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A dog which has not barked in the debate is compulsory annuitisation at 75. We will be returning to this issue in Committee. On annuities generally, the comments of the noble Lord, Lord Oakeshott, about choice at the time of annuitisation were interesting and we look forward to seeing whether robust amendments can, in practice, deal with this issue.

A dog which has barked loud and clear today is the issue of women’s pensions. We on these Benches fully understand and sympathise with the issues that have been raised, most notably, of course, by the noble Baroness, Lady Hollis, who works so tirelessly in this area. But we have to bear in mind that many of the issues have cost tags attached to them. In addition, some of the amendments to the personal accounts scheme that people want will add complexity—and therefore costs—to that scheme. These are difficult areas but we look forward to returning to them in Committee with an open mind.

We support the aim of greater workplace pension provision that the Government are seeking to achieve but, as I have said, that support is not unconditional as to the detail. The Minister should by now be on notice that we on these Benches look forward to a detailed and comprehensive scrutiny of the Bill when the Committee of the Whole House commences.

5.48 pm

Lord McKenzie of Luton: My Lords, this has been a fascinating debate and I genuinely look forward to Committee stage, even though some of it is going to be a bit tough. Given the range of points that have been raised, I shall eschew my formal text and try to deal with as many points as I can. Those that I cannot cover will, I am sure, recur in Committee. I should say to the noble Lord, Lord Skelmersdale, that I am pleased that we are starting the train journey together and hope that we will complete it together.

The noble Lord asked about the positioning of personal accounts in the framework of the Bill. The absolute cornerstone of the Bill is auto-enrolment, not only for personal accounts but for a range of provisions. That is why we have started it off and it is right to do so. The noble Lord and the noble Baroness, Lady Noakes, challenged the issue of implementation. The first act of the incoming chief executive, Tim Jones, was to review the delivery plans and a summary of that review has been placed in the Library. This work confirms the achievability of a 2012 launch for the personal accounts scheme. Not surprisingly, at this stage some of the factors that will influence progress are uncertain—not least the passage of this legislation—and we will need to monitor carefully the delivery assumptions that we have made. That said, 2012 is our intention and we believe that it can be delivered.

I will not dwell for long on the issue, but I cannot let the challenge go without responding on issues around dividend tax credits and this Government’s record on pensions. The abolition of payable dividend tax credits was part of a wider package of measures designed to improve the long-term investment climate

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in the UK. I would be interested to know at some stage when these matters are raised whether in fact it is Conservative policy to reverse that position and increase the rate of corporation tax. We all know that the wider effects on pension schemes were caused by a stock market fall due to the dotcom crash when there was a £210 billion fall in the market value. We know that many firms took contribution holidays in the 1980s and 1990s—on the Conservatives’ watch, I may say—believing bullish equity markets to be a long-term trend. There were also rapid increases in life expectancy.

I should also say that the current level of tax relief for pension funds is estimated to be around £17.5 billion in 2008-09. It is this Government who have sought to rebuild faith in pensions. We put in place the Pension Protection Fund, we have proactively protected pension scheme members through the Pensions Regulator and delivered a just settlement on the FAS, as well as setting up the Turner commission and all the good stuff that has flowed from that.

My noble friend Lord Judd, with particular passion, and the noble Lord, Lord Skelmersdale, raised the issue of ethical investment. I repeat what my honourable friend Mike O’Brien said at a national ethical investment reception last week: it is only if institutions and others embrace the concept of good governance and ethical investment that our economy can thrive and that our legacy to future generations will be a positive one. Economic success cannot be regarded as in conflict with social and environmental goals. He said that ethical investment and effective governance of investment decisions attracted much debate in the other place, which it did, and that there is also wide-ranging consumer support for an ethical choice to be included in the personal accounts scheme. Such investment decisions are, quite rightly, the responsibility of the scheme trustee, but we recognise the importance of good governance and socially responsible investment. I am pleased to see that the Personal Accounts Delivery Authority will be consulting on these matters in the autumn. I say to my noble friends that I am not aware that the Government have objected to this at any stage; indeed, our position has been that it is for the trustees to decide because this is an independent scheme. I hope that the consultation on this matter will lead to the appropriate conclusion, which we would all support.

