Danny
Alexander: The amendments cover at least three important,
but distinct, areas: first, the uprating of the limit, secondly, the
ability to transfer in or out of personal accounts and, thirdly,
whether, in addition, there should be a lifetime limit. I disagree with
much of what the hon. Member for Eastbourne has said about the second
and third of those. However, on the first of those, the uprating of the
annual limits, he makes a great deal of sense. Amendment No. 77 seeks
an annual limit of £3,600 at 2005 prices that should then be
uprated in line with the relevant index in the future. To have that in
the Bill, just to be clear of the Minister’s intention, makes a
great deal of sense. I will now turn to other issues where there are
some grounds for disagreement.
The hon. Member for Eastbourne
seeks to put in the Bill an absolute ban on transfers in and out of
personal accounts. It is clear from what the Minister said
elsewhere that that is a question that he seeks to review in 2017. That
approach is probably a sensible one, but there are cases where, having
had a period of stability in the initial phase of personal
accounts—which I suspect is what the 2017 review is designed to
achieve—there are circumstances in which to allow small
transfers in and out would be
appropriate. We have
talked previously about particular groups of people such as those with
small pension pots or broken work records. Let us take as an example
someone who has worked for two or three years in a relatively low
income job, with a company pension scheme, who has perhaps built up a
small pot which would be significantly lower than the trivial
commutation limit. After a period out of work, they might come back
into work and have a personal account again but have only the income
and the time to build up a relatively small pot. It would clearly make
sense, in due course, to allow those small pots to be combined, within
appropriate limits, to allow the transfers
in. I accept what the
hon. Member for Eastbourne says, and he is right that this point has
been made strongly by PADA. He is right that Parliament should be
conservative about adding unnecessary bells and whistles to the scheme,
because the more bells and whistles that are added, the more complex it
becomes and the harder it becomes to keep the charges at a low level.
That would then have an impact on the benefits that members will
receive. However, the critical word has to be
“unnecessary”. There are some additional ways of
contributing to personal accounts which I would not characterise as
unnecessary bells and whistles, but which are potentially necessary to
allow personal accounts to achieve their full objective. There is at
least a genuine question to be asked about allowing the transfer in of
other small pots so that there can be a combination which allows a
decent degree of income to be realised in retirement. I hope that the
Minister can say that the 2017 review will be a real review that will
look at those issues in detail with a view to ensuring that the
interests of members, particularly those I have described who might
have a number of small pots, are met. That is why I strongly oppose
amendment No. 29. I
turn now to the idea of having some additional lifetime contributions
limit, which is embodied in amendment No. 103. It suggests
that “A member
may make payments that are not contributions for the purposes of
provision under subsection (1) up to a maximum of 2 per cent. of the
standard lifetime
allowance.” Standard
lifetime allowance, as the Committee will know, is currently
£1.6 million. Two per cent. of this would be £32,000,
approximately twice the current trivial commutation limit. We had an
interesting debate about trivial commutation in which I proposed an
amendment that the trivial commutation limit be increased. Amendment
No. 103 would add a degree of flexibility to the system while not
allowing excessive contributions to be brought in from outside. That
would allow people in the target group—and this has to be of
interest to the Committee—who are on low incomes and may only be
able to make a relatively small contribution to their personal account,
to make use of any windfall, legacy or inheritance they may
have to build up what will be, in many cases, the only pension they have
to ensure an adequate income in
retirement. While the
hon. Member for Eastbourne is absolutely right that there would not be
an employer contribution attached to any such transfer in, the obvious
reason for such a transfer would be to allow growth to take place in
that money so as to contribute to the overall retirement fund. That
would allow them to reach a level at which they are able to benefit
from an annuity or a regular income stream as opposed to a lump sum,
which is all that they would be entitled to in a very small pot. I must
confess that I was not in the Committee when the questions about advice
were debated, though I have read with interest the record of those
discussions. However, to say that the fact that such people will not be
in a position to have advice is an argument against allowing a lifetime
contribution limit, is not quite right. If we are to get the advice
regime right—it is my understanding that that is what Otto
Thoresen has been asked to look into, and it is certainly the basis on
which my party’s proposals for the advice regime have been
made—we must consider that there are a number of different
aspects of life where better access to financial advice is needed by a
range of people who will potentially be in the target audience for
personal accounts. This is not just advice about personal accounts.
Advice is needed about personal debt, for example.
Our suggestion—a national
network of financial advice centres, perhaps operating through citizens
advice bureaux—would clearly provide a vehicle where, if someone
wished to ask a question about this sort of decision, they would be
able to do so. People would be able to receive generic financial
advice, not restricted to personal accounts, but dealing with a range
of other circumstances. Such an approach would allow relevant questions
on this sort of decision to be asked. So that is not a genuine
objection to amendment No. 103.
