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Session 2007 - 08 Publications on the internet General Committee Debates Pensions Bill |
Pensions Bill |
The Committee consisted of the following Members:Mark Hutton, Committee
Clerk
attended the
Committee
Public Bill CommitteeThursday 7 February 2008(Morning)[Sir Nicholas Winterton in the Chair]Pensions BillClause 68Stakeholder
pension
schemes
9.30
am
Andrew
Selous (South-West Bedfordshire) (Con): I beg to move
amendment No. 158, in clause 68, page 32, line 4, at end
insert
(1A) In section 1
(meaning of stakeholder pension scheme), omit
subsections (7) and
(8)..
Let
me welcome you back to the Chair, Sir Nicholas. We also welcome my hon.
Friend the Member for Rochford and Southend, East to the Committee. I
would like to put on record all Members sympathy for the
Minister for Pensions Reform, who is not with us due to a family
bereavement.
Clause 68
brings in necessary reforms to stakeholder pension schemes, principally
to remove the statutory duty on employers to have a designated
stakeholder pension scheme in the light of the introduction of personal
accounts though the Bill. We support what clause 68 seeks to do because
the pensions landscape will have moved on and stakeholder pension
schemes will not be necessary in the way that they once were.
Genuine and
understandable concerns have been expressed, however, about what will
happen to existing stakeholder schemes, particularly in 2017. In the
early evidence sessions of the Committee, Tim Jones and the Minister
for Pensions Reform both said they were keen to look at whether the
personal accounts trustee corporation would be able to allow transfers
out of personal accounts, probably in around 2017. We understand the
reason for that. One very good reason is that there could be
hundreds of thousands of very small personal account pots, perhaps
belonging to foreign workers who have been in this country for a matter
of months and have returned to their home country and are never going
to come back. The personal accounts trustee corporation will be forced
to maintain those small accounts for all time if there is not the
option to transfer out.
The concern is that these
transfers-out may end up being pushed on to the existing stakeholder
pension schemes because current legislation, which is
not being rescinded, prevents the winding down of these stakeholder
pension schemes, even if the stakeholder provider might not want to
keep them going. Clause 68 would force stakeholder pension schemes to
accept transfers-in of possibly large numbers of very small amounts.
There is concern that this may lead to an increase in the charges
stakeholder pension
schemes.
Such charges
were initially brought in and capped at 1.5 per cent. for an initial
10-year period. I am sure the
Minister will tell us this when he responds, but my understanding is
that 2017, when we are looking at the potential for
transferring out, will be beyond that 10-year period in most cases.
Therefore, the stakeholder schemes will have the optionand
indeed they might be forcedto increase charges to cope with the
administration of perhaps a very large number of small pension accounts
being forcibly transferred
in.
This could have
serious consequences for the existing members of those stakeholder
pension schemes, who might find their returns to be
less than expected because of higher levels of charges being imposed on
them because of these transfers-in, which clause 68 currently
allows.
Miss
Julie Kirkbride (Bromsgrove) (Con): My hon. Friend is
clearly very knowledgeable about these matters. Will he help the
Committee by explaining what he thinks is the rationale behind
requiring this move out of personal accounts and into stakeholders? Why
stakeholders; why not some other vehicle? What is the rationale for
doing it this way, because I completely take on board his concerns
about the downside of this particular
move?
Andrew
Selous:
I thank my hon. Friend for that
intervention. My understanding is that personal account holders will
not be forced to transfer into stakeholder schemes specifically, but
the point is rather that these stakeholder schemes will be unable to
refuse to accept these many small pension pots. Account holders can
choose to take their personal accounts elsewhere, so they will have
that choice.
What I am
arguing for, in amendment No. 158, is giving stakeholder schemes the
freedom to operate that any other pension provider would ordinarily
have. Clause 68 really seems to be dumping obligations on stakeholder
providers quite unfairly, and in a way that could be prejudicial to the
existing members of those stakeholder schemes.
Amendment No. 158 would remove
the obligation on stakeholder providers to accept transfer values and
give them the discretionary freedom to determine
whether or not it would be viable to accept certain low-value funds.
They might very well decide that they are quite happy to accept these
personal account transfersthey could be very keen to receive
thembut, given that stakeholder pensions were legislated for
and brought into being by this Government, we are concerned that the
providers of these schemes should be treated fairly going forward. I
know that we are talking about events that are some way off, but it is
important to raise this issue now, and I look forward to hearing what
the Minister will say about these
issues.
