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Lord Higgins: I hope that the noble Baroness can clarify one point. Is it the case that stage 1 of the state second pension could begin before the stakeholder scheme. Can it come in ahead of stakeholder pensions being introduced? If not, why not?
Baroness Hollis of Heigham: I do not see how it could. The state second pension has already been carried by the Bill that we debated last summer. The provision is already 12 months ahead. Secondly, in consultation with the industry we have obtained very clear agreement as to how we should proceed. It would be quite wrong now to hold back stakeholder schemes for another year in order to bed down the state second
pension. It seems better to allow the arrangements negotiated with the industry to proceed. I believe that the noble Lord wishes to intervene.
Lord Higgins: I was not suggesting that the stakeholder scheme should be delayed. I was asking whether it would be possible for the state second pension to begin ahead of the stakeholder scheme. The noble Baroness said that that was done in previous legislation. We are dealing with that legislation now. Why is it not possible to begin stage 1 of the stakeholder scheme immediately?
Baroness Hollis of Heigham: I have never known any social security legislation in relation to which it was expected that the new scheme would be started the day after. For example, it is necessary to migrate current information, to make sure that the IT systems are robust, to do complicated assessments, particularly if we want to meet our undertakings to give out statements of information to people.
If the noble Lord is simply asking why we are waiting a year or so as opposed to introducing the scheme right away, it is a complex and important new scheme. We need to make sure that the IT arrangements, the calculations and the migration of clean data go through. I cannot conceive of any scheme, even a simple one, that one would expect to start the day after the Bill had received parliamentary approval.
Our difficulty, on which the noble Lord has pressed me and which is an honourable difficulty, is that we cannot give a precise timetable as to when we move from stage 1 to stage 2. That is precisely because we want to be sure that, if we are encouraging people to move into the private funded market, we want to make sure that good, safe, cheap private funded provisions--that is, the stakeholder provisions--are properly available and performing to their CAT benchmarks. That is why we do not want to be more precise and why I cannot help the noble Lord beyond that. Obviously, that will be done in discussion with the industry. We need to know the number of stakeholder pension providers. We need to look at the numbers taking out such a pension and the level of security provided. As a guide, we have said that we think it may be about five years after the introduction of stakeholder pension schemes, which, if they are introduced in April 2001 (10 months away) would be from April 2006.
Our proposal to move to the second stage when stakeholder pension schemes are established and conditions are right, is designed to give us the flexibility to make sure that we have a strong incentive to offer to moderate and higher earners a move to funded schemes while the state scheme focuses, as my noble friend recognised, on those least able to provide for themselves. Amendment No. 127 would deny the Government that flexibility.
Amendment No. 129 is in keeping with the Government's thinking on the timing of moving to the second stage of the state second pension. While I do not believe that the face of the Bill is the right place to
make such provision, I agree that noble Lords will require the necessary information to decide whether stakeholder pension schemes are properly established.Amendments Nos. 130 and 131 would subject the commencement orders, which set the dates for the introduction of the first and second stages of the state second pension, to parliamentary debate. The Bill provides that the orders making these appointments should not be subject to parliamentary debate. The order-making procedure is very similar to commencement orders, which are not usually subject to the affirmative or negative procedures of Parliament. We have, however, said quite clearly that we shall not move to the second stage until we are sure that the time is right. Therefore, a decision will be taken later as to the date on which we shall move to the second stage. I am happy to repeat the undertaking that before we do that we shall supply the necessary information to both Houses when the time comes. If at that time your Lordships should seek further parliamentary debate or scrutiny, you will be free to do so. I hope that on that basis my noble friend is able to withdraw her amendment.
9 p.m.
Baroness Turner of Camden: I thank my noble friend for her response. I remain very concerned about the change to the flat rate provision. As I said earlier, it appears to be part of government policy--it has been confirmed by the response of my noble friend--to encourage people to move away from public and into private provision. When the Minister referred to the necessity to get people to provide for their retirement, she made it clear that that provision was in the view of government to be via the private market rather than contributions to any kind of public scheme. I am not happy with that. On the other hand, I am glad that my noble friend is able to give the Committee an assurance that there will be a full opportunity in both Houses for scrutiny when the Government decide eventually to move towards flat rate provision for the second stage pension. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Astor of Hever moved Amendment No. 128:
- Page 103, line 34, at end insert--
The noble Lord said: Amendment No. 128 proposes that stage 1 of S2P be kept for those working for companies with fewer than five employees. This will ensure that in the event that they are missed by stakeholder pensions, they will have access to some earnings-related provision and will be less likely to be forced into reliance on the minimum income guarantee when they reach retirement. Under the current provisions such employees will be at risk from the gap in pensions coverage that arises from their exemption by the Government from stakeholder pensions. I recall this point being debated during the passage of the Welfare Reform and Pensions Act last year which first introduced stakeholder pensions.