I am very pleased to see that a
number of stakeholders, who follow very closely the Committee’s
deliberations, also support amendment No. 103. I note, for example, the
EEF’s belief that individuals should be able to make the
occasional lump-sum payment, in addition to the annual contribution,
into a qualifying workplace limit such as personal accounts, provided
this does not add disproportionately to the cost of administration,
which must be kept as low as
possible. I am also
pleased to note the support of Which?. It says that the Government
should introduce a lump-sum contribution limit now to allow consumers
to pay in lump sums such as inheritance, redundancy payments or
bonuses, separate from an annual limit. That would help people to save
for a comfortable retirement in line with their aspirations, and allow
millions of people to achieve their aspirations, which are not
currently being fulfilled. That is the Bill’s principal
political objective. Likewise, the TUC has noted its support for
amendment No. 103. I could go on, but I suspect I would try your
patience, Mrs. Anderson, if I continued to list
organisations in support of this
point. Our proposal is
not a bell or a whistle; it is an essential feature to allow people on
low incomes who are in the target group and may not be in a position to
create, through their own endeavours and employer
contributions, the size of pension pot that they wish, to make
relatively modest additional payments into their personal account from
time to time, with a clear lifetime limit set at a relatively low
level. It would ensure that the personal accounts scheme can have the
wider benefits desired by everyone on the Committee. That would be a
sensible addition to the Bill, and, although I have not yet heard the
Minister’s response, I would like to be permitted, if necessary,
to press the matter to a Division at the end of the
debate. Mr.
O'Brien: I have considerable sympathy for some of the
points raised by the hon. Member for Inverness, Nairn, Badenoch and
Strathspey. He identifies the three key issues we are discussing: the
£3,600 annual cap, the transfers in and out and the lifetime
investment that people might make.
Our view is that transfers in
and out should not be allowed at this time, but he will be aware from
my evidence to the Committee that I have some sympathy for this idea in
terms of small pots. Let us look at it after 2017, at a more
appropriate time when we have reassured the
industry—particularly the insurance-based, but also the
trust-based pensions industry—that people will not transfer
significant sums from one pension fund to another. At that time, the
Minister and hon. Members can take a view on whether it is appropriate
to allow small pots to be transferred in and out of personal accounts.
Tim Jones indicated that there were some benefits in doing that but
there is a need at this point to keep a level of reassurance for the
industry and that would help with our aim of preventing levelling down,
which is an important concern for all Committee
members.
3.15
pm There has been
lively debate for some time around the lifetime limit. There are strong
views on both sides. I do not propose to close that debate down now. I
hope that, in due course, a wider consensus will emerge. We certainly
do not have that now. Closing down the debate on the £10,000
limit at this time would not be the right way
forward.
Danny
Alexander: I am pleased that the Minister does not wish to
close down that debate. He is right that there is a divergence of view
within the stakeholding community. What steps would he take to bring
consensus on that important issue? Clearly, if there is to be a
consensus, it would require the Bill to be amended. If such a consensus
emerges, is he willing to bring forward an amendment at a later stage
in the Bill to allow that to
happen?
Mr.
O'Brien: First, we would not have to amend the Bill in
order to enable that change to take place. Subsection (1) would allow
that. Therefore, there is scope to allow that. It does not need to be
in the Bill. We do
need to have a clear view by 2012 because there may well be people who
wish to transfer into personal accounts a sum that is perhaps held in a
non-pension saving pot. I am sympathetic that there is an argument but
I want to look at the detail so, therefore, I am not disposed at this
point to put it into the Bill.
Danny
Alexander: The Minister has been very generous in giving
way. To be clear on the first point he made, is it his view that,
should a view come forward that a lifetime limit is desirable, that it
can be done by regulation and not by primary
legislation?
Mr.
O'Brien: Yes. Subsection (1) we believe
enables us to do that. Therefore, we would not need primary
legislation. We are clear that our aim is that personal accounts should
complement rather than replace good-quality pension provision, in
order— [Interruption.] I am sorry. I believe
that subsection (3) rather than subsection (1) would enable us to do
that. As far as our
overall aim is concerned, we are not seeking to replace any
good-quality pension provision. That has never been our intention.
Indeed, the whole process is to complement not compete or replace
current provision. In
order to achieve this we have taken some specific measures to focus
personal accounts on the target group. An annual contribution limit of
£3,600 and a prohibition on transfers in and out of personal
accounts, at least in the initial stage, are part of that process. We
have consulted widely on the level of annual contribution limit which
involves a trade-off between focusing personal accounts on the target
group and providing individuals with flexibility to save. We have been
quite clear that we intend to set the contribution limit at
£3,600 in 2005 figures. We have reached a broad consensus with
stakeholders that this is appropriate.