The
Parliamentary Under-Secretary of State for Work and Pensions
(Mr. James Plaskitt):
Good morning to you, Sir
Nicholas. It is a pleasure to be serving under your chairmanship again.
May I express my thanks to the hon. Member for South-West Bedfordshire
and my sympathy for the Minister for Pensions Reform, who is obviously
unable to be with us today for sad reasons? May I also welcome the hon.
Member for Rochford and Southend, East? It is nice to know that our
Committees deliberations are attracting new members because of
the reputation that our proceedings are earning.
I turn now to the amendment that
the hon. Member for South-West Bedfordshire has moved. I understand why
he is raising the issue, but I think that there is a danger that he is
over-anticipatingand potentially inflatingthe problem
that he sees. I will explain why a moment. I fear also that, by seeking
to head off the problem that he anticipates, he is possibly
inadvertently suggesting something that would be harmful to the
existing rules for stakeholder pensions. By potentially inflating the
scale of the problem, he could be causing a problem somewhere else. Let
me go into that in more detail and try to explain why I have
that view and why I hope that he will not press the amendment to a
Division.
As
the hon. Gentleman said, the amendment would remove two important
conditions that define a stakeholder scheme: flexibility and
portability. It would mean that stakeholder pension scheme members
would no longer be able to pay money into their pension when it suited
them, subject to the £20 minimum contribution limit provided for
in existing regulations. That possibility is important because it
enables people who have irregular or intermittent employment patterns
to save when they are able to do so. The amendment would also remove
peoples entitlement to transfer other pension rights into their
stakeholder scheme, thus consolidating small pension savings that they
might have
elsewhere.
Both the
flexibility to make payments and the ability to transfer pension funds
would instead fall to the discretion of the pension provider, who could
therefore make substantial changes to the current position. That would
affect all those people who had bought the products on the
understanding that their stakeholder pensions would continue to provide
a flexible and portable pension vehicle. That would be a significant
number of people, given that 3.9 million stakeholder contracts have
been taken out since April 2001 and there are just under 2 million
active members. The potential knock-on effect to
existing holders of stakeholder pensions would therefore not be
insignificant.
Andrew
Selous:
The case that I was making was slightly different
to the one that the Minister is rebutting. I am purely arguing for
stakeholder providers to have some flexibility. We know that by law
they cannot close the schemes down; I am not seeking to change that.
For anyone who wants to stay in a stakeholder and pay money into it,
that will be absolutely secure. I am just saying that the providers of
the stakeholder schemes, who have done a useful, necessary job and have
obligations going forward, should not be forced to accept business that
might be uneconomical, and which might have a much better home
somewhere
else.
Mr.
Plaskitt:
But the problem is that the hon. Gentleman would
do that by removing some of the current conditions of the stakeholder
scheme, which could have other consequences. That is why I urge him not
to press the amendment to a Division. I also urge that he does not do
so for a second reason. In 2017, we will undertake a review of the
prohibition on transfers into and out of the personal accounts pension
scheme. It is obviously not possible at this stage to anticipate what
will come out of that review, but I think that he understands the
reasons why it is there.
I understand
the concerns that have been raised about the possible knock-on effect
on stakeholder pensions should that review recommend lifting the ban on
transfers out of personal accounts. Clearly any recommendations that
come out of the 2017 review will be carefully considered by the
Government at the time, including any potential consequences for other
forms of pension
provision.
I
will expand on the problems that the hon. Gentleman cited. There is the
question of whether everyone with small pots will want to make
transfers. A lot of people might conclude that they are happy to leave
them where they are because they might come back to them to make
further contributions in the future. They will therefore not see the
necessity of relocating those pots. They might also have other vehicles
that are not necessarily stakeholder schemes to which they can relocate
the pots. They would be able to consider or make a transfer into a
stakeholder pension only if they already had a stakeholder
pension.
As the
possibilities are widened, the scale of the potential problems that the
hon. Gentleman anticipates are reduced. It makes more sense to wait
until the 2017 review, when the scale and nature of the issue will be
more apparent. That review will take into account, in considering
whether to lift the option on transfers out, the potential impact on
other funds to which those pots might be
transferred.
9.45
am
Andrew
Selous:
Perhaps if I had let the Minister carry on, he
would have answered the point that I was going to make. Can he reassure
the Committee that, following the 2017 review, if there were serious
negative consequences for existing stakeholder schemeswe all
want them to be successfulthey would be dealt with by
regulation or some other means to ensure that whatever was proposed was
not too injurious to the
stakeholders?
