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Session 2005 - 06
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Standing Committee Debates
Rights of Savers Bill

Rights of Savers Bill

Column Number: 1

Standing Committee C

The Committee consisted of the following Members:


Mr. Joe Benton

Alexander, Danny (Inverness, Nairn, Badenoch and Strathspey) (LD)
†Clark, Ms Katy (North Ayrshire and Arran) (Lab)
Field, Mr. Frank (Birkenhead) (Lab)
†Gibson, Dr. Ian (Norwich, North) (Lab)
†Greening, Justine (Putney) (Con)
Hoey, Kate (Vauxhall) (Lab)
†Hopkins, Kelvin (Luton, North) (Lab)
†Johnson, Ms Diana R. (Kingston upon Hull, North) (Lab)
†Laws, Mr. David (Yeovil) (LD)
McDonnell, John (Hayes and Harlington) (Lab)
Mitchell, Mr. Austin (Great Grimsby) (Lab)
†Penrose, John (Weston-super-Mare) (Con)
†Randall, Mr. John (Uxbridge) (Con)
†Rifkind, Sir Malcolm (Kensington and Chelsea) (Con)
†Timms, Mr. Stephen (Minister for Pensions Reform)
†Wareing, Mr. Robert N. (Liverpool, West Derby) (Lab)
†Waterson, Mr. Nigel (Eastbourne) (Con)
Mark Egan, Alan Sandall, Committee Clerks
† attended the Committee

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Wednesday 14 December 2005

[Mr. Joe Benton in the Chair]

Rights of Savers Bill

2.30 pm

The Chairman: I remind the Committee that there is a money resolution in connection with the Bill. Copies are available in the room. It is hoped that the Committee will conclude consideration of the Bill at this sitting. If that should not prove possible, I shall invite Sir Malcolm Rifkind to move a sittings motion specifying the date and time of our next meeting before we adjourn. In the event of a second sitting, I do not intend to call starred amendments.

Clause 1

Meaning of “Savings and Retirement Account (SaRA) schemes”

Question proposed, That the clause stand part of the Bill.

Sir Malcolm Rifkind (Kensington and Chelsea) (Con): Thank you, Mr. Benton. This is an unusual Bill in two respects. First, it received the unanimous endorsement of the House on Second Reading. The House did not divide, and the Minister was kind enough to pay several compliments on the Bill’s content. Therefore, the Bill has reached the Committee with the unadulterated enthusiasm of the House as a whole.

I said, however, that the Bill was unusual in two respects, the second of which is that the Minister has tabled amendments that, without exception, without further debate or any question of amendment, will delete every clause. He may suggest that that is standard practice, but I have taken some advice on the matter. I am advised that those who know such things can remember only two precedents in the past 100 years when the Government of the day sought, without deliberation or consideration, to negative every clause of a Bill that received unopposed Second Reading.

The Minister for Pensions Reform (Mr. Stephen Timms): Will the right hon. and learned Gentleman give way?

Sir Malcolm Rifkind: Yes, I am happy to give way. The Minister probably wants to remind me of some other precedent.

Mr. Timms: Will the right hon. and learned Gentleman confirm that the two precedents are Sir Frederick Banbury’s 1955 transport amendment Bill and Mr. Bevins’s 1919 trade disputes Bill? If the right hon. and learned Gentleman is able to shed any more light on those precedents, the Committee would be interested.

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Sir Malcolm Rifkind: I find it interesting that the Minister is so nervous about the procedure that he proposes that, unlike me, he has taken the trouble to find out which were the two Bills, no doubt hoping that it would give him some sense of relief. I assumed that he would say that the wicked Thatcher Government or the Major Government had done some such thing. He has had to go back to 1919 and 1955. Is not he ashamed of himself for being the third example in 100 years of such nefarious conduct?

The Minister’s approach is also extraordinary because, when he was good enough to reply to the Second Reading debate, he began by stating that it

    “has been much more enjoyable than I anticipated”.

God knows what would have happened if he had not enjoyed Second Reading. It is difficult to imagine what his reaction would have been in such circumstances. He also stated:

    “I welcome the opportunity today to pursue that debate and to help build towards a consensus.” —[Official Report, 28 October 2005; Vol. 438, c. 576-77.]

