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Amendment No. 45 would delete subsection (2), which allows the Secretary of State to use whatever value assessment procedure he likes. He does not need this power; he has the procedure referred to in subsection (3) under the Social Security Administration Act 1992. Amendment No. 47, which is one of our usual “‘may’ to ‘shall’” amendments, would therefore mandate the use of the procedure in the 1992 Act.
Lastly, Amendment No. 48 is another “‘may’ to ‘must’” amendment—this time to subsection (4)—so that if the Secretary of State is determined that the qualifying earnings band has not maintained its value, he must lay an order substituting the revalued amounts.
We always worry when the Government translate what appears to be a straightforward policy, such as earnings uprating, into legislation that allows the Secretary of State to do pretty much what he wants. We shall therefore take some persuading that the amendments should not be made. I beg to move.
The Chairman of Committees: I should point out that if the amendment is agreed to, I cannot call Amendment No. 46.
Lord McKenzie of Luton: I just explained in response to the amendments from my noble friend Lady Turner our approach to uprating the earnings bands, and in particular the importance of maintaining flexibility. However, these amendments would do away with that flexibility by removing the possibility of uprating by
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We always have this dilemma where we have a clear policy and objective and believe that uprating by earnings is the right way forward. However, given that we are setting down reforms for decades to come, there must be a strong argument in favour of flexibility. That is why the clause is structured as it is, as I explained in response to the previous amendments. I hope that, on that basis, the noble Baroness will feel able not to press her amendment to a vote.
Baroness Noakes: I am not quite sure what this flexibility is all about. We have earnings bands, and we have to ensure at least that they maintain their value over time. We accept that they might have to be realigned, which was the purport of the amendment of the noble Baroness, Lady Turner, although there should be a special procedure if that is to be the case. However, the flexibility that the Minister wants is merely to say what kind of revaluation it is, because Clause 13 talks only of the Secretary of State determining whether the earnings band has maintained its value. As this is in essence about earnings leading to replacement income in retirement, I cannot see any other logical basis on which to determine value, and I struggle to see what kind of flexibility the Government seek.
Lord McKenzie of Luton: It is by definition almost impossible to be specific when providing flexibility that might be needed over the long term. The noble Baroness may recall our debates during consideration of the Pensions Act 2007 on upratings and the factors that would be taken into account, such as which earnings index would be the appropriate one and whether the current indices would still be in place in 20 or 30 years in their current format. We are simply creating a little space to have flexibility. It is not unreasonable for government to ask for that. I know that the noble Baroness always sees the most horrendous plots when the Government seek flexibility, but it is not that. We have made very clear our intention to maintain the link between lifetime earnings and replacement income and the proposition that the bands are set to get that replacement rate of 45 per cent at the start. We expect to uprate them by earnings, and we hope and believe that this regime will remain in place for 20, 30 or 40 years with the consensus that has been built, but we cannot be absolutely certain. That is the reason.
Lord Oakeshott of Seagrove Bay: Will the Minister make it quite clear that he is asking for flexibility only in the definition of the word “earnings” over a long period, or is he asking for something else?
Lord McKenzie of Luton: The Bill is not specific. Again, we simply do not have 20/20 foresight over the long term, and we cannot predict quite what will crop up over the long term. Therefore we need to have a
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Lord Oakeshott of Seagrove Bay: No one has 20/20 foresight. I was simply asking which way it is looking. Is it looking at the definition of earnings or at something else?
Lord McKenzie of Luton: The clause is entitled “Review of qualifying earnings band”. That is the thrust of the provision and how we go about it. That is the subject of the detail.
Baroness Noakes: I thank the noble Lord, Lord Oakeshott, for attempting to get a little more clarity. We received none; all we got was one of the Minister’s favourite mantras for the Bill—he wants flexibility. This is when the Government either do not know the answer or do not want to tell us what they are going to do with the Bill. It has been relatively clear from the outset. The Pensions Commission recommended that the bands be uprated in line with earnings. The Government, in their White Paper, accepted that recommendation. The Minister has said that he accepts it on more than one occasion at the Dispatch Box. However, when we seek to get that reflected in the Bill we are confronted with complete obduracy for reasons that have not been articulated, except to say that it is for flexibility. That is not satisfactory, and I seek to test the opinion of the Committee.
