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The Earl of Buckinghamshire: My Lords, I thank the Minister for his very clear explanation as to why the amendments should not be accepted by your Lordships. It is just as well for both of us that we do not have to answer supplementary questions on the little test which has been set for us this evening. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Lucas moved Amendment No. 197:

Page 71, line 11, leave out ("24") and insert ("23").

The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 209 and 210. Amendment No. 210 repeals Section 24 of the Pension Schemes Act 1993 and amends Section 25 of that Act.

Section 24 requires the Occupational Pensions Board to be satisfied that the resources of contracted-out salary related schemes are sufficient. It will not be needed when the board disappears and the provisions in this Bill which introduce new funding requirements for schemes come into effect.

Section 25 deals with discretionary requirements. The amendment repeals those subsections that give the Occupational Pensions Board powers to impose conditions about investments and resources on contracted-out and formerly contracted-out salary related schemes and to require steps to be taken to increase resources. The remainder of Section 25 is amended to enable the Secretary of State to monitor the security and sufficiency of scheme resources in respect of guaranteed minimum pensions during the transitional period before the minimum solvency requirement is fully implemented.

Amendments Nos. 197 and 209 remove references to the repealed Section 24 in other parts of the Bill. I beg to move.

On Question, amendment agreed to.

[Amendment No. 198 not moved.]

Lord Lucas moved Amendment No. 199:

Page 71, line 19, leave out from ("12A") to end of line 21.

The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 200 and 201. To contract-out in future, salary related schemes must satisfy a number of conditions which are set out in Clause 120. Amendment No. 200 clarifies the wording relating to employer-related investments.

Subsection 9(2B) (a) of the Pension Schemes Act 1993, as amended by this Bill, provides for the Secretary of State to be satisfied that the scheme complies with

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the statutory standard, subject to its modification in regulations for prescribed cases. A similar modification power is needed for the provision in subsection 9(2B) (b) which relates to the requirements on employer-related investments set out in Clause 33. This is because there are some schemes to which Clause 33 does not apply. They will mainly be certain types of overseas schemes which fall outside OPRA's remit because they are outside the jurisdiction of UK law. Regulations will need to specify that they may not invest more than a prescribed limit in employer-related investments if they wish to contract out. Amendments Nos. 199 and 201 effect that addition in an aesthetically satisfactory way. I beg to move.

On Question, amendment agreed to.

Lord Lucas moved Amendments Nos. 200 and 201:

Page 71, line 22, leave out lines 22 to 24 and insert:
("(b) restrictions imposed under section 33 of the Pensions Act 1995 (restriction on employer-related investments) apply to the scheme and the scheme complies with those restrictions").
Page 71, line 31, at end insert:
("(2C) Regulations may modify subsection (2B) (a) and (b) in their application to occupational pension schemes falling within a prescribed class or description.".").

On Question, amendments agreed to.

[Amendments Nos. 202 and 203 not moved.]

Clause 121 [State scheme contributions and rebates]:

Lord Haskel moved Amendment No. 204:

Page 77, line 5, at end insert:
("( ) The reference in subsection (2) to a period of tax years (not exceeding five) is a reference to a period of tax years in relation to which an order has effect under section 42B(2).").

The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 205 to 207 and 220 to 222.

I am sure that the Minister will have no problem with the amendments, and therefore he can start looking cheerful. They are about giving choice and relieving burdens on the taxpayer. Indeed, they are matters about which the Minister has shown great enthusiasm during the past two days. They are also about creating a level playing field.

Amendments Nos. 206 and 207 provide that the same age-related rebates should be paid to appropriate personal pensions as are paid to contracted out money purchase schemes. At present, there are higher rebates for personal pensions than for money purchase schemes. In Committee, the Government gave three arguments in favour of the latter. First, they argued that it is essential to make allowance for a reasonable level of expenses as, otherwise, it would not be best advice to contract out of SERPS into a personal pension. Secondly, it was argued that personal pensions relieve a burden on the workforce of the future by reducing expenditure on SERPS. The third argument was that personal pensions play a vital role in extending the pensions choice.