Is this the Minister’s idea of building towards a consensus? Is his idea of continuing a debate to negative each clause without further consideration? I have no doubt that he will respond in his own charming and inimitable fashion to the points that I have raised.

Clause 1 lays out the basis of the new saving and retirement account proposal, which is one of the major elements of the Bill. It provides for a major new savings scheme, and the objective is to create the flexibility of an individual savings account with the kind of pension security that would normally be available from a pension product. At the time when the stakeholder legislation was introduced, which is the Government’s great claim in this field, it was estimated that approximately 5 million people with earnings of between £10,000 and £20,000 a year were not in an occupational pension scheme. Many have suggested that much of the stakeholder money has simply been transferred elsewhere. Stakeholder pensions have been bogus and a failure for the Government, even though they still try to deny it.

I find myself agreeing with the conclusions of the July 2004 Treasury Committee report, which stated that for the purpose of restoring confidence in long-term savings—a confidence largely destroyed by the Government’s own actions—the Government should consider introducing more flexible access to pensions as a means of making savings more attractive. That is exactly what the Bill does. The Minister acknowledged as much on Second Reading, yet all he can do is seek to delete it without further debate when it comes before the Committee.

The savings and retirement account will also be particularly attractive to the low-paid and to women. With its proposed low administration costs, the charges are not disproportionately high on low levels of savings. The flexibility of transferability makes it particularly attractive to those who may change jobs or, as for women, take career breaks to bring up children. It is also in theory possible for one-off contributions to be made to such an account, which would be beneficial to those on intermittent incomes.

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I will briefly spell out the contents of the clause. It sets out the meaning and the conditions that a savings and retirement account scheme must meet. Many of the conditions are actually set out in clauses 2 to 6. Clause 1 provides that, as with a stakeholder scheme, the scheme has the option to be put into trust. However, that is not a necessity. Clearly, the administrative costs would be reduced if that option were not taken up.

To answer a question that has been raised, the provision of a properly regulated wrapper and a scheme administrator will provide the security required. Advice will be available on the underlying investments. The investments, by their nature, will be easier to advise on and to manage.

Subsection (8) provides that members of such a scheme are unrestricted in the contributions that they make to the scheme,

    “subject to such minimum contribution levels and other restrictions as may be prescribed”.

In theory, there will be no maximum, although the lifetime allowance of £1.5m coming in at A-day will in practice provide an effective cap. However, as we are gearing ourselves towards low-income savers, that figure clearly is not particularly relevant.

Subsection (9) permits a scheme to accept transfer payments in respect of a member’s rights under other pension schemes and annuities, provided that such transfers do not prevent the account from being eligible for tax relief under current legislation. I believe that this proposal will be particularly beneficial to those who have a large number of different policies—something that is also dealt with later in the Bill. There will need to be a valuation of funds to be transferred by the scheme actuary or administrator. The investor will then need to make a decision—much as is already the case—as to the financial benefits or otherwise of the course of action.

Subsection (10) provides that the account shall benefit from tax relief that other pensions schemes enjoy, as set out by the Pension Schemes Act 1993. The Committee may decide to amend the scheme, and I will be happy to respond constructively to any serious proposals for amendments.

Subsection (11) recognises the savings and retirement account as a suitable alternative pension saving vehicle under the law.

To sum up the primary matters covered by the clause, we are dealing with a problem that the Government and the Turner commission have recognised and which needs a novel and flexible approach that builds on the success of ISAs. I do not think that there is any opposition to that. I would be happy to see constructive proposals to improve the scheme further. The House approved the Bill in principle by giving it an unopposed Second Reading. The Minister should think very hard if he believes in consensus and in working with others who have constructive proposals. If he were simply to turn down the proposal on the basis that it was not invented by his Government, party or Department, that would be
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a pretty clear marker of the rather inadequate and unimpressive attitude of Ministers to such a crucial policy area.