Mr.
Plaskitt:
I am not sure what the hon. Gentleman means, but
the issue will clearly have to be considered. If there were a serious
consideration in 2017 that the restriction on
transfers out would be removed, questions would have to be asked about
the consequences, not just on the stakeholder schemes, but across the
whole pension provision market. It will not be possible to begin to
make any sort of judgment about either the scale or the nature of that
until we have got to 2017 and those funds have been in place for five
years.
Miss
Kirkbride:
Is the Minister saying that those people could
be in the stakeholder scheme already, but that they will be in a
company that then takes out a personal account and therefore that they
will have two schemes that they might want to consolidate into one? I
am trying to work this out. Are existing stakeholders involved, or
people who do not have a stakeholder pension and want to buy one,
because they want to transfer it to a personal account? I am just a bit
confused about who those people
are.
Mr.
Plaskitt:
It is not quite as complicated as the hon. Lady
thinks. First, we have to remember the criteria about qualifying
schemes. It may well be the case that
perhaps all the existing stakeholder schemes will
qualify under the Bill as qualifying schemes. There is sometimes
misapprehension about whether auto-enrolment applies only to the new
brand of personal schemes that the trustee board will bring into
existence. A range of schemes could qualify. So I do not think that
people will be forced into a couple of schemes, which is what the hon.
Lady was suggesting. I hope that she is reassured by
that.
I am arguing
that it is not desirable to promote the changes that the amendment
seeks, because they have other consequences that we do not want. I also
think the amendment is driven by over-concern about the scale of the
challenge that might be presented. This is all very conditional on what
happens in 2017. Mindful of these real issues, the sensible thing to do
is to wait for the 2017 review and see what decisions are made at that
point in respect of whether the opt-out and the restriction on taking
funds out of such schemes are lifted. With those reassurances,
I hope the hon. Gentleman will agree to withdraw the
amendment.
Andrew
Selous:
I note what the Minister has said about other
possible consequences of amendment No. 158. As my hon. Friend the
Member for Eastbourne saidand as he often says to the
Committeewe do not have all the clever people that the Minister
has working behind the scenes, so he may well be right that there are
perhaps other consequences. In the light of that and the commitment
that he has given to the Committee to consider what he described as the
real issues that relate to stakeholders in 2017, and the fact that he
said that he would be mindful of those issues in any proposed solution,
I beg to ask leave to withdraw the
amendment.
Amendment,
by leave, withdrawn.
Andrew
Selous:
I beg to move amendment No. 182, in
clause 68, page 32, line 24, leave
out regular intervals and insert intervals of
less than one
year.
This is
a probing amendment: I want to find out exactly what is meant by the
phrase regular intervals, which is used twice in
subsection (4). It just struck me that it might be possible for
unscrupulous employers to try to keep their employees in a stakeholder
scheme by saying: Dont worry, contributions are being
made at regular intervals, when that interval is every decade
or every fifteen years. A regular interval might not be often, but it
could be as regular as every week, every month or every year. It is
probably unlikely that anyone would seek to do that, but there are
employers of all different types and characteristics and
regular is a vague word, so I would like a decision to
be taken on it and look forward to what the Minister has to
say.
Danny
Alexander (Inverness, Nairn, Badenoch and Strathspey)
(LD): It is a pleasure to be here in Committee again today; I
apologise for being slightly late. I would like to pass on my good
wishes to the Minister for Pensions Reform and welcome the hon. Member
for Rochford and Southend, East to the Committee. He has been here for
only a short period, but I am none the less grateful that the
Committees deliberations are attracting new interest even as we
reach the latter stages of the Bill.
This is a
very simple probing amendment, but it makes an important point, because
the phrase regular intervals is obviously open to
interpretation. It is clearly right to ask the Minister to clarify the
position to ensure that employees cannot reschedule payments to very
long intervals to avoid the obligation to make auto-enrolled
contributions or for employers to ask them to do so. The one-year
interval suggested in the amendment seems a sensible limitit
would certainly be hard to describe making a contribution less than
once a year as regularso I look forward to the
Ministers clarification.
Mr.
Plaskitt:
I am grateful to hon. Gentlemen for speaking to
the amendment, because it gives me the opportunity to provide the
clarification that they seek, and it is important that I do so. But
there is a very good reason why that word is used, and I will try to
explain it. Clause 68 will amend section 3 of the
Welfare Reform and Pensions Act 1999 to end the current stakeholder
pension employer designation requirements when the new personal account
provisions take effect. All the existing employer designation
requirements will cease, except one transitional provision that relates
to the payroll deduction
facility.
