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Mr. David Laws (Yeovil) (LD):
I appreciate that there is a restricted amount that the right hon. and learned
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Gentleman can put into the Bill about tax relief, but will he confirm that he proposes that it should be given up front on this product?
Sir Malcolm Rifkind: As the hon. Gentleman will be aware, the question of tax relief is not for a private Member to come to a view on. I am simply assuming that all the tax relief that is available for existing pension products would be available for anything proposed in the Bill. It is of course for the Government to work on the details of that; it is not within my competence.
The concept of a savings and retirement account has been consistently promoted by PIMA, with considerable interest from its members. Such an account would be a container for retail funds—a wrapper, in other words—which, it is hoped, could be sold by any company regulated by the Financial Services Authority, not just by life offices, banks or building societies, as in the case of stakeholders at present. Within that container, consumers would be able to choose from a variety of investments, each tailored to their individual risk-tolerance, which are specifically designed to generate income for retirement. Crucially, the opportunity to provide a SaRA pension would be open to all financial services firms authorised to manage investment schemes by the FSA rather than the limited numbers of life offices and others that currently offer pensions.
SaRAs would also have several important advantages compared with existing pensions and savings products. The first would be that of lower cost. Unlike many traditional pension products, a SaRA would have no requirement for trustees, although the option would be available, meaning that administration would be carried out more cheaply by the provider in-house. At present, stakeholder providers may charge only up to 1.5 per cent. of the pension value in administrative charges. The cost of providing a SaRA, and hence the charges that consumers would face, would be the same or very likely lower. Since more providers would be able to offer the product, competition in the market would increase and costs would be cut even further. Those lower costs, combined with more active promotion by providers than for stakeholder pensions and the simplicity of the product, would greatly encourage saving among lower and middle income earners.
The second major advantage of a SaRA would be its portability. At present, consolidating one's existing pension investments is complicated and costly. Once a SaRA had been set up, not only would employees be able to consolidate their pension and saving arrangements into a single pot—
Lyn Brown (West Ham) (Lab):
Given that the right hon. and learned Gentleman has referred to costs, has he calculated the bureaucratic cost of administering these schemes? In particular, if this is not about creating a
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vehicle to avoid inheritance tax, what extra provision would the Inland Revenue require to manage the calculations involved?
Sir Malcolm Rifkind: If the hon. Lady will forgive me, I suspect that not only did she not write that question, but that the person who did does not understand the Bill either. [Laughter.]
Mr. Deputy Speaker (Sir Alan Haselhurst): Order. Is the hon. Lady rising on a point of order or trying to intervene?
Lyn Brown: I think that I am trying to intervene, Mr. Deputy Speaker. May I say that I am quite offended by the right hon. and learned Gentleman's remark? I do not know how much Conservative Members have in the way of resources to assist with research, but we certainly have to do our own.
Mr. Deputy Speaker: Order. I understood the hon. Lady to be making a point of order. It was not a point of order for the Chair, as I hope she will realise. What she will also no doubt realise over time is that we spend most of our lives in this place being offended.
Peter Bottomley (Worthing, West) (Con): On a point of order, Mr. Deputy Speaker. If the hon. Lady was not given a Whips' handout, should not she ask for one?
Mr. Deputy Speaker: I think that we might end this particular point here.
Sir Malcolm Rifkind: I simply say to the hon. Member for West Ham (Lyn Brown) that whether or not there may be objections to a savings and retirement account, the question of inheritance tax is not remotely relevant to the Bill— certainly not to this part of it—and anyone who studies it will unavoidably come to that conclusion.
On portability, people would be able to ask their employer to make contributions into the same scheme. They would, furthermore, be able to transfer their SaRAs between employers. Each person would have one for their whole life so that it went with them through all changes of circumstances and income. Investments could be from personal resources, consolidation of funds, or pension contributions from multiple jobs—or even a combination of those.
Greg Clark (Tunbridge Wells) (Con): Will my right hon. and learned Friend explain in a little more detail the advantages of the consolidation of different pension pots? Are there not advantages in having a degree of spread between different providers, especially in the light of the events involving Equitable Life? Rather than putting all one's eggs in one basket, would not having a broad exposure convey greater advantages?
Sir Malcolm Rifkind:
I can easily respond to my hon. Friend on that point: the SaRA will enable that to happen. As I mentioned earlier, it is a wrapper in which
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people will be able to have different kinds of investment in order to minimise risk and to broaden the nature of their investment in the way that my hon. Friend recommends. At the moment, many people who move employment two or three times during their working lives have several pension pots, each of which is very small. Each has to be separately administered, and has costs associated with that administration, so the individual concerned often does not know what their pension entitlement is, and pays a significant sum towards administration. Although they are legally able to consolidate the different schemes, the cost of doing so is substantial.
The effect of that has been damaging, and has resulted in many pension funds not being contributed to, because the arrangements involved are too complicated. The national interest is suffering as a consequence. The protection to which my hon. Friend referred will be provided by the wrapper nature of a SaRA, within which people will be able to have different kinds of investments—in the form of equities, bonds or anything else that comes to mind—without the disadvantages that I have mentioned.
Sir John Butterfill: My right hon. and learned Friend is putting a fascinating proposal before the House. However, it is not entirely clear to me how the consolidation process will take place. Is he suggesting that a pot of money will be transferred from each individual employer into the SaRA, and no longer administered by that original employer? Would not that result in the problem that always arises in these cases, namely, that the scheme actuary for the employer would value the pension pot very severely, resulting in some loss to the employee?
Sir Malcolm Rifkind: I do not think that that would be the case, although I should be happy to have that point looked into. This provision and a later one in the Bill seek to ensure that an employee will be able to require an employer to pay the contributions into the pension product of the employee's choice. At the moment, that arrangement is available if someone is moving from one stakeholder pension to another, but the current legislation does not require contributions to be paid into a personal pension. I want to remove all such restrictions in order to give maximum flexibility, because such flexibility will make people more inclined to save in the first place.
The Minister for Pensions Reform (Mr. Stephen Timms): I am listening to the right hon. and learned Gentleman's argument with great interest, and I agree with him about the benefits of being able to pool different pension pots into one place. I am not clear, however, about how his proposals will help in that respect. It is already possible to transfer between stakeholder pensions without payment. It sounds as though the right hon. Gentleman is proposing an arrangement that would impose quite a high cost on employers if they were required to contribute to any scheme that their employees wished them to, rather than to one scheme, as is currently the case under the stakeholder pension regulations.
Sir Malcolm Rifkind:
I hear what the Minister is saying, but I do not think that there will be a significant
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cost implication. With the benefits of modern information technology, employers are already able to pay salaries and wages into whichever account an employee finds preferable. That involves a relatively straightforward system, and millions of people benefit from that flexibility now. As the Minister said, his own legislation requires an employer to pay into a new stakeholder product. It cannot be more difficult administratively to pay into a personal pension instead. So the issue has already been conceded by the Government, and I do not see that there will be a problem in that regard.
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