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Baroness Turner of Camden: I am inclined to agree with what has been said by both noble Lords. The proposal would involve a kind of AVC scheme. I agree that people should be encouraged to maximise their pension provision. People move in and out of employment. They may spend some time in an occupational scheme but want to switch to a stakeholder scheme. If they could have both, that would simplify matters for them. This is a sensible proposal and I hope that the Government will be prepared to consider it.
Baroness Hollis of Heigham: The amendment seeks to permit concurrent membership of an occupational scheme and stakeholder pension scheme, thus enabling individuals to make tax-privileged contributions to each scheme at the same time. We
have already announced our intention to permit simultaneous membership of stakeholder and money purchase arrangements. An individual will be able to contribute within existing limits to both an employer-run money purchase scheme and a stakeholder pension scheme. This new clause would take that a step further and allow concurrent membership of a defined benefit scheme, a final salary scheme, and a stakeholder pension scheme.I have some sympathy with the points raised, as my noble friend said, but we need to consider whether allowing a person to make extra contributions of up to £3,600 per year into a stakeholder scheme when they may already be making the maximum permitted tax-privileged contributions into their employer's scheme, really represents the best use of public money. If such full concurrency were to be permitted, we estimate that this would cost the taxpayer around £400 million a year, much of which--if not most of which--would go to those who are already building up large pension rights through defined benefit schemes.
However, we have not ruled out allowing people on low or modest earnings--many of whom do not in any case make full use of the contribution limits for their employer's scheme (in other words, where there is "headroom")--to make further concurrent contributions into a stakeholder scheme. This is a so-called "partial concurrency".
Under the existing system, members of an employer's defined benefit scheme can make additional AVCs on a money purchase basis to a separate AVC fund. Various checks have to be carried out, however, to estimate how much can be contributed to the AVC fund without risking the eventual aggregate pension benefits exceeding the defined benefit tax limits. These procedures cause extra administrative effort and expense for schemes, but it is difficult to avoid this entirely when applying aggregate limits to pension rights accruing under the two different principles, defined benefit and money purchase.
I had exactly this problem when I came with a modest defined benefit scheme from my university and I was entitled to join a scheme here. I should emphasise to the Committee that the work required in the pensions department in order to calculate the headroom and what I might be allowed to pay in AVCs to top it up, was extraordinarily complex and very complicated.
The pensions industry has told us that a partial concurrency scheme based on estimating headroom, operating in a similar way to the current AVC arrangements, would seriously jeopardise its ability to develop good value stakeholder pensions within the 1 per cent cost limit. In other words, it is the pensions industry which is saying that it has real worries about some of the proposals mentioned today.
I accept many of the arguments made today. We are therefore keen to find a way forward which will accept partial concurrency without imposing significant administrative burdens on schemes, which the
industry itself is worried about. We are currently consulting with the industry to find a practicable system which will achieve this.To summarise, we estimate that full concurrency would cost around £400 million in extra tax relief, much of which would go to high earners who are already contributing to defined benefit schemes at the maximum allowable level. I cannot believe that the noble Lord is asking us to allow, effectively, a £400 million increase for those already endowed with good pension schemes.
We have, however, already signalled our willingness to allow partial concurrency, as long as this can be done in a way which will avoid the imposition of unacceptable administrative burdens, and therefore costs, on schemes. We are working with the pensions industry to achieve this.
I hope that the Committee will agree that we are working with the industry and trying to meet the substance of what the noble Lord has said. Obviously, we shall come forward with proposals in due course--should we be able to deliver them--in consultation with the industry. I hope that the noble Lord will withdraw his amendment.
Lord Astor of Hever: I am grateful to the noble Baroness for her response. I am also grateful to the noble Lord, Lord Goodhart, and the noble Baroness, Lady Turner, for their support. I am disappointed with the Minister's response. Certainly from my discussions with the industry I have gained a very different impression from hers. I think that the industry would dispute her figures.
