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Lord Lucas moved Amendment No. 184F:

Page 75, line 32, leave out ("first day of the") and insert ("last day of the preceding").

On Question, amendment agreed to.

[Amendment No. 184G not moved.]

On Question, Whether Clause 122, as amended, shall stand part of the Bill?

Baroness Turner of Camden: I rise to oppose the Motion that this Clause stand part of the Bill. As we know, this is the clause which enables the Government to provide age-related rebates to individuals who opt for personal pensions. As I said at Second Reading, there is a very strong feeling in certain quarters that the Government have skewed this Bill in favour of personal pension provision.

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We know of course that the Government's philosophy has always been an individualistic one. The legislation that followed the Fowler review was specifically designed to get people to opt for personal pensions even when they were in quite good occupational schemes. We are already having to deal with the problems that that campaign caused. My noble friend Lady Hollis has already made reference to that point in relation to a previous amendment. People who would have been better served to stay with their occupational schemes were persuaded by high-pressure salesmen to opt for personal pensions. The self-regulatory mechanisms in financial services—I have a personal interest as chair of the Personal Investment Authority ombudsman council—have now to pick up the pieces. It will be complicated, messy and expensive. And in the end there may well still be many dissatisfied and unhappy people.

I am surprised therefore that the Government should have chosen this Bill as the vehicle for persuading yet more people into personal pensions. The age-related rebates are specifically intended to make personal pensions more attractive at the higher age range. As matters stand at present, it is generally accepted that older people are better off either staying with SERPS or, more likely, opting back if they are currently outside it.

The Government are anxious to take more people out of SERPS. We are constantly being told that we cannot afford SERPS, and that the generation that will come after us will not be prepared to pay for public provision of this order. But I say again, as I have said before, that extolling private provision over and against public provision is mistaken. Ultimately, whether provision for the elderly is paid for out of public funds or private funds—many of the latter managed by insurance companies—does not matter to the economy as a whole. Ultimately we all have to pay for it, and arguably pay more if private provision is encouraged. It all comes out of the same economic pot, so to speak. We pay for it either in taxes or in higher insurance premiums —or, if the private sector fails, in increased social security provision.

In this clause the Government are quite openly encouraging older people into the personal pensions market. The poorer among them would almost certainly be better off staying with SERPS. Recent events have demonstrated that very few people appreciate just how much they have to pay into a personal pension scheme in order to qualify for reasonable provision in retirement. Those who simply rely on the rebate—of whom there are a large number—will be extremely disappointed. Many have realised that already.

I am therefore against encouraging more people down that road and increasing the market for personal pensions. I do not believe that it is in the interest of poorer, older people. And somehow we have to sort out the problems that have arisen with the Government's last venture into the area of encouraging personal pension provision in inappropriate circumstances.

Finally, there is the cost argument. I understand that the cost of subsidising personal pensions—that is what the rebates do—would be of the order of £300 million

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a year. Much of that would go to swelling the profits of insurance companies. For these reasons, I oppose the Motion that the clause should stand part of the Bill.

Lord Mackay of Ardbrecknish: The current flat rate rebate structure in appropriate personal pensions (APPs) means that it does not make economic sense for holders of APPs to maintain their plans until retirement. At some point they are likely to be best advised to return to SERPS. That does not help to ease the burden on the next generation of SERPS expenditure; nor is it helpful to individuals to have to change pension provision in this way.

Nevertheless, the Government are committed to choice in pension provision. We have already clearly seen that that differentiates us from the party opposite. Accordingly, this clause legislates for age-related rebates to enable most current APP holders to maintain their plans until retirement. We have already announced that we shall be capping the age related rebates at 9 per cent. This will ensure that rebate levels and costs are restrained in the early years of the scheme. With regard to relating rebate to age, the current system is that there is a fixed limit. The fixed amount, when multiplied by the number of years that it is held in the pension fund, gives quite different calculations at various stages in a person's life. As one gets older, the number of years remaining until retirement reduce. If we do not increase or vary the rebate according to age, we reach a position where it is more attractive for someone to remove himself from his APP and return to SERPS. This clause provides for the Secretary of State to make payments of age related rebates to APPs. As I said, it replaces the current arrangement of a flat rate.

The bulk of the clause inserts a new Section 45A into the Act. This provides for setting age-related rebates, following a review by the Government Actuary, in the same way as now for the flat rate rebate. The rebates themselves will be made by order, which will be subject to affirmative resolution. That, in itself, is an important step, since it puts APPs on a separate actuarial footing. For the first time, APP holders will be paid a rebate specifically designed to provide the appropriate level of pension in place of SERPS. As at present, there must be a clear tax year between the order being made and its coming into force.

In calculating suitable rates of rebate for APP holders, the Government Actuary will need to take into account reasonable levels of expenses which are incurred in providing such schemes. It is essential that some allowance of this kind is made. If only the basic rebate required to replace the SERPS given up were paid with no allowance for expenses whatsoever, it would simply not be best advice to contract out of SERPS using an APP. As I said in previous discussions, that in turn would lead to increased expenditure on SERPS in the next century, placing a burden on the workforce of the future.

People will only be willing to save for retirement if they believe that their pension rights will be secure. They must be able to rely on the highest standards of expert advice and must be able to have confidence that the regulatory framework will protect their interests against the unscrupulous and the incompetent.

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We believe that these provisions are in place so that people can feel secure in making the move to APPs. We believe that choice is important, clearly unlike the party opposite, although I notice that in certain circumstances certain people—presumably decided by socialist apparatchiks—are allowed to have personal pensions. In their case, you are not allowed to make a choice; you are not supposed to be intelligent enough or able enough to seek advice to make that choice. We believe that that element of choice is important.

We believe that APPs play a vital part both in reducing expenditure on SERPS and in extending that pension choice. They ensure that everyone has the option of contracting out of SERPS and making their own pension provision if they choose to do so. APPs are particularly valuable to those employees who do not have access to an occupational scheme.

As I explained, the introduction of age related rebates for APPs is essential to enable current APP holders to maintain their plans until retirement, and to ensure that those plans continue to offer an additional choice of pension provision to younger employees in future years.

With that explanation, I trust that the Committee will approve the clause.

Clause 122, as amended, agreed to.

Clause 123 agreed to.

4.30 p.m.

Clause 124 [Reduction in benefits for members of certified schemes]:

Lord Lucas moved Amendment No. 184H:

Page 77, line 4, at end insert:
(6) In relation to earners where, by virtue of subsection (1), section 44(6) of the Social Security Contributions and Benefits Act 1992 has effect, in any tax year, as mentioned in that subsection in relation to some but not all of their earnings, regulations may modify the application of section 44(5) of that Act.").

The noble Lord said: The purpose of this amendment is to provide a regulatory power to modify the effect of subsection (1) of Clause 124. The effect that we intend to achieve by such a modification would be to ensure that those persons who have earnings in both contracted out and not contracted out employment in the same tax year will derive full SERPS entitlement from those earnings relevant to the not contracted out employment. I beg to move.

On Question, amendment agreed to.

Clause 124, as amended, agreed to.

Clause 125 [State scheme etc. premiums and buyback into State scheme]:

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