Mr. Nigel Waterson (Eastbourne) (Con): It is a pleasure, as always, to serve under your wise chairmanship, Mr. Benton. I do not wish to detain the Committee long because I hope that, with a fair wind and co-operation on both sides, we can get through all the amendments today and see the Bill reported to the House. I congratulate my right hon. and learned Friend the Member for Kensington and Chelsea (Sir Malcolm Rifkind), as I did on Second Reading, on his good fortune in coming high in the ballot for private Members’ Bills and on his sagacity in choosing this subject and putting together an important and thought-provoking Bill. It has my party’s full support, as he knows. Indeed, in the absence of any solution to the pensions crisis from the Government, it behoves the official Opposition to come up with the solutions, or some of them, to the ever-worsening situation.

Like my right hon. and learned Friend, I was struck by the honeyed words of the Minister on Second Reading, when he said:

    “I welcome the opportunity today to pursue that debate and to help build towards a consensus.”—[Official Report, 28 October 2005; Vol. 438, c. 577.]

Consensus is the buzz word in pensions at the moment. Sadly, as we do not seem to have consensus within the Government, it is a little rich for Ministers to demand it beyond the Government. Despite the fact that the Minister has at command the parliamentary draftsmen and lots of people with double firsts and ex-Wykehamists in his Department, the best he can come up with after careful consideration since Second Reading on 28 October are amendments that would delete the Bill clause by clause. Like the Cheshire cat, it would gradually disappear, leaving only a smile at the end.

That is entirely symptomatic of the Government’s attitude to pensions reform. They are like a rabbit caught in the headlights: they do not know what to do and they do not want anyone else to do anything either. My right hon. and learned Friend’s proposals are a sensible way of addressing several of the major problems in pensions today.

The Government—particularly the Treasury—have set out from the beginning not only to block reform but to undermine and rubbish the results of the Turner commission, which took three years and £1.6 million to produce an excellent, thorough and well-reasoned report. I am not saying that we will sign up to every paragraph of it, but much of it is common sense if only for the reason that much of it represents what was in the Conservative party manifesto at the last election.

The Treasury has gone out of its way to demolish the findings of the Turner commission by leaking its proposals in advance and by leaking a letter to Lord Turner about the uprating of pension credit. Yet again, we see that the Treasury, particularly in the shape of the Chancellor, is the true roadblock to reform.

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The Bill is all about boosting savings. We have seen a halving of savings since 1997, and the Bill would do a great deal to restore the position. I am amazed that the Government seek to sabotage the Bill and even more amazed that they have no concrete proposals to put in its place. I would have enormous respect for the Department and the Minister if they had tabled reasoned details amendments to improve the Bill. All they seek to do is demolish it. That is very sad, and the official Opposition’s attitude is that the Bill deserves a fair wind, deserves to go through Committee and deserves to return to the House.

Mr. David Laws (Yeovil) (LD): It is a pleasure, Mr. Benton, to serve under your chairmanship again. I congratulate the right hon. and learned Member for Kensington and Chelsea on introducing his Bill, which, as we said on the Floor of the House, has a number of useful components.

Clearly, the Minister felt a little guilty about the Government’s approach to the Bill because he had obviously sent someone off to do some homework and establish what precedents there were for deleting an entire Bill clause by clause. He did rather have to scrape the bottom of the barrel by going back to 1919. He seemed to be going back so far that he might eventually hit a Liberal Government, but stopped just short of that.

Perhaps we should not be too ungenerous because by deleting the Bill clause by clause, we presumably end up with a blank piece of paper, which would align the Bill with Government pension policy—at least we have consistency. To be a little more constructive and generous, I ought to say that it is perhaps not a surprise that the Minister has taken such a position, given that we understand the Department for Work and Pensions is seeking to decide how to respond in a coherent way to the Turner commission report. We await with interest the conclusion of the Government discussions to discover whether consensus will be reached, which we have all sought, with the Treasury. The Treasury seems to be, in the current Conservative parlance, the roadblock to what are widely considered to be desirable reforms.

2.45 pm

I hope that the Minister’s recent courageous comments, indicating that the Turner report should be taken forward, the comments in the Daily Mirror article by the Prime Minister and the statements by the Secretary of State for Work and Pensions are all signs that Downing street and the Department are going to get together to rescue from the clutches of the Treasury a pensions policy in which a fairy godmother is required each Budget to hand out odd items of additional expenditure for which we are all supposed to be grateful to the Chancellor. That is not a sustainable basis on which to run our pensions policy in future.

