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Peter Bottomley: The Minister raised a serious point, and I think that the answer that he received was pretty convincing. If he needs any extra convincing, I should like to point out that the Government do not seem to find it difficult to ask employers, or themselves, to distribute money to the Student Loans Company, the Child Support Agency and various other bodies. The Government ought to look at these issues in the round, rather than simply picking up on something rather sensible that has been proposed by a member of the Opposition.
Sir Malcolm Rifkind: I shall be happy to facilitate an exchange between my hon. Friend the Member for Worthing, West (Peter Bottomley) and the Minister.
Mr. Timms: I was the Minister responsible for taking through the legislation on stakeholder pensions, and we were careful to ensure that the obligation on employers was only to pay into one designated scheme. If the right hon. and learned Member for Kensington and Chelsea (Sir Malcolm Rifkind) were to discuss this matter with small business organisations, for example, he would find considerable concern about the additional burden that he is proposing.
Sir Malcolm Rifkind: I accept that the Minister was extremely cautious when putting forward his original proposals. Perhaps, however, he might learn from his right hon. Friend the Prime Minister, who has said that he always regretted not being more radical in his approach to reform. In this respect, the Prime Minister speaks good sense, and the Minister might like to follow him.
Ms Dari Taylor (Stockton, South) (Lab): This is an important part of the right hon. and learned Gentleman's proposals, and I wonder whether he has spoken to the Federation of Small Businesses about it. I have spoken to its representatives in the northern region, and they knew nothing about this new pension scheme. They were quite concerned to see the details, and not awfully happy to discover that they might find themselves involved in a scheme that they knew nothing about. Perhaps the right hon. and learned Gentleman has spoken to the association's national representatives.
Sir Malcolm Rifkind:
The Bill was published only on Tuesday morning, so I am not entirely surprised that the
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association has not yet familiarised itself with the details of such a complex matter. However, in regard to businesses large and small, the Government have already introduced a requirement for any business with more than five employees to provide for stakeholder pensions. My Bill simply proposes that, as an alternative to stakeholder pensions, people may choose a savings and retirement account. That is no more complex a proposition. Of course, I shall be happy to hear views and comments on these matters, but most responsible employers are keen to develop pensions and savings arrangements in a satisfactory way. Stakeholder pensions simply have not worked; they have imposed a burden on those companies without the employees using the facility. We need to be a bit more imaginative in addressing these issues.
Mr. Greenway: Would not an individual have a choice whether to transfer part of any other pension scheme into the SaRA wrapper? They would have to make that choice based on whatever capital transfer value was being offered by a pension scheme, and on the benefits that they would surrender if they were to make that transfer. It would be a matter of individual choice. This illustrates the point about flexibility to which my right hon. and learned Friend has referred.
Sir Malcolm Rifkind: That is entirely correct. Indeed, people would even be able to transfer a stakeholder pension into the wrapper of the SaRA, if that was what they preferred. The objective will be to simplify the situation so that all their pension entitlement is in one wrapper, which they can understand and get information on easily, cheaply and to their own benefit.
The third advantage of a SaRA is choice. Offering a SaRA to employees will become another option available to employers when drawing up their retirement benefits plans. But equally important will be the greater choice available to consumers. Traditional pension plans tend to consist of a relatively limited set of lower-risk investment options, and the market is dominated by a small number of life offices. A SaRA, by contrast, will offer a full range of investment choices from a far wider set of providers, ranging from stockbrokers to asset managers to fund supermarkets. This will cater for consumers who may wish to benefit from a potentially higher rate of return from higher-risk products, while allowing more risk-averse consumers to continue to concentrate investments in lower-risk instruments.
The fourth crucial advantage is transparency. The wrapper structure of a SaRA will enable the investment to be treated independently from the administration, meaning that customers will have a much clearer view of the value and performance of their investment, thereby stimulating providers to provide better value, more competitive products. It will be possible for consumers to obtain a complete picture of the overall performance of their funds at any time, using a variety of servicing channels. Buying a wrapper separately from the investment will also mean that the initial decision to purchase is more straightforward and requires less advice, thus potentially attracting customers who have previously been deterred by the complexity of pensions products.
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Perhaps the most innovative part of the SaRA scheme—a part which is not provided for by any other long-term pension savings vehicle—is that a proportion of capital can be taken out at specific times of need. This will give us a savings scheme designed to encourage long-term saving but with the flexibility to withdraw some savings. This is of particular relevance to younger people who wish to save for the future while remaining cautious of the possible need to be prepared for a change in circumstances during their working lives.
Sir Malcolm Rifkind: I will give way in a moment.
Many people nowadays are aware of the need to save for their future and recognise the need for early saving towards a pension, but they also often hope to be in a position to purchase a home or envisage taking a career break to pursue further education. That is often the main reason for people refusing to lock away their money until retirement. Few 20-year-olds know what major financial need they might have or what lifetime event might occur in the next 40 years.
This proposal is not just some theory, as it draws on the experience of the Canadian home buyers plan and lifelong learning plan. Under the Canadian scheme, 1.3 million individuals have made withdrawals for home purchase since 1992. Indeed, 123,000 individuals took withdrawals in 2002 alone.
The Canadian scheme allows withdrawals from a registered retirement savings plan for both home purchase and lifelong learning through education or training. The SaRA account could eventually include parents providing assistance to a child for first-time home purchase, but I emphasise that it would not cover children's school fees.
Young people today are struggling to get on the housing ladder, which has prevented them from thinking seriously about saving for retirement. A limited draw-down facility within a retirement savings account should help to address that problem while encouraging saving for retirement. Tax relief would be set, I assume, at marginal rates, as for other pensions, but any money withdrawn from the account could not include any tax relief from the state and would thus be restricted to 60 per cent. of the fund.
The scheme would allow for withdrawals to be replaced before retirement. However, if that had not proved possible, the state could claw back the tax relief from the retained funds. In any case, the fund would not be required to be repaid until four years after draw-down to allow for education draw-down where there was no income available to fund any replacement of capital.
Sir Malcolm Rifkind: I must finish this section and then give way first to my hon. Friend the Member for Wantage (Mr. Vaizey).
The current specified maximum to be taken out is £40,000. A maximum has been set so that withdrawals would not be encouraged, but would be permitted. The level is designed to ensure that it would cover the deposit for the vast majority of first-time buyers and other
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individuals. The figure has been chosen because the most expensive area, London, has an average first-time buyer's deposit of some £31,100.
Mr. Edward Vaizey (Wantage) (Con): My right hon. and learned Friend's proposal builds on the work of the pensions expert Martin Campbell, who came up with the LISA—the lifelong investment savings account. Now we have the SaRA. Does my right hon. and learned Friend agree that a one-stop shop product is essential and that the requirement for a product that adapts to what people need in the 21st century, giving them flexibility, is overwhelming? That is what this would do. Will he comment specifically on whether a child trust fund could be rolled into a SaRA when one reached 18?
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