Rights of Savers Bill |
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Sir Malcolm Rifkind: I do not believe that there would be any significant additional cost. There is similar provision. As the Minister knows, the clauses are largely based on the stakeholder legislation. I do not think that cost has ever been used as an argument against that legislation, and I see no reason why it should be used against this proposal. Question put, That the clause stand part of the Bill:— The Committee divided: Ayes 6, Noes 5. [Division No.
AYES Greening, JustineLaws, Mr. David Penrose, John Randall, Mr. John Rifkind, Sir Malcolm Waterson, Mr. Nigel
NOES Clark, Ms KatyGibson, Dr. Ian Johnson, Ms Diana R. Timms, Mr. Stephen Wareing, Mr. Robert N. Question accordingly agreed to. Clause 2 ordered to stand part of the Bill. Clause 3 Duty of employers to facilitate access Sir Malcolm Rifkind: I beg to move amendment No. 20, in page 4, line 25, at end insert
A certain pattern is emerging in this Committee, which may or may not continue. Time will tell. The amendment aims to ensure that the Bill conforms with what the House wished on Second Reading and what I originally intended. As the Committee is aware, the stakeholder provisions do not apply to any employer who has five or fewer employees, so that it does not put unreasonable and unfair burdens on small businesses. I understood that that was reflected in the wording of the Bill on Second Reading. On further consideration, we have concluded that the amendment is required to make it clear and beyond any misunderstanding. The amendment is also highly relevant at this time because one of the most important recommendations of the Turner report is that its proposed savings scheme would not have a cut-off point if the proposal was endorsed. It is intended that all employees, regardless of the size of the business and even down to the smallest businesses that employ one or two people, will have an obligation to offer such a saving scheme. We feel that that is an unfair and unreasonable burden, and that is also the view of the Federation of Small Businesses, the CBI and others who have commented on such matters. It is important to make it clear that we have to get the balance right. For a corner shop, a garage, or some very small business, such a scheme would represent a significant administrative burden and potentially a financial burden if employers were expected to make contributions as well. I hope that the amendment will have the approval of the Committee. Mr. Waterson: The official Opposition support the amendment entirely. The Conservative party is nothing if not the party of small business, and we can understand any legitimate concerns about not having a cut off that reflects, as my right hon. and learned Friend said, the existing cut off for stakeholder pensions. We agree that there is an unresolved issue in the Turner report about not excluding smaller firms. I appreciate that commission members have concerns about avoidance and so on that the Government will need to address in due course. There is a good
Mr. Timms: I welcome and am interested in the fact that the right hon. and learned Gentleman has moved amendment No. 20. My impression on Second Reading was that he was resistant to that change, but he has clarified that position. The amendment helps to draw attention to a difficulty. We all acknowledge that people who work for small businesses and those who are self-employed have disproportionate pension provision. I welcome the amendment because it is easing a burden on small businesses, a point that I made on Second Reading. However, it does not help us to incorporate into pension provision many of the large number of people who currently do not have access to it. Sir Malcolm Rifkind: If that has become a persuasive argument for the Minister, why does he not apply the amendment to stakeholder pensions? Mr. Timms: If the right hon. and learned Gentleman allows me to finish my argument, he will understand my position. The Turner commission, in recommending a model that is rather different from a stakeholder model, has decided on a different proposal on that front. The commission argues, with some conviction, that the model it proposes would provide a significantly lower burden than the stakeholder model. In weighing up the alternative attractions—the national pensions saving scheme, something that looks more like a stakeholder pension, or some other proposition—a good deal of attention must be paid to the impact on people who work for small businesses. The hon. Member for Eastbourne (Mr. Waterson) rather fancifully characterised his party as the party of small business. We must represent the interests of those people who work for small