Even if the Minister uses the ranks of supporting Labour Members to delete the items in the Bill, we hope that he will at least indicate which parts of the Bill
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are valuable, which are not and which he intends to take forward into the White Paper or Green Paper, or whatever it will be, in the spring, summer, autumn, or whenever it will be, so that some of the good elements of the right hon. and learned Gentleman’s Bill are not lost.

On 28 October we expressed our view on the proposals in the Bill and welcomed two of the key proposals. We expressed some concern about the first area of the savings and retirement account, some of the practical elements of how that would work and the issue of pension tax relief. I shall not detain the Committee by reading out my previous speech.

If the Minister will not be as constructive today as he was on 28 October, I hope that he will at least provide some signposts for how the Government intend to take policy forward.

Justine Greening (Putney) (Con): I record my dismay at the Government’s amendments. When we debated this Private Member’s Bill several weeks ago, I thought that although it was not the whole answer to this country’s pensions and savings issues, it was part of the answer. Listening to the Minister on that day, I very much hoped that his enthusiasm would be reflected in Committee this afternoon. I am surprised and disappointed that it is not.

I am sceptical about Government plans to bring forward pension reform, because we on the Select Committee on Work and Pensions have been given assurances about when reforms to incapacity benefit would come through, but they seem to have been delayed and delayed. From my reading the papers yesterday, it looks as if those reforms have been watered down.

Perhaps we can leave this room at least reassured by the Minister about exactly when the pensions White Paper will come through and whether it will contain specific measures to help support the savings culture that has been fundamentally dismantled during recent years. This Private Member’s Bill sought to address that issue, and I hope that the Minister can provide me with some reassurance about it.

Mr. Timms: Let me welcome the fact that you are in charge of our proceedings this afternoon, Mr. Benton. I look forward to our debate under your chairmanship.

In response to the points made by Opposition Members, the position that I am taking this afternoon and the amendments tabled in my name are entirely consistent with what I said on Second Reading. I said that I was sympathetic to the objectives of the right hon. and learned Member for Kensington and Chelsea and share some of the aims that he set out on that occasion, but that we should not support the approach that the Bill takes and should continue to oppose it in Committee. Not only am I following in the tradition of my predecessors who responded to Sir Frederick Banbury and Mr. Bevins, I am being consistent with what I said on Second Reading.

I welcome the debate and the opportunity to consider in more detail the proposals that we analysed on Second Reading. I want us to have a constructive
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debate; it will be useful in the context of the work taking place on pension reform. However, it would not be right for the Bill to proceed to the statute book.

It is only two weeks since we received the report of the Pensions Commission. It is a substantial document, and I agree with Opposition Members about the quality of the commission’s work. It is an impressive document, not least because it is a unanimous report from a former director general of the CBI, a former president of the TUC and a distinguished academic. We have made it clear—Opposition Members also made this point this afternoon—that we will examine carefully its recommendations in the period ahead, thus continuing the national pensions debate that we started earlier this year. At this stage, we have ruled nothing in and nothing out, and will continue to welcome proposals from everybody with an interest in the future of our pensions system. That is at the heart of the difficulty facing the Committee this afternoon.

Among its other major proposals, the report proposes a new pensions vehicle—the national pensions savings scheme—that would have much lower charging than most personal and stakeholder pensions have. It would certainly look very different to stakeholder pensions and the vehicles, or accounts, proposed in the clause. In the past few weeks, some interesting alternatives to the NPSS have been proposed. At the savers summit of the Association of British Insurers last week, I challenged the association to come forward with details of its alternative by the beginning of February. I suspect that that will look rather more like the accounts described in the Bill than the NPSS model. Other proposals might well be made. At this stage, the Committee simply does not have the information that it needs to decide whether we need the vehicle proposed in the Bill, the NPSS or something else. It will be another few months before the information needed to make that judgment is available.

A particular issue on which I should like to hear the reflections of the right hon. and learned Member for Kensington and Chelsea is that of the charge cap, because an important concern of the Turner report is that the cost of saving for a pension should be less than it currently is with stakeholder and other personal pension models. A power similar to one proposed in the Bill is used in stakeholder pension provisions to cap the proportion of a member’s funds that may be used to pay for the administration and management of the fund. The cap was originally set at 1 per cent. of the individual’s fund per annum; it was recently amended—for new members from April this year—to 1.5 per cent. a year for the first 10 years of membership, thereafter reverting to 1 per cent. Does the right hon. and learned Gentleman envisage such a charge cap for these accounts? If so, what are his thoughts on what it might be?

