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Lord Higgins: The Minister has set out the reasons for the Government's amendments, which, on the whole, would seem to be sensible with regard to the situation where a designated scheme ceases to be designated. To that extent, I think that those amendments are appropriate. As regards Amendment No. 27, I do not propose to move it at this stage. Nevertheless, it deals with a point that we may wish to consider further.

On Question, amendment agreed to.

[Amendments Nos. 27 to 29 not moved.]

Lord McIntosh of Haringey moved Amendment No. 30:

Page 3, line 46, at end insert--
("( ) The fifth requirement is that the employer shall, if any scheme designated by him for the purposes of subsection (2) ceases to be registered under section 2, withdraw his designation of the scheme (but this requirement is not to be taken as implying that he cannot withdraw his designation of a scheme in other circumstances).")

On Question, amendment agreed to.

[Amendment No. 31 not moved.]

Clause 3, as amended, agreed to.

Clauses 4 to 6 agreed to.

Schedule l agreed to.

Clause 7 [Reduced rates of contributions etc: power to specify different percentages]:

[Amendments Nos. 32 and 33 not moved.]

On Question, Whether Clause 7 shall stand part of the Bill?

Lord Higgins: This clause is concerned with reduced rates of contributions and so on. This is a complicated

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issue, and I have not tabled any specific amendment to focus discussion on it at this stage. However, I think it would be helpful if perhaps the Minister could outline precisely what the intention is as regards reducing the rates of contribution and altering the percentages in particular places.

We shall of course come to some very complicated clauses later in the Bill with regard to contributions, but perhaps the Minister could outline what she has in mind for the purposes of this clause.

Baroness Hollis of Heigham: I am happy to do that. Clause 7 sets out the treatment of national insurance contributions for the members of stakeholder pension schemes. As your Lordships will be aware, pension scheme members who have contracted out of SERPS are liable for a lower rate of national insurance contributions. The way in which this happens in practice varies according to the type of scheme. Some members pay a lower rate of contribution; others pay the normal rate but have part of their contributions related to the scheme; some schemes contain an element of both. For simplicity, I propose to refer here simply to "rebates", although the mechanisms will vary according to the type of scheme.

Stakeholder pension schemes will fall in legislative terms into one of the two existing general categories of pension schemes. They will be either occupational pension stakeholder schemes or personal pension stakeholder schemes. As a result, much of the existing legislation for contracting-out will apply to them automatically. So there is already provision in the Pension Schemes Act 1993 about the arrangements for contracting-out and for rebates to be paid. But existing legislation only provides for a rate of rebate to apply to money purchase occupational schemes and a separate rate of rebate to apply to personal pension schemes. Both may vary with age. It does not, of course, currently make further separate provision for stakeholder schemes as these are a new development.

This clause provides a power to set different rebates for stakeholder schemes. Rebate rates are set by the Secretary of State in the light of advice from the Government Actuary. The rates of rebate reflect the cost to the scheme of providing benefits to the value of the state benefit forgone by contracting-out. The Government Actuary takes into account, among other things, the expense level of schemes since these affect the cost of providing an equivalent benefit to that which has been given up.

The clause would enable a different rate of rebate to be set for stakeholder pension schemes if it should be appropriate to do so. The presence of this power does not mean that we necessarily intend to set different rebates. Decisions on rebate rates for stakeholder pension schemes will be taken later. We expect to lay the appropriate orders by April 2000, a year in advance of their introduction, as is required under existing legislation. But the clause ensures that a different rate could be set for stakeholder pension schemes if it was judged necessary and desirable to do so. Should this be appropriate, the clause also allows different rebate rates

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to be set for personal pensions, whether or not they qualify as stakeholder pensions, according to when the member joined the scheme.

Clause 6 provides an important flexibility for setting rebate rates in the future. Its powers may not always need to be used in practice but it is prudent to include them here to allow the most effective use to be made of significant public resources in the form of national insurance rebates.