businesses. The fact that such a large number of them have no private pension provision at present is a significant weakness that must form part of this debate. I am sure that clause 3 is a sensible provision, but we shall need to look more at it as the debate proceeds, because we face a wider challenge with pensions. This is an interesting subject. Amendment agreed to. Question proposed, That the clause, as amended, stand part of the Bill. Sir Malcolm Rifkind: Clause 3 places requirements on employers to provide access to SaRA schemes. The Bill obliges employers to designate the scheme, to supply their employees with the name and address of the designated scheme and to allow representatives of the scheme reasonable access to their employees. Column Number: 14 The clause is consequential on matters with which the Committee has already dealt. I commend it to the Committee. Question put, That the clause, as amended, stand part of the Bill:— The Committee divided: Ayes 5, Noes 5. [Division No. 3] AYES Greening, JustineLaws, Mr. David Penrose, John Rifkind, Sir Malcolm Waterson, Mr. Nigel
NOES Clark, Ms KatyGibson, Dr. Ian Johnson, Ms Diana R. Timms, Mr. Stephen Wareing, Mr. Robert N. The Chairman: In accordance with House protocol, I cast my vote with the Ayes to keep the debate going and the Bill intact. Question accordingly agreed to. Clause 3, as amended, ordered to stand part of the Bill. Clause 4 Investment requirements for SaRA schemes Question proposed, That the clause stand part of the Bill. Sir Malcolm Rifkind: On what is otherwise a day of infamy, your position stands out as a beacon of parliamentary principle, Mr. Benton, which will be commended no doubt for the next 100 years. The clause sets out the investment requirements for savings and retirement schemes. It is mainly an enabling clause. Subsection (2) provides that an account can be made up of investments set out in regulations by the Treasury. They are not specified under the Bill, but it is intended that the investments be similar to individual savings accounts, including cash, stocks, bonds and collective investments. I hope that the clause commends itself to the Committee. Mr. Timms: I have just one question. I found it a little surprising that the Bill proposed that the approval of an account manager should be given to the pensions regulator. I should have thought that the Financial Services Authority would have been more appropriate. Why was the pensions regulator, in particular, proposed? Sir Malcolm Rifkind: I do not have strong views about the matter. If the Minister tables an amendment to that effect on Report, I assure him that I shall
Question put, That the clause stand part of the Bill:— The Committee divided: Ayes 6, Noes 5. [Division No. 4] AYES Greening, JustineLaws, Mr. David Penrose, John Randall, Mr. John Rifkind, Sir Malcolm Waterson, Mr. Nigel
NOES Clark, Ms KatyGibson, Dr. Ian Johnson, Ms Diana R. Timms, Mr. Stephen Wareing, Mr. Robert N. Question accordingly agreed to. Clause 4 ordered to stand part of the Bill. Clause 5 Drawdown requirements for SaRA schemes John Penrose (Weston-super-Mare) (Con): I beg to move amendment No. 24, in page 6, line 9, after ‘child’, insert ‘or grandchild’. The Chairman: With this it will be convenient to discuss the following amendments: No. 23, in page 6, line 15, after ‘of’, insert ‘accredited’. No. 25, in page 6, line 28, at end insert—
John Penrose: The amendments are technical and designed mainly to extend the purpose of this part of the Bill. Clause 5(6) specifies three or four different ways in which drawdown can take place early from a SaRA. Subsection (6)(b) specifies that an account holder can allow drawdown to provide financial assistance to a child
Under amendments Nos. 24 and 25, the provision would be extended to include grandchildren, the purpose clearly being, first, that the provision was still within the family and, secondly, because it would be more likely that grandparents will have amassed a sufficiently large pot of funds in their SaRA to afford to help out another family member, whereas those at an earlier stage of life—perhaps in their 30s and 40s—might find that a little hard. Amendment No. 23 would amend subsection (6)(c), which is designed to allow drawdown from a SaRA when someone is about to undertake a course of higher or further education. It would add “accredited”