5.38 pm
On Question, Whether the said amendment (No. 45) shall be agreed to?
Their Lordships divided: Contents, 107; Not-Contents, 104.
Addington, L.
Alton of Liverpool, L.
Anelay of St Johns, B. [Teller]
Astor of Hever, L.
Avebury, L.
Baker of Dorking, L.
Barker, B.
Blaker, L.
Bonham-Carter of Yarnbury, B.
Bottomley of Nettlestone, B.
Bradshaw, L.
Brougham and Vaux, L.
Caithness, E.
Carlile of Berriew, L.
Carnegy of Lour, B.
Cathcart, E.
Clement-Jones, L.
Cope of Berkeley, L.
Cotter, L.
Craig of Radley, L.
Denham, L.
Dixon-Smith, L.
Dykes, L.
Elton, L.
Falkland, V.
Falkner of Margravine, B.
Fookes, B.
Freeman, L.
Garden of Frognal, B.
Gardner of Parkes, B.
Geddes, L.
Glenarthur, L.
Glentoran, L.
Goodlad, L.
Greengross, B.
Griffiths of Fforestfach, L.
Hamwee, B.
Hanham, B.
Hanningfield, L.
Henley, L.
Hodgson of Astley Abbotts, L.
Howe, E.
Howe of Aberavon, L.
Howe of Idlicote, B.
Howell of Guildford, L.
Hunt of Wirral, L.
Jopling, L.
Kilclooney, L.
Kirkwood of Kirkhope, L.
Lee of Trafford, L.
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Ludford, B.
Luke, L.
Lyell, L.
MacGregor of Pulham Market, L.
Mackie of Benshie, L.
McNally, L.
Maddock, B.
Mar and Kellie, E.
Marlesford, L.
Mawson, L.
Miller of Chilthorne Domer, B.
Morris of Bolton, B.
Neuberger, B.
Noakes, B.
Norton of Louth, L.
Oakeshott of Seagrove Bay, L.
O'Cathain, B.
Palmer, L.
Patel, L.
Pearson of Rannoch, L.
Rawlings, B.
Razzall, L.
Redesdale, L.
Rennard, L.
Roberts of Llandudno, L.
Roper, L.
Ryder of Wensum, L.
Seccombe, B. [Teller]
Selborne, E.
Sharp of Guildford, B.
Shaw of Northstead, L.
Sheikh, L.
Shephard of Northwold, B.
Shutt of Greetland, L.
Skelmersdale, L.
Smith of Clifton, L.
Soulsby of Swaffham Prior, L.
Stewartby, L.
Stoddart of Swindon, L.
Strathclyde, L.
Taylor of Warwick, L.
Teverson, L.
Thomas of Gresford, L.
Thomas of Winchester, B.
Tordoff, L.
Trimble, L.
Ullswater, V.
Verma, B.
Waddington, L.
Wade of Chorlton, L.
Wallace of Saltaire, L.
Walmsley, B.
Warsi, B.
Wilcox, B.
Williams of Crosby, B.
Windlesham, L.
Acton, L.
Adonis, L.
Amos, B.
Anderson of Swansea, L.
Andrews, B.
Archer of Sandwell, L.
Ashton of Upholland, B. [Lord President.]
Bach, L.
Barnett, L.
Bassam of Brighton, L.
Berkeley, L.
Bernstein of Craigweil, L.
Billingham, B.
Birt, L.
Blood, B.
Borrie, L.
Bradley, L.
Bragg, L.
Brennan, L.
Brett, L.
Brooke of Alverthorpe, L.
Brookman, L.
Campbell-Savours, L.
Christopher, L.
Clark of Windermere, L.
Clarke of Hampstead, L.
Corbett of Castle Vale, L.
Corston, B.
