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Page 1, line 17, leave out subsection (4).

The noble Baroness said: I beg to move Amendment No. 5 standing in my name and that of Lady Turner. This amendment is a variant of one that we put down for Committee stage. Being such a variant, I hope it establishes the complete reasonableness of our approach. The purpose of this amendment is to remove that section of the Bill on the stakeholder pension which says that it must be a money purchase scheme. At Committee stage we moved to insert the word “not" to be a money purchase scheme. On second thoughts, at this Report stage we have accepted the text tabled by Lord Higgins; that is to say, to leave the matter open. Therefore, we only want to take away that part of the Bill--and it is not much, by the way--which is quite specific about what the stakeholder pension must and must not be.

We are therefore suggesting that the words “money purchase" be removed from the Bill. That matter, along with many other aspects of the stakeholder pension, will fall to be decided later. It makes for greater flexibility to put it in that way. I say to the Minister in all seriousness: is it not fairer to leave the

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issue open? Why be specific on this one particular point? Other conditions under which people contribute or do not contribute and so on are to be prescribed later. But one thing is not to be prescribed later; it is to be decided now, and that is that they must be money purchase schemes. Why be specific in that rather arbitrary way? What is so wonderful about a money purchase scheme that we must insist on it in the text of the Bill?

Of course, a money purchase scheme means that someone will not get a defined pension. When you contribute, you do not know exactly what you will get when you retire. It depends on the play of the market, and how much your contribution may yield when it has been invested. Many people much prefer the security of a defined pension even if it is a bit more modest. I put it to the House: why should we say that it must be one thing under this heading and not under any other?

I am greatly at a loss to understand the mind of the Government on this. What has inspired it? Of course a money purchase scheme takes away the risk from the employer and puts it on the employee. Therefore, it gives uncertainty to the planning of anyone seeking to provide for his or her pension in retirement.

I hopefully ask the Minister to consider our amendment very carefully. I also hope that Lord Higgins will see it in himself, on this point at any rate, to support our amendment.

Lord Higgins: My Lords, I am not sure I can possibly resist that invitation but I fear that there is a real problem. I should like very much to see schemes which are final salary schemes, but I have some difficulty in seeing how that might be the case as far as concerns stakeholder pensions. Indeed, if the Minister can explain that to us, I shall be delighted, and then the noble Baroness, Lady Castle, the noble Baroness, Lady Hollis, and I will be equally content.

Baroness Hollis of Heigham: My Lords, Amendment No. 5 would remove the requirement that stakeholder pension schemes should, with exceptions to be prescribed, be provided on a money purchase basis. We discussed a somewhat similar amendment in Committee. I shall recap on why we think that money purchase arrangements are the most suitable for stakeholder pension schemes.

Stakeholder pensions are designed to fill a significant gap in the pensions market. They will provide affordable, funded pension provision for a large number of people, for the first time. These people will be able to see their own “pot" of money grow and to look forward to a secure income in retirement. We believe that the most effective way to promote financial security in retirement for most people is to encourage provision of funded pensions and personal savings. Stakeholder pension schemes are central to those plans.

Salary-related schemes are excellent value for many people. Personal pensions are suitable for many high earners who do not have access to an occupational

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scheme. The state second pension will help those who cannot afford to save towards their retirement. There are a number of reasons why we believe that money purchase schemes are the most suitable arrangements for stakeholder pensions. Salary-related schemes are excellent value for many people who stay in the same job for a long time with ascending salaries, but they require a sponsor--usually an employer--to stand behind the pension promise. In other words, if there is any shortfall, the employer has to make good that shortfall. That is his responsibility under defined benefit schemes.

It is unlikely that there will be such a sponsor for stakeholder pension schemes, so providing benefits on a salary-related basis is not a feasible option. If it were, the employer would already be offering an occupational pension with a defined benefit scheme. It would also provide real problems for someone who went into such a scheme and then came out of the labour market and wanted to continue paying in. Would we expect the former employer to stand as the deliverer of the promise for someone who was no longer a member of his workforce but was paying into a scheme? Money purchase schemes are also simpler and more flexible arrangements than salary-related schemes. They enable each individual to have a readily identifiable “pot" of money, into which they can put different sums each month during the course of the year or irregularly, according to their resources. They can pay in when they are not actually in work.

This has clear advantages. The concept will be familiar to almost everyone. Schemes will be able to issue members with regular statements of how much their “pot" is currently worth, scheme charges will be easier to understand and compare, and transfers of funds will be much more straightforward. The complexity of the existing arrangements often discourages people from starting a pension. We believe that providing benefits on any basis other than money purchase will inevitably be hugely complex and therefore less attractive to people who are thinking about providing for their retirement for the first time. Those who are already sophisticated in pension arrangements--either employees or employers--are likely already to have occupational pension schemes or good alternatives. These are for those people who are working for employers who do not offer such a scheme. We want to provide a alternative for them to a decent occupational pension.