There has been so much debate on concurrency that one would have thought that the Government would have by now reached a final conclusion. Many companies are reviewing their pension arrangements in the light of the introduction of both stakeholder pensions and the state second pension. There are many arguments in favour of this; it would simplify the pensions regime. Despite what the Minister said, the industry is behind us and, I believe, so is the Committee. Accordingly, I should like to test the opinion of the Committee.
11.20 p.m.
On Question, Whether the said amendment (No. 142A) shall be agreed to?
Their Lordships divided: Contents, 22; Not-Contents, 11.
Addington, L.
Anelay of St. Johns, B.
Astor of Hever, L. [Teller]
Blatch, B.
Buscombe, B.
Byford, B.
Cope of Berkeley, L.
Dean of Harptree, L.
Fookes, B.
Goodhart, L.
Henley, L. [Teller]
Higgins, L.
Hooper, B.
Luke, L.
Mackay of Ardbrecknish, L.
Mancroft, L.
Monro of Langholm, L.
Northbrook, L.
Northesk, E.
Russell, E.
Turner of Camden, B.
Wilcox, B.
Amos, B.
Carter, L. [Teller]
Crawley, B.
Gale, B.
Greengross, B.
Hollis of Heigham, B.
Hoyle, L.
Irvine of Lairg, L. (Lord Chancellor)
McIntosh of Haringey, L. [Teller]
Massey of Darwen, B.
Pitkeathley, B.
Resolved in the affirmative, and amendment agreed to accordingly.
11.28 p.m.
[Amendment No. 143 not moved.]
Clause 42 [Member-nominated trustees]:
Baroness Turner of Camden moved Amendment No. 144:
- Page 38, line 23, at end insert ("; and
The noble Baroness said: We now enter an entirely different territory, that concerned with trustees. The intention of this amendment is to impose a requirement to have pensioner nominated trustees in larger, more mature schemes, leaving the definition of the schemes to which this requirement will apply to be prescribed in regulations. The nominations are to be drawn from all former members.
It must be said that whenever one meets pensioners, as I frequently do since my union, as I have said before, has a retired members section which holds an annual meeting, the absence of pensioner members among trustees causes a great deal of resentment. Of course, decisions can be taken by people in employment, but they can be to the disadvantage of those who have left but who have nevertheless contributed, sometimes for a working lifetime, to the fund.
It has been argued that pensioner trustees would not be representative of, or accountable to, pensioner members given the absence in the majority of cases of any organised pensioner body. However, there are large companies, and I am well aware of some, where retired members do keep in touch with their former company. Sometimes there is an organisational structure for them to do so.
Nothing will give more encouragement to the formation of pensioner bodies of that kind than giving them a focus and purpose and recognising their legitimate interest in the governance of schemes. This is a reasonable suggestion. I hope that the Government will be prepared to look upon it with favour. I beg to move.
Lord Goodhart: I rise to support Amendment No. 144 and to speak to Amendments Nos. 148 and
I believe that, wherever possible, both active and pensioner members should be represented on a board of trustees or on a board of directors of the trustee company. Current employees and pensioners have different interests. At its simplest, for example, employees have an interest in the continuance of the company that employs them, whereas pensioners do not--assuming, as is usually the case, that the pension fund is properly funded. Employees might, therefore, accept steps to save the company from liquidation at the cost of some damage to the pension scheme. Pensioners would have no such interest. Again, pensioners might want a more cautious investment policy than current members. I do not say that in taking those decisions the pensioners would necessarily be right, but the arguments need to be presented on their behalf. Therefore, I believe that they need separate representation.
The Government have said that a specific pensioner trustee or a specific employee trustee would regard himself or herself as a speaker for his or her constituency. But if that was a ground for refusing separate constituencies for employees and for pensioners, why have member nominated trustees at all, since the constituency differences between employer and member nominated trustees are much greater than between employee and pensioner trustees?
In those circumstances, I am happy to support the amendment moved by the noble Baroness, Lady Turner, and I commend my amendment to the Committee.
(c) in paragraph (a), after the words "are made," there shall be inserted--
"(aa) that in the case of schemes which fall in a prescribed class, that such arrangements for the selection of persons nominated by pensioner members and deferred members of the scheme to be trustees of the scheme as are required by this section are made,"").
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