We have not put the actual
amount in the Bill for a number of reasons. First, the level of the
limit will not be £3,600 in 2012 because we have undertaken to
uprate this figure in line with earnings from 2005.
Of course, I hear what the hon.
Member for Eastbourne says about how we could have a figure in the Bill
and a mechanism for adjusting it. That is possible and is certainly
done in Finance Bills, but it is much easier in Finance Bills as they
come around annually. We are looking at a Pensions Bill that we hope
will still be looked at in 2020. Having such a figure in the Bill
becomes much odder.
It is better
to say that the figure will be annually uprated in line with earnings,
so we are clear about where we are. We do not have any proposals to
change that, and I know that the Opposition Members, should dire things
happen at election time, would have no wish to alter it either. I think
that the industry has the level of reassurance that it needs about the
political consensus.
We have said that we would
consider a higher limit of £10,000 in the first year and
subsections (1) and (3) provide scope for that limit. As we have said
in earlier debates, we are making pension policy for the long term.
Without the benefit of 20:20 foresight, we believe it is important to
retain an element of flexibility in setting the level of the
contribution limit. We believe this approach makes clear our intention
but does retain flexibility at the same time, and it is the right
approach. So the industry knows our intention—it is all very
clear—but I do not think that we need to put it in the
Bill. We
have also been clear that it is our intention to uprate the annual
contribution limit in line with earnings. This will prevent the value
of the limit from being eroded over time as a proportion of an
individual's
earnings. But again, flexibility is important. Amendment No.77 would
remove the flexibility for the Secretary of State to adopt another
index should it become apparent that uprating by earnings is not
appropriate. This amendment would also prevent the introduction of a
higher contribution limit in year
one. We
are considering—as I have indicated—the £10,000
limit, but we are not in the position yet to close down that debate. We
have asked the delivery authority to advise us on the cost and
implementation issues around a higher contribution limit in the first
year of the
scheme. Amendment No.29
would pre-empt this work, categorically ruling out a higher limit in
year one. We also recognise that there will be some individuals with
irregular contribution patterns who may want to make one-off payments
to their personal account to boost their pension savings. Consumer
groups in particular have been keen for members to have this facility.
I have already indicated what our view is and I do not propose to close
that down now.
As far as
amendments No.30 and No.103 are concerned, both affect the development
of a limit—such as a lifetime lump sum—but in
diametrically opposite ways. Amendment 30 would prevent the ability,
whereas amendment No.103 would prescribe a limit of
£30,000—significantly undermining the purpose of the
limits.
As an
additional measure to protect existing good quality schemes when
personal accounts are introduced, Amendment No.29 seeks to put a
blanket ban on transfers in the Bill. We have made clear our commitment
to banning most pension transfers into and out of personal accounts.
However—as always—we must allow the flexibility for
exceptions. There are some very limited circumstances—such as
pension sharing on divorce and, as I have indicated previously, the
small stranded pension pots—where we would want to have the
ability to look at these issues. Paving powers for this ban are at
clause 100 of this Bill, and we plan to set out the detail in the
scheme order. We will therefore have the opportunity for some further
discussion at a later
date. I would like to
make clear that we are committed to carrying out a review of the
contribution limit and the ban on transfers in 2017. In answer to the
question asked by the hon. Member for Inverness, Nairn, Badenoch and Strathspey—we intend it to be a
real review. Quite what happens in 2017 will depend on the Government
at the time. But our intention is certainly that that would be a real
review. These
measures are important to protect good quality provision when the
personal account scheme is introduced. But they do have cost
implications for the scheme, and therefore it is right that we should
review them once the reforms have bedded down to see whether they
remain appropriate. It is right that, following a review and a debate
in the House, the Secretary of State has the power to remove the
requirement for a contribution limit. Amendment No. 58 would remove
that flexibility and require primary legislation should the review
conclude that no contribution limit is necessary. I believe that we
have the balance right in the approach we have taken to this
legislation. There are
some stakeholders who have different views and seek reassurances on
particular points—the £3,600 figure is one. But the way
we have sought to
present this, and the level of consensus around it, provides them with
the level of security that they need and also enables us to keep some
issues open. One of these is the £10,000 issue, where there is
still a way for that debate to go and where getting a consensus is
likely to be possible. It is not there yet, however, and it may well
take some time—perhaps a year or so before we are in a position
where the industry and the various groups are able to come together and
take a view on this. I am anxious to enable that process to continue,
so I hope that will not be circumscribed by these amendments. Having
said that, I hope the hon. Gentleman will consider withdrawing the
amendment. | 
