taking advice compulsory in the sense that, as at present, anyone who is selling a pension must make sure that the sale is appropriate, that the purchaser has received advice and that someone has taken a view on whether the pension is appropriate. People can simply walk into a life office and buy a pension, as long as the office is convinced that they have taken independent advice. However, it is up to those who are selling pensions to know their customers and to determine that what they are selling is appropriate. That is the basis of the rules applied by the financial regulators.
The Minister of State, Department of Social Security (Mr. Stephen Timms): The hon. Gentleman is making an interesting case, and I look forward to responding to it. Does he take the view that people joining occupational pension schemes should also take advice?
Mr. Davies: I take the view that trustees of occupational pension schemes must get it quite clear in their own minds, as part of their fiduciary responsibility to their pensioners, that the product that is being sold is appropriate. By definition, an employer-only contribution scheme is a good deal for the pensioner because it involves him receiving something that he would not otherwise receive. If an employee is also making
contributions, the trustees clearly have a fundamental duty to make sure that the scheme is a good deal for the pensioners involved.
There is protection, and we want to make sure that exactly the same kind of protection exists in stakeholder pension schemes. We want to make sure that that fundamental principle is safeguarded when employers provide a pension facility or when the pensions industry provides a pension, in the stakeholder context or in any other context.
Mrs. Browning:
Will my hon. Friend give way?
Mr. Davies:
Yes, but we have little time at our disposal. This is the last intervention that I will take.
Mrs. Browning:
People on lower incomes, who the Government say are their targets for such pensions, could have earnings from more than one part-time job. Is not it crucial that they receive the right advice about their pension input?
Mr. Davies:
It is indeed important that those people receive advice about pension input. Even if the earnings from their individual jobs are below the lower earnings limit, the sum of their earnings may be such that it would not make sense, in the light of this extension of means-testing, for them to make any provision for themselves at all. That position is sad and ironic--it is not one that we would have wanted to get into, but, unfortunately, it is one into which the Government are putting an ever-wider range of our citizens. That is the great problem--they still have not seen that one, even though they appear to have accepted the arguments about advice in principle.
Higher up the income scale--the scale from, say, £9,000 to £20,000, £25,000 or £30,000, which has been targeted for the purpose of stakeholder pensions--complicated individual decisions must still be made. People must ask themselves whether they should take out a personal pension or a stakeholder pension. They may already have a personal pension with costs that are apparently higher--but those costs may have been paid at the outset. In terms of the marginal, or incremental, costs, a personal pension may be a much better option than a stakeholder pension.
All those decisions require professional advice--actuarial advice. It is monstrous of the Government to suggest, as they have in a number of recent statements, that it is satisfactory for people to be left to pay for that advice themselves. It is cruel and cynical to tell someone with an income of £9,000 a year to consult an actuary or accountant: the cost of such professional advice would almost certainly enter into the equation, and influence the decision about whether the person should save for a pension at all.
If the advice is not given, however, two things will happen. The person concerned may well be wasting his or her money--and it is particularly sad if someone with low earnings is led by the Government into wasting his or her hard-earned money. Moreover, employers who, if the Bill ever becomes law, may be forced to designate a pension scheme, and the pension companies that might provide the schemes, may be open to a charge of mis-selling unless the advice is provided.
Amendment No.80 proposes that, before a pension is sold, the employer must ensure that the person concerned has been properly advised. Employers may sometimes be able to discharge the responsibility themselves by ensuring that independent advice is available, but such a responsibility would impose an unreasonable burden and an unreasonable cost on smaller employers. Trade unions and similar bodies might be able to help, and we would welcome that; but we insist that advice should be given, and that the principle currently applying in the pensions market should apply in this instance.
The purpose of those rules in the pensions market is to prevent further mis-selling. As we all recognise, we had a bad mis-selling scandal in the 1980s, and I hope that we have learned some lessons from it. Until a couple of months ago, the Government did not appear to have learned any lessons, but they have learned one lesson now: they know that there will be terrible mis-selling--mis-selling on an unprecedented scale--unless the issue of advice is dealt with properly. They say that they now accept the need for advice, but they still have not told anyone how they will pay for it.
Let me now deal with amendment No.81, which concerns tax. One of the stupidest things that the Government have done has been to introduce, unnecessarily and gratuitously, a second tax regime for pensions--a second set of rules determining tax deductibility in the case of those who join stakeholder schemes. The Government say that those who join such schemes will be able to deduct £3,600 from their income by way of a tax credit, whereas the existing Inland Revenue sliding scale--involving a percentage of earnings increasing with age--will continue to apply to those who opt for personal pension schemes.
The Government are so incompetent that they do not seem to have taken into account what will result from the mere fact of having two different tax regimes. I shall say more shortly about the merits or otherwise of their proposed regimes, but the existence of two regimes in itself will increase the uncertainty and the complexity of the calculations that will need to be made, and will make it even more difficult for people to decide whether to opt for particular pension schemes.
I trust that the Minister has finally understood the point about advice. Perhaps he will now understand the point about tax. He is certainly not a foolish individual, and he
has a good business record himself. Perhaps his hands are tied--and his feet, and his mouth--by his bosses, or by the Treasury. In that case, I hope that he will be a bit more vigorous in persuading them to be more sensible.
Let us look at the case of someone who is considering going into a pension scheme and is thinking of a stakeholder or a personal pension. If his income is £20,000 or less, he has decided that he needs a funded individual pension and he never expects to earn more than that in real terms, no doubt, the £3,600 is totally adequate. However, he may hope to get promotion, a pay increase or bonuses for good performance. We want a society and economy where people have a chance to increase their earnings, particularly through higher performance. We want people to be able to use their bonuses to fund a pension, savings and so forth. At least I think we do; Conservative Members certainly do. In that case, clearly, he should not go into a scheme where the tax deductibility of pension contributions is limited to £3,600 a year. He might want to make contributions that will give him greater tax deductibility and tax relief on the Inland Revenue sliding scale. That would be a reason to take out not a stakeholder, but a personal pension.
The worse scenario would be to take out a stakeholder pension, to meet the costs of setting up that scheme and, a few years later, to have to close that, to move into a personal pension and to pay a whole lot of new transactional costs to set up a new scheme. That would not make any sense. Again, it is deplorable that the Government have not been able to work that one out themselves.
Amendment No. 83 deals with group personal pensions. [Interruption.] Someone took away my copy of the Green Paper. That took my breath away, at least for a moment or two. On group personal pensions, another wonderful U-turn is in process; at least I hope it is because the Government's initial proposals were deeply damaging.
Page 53, paragraph 29 of the Green Paper makes it plain--it could not be plainer in the English language:
That is extremely regrettable because it will mean that many good pension schemes, including group personal pensions, which invariably, in every example known to me, involve an employer contribution, will have to be wound down. Employers would then have to set up another stakeholder scheme, which does not require an employer contribution at all.
Therefore, if employers are feeling slightly less generous, or are simply exasperated by the Government forcing them to run down one good pension scheme for their employees and to set up another, they might take the opportunity either to reduce, or to eliminate their contribution altogether. That would be terrible for the employees concerned and a great blow to pensions.
"Existing personal pensions will not therefore be able to describe themselves as stakeholder pension schemes."
Personal pensions will not be able to be passported into, in the modern jargon, the stakeholder system. People who have a personal pension of any type could not treat that as their stakeholder pension. Employers who had set up a group personal pension scheme could not treat that as the discharge of the obligation, which is placed on them in clause 3, to set up a stakeholder scheme.
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