There must be a risk that an employee of a small company may be missed by stakeholder pension providers. In that case he would be in a bad position if he earned more than £9,500. He would be poorly rewarded by stage 2 of S2P and at some levels of income would be significantly worse off than would have been the case under SERPS. This affects a sizeable proportion of the population. Sole traders make up 64 per cent of all businesses and account for 12.7 per cent of employment. Those with one to four employees make up 25 per cent of all businesses and account for 10.9 per cent of employment. We on this side of the Committee believe that this is a measured and sensible amendment that understands the burdens on small business but also ensures that there is effective pension coverage for a large number of the working population who would be at some risk under the Bill. I beg to move.
Lord Goodhart: We on these Benches co-operated with the noble Lord, Lord Higgins, and the noble Lord, Lord Astor, on restricting the burden of administration requirements when we dealt with the working families' tax credit. In that case we thought it quite right that the administrative burdens on employers should not apply to small ones. However, in this case it is proposed that pension rights should vary according to the number of people that an employer employs. We find that proposition completely unacceptable.
Lord Haskel: I wonder why the noble Lord wants small employers to be free from unnecessary bureaucracy but not to be good employers. Small companies are just as keen as large ones to be good employers, to retain their staff and to attract the best people, and part of that is to ensure that they make proper pension arrangements. To excuse small employers on the basis that there is more bureaucracy confuses two propositions. Small companies do not want to be involved in unnecessary bureaucratic procedures but they do want to be good employers, which means providing good pensions for their employees.
Lord Astor of Hever: Does the noble Lord accept that under this Government small businesses have suffered a continuous assault by red tape? We want to do everything possible to cut down that red tape.
Lord Haskel: I do not accept that. I accept that there are two kinds of red tape. There is unnecessary bureaucracy, and perhaps small companies have suffered from it. However, they have not suffered from bureaucracy which is designed to improve the well-being of their employees.
Baroness Hollis of Heigham: I agree with almost everything that the noble Lord, Lord Goodhart, and my noble friend Lord Haskel have said. I am baffled by the push of the amendment. The amendment as tabled means that stage 2 of the state second pension will not
We propose the lower earnings thrust in stage 1 because we do not have the stakeholder pension in place. When the stakeholder pension is in place and people are able to contract out to it, we propose that at the second stage S2P should become flat rate and everyone will be treated as if he has earnings of £9,500, or whatever is the lower earnings threshold at that time. If anything, I should have thought that that would have reduced rather than increased the burden on employers. Even if one accepts that the provision is about burdens, and my noble friend does not accept that--it is about rights to entitlement--staying with differential schemes according to incomes over £9,500, which is stage 1, would increase the employer's burden. Going to stage 2 with small employers should reduce it.
The key point is that those contracted out of the state scheme by funded alternatives will continue to receive the same level of help as under stage 1. Enhanced national insurance rebates and state scheme top-up payments will continue to be paid, thus providing earnings-related incentives for individuals to remain in or join a private pension scheme. This, in particular when coupled with an employer's contribution, should go a long way to ensuring that people with funded provision receive a decent income in retirement.
The exemption is modelled on the stakeholder pension. We provided it there in order to strike a sensible balance. Simply because, with stakeholder pensions, small employers are not required to offer access to a stakeholder scheme, this does not mean that they will not do so. In fact, we hope that many will. Equally, it does not prevent employees from taking out a stakeholder pension via another route. Many of those who work for small employers change jobs frequently and may prefer to choose their own stakeholder scheme.
We shall move on to the second stage of state second pension only once stakeholder pension schemes are established and we are convinced that all moderate earners will be able to join a low-cost, flexible scheme. So access to stakeholder schemes for all employees will be an important determinant of when we move to the second stage. It is important to differentiate between linking individual entitlement to a state benefit to the size of someone's employer and stakeholder access provisions, which are a requirement on the employer.
There are good reasons why operating two different forms of state second pension for employees, depending on the size of the employer they work for, would not be sensible. The decisions they have to make
I am puzzled by the amendment. It seems to add more complexity for employers and to encourage people from staying in a state scheme when they would be better off going into a stakeholder scheme. In the light of that reply, I hope that the noble Lord will feel able to withdraw the amendment.
("(5A) Sub-paragraph (5) shall not apply to those working for companies with fewer than five employees.").
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