Darzi of Denham, L.
Davies of Coity, L.
Davies of Oldham, L. [Teller]
Dean of Thornton-le-Fylde, B.
Dearing, L.
Desai, L.
Dubs, L.
Eatwell, L.
Elder, L.
Elystan-Morgan, L.
Evans of Parkside, L.
Falkender, B.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Filkin, L.
Ford, B.
Foulkes of Cumnock, L.
Gale, B.
Gibson of Market Rasen, B.
Golding, B.
Gordon of Strathblane, L.
Gould of Potternewton, B.
Graham of Edmonton, L.
Griffiths of Burry Port, L.
Harris of Haringey, L.
Harrison, L.
Hart of Chilton, L.
Haworth, L.
Hollis of Heigham, B.
Howarth of Newport, L.
Howells of St. Davids, B.
Hoyle, L.
Hunt of Kings Heath, L.
Irvine of Lairg, L.
Jay of Paddington, B.
Jones, L.
Jordan, L.
Judd, L.
Lea of Crondall, L.
Leitch, L.
Levy, L.
Lipsey, L.
Lofthouse of Pontefract, L.
Macdonald of Tradeston, L.
McIntosh of Hudnall, B.
McKenzie of Luton, L.
Maxton, L.
Morgan, L.
Morgan of Drefelin, B.
Morris of Handsworth, L.
Morris of Yardley, B.
O'Neill of Clackmannan, L.
Pendry, L.
Pitkeathley, B.
Plant of Highfield, L.
Prys-Davies, L.
Quin, B.
Rendell of Babergh, B.
Rosser, L.
Rowe-Beddoe, L.
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Scotland of Asthal, B.
Simon, V.
Snape, L.
Stevens of Kirkwhelpington, L.
Stone of Blackheath, L.
Taylor of Blackburn, L.
Thornton, B.
Truscott, L.
Tunnicliffe, L.
Turner of Camden, B.
Wall of New Barnet, B.
Warwick of Undercliffe, B.
Watson of Invergowrie, L.
Whitaker, B.
Wilkins, B.
Resolved in the affirmative, and amendment agreed to accordingly.
5.48 pm
Baroness Noakes moved Amendments Nos. 47 and 48:
On Question, amendments agreed to.
Clause 13, as amended, agreed to.
Clause 15 [Qualifying schemes]:
Lord McKenzie of Luton moved Amendment No. 50:
“(1A) The Secretary of State may by regulations provide that subsection (1)(b) does not apply in relation to a scheme to which section 24 or (Quality requirement: other personal pension schemes) applies, if prescribed requirements are satisfied.”
The noble Lord said: I shall also speak to the other amendments in this group. Clause 15 is the first in a series of clauses setting out the minimum requirements for pension schemes that can be used to comply with the new employer duties. As it stands, the clause requires qualifying schemes to be UK tax registered, so as to enable scheme members and their employers to benefit from UK tax relief on their contributions. For scheme members, this is equivalent to a contribution from the Government, through a lower tax deduction, to their retirement savings.
However, we recognise that individuals may be seconded to the UK from abroad for short periods of employment and that, prior to their arrival, some would have joined a pension scheme set up in their home countries, outside the UK tax registration regime. Government Amendment No. 50 will enable us to accommodate individuals in such circumstances. It contains a regulation-making power to allow the Secretary of State to specify in legislation that non-UK schemes can be qualifying schemes under the employer duty where they are not UK tax registered in prescribed circumstances, which are likely to be those in which their members are able to receive UK tax relief on their contributions made from UK earnings, as is permitted in certain circumstances by HMRC.
The amendment and others in the group are concerned with ensuring that we support and encourage existing good-quality pension provision. We want to encourage employers to retain their existing pension arrangements, where those arrangements satisfy our
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We also want to ensure that the widest range of schemes can be offered as qualifying schemes, but with the necessary safeguards to protect members’ interests. Schemes operated outside the UK could provide high-quality benefits and we do not want to prevent employers from offering them. However, such schemes are not subject to FSA regulation of their operations. Therefore, it is important to ensure a robust regulatory regime for non-UK-based schemes if they are to be used under the employer duty.