It might not be appropriate to allow a drawdown from a retirement fund for a course on something comparatively simple such as flower arranging; one should try to arrange for something that carries a formal qualification. The amendment would ensure that it is done for sober and serious purposes rather than for less serious ones. 3.15 pmSir Malcolm Rifkind: I am extremely grateful to my hon. Friend for moving the amendment. I indicated on Second Reading that the drawdown examples given in the Bill could be added to or subtracted from. First, there is the basic principle that a drawdown facility would encourage younger savers, particularly those in their 20s and 30s, who will not want to lock up funds for 30 or 40 years; by investing in such an account they would not cut off access to those funds if they were needed to cope with some of the fundamental decisions that might affect them and their families. The proposal is based on a scheme that operates in Canada; it covers the same two categories. I have said that if the Committee or the House wishes to broaden the opportunities for drawdown, I would have no objection in principle. I would be happy to acquiesce in what my hon. Friend proposes. Mr. Timms: Subsection (6) proposes three quite different purposes for which drawdown would be permitted. The first and third of them are interesting. The first is the purpose of
The Government are committed to extending the extent of home ownership. I can also see a case for the third, particularly with the addition of the word “accredited” as suggested by the hon. Member for Weston-super-Mare (John Penrose). However, the second purpose sits rather oddly—the purpose of assisting a child to make
We need to be clear in our minds about the purpose of the substantial tax advantages that would be conferred on people saving for a pension. Why are those substantial tax benefits provided? It would be difficult to argue plausibly that it was right for the generous tax advantages of pension saving to be extended to providing access to funds to a child, let alone a grandchild, to buy a first house. Indeed, if we were to extend them to grandchildren, why not other people? I am interested in purposes (a) and (c), but purpose (b) is much harder to justify, especially if it is to be amended as suggested by the hon. Gentleman. John Penrose: It is my understanding of the clause that if money is drawn down from a SaRA but is not repaid within a certain period—the time specified in the Bill—the tax advantages would be lost. If money that is drawn down for a child or grandchild to assist
Mr. Timms: It remains very important, because that framework would encourage people to save for retirement. That is the purpose of the vehicle; it has extra flexibility to encourage people to save. However, the purposes need to be tightly defined. I presume that the reason for the three purposes is that the Government already use the tax system to encourage people to save for such purposes. Although it is true that the tax benefits would be lost if the loan was not repaid in a particular time, it is still a tax advantage saving vehicle for these purposes. I suggest that it is very difficult to argue that the tax advantage character of that vehicle should be available for the purpose in paragraph (b) unamended, let alone amended. Amendment agreed to. Amendments made: No. 23, in page 6, line 15, after ‘of’, insert ‘accredited’. No. 25, in page 6, line 28, at end insert—
Question proposed, That the clause, as amended, stand part of the Bill. Sir Malcolm Rifkind: As we have discussed, clause 5 deals with the question of drawdown. It provides that cash up to a specified maximum amount may be withdrawn before retirement for limited specified purposes. There are, however, two main restrictions on the amount that may be withdrawn. First, a maximum of 60 per cent. of the value of an account at the time of drawdown may be withdrawn. That is designed to prevent funds gained through tax relief from being withdrawn. Secondly, a maximum of £40,000 may be withdrawn. That amount was chosen to allow sufficient funds to be withdrawn to cover a house deposit or a long-term course of education, but no more. We have considered the sum that would be required, given house prices in various parts of the United Kingdom and the amount would meet that particular need. Subsection (4) allows for the repayment to be made within a specified time, which it is anticipated should be no later than retirement. It does, however, make provision that that repayment need not be made for four years to allow for any withdrawal that was due to the provisions on education. Subsection (5) allows for tax relief to be withdrawn from the fund, equivalent to the tax relief given on the money not repaid after drawdown. The particular purposes for which it can be drawn down are either assistance to the investor in making a property purchase that will be his or her principal residence, to allow the account investor to provide financial assistance to his or her child’s first property purchase, which, in the light of the amendment tabled by my hon.
