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Lord Higgins: My Lords, does it mean that now someone may have both a personal pension and an occupational pension?

Baroness Hollis of Heigham: My Lords, I want to be very careful in what I say. Perhaps the noble Lord will allow me to check the position. Our minds are not closed to the idea of allowing someone to hold a stakeholder pension alongside a final salary occupational pension, but we need to think carefully about the practicalities. The consultation paper invites proposals from the pensions industry as to how dual membership may be achieved without introducing excessive complications into the operation and policing of pension schemes and an excessive increase in the cost of tax relief.

I believe that these proposals go a long way to meet the concerns which underlie the amendments and reflect our determination to respond positively to the

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industry's concerns. However, they are not issues for this Bill. It is normal and appropriate practice for the Inland Revenue to publish details of changes to tax regimes for pension schemes. Subject to further consultation, the proposals for a new integrated tax regime will be brought forward in a forthcoming Finance Bill which will be debated in another place in due course. I hope to provide the answer to the noble Lord's question, if not on this amendment perhaps on a later one.

None the less, in the light of the implications of the £3,600 limit, or alternatively the higher age and rebates, for personal pensions on the one hand and, on the other hand, the issue of concurrent membership of personal pensions and stakeholder pensions and membership of second pensions and occupational money purchase schemes, I hope that I have addressed your Lordships' questions. If we can find a way to do it we believe that it will be attractive, but at the moment the complexities seem to be very difficult to address. Obviously, we are still considering how to brigade this with a final salary scheme. We are not against it in principle, but at the moment the complexities appear to be overwhelming. We are seeking advice on this matter. We may be able to return to your Lordships' House in due course if we have a clearer mind on the matter. At the moment, the expectation is that final salary schemes will be excluded from this arrangement.

In the light of that, I hope that noble Lords will feel able to withdraw the amendment. I have taken some time to spell it out. I believe that the issue is pivotal to the whole Bill and, therefore, the amendments are extremely helpful.

9 p.m.

Lord Higgins: My Lords, the noble Baroness is right to say that this is a pivotal issue. We all welcome the flexible attitude which the Government have adopted to the points raised by the noble Lord, Lord Goodhart, myself and others at an earlier stage. What she described as the “claret" document is in many ways an extremely good and helpful document, as have been her remarks today.

I do not expect an answer now on this point. However, the noble Baroness stressed the difficulty of integrating a stakeholder scheme with a defined benefit scheme. As she rightly says, the situation in each is very different. I am not sure whether it is a non-problem in the sense that up to the Revenue limits imposed I should be surprised if it were not the case that it is always better to put the money into a defined benefit scheme rather than into a stakeholder pension--I talk off the top of my head--not least because the defined benefit scheme would have a company contribution attached to it which the stakeholder pension will not. I am glad to have the support of the noble Baroness, Lady Castle. While it is worth examining this in depth, I am not sure that we do not have a non-problem on our hands on that aspect.

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Other than that, I believe that we are making progress. It is to be welcomed.

Baroness Hollis of Heigham: My Lords, before the noble Lord sits down, I was hoping for a yes or no answer to his previous question. I am told it is not that sort of question. It is as well that I did not rely on body language from the Box.

On the combining of a personal pension with an occupational scheme--it is not at present straightforward--under current law one can belong to a contracted-in occupational scheme and have a personal pension which is used for contracting out only. One cannot contribute one's earnings to both schemes unless it is in respect of two or more different employments. The position for the future is outlined, apart from that, in the claret-coloured document. I hope that that clarifies the situation. At this stage we do not propose any change in the claret document on that point.

Lord Higgins: My Lords, I am grateful to the noble Baroness. It may have been a short question, but it was not simple. I shall read carefully what she said. I think that she accurately described the present position, which paragraph 18.1 makes clear. I am not clear--it is very complicated--whether any change is proposed. I ask the noble Baroness not to reply to that at this stage in the hope that we shall have a satisfactory answer at a later stage. Subject to that, I am happy to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 20 and 21 not moved.]

Clause 2 [Registration of stakeholder pension schemes]:

Lord Higgins moved Amendment No. 22:

Page 2, line 30, at end insert--
(“( ) the premiums received will ensure a pension in excess of that which will be received if an individual is entitled to the Minimum Pension Guarantee;").

The noble Lord said: My Lords, we have already touched on the subject matter of this amendment, which seeks to provide that the premiums received will ensure a pension in excess of that which will be received if an individual is entitled to a minimum pension guarantee. The noble Baroness has touched on this and produced some interesting arithmetic which suggests that that will always be the case. If it is not always so, it raises the question whether the person concerned is paying in money for which he or she will receive absolutely no benefit at the end of the day. If that is so, should we not make some arrangement to ensure that the premiums are refunded or something of that kind? It will not be a problem in the immediate future. It is a long way ahead. But the minimum pension guarantee is earnings related and may tend to increase more quickly than a stakeholder pension invested in a defined contribution scheme. Many years hence we may find a lot of disgruntled people saying that they have contributed all the way along for nothing.

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It is a concern which we should bear in mind to see whether there is any way of protecting people in those circumstances.

Baroness Hollis of Heigham: My Lords, the amendment is identical to one we discussed in Committee and adds an additional condition for the registration of stakeholder pension schemes. In order to be registered as a stakeholder scheme, the scheme's trustees or, where appropriate, other responsible individuals would have to declare that the contributions paid into the scheme would provide a pension in excess of the minimum income guarantee. I assume that the noble Lord is concerned about our expectations about the interplay between a state contributions and stakeholder scheme and the relationship to the existing benefit system.