A number of noble Lords—the noble Lords, Lord Skelmersdale and Lord Oakeshott, and my noble friend Lady Turner—raised the issue of levelling down. As I said in my opening remarks, our reforms are designed to complement, not replace, existing employer provision. There is a range of issues, which I identified, that support that. Our research shows that most employers with good schemes support our reforms, and the majority, particularly the larger employers, plan to maintain their schemes at current levels. We are not complacent about the issue, however, and we will continue to track employers’ attitudes and likely reactions to the reforms as we move towards 2012.

Baroness Noakes: My Lords, I have a detailed question on that. When the department goes out to do its research, does it talk to finance directors or

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does it avoid that source? My understanding is that finance directors are much more sceptical about the costs of ongoing pension provision and are more likely to pull in the other direction.

Lord McKenzie of Luton: My Lords, my understanding is that the department contacts a range of people. I am happy to write to the noble Baroness about the specifics of the research behind that particular comment.

A number of noble Lords, and perhaps I should thank them, raised the issue of voluntary national insurance contributions. I should perhaps express even greater thanks to those who did not raise it. I understand that it is a matter of great concern. The Government have acknowledged the inequity in the system. It is not fair to say that we have simply walked away and reneged on our commitments; a lot of work has been focused in this area. In particular, we have looked at a range of options on the basis of the criteria that we set before Parliament—fairness, affordability and simplicity—but we have not yet identified an option that is well targeted at those women about whom I know my noble friend and others are most concerned. We need to be mindful that buyback does not help people who are heading for pension credit or the one-third of women retiring before 2010, numbering some 250,000, who paid reduced-rate contributions. We should also keep in mind that the opportunities under existing buyback rules enable more than 90 per cent of women reaching state pension age after 2014 to buy back enough contributions for full basic state pension under current arrangements, and that will rise to 95 per cent by the end of that decade.

Lord Oakeshott of Seagrove Bay: My Lords, I am glad to hear that there is so much work going on. Does the Minister expect, as a result of this, to be able to bring forward government amendments on this issue in Committee, or will we have to do it for him?

Lord McKenzie of Luton: My Lords, I can only say that that work will continue; we will have to see where it leads and over what time-scale.

The noble Lords, Lord Skelmersdale and Lord Blackwell, and the noble Baroness, Lady Noakes, raised the issue of the funding of the scheme. Our shared aim is for personal accounts to deliver low charges and to be self-financing in the long term. Any funding arrangements should not unfairly advantage the scheme; we are very clear about that. We will not know the costs of delivery until PADA has completed the design and begun to engage with private sector suppliers. It is vital that we do not rule out at this stage any options that may later prove to be in members’ interests. Obviously, due to commercial sensitivities, we are currently unable to make public much of this work.

A number of noble Lords raised the issue of uprating the basic state pension. I say to my noble friend Lady Turner that there is no get-out in the Government’s position. Earnings uprating will happen; it is enshrined in law. We did that last year. We will do this in the next Parliament. Our aim is re-link the 2012 sum to affordability and the fiscal position.

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The noble Lord, Lord Oakeshott, proposed that we should double the basic state pension. The annual cost of that would be something like £150 billion per year in real terms in 2050, the equivalent of 15 pence on the basic rate of tax. Citizens’ pensions now would cost something like £10 billion to £20 billion per year, if that were brought in immediately. It is almost impossible for Governments to eliminate means-testing without huge cost; even doubling the level of the basic state pension from 2012 would leave one-quarter of pensioner households entitled to an income-related benefit by 2015. It is simply not that straightforward.

The noble Lord, Lord Oakeshott, said that he would test amendments according to whether they over-complicate personal accounts or make them more expensive. That is a good yardstick; I think that was the sentiment expressed by the noble Baroness, Lady Noakes. The noble Lord made reference to the scale of means-testing and yesterday’s DWP release. He also said that people need to be helped to buy the most suitable type of annuity. We agree that it is important for people to have the information they need to make an informed decision on annuity purchase. That was a key feature of the Government’s review of the open-market option for buying annuities, on which we reported last autumn.

A number of noble Lords raised issues around generic advice, individual choices to save and the need for good-quality advice. We recognise that individuals who are auto-enrolled will need access to relevant and accurate information, but we do not believe that they will routinely need extensive advice, particularly because of the employer contribution. There is no requirement now that people who join a pension scheme should receive advice. Auto-enrolment, as it exists at the moment, does not introduce any new factors into the decision. As for the Thoresen review on money guidance, the national money guidance service recommended by the review and the Government’s action plan on financial capability will also assess the need to add to the services on offer, as well as those referred to by other noble Lords.

