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Mr. Eric Pickles (Brentwood and Ongar): My hon. Friend is a generous man.
Mr. Davies: As my hon. Friend kindly says, I am a generous man. I hope that that characterisation is always justified by my conduct in the House and, indeed, elsewhere.
The U-turn, which is perhaps now taking place, has not been announced to the House. Such things are announced in the press or the media, but never to the House. On 28 April, the Secretary of State gave an interview to the Financial Times and said:
We have tabled our amendments because of all the U-turns by the Government. There has been no explicit acknowledgement by the Government that they have got it wrong. I do not want to labour that because, if they are not big enough to admit that they occasionally make mistakes, that is too bad for them. They should at least come to the House to make these announcements plainly and unambiguously because they are creating great uncertainty outside.
People in the pensions industry look at the Green Paper, which they are entitled to believe represents Government policy until it is changed, and they then see newspaper articles and remarks attributed to Ministers, and they do not know where they are. It is contributing to an unfortunate crisis which is paralysing our pensions market. Employers and pension funds are frightened to move forward and sell stakeholder pensions because of the danger of mis-selling, to which I have already referred, and the absence of any assurance that there will be independent advice. They do not know what the rules of the scheme will be because they do not know what the Government mean with their confusing proposals such as stakeholders, LISAs--lifelong individual savings accounts--and so on. Also, individuals are rightly and reasonably confused and hesitate to make decisions in the absence of advice.
We are tabling our amendment to remove the uncertainty, at least in relation to group personal pensions, to give companies the confidence to continue with these schemes and, I hope, to encourage companies who do not have existing provisions for their employees to start them.
The amendment would make the regime clear within the Bill. If we achieve some clarity after six months of debate that will be an achievement of some kind.
I described new clause 13 as a summation of our views on stakeholder pensions. It incorporates many of the lessons learned from the Government's extraordinarily shambolic treatment of the matter over the past few months. We do not start on a completely blank sheet of paper, nor should we. However regrettable and unfortunate it may be for many people from the pensions industry right through to the disabled, the Labour Government are in power. They have a democratic mandate and have produced a Bill to set up a stakeholder pension system. We are looking positively to see whether there is something that we can save from the wreck or on which we can build a constructive and worthwhile structure. We are perfectly happy with the idea of employer obligations to set up a payroll deduction facility.
Hon. Members should note that the new clause would oblige employers to establish a specific payment facility on a payroll-deduction basis, as they currently administer the pay-as-you-earn and national insurance systems. It would not replicate the obligation, imposed in clause 3 of the Bill, on employers to designate a scheme. As I said, that would be an unreasonably onerous task to impose on small employers--or on any employer. I do not believe that it is an employer's function to take charge of his or her employee's private life or financial affairs.
We therefore do not propose designation, but simply to establish the facility, which will be available for payment into any approved pension scheme--as defined by the Inland Revenue under chapter 14 of the Income and Corporation Taxes Act 1988 and by the Occupational Pensions Regulatory Authority.
In our new clause, we get away entirely from fragmentation. We are not saying, for example, that people may pay only into schemes established on the basis of trust law. We should be equally happy with personal and other pensions that are set up on a deed-poll basis. The facility could be used to invest in a personal pension; a stakeholder pension, as the Government are suggesting; or in a lifetime individual savings account--the rival Treasury product--which we think has considerable merit and attraction.
Mr. Webb:
Will the hon. Gentleman give way?
Mr. Davies:
I cannot give way now, as I am trying to bring my remarks to a close. I have already taken a number of interventions, including one from the hon. Gentleman, as he will remember.
The essence of our proposal is that it would avoid all gratuitous fragmentation and include a unified tax regime. The regime would be unified in that employees benefiting
from the facility would be able to take an annual deduction of £5,000--we are a little more generous than the Government, and choose a round figure--without any questions being asked about how it might relate to his or her income or, if he or she prefers, to apply the current Inland Revenue sliding scale of income percentage rising with age.
Clearly, employees will choose whatever suits them best in any one year, and there will be no difficulty about employees whose circumstance might change in future, when they will be able to make higher contributions. We want them to be able to do that, and therefore to receive the corresponding tax deductions. However, to achieve that goal, we shall have to avoid the creation of unnecessary barriers and fragmentation.
In a few words, we are offering a single, unified and coherent structure that really will advance the cause of United Kingdom pensions--to which we have been, and always will be, most sincerely committed.
Mr. Flight:
I should like to stress two specific points, on the necessity of advice. The first point--to which my hon. Friend the Member for Grantham and Stamford (Mr. Davies) alluded--is that 8 million people currently have personal pension schemes and have already paid for the up-front marketing costs, whatever those might have been. As Ministers will know--with the introduction of the Green Paper and the great white hope of the new stakeholder schemes--the number of people dropping out of personal pension schemes is increasing substantially, probably very much to their detriment. It is, therefore, crucial that people should receive very clear quantitative advice when deciding whether to participate in a new stakeholder scheme or to remain in their current pension scheme.
The second point has not yet been made in the debate. There is a very high probability that--because of the CAT-marking arrangements to keep charges low--most stakeholder schemes offered by companies will invest in index trackers. Although I do not want to get into a debate on the merits of active versus index tracker management, individuals will have to make the important decision on which they should opt for.
The pension assets in index tracker schemes will go up and down with markets. Those with a personal pension scheme usually have a choice of different funds to invest in, and can make their scheme more or less cautious and change according to circumstances. It is important that people should know and get advice when choosing between their existing personal scheme and the new stakeholder. They should know the significance of the likely index tracker investment versus active investment management.
As I understand it, the tax deductible sum for stakeholder schemes is not a simple £3,600 per annum, but the lesser of that figure or 100 per cent. of salary. I do not understand the reason for the second part of the formula. Working out which is the lesser and keeping records of people's salaries to no apparent end will be a waste of time and money, resulting in unnecessary extra charges for stakeholders. I support our proposal for a tax regime that would be the same for all pension schemes
irrespective of their category. The stakeholder proposals simply add costs. Those are some specific points on the two key areas that we are advancing.
Mr. Webb:
The hon. Member for Grantham and Stamford (Mr. Davies) mentioned four issues: advice, tax relief, the treatment of group personal pensions and access through employers to all pension schemes. Perhaps it will be helpful if I address those four points in the sequence in which he raised them.
"Some group personal pensions may be allowed to label themselves as stakeholder pensions. Alistair Darling, the Social Security Secretary has said. That could remove the need for employers to separate stakeholder pensions to their employees".
In a written answer to my hon. Friend the Member for Chingford and Woodford Green, the Minister of State said:
"Group personal pensions will be able to register as stakeholder pension schemes provided they meet the required conditions for such schemes."--[Official Report, 10 May 1999; Vol. 331, c. 53.]
That is an even stronger move in the direction of allowing personal pensions to count as stakeholder pensions. That is a 180 deg contrast with the statement in the Green Paper.
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