As noble Lords are aware, the minimum income guarantee provides a vital safety-net for people who have been unable to make their own retirement provision. At current rates, it guarantees an income of at least £75 a week for a single pensioner and nearly £117 a week for a pensioner couple. We have said that, as resources allow, we will aim to uprate the minimum income guarantee over the long term in line with earnings, so that all pensioners can share in the increasing prosperity of the nation. The Chancellor announced in the last Budget that it would rise in line with earnings next year, reflecting our commitment to providing security for today's poorest pensioners--our immediate priority. As will arise under another amendment, we are also looking at ways to modify the rules on the treatment of capital, so as to reward savings.

The minimum income guarantee is intended as a fall-back for those who cannot afford to save for a decent pension. It gives much needed help to those who are the poorest. What we are seeking to do with our other reforms--the stakeholder pension in this Bill and I hope, should we get it, the state second pension in the next Bill in a few months' time--is to ensure that no one who works throughout his or her working life will need to rely on the guarantee. So, the new state second pension will give extra help to the lowest earners, who currently receive little or nothing from SERPS.

But moderate earners should be in a position to save more than the compulsory minimum which all employees must currently pay towards SERPS. Our proposals will give these people the opportunity to save in stakeholder pension schemes, enabling them to build funded pensions which can lift them above the level of the minimum income guarantee. This amendment would require stakeholder pension schemes to give an undertaking that they will provide a pension in excess of the minimum income guarantee.

There are a lot of difficulties with that approach. Schemes would be required to look into the future and give an undertaking that members will receive a pension in excess of the minimum guarantee. Although forecasts can be made, these are very different from giving a firm undertaking and taking on that liability. Investment returns are, of course, subject

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to a degree of uncertainty and there may be other factors; for example, the level of the minimum income guarantee when the youngest members of stakeholder schemes reach retirement age, in around 40 years' time. So I do not think the phrasing of the amendment is reasonable or indeed feasible. I assume that the noble Lord is probing how we see the interaction of the levels of provision.

The amendment also raises the issue of liability should the scheme fail to deliver the promised pension. Most stakeholder pension schemes will either be set up directly by, or in partnership with, a commercial undertaking such as an insurance company. And it would, I fear, be unrealistic to expect such undertakings to make the open-ended commitment which this amendment requires.

Our overall aim for stakeholder schemes is to extend the opportunity for moderate earners to save in good value, funded pensions. We believe that the practical consequences of the amendment as phrased would restrict stakeholder schemes to the higher paid, as schemes would only accept higher earners who could afford to contribute considerable sums which could safely be expected to produce a pension in excess of the minimum income guarantee. In other words, it would be the equivalent of cherry picking on the part of the pension firm to make sure that it was never exposed to any possible risk for whatever reason.

Furthermore, the amendment does not take into account the existence of the basic state pension. Even a relatively small second-tier pension, whether state or funded, should be enough to lift most people above the minimum income guarantee when combined with the basic state pension. I say “most" rather than the noble Lord's “all" because that would depend on how many years you contributed and therefore what year you pull out. So, it would deny many moderate earners the chance to make their own private provision, undermining our objectives for stakeholder schemes.

However--and this was the information I was giving across the Dispatch Box earlier--it is worth reminding ourselves that a small contribution will over the whole period of a working life produce a valuable return. It will make certain assumptions for pensions; for example, that earnings will grow at 1.5 per cent faster than prices. If one assumed that the basic state pension rose in line with prices; that MIG rose in line with earnings; that the real rate of return on investments is 4 per cent; together with a full working life--fairly basic assumptions--it would mean that--and these figures are quite remarkable--a contribution of £15 a month, or £3.50 a week, over a full working life would produce a pension equal to the projected gap between the state pension and MIG if MIG were earnings related. A contribution of £50 a month would produce a pension of about £75 a week, or greater than the state pension and MIG currently combined.

Of course, that £50 a month, or £13 a week, is a gross figure; and, according to one's age and level of contributions, anywhere between 45 per cent of this, if one is on an income of £200 a week at the age of 30,

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and 90 per cent at 50 could be coming from recycled rebates. So the net cost to the payer-in would probably be no more than half that £50 a month and could well be less. Over a full working life, it would still produce a pension of £75 a week to add to the basic state pension.

These sums are worth while. They are modest contributions. The crucial issue is the length of time involved in making the contributions. That is what makes it possible and that is why delays would be so unwise. Therefore, I understand the concerns which have prompted the amendment. We are determined that our reforms will enable as many as possible to retire on an income that exceeds the minimum income guarantee. But a contribution of £3.50 a week gross, and then at least half of that netted out for national insurance rebates, would float you above MIG level, which is what the noble Lord was asking. I repeat that £50 a month gross on these assumptions, and net only half of that or less, would float people on to a pension of about £75 a week in addition to their state pension.

However, the amendment seeks to impose a requirement on schemes which in my view would not only be unworkable but which also has serious implications for the successful delivery of our pension reforms. And it would impact on the stakeholder pensions alone. No similar requirement is proposed or needed for other pension schemes. No one ever mentions, for example, personal pensions--the last time I saw the statistics they showed that 60 per cent of those with a personal pension did nothing other than recycle their MIG rebates. As a result, most of them will still need income related benefits in their old age because there were no additional contributions.

The noble Lord is not making that requirement on personal pensions, which would have a more effective cutting edge, only on stakeholder pensions. On the assumption that the noble Lord was really asking me about the interplay between the two levels, I hope that he will feel that the information was useful and clarifies the situation and shows that over the long term this will prove a very good deal indeed for people on modest incomes putting in relatively modest sums. I hope that in the light of that the noble Lord will feel able to withdraw his amendment.

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