Savings incentives, raised by the noble Lord, Lord Oakeshott, and my noble friend Lady Turner, are not a new issue. A new issue is not created by this Bill. We need to keep this issue in perspective. Under reasonable assumptions, the majority of those who are enrolled can expect to benefit from having saved. Our reforms will significantly reduce the level of means-testing, and the basic state pension will be worth more than double what it otherwise would be, ensuring a solid platform for saving. Measures in the Bill will further improve incentives to save. Existing policies ensure that those who save can benefit. The savings credit permits pound-for-pound claw-back. Twenty-five per cent of the pension pot can be taken as a tax-free lump sum. Those with very small pots may be able to take the whole of their pot as a lump sum. I am conscious of issues raised by my noble friend and others about perhaps changing or improving those rules.

My noble friend Lady Hollis, as ever, raised many challenging issues. I look forward to our debates on them in Committee, but I shall respond to one or two points straightaway. She asked whether personal account

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schemes should allow for some pre-retirement liquidity. The personal account scheme will be a tax-registered pension scheme. Pension saving in the UK is privileged through the tax system. The Treasury rules are quite clear: tax relief on pension saving is not provided to support pre-retirement income, asset accumulation or inheritance. The expansion of access to pre-retirement pension saving would need to be across all UK pension schemes and products and not just personal accounts to avoid severe market distortion. We are aware of little evidence that such allowance would support increased engagement in pension saving.

My noble friend asked whether women will be able to transfer in small pots. When reforms are introduced, there will be a ban on transfers in and out of personal accounts and a contribution cap. These measures are designed to protect the existing pensions industry. However, there will be a review of them in 2017 when the reforms have bedded in. It is clear that the desire of some individuals to consolidate their pension saving will be an important consideration in that review.

My noble friend further asked whether we would allow a lifetime sum so that women can top up their saving. We have not put the amount of the contribution limit in the Bill, because we want to allow the annual contribution limit to operate flexibly. The wide enabling powers will allow for the higher contribution limit in the first year of the scheme’s operation and for a lifetime lump-sum contribution to run alongside the annual contribution limit. We need to consider whether to introduce this additional complexity when the scheme is introduced or wait for the review of the contribution limit in 2017.

The noble Baroness, Lady Greengross, touched on voluntary national insurance contributions, but also asked, as did the noble Baroness, Lady Howe, how carers can access the scheme. Anyone who joins the personal accounts scheme will be able to continue to save in their personal account even after they leave the workplace or move to an employer that does not offer personal accounts. With the passage of time, job churn, especially among women and carers with fragmented working lives, will mean that a growing proportion of the working-age population will have personal accounts.

My noble friend Lady Turner spoke about the need for a strong consensus and to take a long-term view, which was a very important point. She asked whether the term “job-holder” would include agency workers. I am pleased to say that it does: there is specific provision in the Bill for that.

My noble friend asked about a range of issues around trustees and governance. Like any other trust-based scheme, the personal accounts scheme will be run by a trustee body with an overriding duty to act in the best interests of scheme members. Trustees will be appointed by open competition, in line with the arrangements for any other public appointments. There will also be a members’ panel to represent members’ views and interests, which will, among broader duties, support the nomination of member-nominated trustees, who will make up at least one-third of the members of the trust.

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The noble Lord, Lord Blackwell, challenged me with a range of very interesting but pertinent points, with some of which I shall try to deal now. He asked about the interaction between the savings gateway and personal accounts. The Government provide tax incentives for shorter-term savings such as through ISAs. The savings gateway is a cash-saving account for those on lower incomes. Following the success of the pilots in promoting saving and financial inclusion, it was announced in this year’s Budget that the savings gateway will be introduced nationally. Savings gateway and the personal account scheme provide complementary vehicles for shorter- and longer-term savings.

The noble Lord asked about qualifying earnings and whether we will allow annual calculation of contributions. We accept that existing schemes use different definitions. However, it is the amount saved into pensions that counts, not the method of calculation. Employers, payroll providers and scheme representatives recognise that the calculation and checking of contributions will be automated in the vast majority of cases. However, we recognise the concern in this area and we are committed to working with stakeholders to ensure that the duties are communicated to employers as simply as possible.