Employees
have bought their stakeholder pensions on the understanding that they
can benefit from that payroll deduction facility. Employees who are
paying into their stakeholder pensions via the their employers
payroll when these reforms take place will continue to be able to
benefit from that arrangement. It is right that they should continue to
be able to make such payments for as long as they are employed by their
employers or until they stop making contributions via the
payroll.
The amendment
would change the criterion that sets out when an employee is no longer
able to benefit from the transitional provision. Instead of the
provision ending when the employee stopped making regular
contributions, it would happen when the employee stopped making
contributions at intervals of less than one year. The explanatory note
to the amendment states that its purpose is to prevent
employees from
rescheduling[I
nterruption
.
]
If the hon. Member for South-West Bedfordshire wants to intervene,
that is fineotherwise, I am just getting
barracked.
Andrew
Selous:
I am not quite sure at what point the
Ministers note was written for him. There was a mistake in the
explanatory note, which has now been corrected, so the version before
us says employer, not
employee.
Mr.
Plaskitt:
I see the point that the hon. Gentleman is
making, but I am quoting his explanatory note, which states:
to prevent employers from
rescheduling payments to very long intervals to avoid the requirement
to make auto enrolled personal account contributions.
Just for clarity, he is talking about the
potential for an unscrupulous employer to go for very long payment
intervals. I entirely understand; I have not
misunderstood
him.
There should be
no easy way out for employers who do not wish to fulfil their duties
under this legislation, and I want to make clear that stakeholder
pensions are not one of those routes. An employer who
wishes to continue to run a stakeholder scheme must ensure that
it is a qualifying scheme that meets the policy
requirements set out in the Bill, which may require an increase in
their contributions to the scheme. If the scheme does not qualify, the
employer must provide an alternative arrangement that does and enrol
the eligible job holder into that scheme.
If a job
holder does not wish to participate in pension savings, they do not
have to. That is as true for personal accounts as it is for
stakeholders. Once enrolled, the job holder can opt out of the scheme
and will receive a refund if any payroll deductions have been made
during the opted-out period. So the only way that a job holder could
avoid being automatically enrolled is if they were already a member of
a qualifying scheme. If the job holder were a member of a stakeholder
scheme that met the quality requirements, he or she would not
be automatically enrolled. If the job holder then wanted to reschedule
their payments, their employer might permit that as long as the total
employer and job holder contributions made were equivalent to 8 per
cent. of the job holders qualifying earnings over the pay
reference
period.
Danny
Alexander:
I understand what the Minister is
saying. The 3 per cent. figure applies whatever the
period of time, so if an employer has to pay their 3 per cent. for a
whole year at once, that is the same as paying 12 monthly payments
throughout the year. However, what he says raises a further concern in
that another option could be open to unscrupulous employers, of whom we
know there are very few, but there is a risk none the less. If an
employee opts out of being automatically enrolled, they might have a
stakeholder scheme into which the employer, if he chooses, could make a
lesser contribution on a voluntary
basis.
Mr.
Plaskitt:
The test still applies in respect of any
schemeit must meet the qualifying criteria
for auto-enrolmentso I am not sure that that problem
exists. I want to reassure the hon. Gentleman about the
unscrupulous employer. The interaction between the 8 per cent. total
requirement and the pay reference period will prevent anyone from going
through the loophole that the hon. Member for South-West Bedfordshire
had in mind when moving the
amendment.
In
short, rescheduling payments in stakeholder schemes could not help a
job holder to avoid being automatically enrolled or help employers
evade their duties. The provisions in the Bill mean that employers will
ensure eligible job holders are in a qualifying scheme receiving
minimum contributions and that job holders remain in that scheme paying
contributions unless they decide to opt out. So there is a
belt-and-braces provision within the legislation, but I appreciate his
raising the issue, because it gives me a chance to clarify that and to
reassure him sufficiently, I hope, to enable him to withdraw the
amendment.
Andrew
Selous:
I am reassured by what the Minister has said about
payments being made equivalent to 8 per cent. of qualifying earnings
over the pay reference period. Put together, that is satisfactory. That
was not clear to me in the Bill, but the Ministers explanation
has been helpful, so I beg to ask leave to withdraw the
amendment.
Amendment, by leave,
withdrawn.
C
lause 68
ordered to
stand part of the
Bill.
10
am
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