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Lord Goodhart: My Lords, the noble Lord, Lord McIntosh, will not be altogether surprised to hear that he has not persuaded me of that. He will perhaps also not be altogether surprised to hear that I take the view that this is not an appropriate amendment on which to divide the House. Therefore, having raised the issue and having had my say, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 11 not moved.]

Baroness Hollis of Heigham moved Amendment No. 12:

Page 2, line 8, leave out (“or section 109 of the Pension Schemes (Northern Ireland) Act 1993").

On Question, amendment agreed to.

Lord Higgins moved Amendment No. 13:

Page 2, line 11, leave out from (“to") and (“and") in line 12 and insert (“a minimum contribution level of £20 per month").

The noble Lord said: My Lords, this amendment relates to two issues which we have already discussed: the question of charges and whether adequate income will be provided by a stakeholder pension. I raised the issue of charges in Committee on a rather more modest amendment. I believe that it related to £10 a month. I pointed out that if the Government adhere to their policy of saying that there is a cap of 1 per cent on the annual charge, there is a real

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problem with people taking out a stakeholder pension if the amount which they put in is very low. Therefore, I suggested that there should be some minimum level; otherwise, clearly, the return which the provider receives is likely to be negligible in relation to the charge which he is allowed to make. That is likely to deter people.

I believe that in any case whether or not there needs to be some minimum level of contribution is a difficult issue because we shall find that although a person contributes throughout his working life, the pension which he receives at the end of the day is less than the minimum income guarantee now proposed by the Government. As we understand it, that will be related to earnings. However, in her earlier remarks, the noble Baroness left out the small print which normally occurs in government documents; namely, “if resources allow".

At all events, it is obviously wrong to encourage people to invest in a stakeholder scheme if one finds that at the end of the day they receive nothing in return because the income it produces is less than the minimum income guarantee. Therefore, on both these points I believe it would be helpful to have the Government's view. It is, of course, the case that people's incomes may vary substantially over their working life. Even so, given the whole emphasis placed earlier by the Government on people providing an income which does rise above the minimum income guarantee, there would seem to be some case for this particular amendment.

At this stage, I do not propose to move Amendment No. 14. I beg to move.

Baroness Hollis of Heigham: My Lords, these amendments relate to the level of contributions to stakeholder pension schemes. Amendment No. 13 would put on the face of the Bill a level of £20 for the minimum contributions that stakeholder pension schemes can require their members to make. Amendment No. 14 seeks to specify a maximum limit for contributions to stakeholder pension schemes. We debated amendments almost identical to these in Committee, and I am intrigued as to why the minimum suggested has increased from £10 to £20 since then.

Clause 1(7) is intended to give stakeholder pension scheme members the flexibility to contribute either on a regular basis or as and when they can--something that is not possible with many existing personal pensions. It also provides the power to make regulations specifying minimum contribution levels and other restrictions on contributions. We made it clear in the Green Paper that any scheme that requires a minimum contribution should not be able to set it above a specified amount. To ensure that people who can afford only modest contributions are not excluded, our consultation document on minimum standards, issued in June, proposed that amount should be £10. I agree that at the time it was sort of a tickover sum, but that is what it was intended to be.

Our consultation document proposed that there should be no requirement for contributions to be made on a regular basis, such as once a month as suggested by Amendment No. 13. One of our key aims is that stakeholder pension schemes are flexible enough to adapt to people's changing circumstances. We want people to be able to make contributions as often as they wish, by either

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regular payments or one-off payments--which might suit someone who is self-employed, for example, rather better. For those in employment, regular monthly contributions make sense, but unemployed people may wish to make small contributions (as and when they can afford to do so), while they look for work, and we want them to be able to do that. Similarly, we want to allow those who take breaks from work--to raise a family, for example--to make one-off contributions from time to time. We want to ensure that stakeholder schemes cater for people who want to make irregular lump-sum payments; for example, self-employed people who may receive a large one-off payment for a specific contract.

In the consultation document we sought views on the compatibility of that proposal with the variety of ways in which schemes may collect contributions. We expect that most stakeholder pension schemes will receive contributions either through individual direct debit arrangements or through the employer's payroll system. Our proposal to allow one-off payments means that they may have to accept other methods of payment.

We are evaluating our proposals in light of the responses we have received to the consultation paper. In particular, we are mindful that many people have said that the £10 minimum contribution is too low and that it will place an excessive burden on schemes. We shall consider those views carefully before coming to a final decision. We want to ensure that our proposals achieve the right balance between flexibility for members and the costs to schemes of handling very small contributions.

Our final proposals for the minimum standards will be set out in regulations, which will give us the flexibility to amend the levels of contributions in future if it becomes appropriate to do so. We think that it is reasonable to go down that route, rather than specify a figure in primary legislation.

The main aim of Amendment No. 14 is to allow stakeholder scheme members to contribute up to a flat-rate amount of £5,000 or a figure calculated as a percentage of earnings using the existing Inland Revenue limits, where that is higher than £5,000. I hope that your Lordships recognise that things have moved on considerably since Committee. I indicated then that the Government were considering carefully the points that had been made on the operation of the proposed tax regime for stakeholder pensions. In particular, there were concerns about the integration of the simplified tax regime for stakeholder pensions with the existing tax limits for personal pensions.

On 16th September, we issued a consultation paper--the claret-coloured one--that set out our revised proposals on tax. We have accepted the weight of the arguments that prompted the amendment, but we have gone much further in radically simplifying the tax rules for stakeholder and personal pensions. For the first time, we are offering people who cannot work--including disabled people and carers--the opportunity to build up their own pension and to benefit from the tax reliefs available to earners. The proposals have been widely welcomed by the pensions industry, which has recognised the radical thinking that has gone into them. It has welcomed also the reduction in red tape for pension providers.

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The new arrangements will allow members to contribute up to either £3,600 a year or to the age and earnings-related limits for personal pension schemes where those are higher. Precisely the same rules will apply to stakeholder and personal pensions, avoiding any tax complications for people who are thinking of joining a scheme.

We have not gone as far as the amendment in setting the tax limit at £5,000. Your Lordships will recognise that some limit is needed to put a cap on the cost to the Exchequer from pension tax relief. We think that £3,600 is a sensible figure. In practice, 95 per cent of existing pension scheme members pay in less than £3,600 each year. To go any higher would have a cost, but would provide little benefit for the moderate earners who are the main target for stakeholder pensions. To put in a figure of £5,000 when one is talking about a stakeholder target figure of between £9,000 and £20,000 seems extremely high.

We have listened and revised our proposals in the light of views expressed in this House and elsewhere. It is not our intention to set out the tax arrangements in the Bill. The Inland Revenue and the DSS are continuing to consult on the proposals for a new integrated tax regime. Those proposals will be brought forward in a forthcoming Finance Bill--which will of course be debated in another place in due course. In the light of the revised proposals and the explanations that I have given, I hope that the noble Lord feels able to withdraw the amendment.

7.15 p.m.

Lord Higgins: My Lords, we are grateful to the Minister for her reply. We still have some concerns about the minimum payment level. It may be that people will find--despite fluctuations in income and the ability to make lump-sum payments--that they are gaining nothing from all their contributions because the proceeds fall below the minimum income guarantee. The Government should give that point further consideration, whether by way of a refund or contributions or whatever; otherwise, that will serve as a considerable deterrent to people trying to do the arithmetic involved, when working out whether or not joining a scheme would be worth while.

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