The noble Lord also asked whether Clause 61 introduces a limit on the amount that can be saved in a personal account. The answer is yes, we will introduce a contribution limit of £3,600 a year with the scheme, uprated by earnings—that is at 2005 prices. He asked whether government subsidies will be limited to start-up costs. The Government have made clear that there will be no unfair subsidy for the personal accounts scheme. Our intention is that all costs, including start-up costs, will be met from members’ charges over the long term.

The noble Lord also asked whether compliance notices could be used to encourage employers to comply. There will be a graduated approach to enforcement, from initial reminders to notices and penalties, and there will be opportunities to appeal against the imposition of any financial penalty. I hope that the noble Lord will forgive me if I do not respond in detail to his other points now. I am sure that we will have another chance to discuss them in Committee.

My noble friend Lady Dean spoke with huge commitment on the issue of lower paid workers and asked whether those with multiple part-time jobs would be disadvantaged. We recognise the issue of individuals with multiple jobs but the solutions most frequently suggested by stakeholders—for example, the aggregation of earnings—would have to be compulsory for everyone. That could have perverse consequences in increasing costs for all employers for the benefit of a few people. It is not immediately obvious how the employer contribution could be calculated easily—no mechanism currently exists. Would multi-employers share the cost of the employer contribution? How would that be done? Which employer would take responsibility for contributing to the pension scheme? I hope that my noble friend will see some of the complexities. We know that there are around 400,000 individuals with multiple jobs providing a combined income of more than £5,000 who are not currently contributing to a

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private pension scheme. Of these 400,000 people, around 300,000 earn more than £5,000 a year from at least one of their jobs. Around 60,000 people earn more than £5,000 a year from each of their jobs. Around 30,000 individuals aged between 22 and 64 earn less than £5,000 a year from each job and women hold 80 per cent of those jobs.

The noble Baroness, Lady Howe, spoke about equal treatment in pension annuities. I am sure that we will debate this matter again in Committee, but I cannot promise a different government view from last time. She asked whether a carer could opt in to the personal allowance scheme as a self-employed worker. It is difficult to see how a carer in these circumstances would be treated as self-employed. However, any carer with a personal account could continue to save in it, even when they were no longer in work.

My noble friend Lord Lea spoke strongly in support of the Bill, and I appreciate that. He stressed the importance of the long term and trying to seek consensus, and the importance of the employment protections in the Bill, to which we will add by way of amendment. The noble Baroness, Lady Thomas, gave a broad welcome to the Bill, but with some challenges. I appreciate her strong support for auto-enrolment, which is a fundamental part of the Bill. She asked about costs for small employers. We have sought to help by phasing in contributions. I was interested in her vision of telephony.

On the subject of deficiency notices and Mr Steve Webb, the DWP ran a special exercise and we contacted more than 400,000 people, at a cost of £33 million. In the light of discussions with Steve Webb, we are taking another look at a further 73,000 women whom we did not previously contact but who could benefit for a period before they became entitled to a married woman’s pension.

The noble Baroness, Lady Noakes, said that she would try to get as much detail into the Bill as possible. I understand the thrust of that remark, but I am sure she will appreciate that much of the detail has yet to be worked out and, indeed, cannot be worked out until we pass this Bill and give PADA the authority and powers that we want it to have. The government review around Pays to Save is not buying off people; it is there for a proper purpose, and I am sure that it will deliver.

The noble Baroness raised some challenging points about lower-paid workers and how the tax system would work. I think that we might leave that to Committee, as it will be an interesting debate.

On risk sharing, we want good employer pension provision to continue and we want to explore all means of achieving that. However, we do not think that there is a magic bullet and we need to balance the benefits to employers with protection for employees. My honourable friend Mike O’Brien announced during Committee in the Commons that we will issue a consultation paper on risk sharing in June and consult through a 12-week period.

The Bill addresses the real issues that this country faces, including major demographic change and lack of saving to pay for it; confidence in the pension system; the move away from final salary schemes; and

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pensioner poverty. We recognise those problems and are making one of the biggest changes on pensions in 100 years. We are reforming for the long term. We have an opportunity for a new confidence in UK pensions and there is no better time than now. If we can achieve these measures by 2015 we will see a step change in saving, with up to 9 million people saving more or for the first time, with total pension contributions increasing by up to £10 billion. This is a multi billion pound opportunity for the pensions industry and a massive opportunity to transform the savings habits among millions of people in this country.

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