I believe that the proposals work very well in north America and are seen to be a very attractive and successful way of encouraging new funds to be made available in saving schemes. They do not cost the Exchequer anything, because the tax relief is withdrawn if repayment is not made. There is therefore no loss to the Revenue, but people, particularly in their younger years, have every incentive to consider contributing towards a scheme of this sort, and I commend it to the Committee. Mr. Waterson: I express the Official Opposition’s support for the provision. Obviously in an ideal world, people would do the traditional thing of locking away their pensions contributions for 40 years, which would be great. We know, however, that savings in this country have halved since 1997 and that many young people are turned off the idea of locking away their contributions. As my right hon. and learned Friend said, there is ample evidence from north America, witnessed particularly by the success of the 401K schemes, that a limited series of drawdowns can be permitted within very tightly defined constraints. I am the first to say that there is scope for legitimate debate about the way in which such drawdowns would work and the categories that apply. I am only sad that the Government have not chosen to engage in that debate, but are seeking yet again to scrap the whole clause. The Official Opposition broadly support the contents of the clause, which we believe would do an enormous amount to encourage particularly younger workers to get back into the savings habit for their retirement. Mr. Timms: I welcome engagement in the debate. The evidence from the US on this issue is interesting. I wonder, though, whether the hon. Gentleman has seen the research from the ABI on 401Ks. In the US, 401Ks allow decumulation at the end of every period of employment. The ABI concludes:
The ABI makes an important point that must be weighed in the debate. It is true, of course, that money withdrawn would need to be repaid in order to retain the tax privilege position, but there is no requirement for the account holder to make new payments into the account on top of the repayments. Therefore, money withdrawn may be replaced, but money may not be added. There is a question about whether we would, in fact, find that pensions had been reduced rather than increased. A major practical difficulty is the complexity and possible cost of administering such a scheme. When arrangements have matured in a SaRA, one could have money going in as new savings, money being withdrawn and money being paid in as repayment of
As was pointed out on Second Reading, the sum of £40,000 is beyond the realms of possibility for many people. The things that they might wish to save for, in addition to a pension, will often be more modest than buying a house, which is one of the purposes proposed in subsection (6). The Bill could leave people who have an outstanding and immediate unforeseen debt unable to access their funds in order to clear it, although they could access the funds to buy a house. The rationale for that is difficult to grasp. There is a discussion to be had about the role of greater flexibility, but the form proposed in the Bill raises at least as many questions as it answers, and I urge my hon. Friends to resist the clause. Question put, That clause 5, as amended, stand part of the Bill:— The Committee divided: Ayes 6, Noes 5. [Division No. 5] AYES Greening, JustineLaws, Mr. David Penrose, John Randall, Mr. John Rifkind, Sir Malcolm Waterson, Mr. Nigel
NOES Clark, Ms KatyGibson, Dr. Ian Johnson, Ms Diana R. Timms, Mr. Stephen Wareing, Mr. Robert N. Question accordingly agreed to. Clause 5, as amended, ordered to stand part of the Bill. Clause 6 Application of Employment Rights Act 1996 Question proposed, That the clause stand part of the Bill. 3.30 pmSir Malcolm Rifkind: Clause 6 is one of the miscellaneous and consequential clauses applying the Employment Rights Act 1996 to the legislation. It is entirely consequential on what has already been approved by the Committee, and I commend it to the Committee. Question put and agreed to. Clause 6 ordered to stand part of the Bill. Column Number: 20 Clause 7 Application of 1993, 1995 and 2004 acts to Question proposed, That the clause stand part of the Bill. Sir Malcolm Rifkind: I am glad that the Committee has moved into a new phase in which even the Government agree to and do not oppose clauses. I am grateful to the Minister for that, but I do not draw any conclusions from it. Similarly to clause 6, clause 7 is a consequential miscellaneous provision with regard to the application of the Pension Schemes Act 1993, Pensions Act 1995 and the Pensions Act 2004 to saving and retirement account schemes. I commend it to the Committee. Question put and agreed to. Clause 7 ordered to stand part of the Bill. Clause 8 Interpretation and application of part 1 Question proposed, That the clause stand part of the Bill. Sir Malcolm Rifkind: Clause 8 is purely the interpretation and application clause, and I commend it to the Committee. Question put and agreed to. Clause 8 ordered to stand part of the Bill. Clause 9 Retirement income funds John Penrose: I beg to move amendment No. 21, in page 9, line 11, after ‘an’, insert ‘annual’. The Chairman: With this it will be convenient to discuss amendment No. 22, in page 9, line 38, at end insert—
John Penrose: The amendments seek to alter the Bill with one important change. The Bill states that
If, having set up a retirement income fund, someone is diagnosed with a serious illness and their life expectancy dramatically shortens, it is in their interest and that of public policy to increase the maximum amount they are allowed to withdraw. The amendments seek to allow for the maximum amount to be regularly reassessed in line with their shortened life expectancy, so that they are not short-changed by the bureaucracy. Column Number: 21 Sir Malcolm Rifkind: My hon. Friend’s amendment is not only practical but humanitarian. It would be sensible to be able to respond to the special circumstances to which he referred, so I am happy to accept his amendment. Amendment agreed to. Amendment made: No. 22, in page 9, line 38, at end insert—
John Penrose: I beg to move amendment No. 26, in page 9, line 38, at end insert—
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