Sir Malcolm Rifkind: In a sense, I am very relaxed on whether there should be a formal cap. The reality is that a scheme of the type proposed in the Bill would carry far less cost than has been the case in the past. The cost would probably be comparable to that with
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an ISA because of the multiplicity of people who would be able to offer potential savers participation in such a scheme. The Minister will be aware that the problem with stakeholder pensions, for example, has been that life offices in similar institutions have primarily had the monopoly on provision, so they have not been worth people’s while and people have not been attracted by them. In contrast, ISAs are offered by a far broader spectrum of people in the financial sector. That has made them more competitive and has pushed costs down in a very acceptable way.

Mr. Timms: I am grateful for that answer but do not share the right hon. and learned Gentleman’s confidence, because the introduction of the stakeholder pension charge cap significantly reduced charging for personal pensions across the board. They fell by about a third between 1999 and 2001 following the requirement that an adviser recommending a personal pension should explain in writing to the customer why the pension recommended is at least as suitable as a stakeholder pension.

Of course, the account that the right hon. and learned Gentleman proposes is significantly more complex, in management terms, than a stakeholder pension because it allows people to take out and borrow some savings in the account for specified purposes. I do not say that one should, on that basis, argue against the flexibility for which he argues. Indeed, that is one of the more interesting features of his proposal. However, I suggest that if it were to go forward, its cost might well be somewhat higher than those of products that are currently available. That would be a move in the opposite direction to the one that the Turner commission recommends.

There are several other points that one could make, but I shall say no more at this stage, other than to welcome the fact that the right hon. and learned Gentleman has done the House a service in advancing a new idea that gives us something else to have on the table as we debate the matter in the next few months. For the reasons that I gave, it would not be right to proceed with that idea at this stage, but it is an interesting proposition, and I welcome the fact that it has been brought before the House.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 6, Noes 5.

[Division No. 1]


Greening, Justine
Laws, Mr. David
Penrose, John
Randall, Mr. John
Rifkind, Sir Malcolm
Waterson, Mr. Nigel


Clark, Ms Katy
Gibson, Dr. Ian
Johnson, Ms Diana R.
Timms, Mr. Stephen
Wareing, Mr. Robert N.

Question accordingly agreed to.

Clause 1 ordered to stand part of the Bill.

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Clause 2

Registration of SaRA schemes

Question proposed, That the clause stand part of the Bill.

Sir Malcolm Rifkind: Today has been a small step for mankind and great leap forward for the Bill. It is an historic occasion, which I hope will be recorded in the annals of infamy: the Government’s attempt for only the third time in 100 years to deny the House the right to debate the Bill on Report has crashed to failure. They could not even persuade their own Members to support their position on such an important matter. I trust that the Minister will not require us to go through this charade in our consideration of the rest of the Bill but will acknowledge that he must respect the will of the Committee and the House.

Clause 2 provides that the schemes are regulated by the pensions regulator, although it is hoped that a wider range of providers than the life offices that currently offer pension schemes will offer savings and retirement accounts. The authority in subsection (1) is, of course, the pensions regulator, and subsection (3) permits the regulator to refuse to register a scheme, or to remove a scheme from the register if it does not fulfil the conditions set out in clause 1.

Mr. Timms: On the point about the historic character of what is going on, it is true, so far as I am aware, that there have been only two precedents in which the Government succeeded in deleting all the clauses of a private Member’s Bill. What we do not know, of course, is how many attempts the Government have made to do that in the past 100 years. I suspect that that number is rather larger.

I suggest to my hon. Friends that, consistent with the view that I have expressed to the Committee, we should also resist clause 2, although it certainly is a fairly natural consequence of clause 1. Has the right hon. and learned Member for Kensington and Chelsea given any thought to the extent of the additional costs that might be involved in registering the accounts, given the risk-based approach that the regulator takes? I would be interested if he has any comments on that, but I urge my hon. Friends to resist clause 2.

3 pm

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