Perhaps I may respond to each of those arguments in turn. It is now well understood that personal pensions are expensive. Estimates vary; but the typical level of expense ranges from 15 per cent. to 30 per cent. of contributions. Whatever the expense, it is significantly

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higher than the equivalent money purchase occupational scheme where a technical level of expense is less than 10 per cent. There is no dispute about that as the difference has been made clear in the table in Appendix C of the report by the Government Actuary.

In cash terms, the cost of the higher rebate for personal pensions which is suggested by the Government Actuary means that personal pension providers will be subsidised to something like £300 million per year. It needs to be emphasised that that money will not go towards higher benefits but simply as a subvention to the companies which sell the personal pensions.

The need for that subsidy dents the claim that personal pensions offer a much better deal. If an extra expense allowance for personal pensions is so important, it suggests that the choice is not as obviously in favour of contracting out as the industry often suggests. Indeed, given the greater security and certainty of SERPS benefits, it suggests that few people should actually be advised to take out an approved personal pension. The Government are always anxious to save taxpayers' money, especially when used as subsidy. Here we have the opportunity save about £300 million and thereby create a level playing field.

The second argument used in Committee was that approved personal pensions relieved a burden on the workforce of the future by reducing expenditure on SERPS. But, in doing so, they are placing even greater burdens on current workers because of the need to subsidise personal pensions. Thus, in the period from 1988 to 1993 £10 billion of rebate was paid out to personal pensions, while only saving prospective SERPS benefits that had a current value of some £4 billion. As a result, they are imposing a greater increase on the current rate of national insurance contributions than the reductions achieved in the next century through lower SERPS benefits. That net cost to the National Insurance Fund by approved personal pensions of £6 billion over that period represents, in large part, a subsidy to the higher expenses of personal pension providers. Here again, why not remove the subsidy and create a level playing field?

The third reason given by the Minister in Committee was that approved personal pensions play a vital role in extending choice. Of course they do; but the choice is distorted by the subsidies. By all means have choice, but let someone who chooses an appropriate personal pension bear the cost of that choice and not expect to have it paid by national insurance contributions at large.

I hope the Minister will be consistent and accept this argument. Yesterday when we were debating the funding of OPRA the Minister said that those who benefit from OPRA should pay for it instead of the cost being paid out of general taxation. To be consistent, the same argument should be applied here. Remove the subsidies paid by the taxpayer to personal pensions and then provide true choice based on a level playing field.

There are other elements of the level playing field in this group of amendments. Clause 121 sets out the rules for contracting out and reduced national insurance contributions and rebates. Not only could there be two different contracting out rates, but these rates could run

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in different five-year periods. This would make it difficult to judge how level the playing field is, and therefore it would be far more logical and practical to ensure that the five-year periods run concurrently for COMPS and personal pensions. Amendments Nos. 204 and 205 do this. Then a direct comparison can be made. The Minister may consider that in practice the rates will be set to run at the same time, and the rebates can alter as they are subject to affirmative resolution procedure. If that is the case, why does not the Bill say so?

Another element of a level playing field is dealt with in Clauses 142, 143 and 144. The Government intend to apply limited price indexation to protected rights elements of appropriate policies only. Why should this not be applied to all pension schemes, whether occupational or personal? Applying it to one type of scheme not only tilts the playing field, but it makes it more difficult for individuals purchasing pensions to make a sensible, long-term choice. I would have thought that all pensions should be liable to indexation so that people are not tempted by what appears to be the cheaper product because there is no guarantee that the final pension will be as good as the indexed one.

Amendments Nos. 220 and 221 make this a level playing field by applying indexation to all pensions. Amendment No. 222 brings all these arguments in this group of amendments together and permits earners to choose their own appropriate personal pension scheme on a level playing field without any distortions. I beg to move.

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