Lord Higgins: The Committee will be grateful to the noble Baroness for that explanation. As I understand it, the clause is essentially a precautionary clause to enable the Government to alter the rates of contributions. However, I wonder whether the Minister could clarify the relationship between that clause and the ones that appear much later in the Bill, in particular Clauses 68, 69, 72 and 73 which are concerned with contribution rates.

I am not quite clear why the provisions of Clause 7 appear at this stage in the Bill rather than later. This is a rather complicated matter. Last year when the Government--wrongly, in our view--altered the rules in relation to advance corporation tax there were implications for rebates and contribution rates which had the rather perverse effect of encouraging people to move from personal pensions back into SERPS, which the Government did not intend.

I seek to understand this issue. As I say, it is not a simple one. I seek to understand what will be the effect of changing these rates of contribution to enable the Government to set reduced rates. I am not clear about the relationship between this provision and later clauses which mention other contributions by employees. However, that may be due to my ignorance of the matter. Nevertheless, I still have some difficulty in ascertaining exactly what the Government have in mind.

Baroness Hollis of Heigham: There is no connection at all between these issues. However, if the noble Lord has further worries on the matter and he wishes to write to me, I shall be happy to write back in greater detail. However, as I say, these are unconnected issues.

Clause 7 agreed to.

Clause 8 [Interpretation and application of Part I]:

Lord McIntosh of Haringey moved Amendment No. 34:

Page 6, line 8, leave out ("under") and insert ("for the purposes of")

The noble Lord said: This was spoken to with Amendment No. 26. I beg to move.

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendment No. 35:

Page 6, line 16, at end insert--
("( ) The Secretary of State may by regulations make provision for a stakeholder pension scheme which--
(a) is of a prescribed description, and
(b) would (apart from the regulations) be an occupational pension scheme,
to be treated for all purposes, or for such purposes as may be prescribed, as if it were a personal pension scheme and not an occupational pension scheme.")

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The noble Baroness said: This is a technical amendment that clarifies the definition of a stakeholder pension scheme. It will ensure that the appropriate provisions of existing pensions legislation are applied to stakeholder pension schemes. In particular, it will ensure that occupational pensions scheme legislation will apply to stakeholder pension schemes only where appropriate.

Stakeholder pension schemes will fall, in legislative terms, into one of the two existing general categories of pension scheme. They will be either occupational pension stakeholder schemes or personal pension stakeholder schemes. As a result, much of the existing respective legislative arrangements will apply.

Public discussion has tended to focus on personal pension stakeholder pension schemes. But, as I have explained, the Bill also allows for employers who would like to offer a stakeholder pension scheme as part of their occupational pension arrangements to do so. They will be able to set up their own stakeholder scheme if they wish to, rather than rely on an external scheme. However, these arrangements will apply only to "traditional" occupational pension schemes.

There is a slight possibility that, because of the way in which a stakeholder scheme has been set up, it could fall under the definition of an occupational pension scheme under the Pension Schemes Act 1993, even though it was not set up, or funded, by any employer. This might arise, for example, where a scheme was restricted to persons in particular types of employment. There is a risk that in these cases legislation appropriate only to schemes sponsored by employers might apply. In particular, employers of those who joined such a scheme might find themselves unnecessarily caught by that regulation.

We want to make sure that in such cases the appropriate legislation is applied. It would not be right, for example, for employers in such circumstances to have to be consulted in relation to the scheme's statements of investment principles, as is required by Section 35 of the 1995 Act; nor do we intend, in such circumstances, that employers should have any role where trustees modify scheme rules, as in Section 68.

I should stress, however, that all trust-based stakeholder schemes will be subject to appropriate regulation and supervision by OPRA by virtue of Schedule 1. This amendment will not change that.

As I say, this is a highly technical but clarifying amendment. I commend it to the Committee. I beg to move.

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