However, the Government recognise that there are rapid developments in pensions and it is possible that in the future suitable arrangements may be developed. The power to prescribe exceptions gives us the flexibility to allow other forms of arrangements provided, of course, that they still satisfy the other conditions for stakeholder pension scheme status. We would want to ensure that such schemes would remain secure, flexible and value-for-money arrangements. I hope that in the light of that explanation, the noble Baroness will withdraw her amendment.

Baroness Castle of Blackburn: I see a glimmer of light in the Minister's final remarks. She does see

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situations in which the provision for exemptions might lead to the kind of flexibility that we are seeking to achieve in the amendment. Well, it is only a small ray of comfort. The emphasis still remains on the money purchase scheme, which is fine and dandy if world markets are booming and everyone is getting something for nothing. In this battle with the Government we have to be thankful for small rays of light. In view of what the Minister said, I withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham moved Amendment No. 6:

Page 1, line 20, leave out (“or section 176 of the Pension Schemes (Northern Ireland) Act 1993").

The noble Baroness said: My Lords, in moving this amendment, I should like to speak also to Amendments Nos. 12, 15, 29, 30, 32 to 38, 40, 277 and 281. These technical amendments clarify the application of occupational pensions legislation to stakeholder pension schemes and set out the position in relation to Northern Ireland.

First, I shall deal with the Northern Ireland amendments. These clarify the territorial application of the stakeholder pension provisions and the relationship between this legislation and the corresponding provisions we expect to be made in Northern Ireland. As your Lordships will be aware, Northern Ireland generally takes responsibility for its own legislative requirements in respect of pensions, and that will continue under the Northern Ireland Assembly. Full details of how the Assembly will discharge its duties have not yet been decided and we have been in discussion with Northern Ireland colleagues and legal advisers on the most sensible approach for stakeholder pension scheme legislation.

The amendments ensure that this Bill is compatible with the corresponding Northern Ireland legislation that is to be drawn up. Employers in Great Britain will be required to offer access to a scheme registered under this Bill, and employers in Northern Ireland to a scheme registered under corresponding Northern Ireland legislation. I do not propose to talk about each amendment in great detail, but I should like to take the opportunity to explain, in broad terms, how the arrangements will work.

Part I of the Bill--that is, the stakeholder clauses--will extend to England, Scotland and Wales. The corresponding provisions for Northern Ireland will then be made in Northern Ireland legislation. We expect the two sets of legislation to be similar; for example, the conditions a Northern Ireland stakeholder pension scheme will have to meet are likely to be the same, and these schemes will need to register with the Occupational Pensions Regulatory Authority. This authority will have the power to investigate breaches of the Northern Ireland stakeholder legislation, including the employer access requirement.

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We are also making sure that all appropriate relevant employees are properly covered by the legislation. The employer access requirement in this Bill will cover all employers with relevant employees in Great Britain, and employers based in Great Britain who employ people outside the United Kingdom. We expect that the equivalent Northern Ireland employer access requirement will cover employers with relevant employees in Northern Ireland, and Northern Ireland employers who employ people outside the United Kingdom.

Clearly, while the stakeholder pension conditions remain the same in both sets of legislation, it will be a simple matter for schemes to register with the Occupational Pensions Regulatory Authority under both provisions. Those schemes will then be able to be designated by employers in both Great Britain and Northern Ireland.

I should also like to mention briefly the second set of amendments in this group. Amendments Nos. 34 to 37 are minor and technical amendments to ensure that the appropriate provisions of existing legislation are applied to stakeholder pension schemes. In particular, they will ensure that occupational pension scheme legislation will apply to stakeholder pension schemes only where appropriate.

Paragraph 2 of Schedule 1 applies certain sections of the Pensions Schemes Act 1993 and the Pensions Act 1995 to trust-based stakeholder pension schemes which are personal pension schemes. This set of amendments makes minor changes to these applications. I could develop that point, but it may be that your Lordships will not need further information. In the light of my explanation, I hope that your Lordships will support the amendments. I beg to move.

6 p.m.

Lord Higgins: My Lords, here is a whole batch of amendments. Indeed, a large number of government amendments have been tabled throughout the Bill for this Report stage. With her customary courtesy, the noble Baroness wrote to me explaining--or, more accurately, apologising for--that fact. After all, the Bill has been through its Committee stages. Some of the amendments relate to matters that we raised in Committee. I am not clear whether all the amendments relating to Northern Ireland are the result of any change in the situation there since the Bill completed its passage in the other place. At all events, it is unsatisfactory that there should be so many. I presume that it is either the result of a lack of ministerial guidance or of the draftsman simply waking up rather late in the day. If the latter is true, I hope that some suitable reprimand will be delivered. As the Minister said, the amendments are largely technical. Only now have we received an explanation of the Northern Ireland amendments. I shall consult my noble friends

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who are more aware of the situation in Northern Ireland than I am to see whether any particular points need to be introduced at Third Reading.

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