With that in mind, Amendment No. 76 limits the application of the quality requirements set out in Clause 25 to UK-operated personal pension schemes whose operation is regulated by the Financial Services Authority. Amendment No. 81, meanwhile, brings in a new clause containing the power to prescribe in regulations the quality requirements for personal pension schemes whose operation falls outside the FSA’s regulatory remit. That is the case for non-UK-operated personal pensions.
Taken together, Amendments Nos. 76 and 81 seek to future-proof our policy by being clear what the quality criteria are for schemes whose operations are regulated by the FSA, while enabling us to cater for schemes subject to a regulatory regime outside the UK or schemes with features not common to UK schemes where that might be appropriate. That will allow the Secretary of State to respond flexibly to the widest range of schemes and enable employers to retain diverse, high-quality pension provision.
As a consequence of Amendments Nos. 50, 76 and 81, we are introducing a number of technical amendments to Clauses 18, 25 and 86, which make up the remaining amendments in the group. I hope that the Committee is in agreement with the proposals to support and encourage good-quality existing provision. I beg to move.
Lord Skelmersdale: Not being a tax expert like the Minister or my noble friend Lady Noakes, I am afraid that I have a few questions. I readily understand that there should be minimum requirements for pension schemes to be tax registered where they are indeed tax registered, but he said towards the end of our proceedings last week that the Government were interested in the total amount of money going into the schemes as a primary test. I think that that was at col. 1018; I am speaking from memory. I shall go into that in a bit more detail in a minute or two. Given that, it does not particularly matter whether you have a tax-registered scheme, so long as the total amount of money is at least equal to the minimum that the Government have set out in the Bill.
Another point occurred to me in listening to the noble Lord. I understand that the schemes that he is interested in under the amendments are not regulated by the Financial Services Authority. However, the regulatory part of the Bill is all about the Pensions Regulator. To what extent, if any, might they be regulated by the Pensions Regulator?
Lord McKenzie of Luton: The noble Lord raises two points about whether it matters if tax relief is available to a scheme. The starting point for having
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When we are talking about satisfying the quality requirements of money purchase schemes, the noble Lord is right in one respect. We are interested in the amount that goes in, not the basis on which it is calculated. However, that is a separate point. We are providing for schemes that expats might routinely be signed up to when they come into the UK. They are not registrable under the Finance Act 2004. Typically, there might be arrangements if there are corresponding schemes under which UK tax relief can still be available on contributions, but the provision that a qualifying scheme should be registered under Part 4 of the Finance Act 2004 is an important building block in the definition of qualifying schemes generally.
We are simply taking out and enabling a further qualifying arrangement by taking the power to look at circumstances of specific schemes that would not fit the criteria. If we do not do that, we could end up with a situation in which, when an expat was seconded into the UK to work and remained a member of their home-country scheme but that scheme could not be a qualifying scheme, there would be an auto-enrolment duty on the employer. That would not make much sense if the scheme that they were in were good quality. We are carving out an opportunity through regulation to be able to bring forward other criteria to facilitate that. It is no more or less than that.
The noble Lord also asked what, if the schemes were FSA registered or came within the FSA’s ambit, the powers of the Pensions Regulator would be. The new clause is wide enough if necessary to safeguard members’ interests by including regulatory requirements as part of the qualifying requirements. Those might include requirements relating to the regulatory jurisdiction that a scheme falls under. It is a process by which one can seek to ensure effective regulation, even if it is not regulation under FSA and UK arrangements. That is the purpose. I hope that that deals with matters satisfactorily for him.
Lord Skelmersdale: I am grateful to the noble Lord for answering questions that I sprung on him. I confess that I sprung them on myself, because I thought of them as he was speaking.
On Question, amendment agreed to.
[Amendments Nos. 51 and 52 not moved.]
Clause 15, as amended, agreed to.
6 pm
Baroness Hollis of Heigham moved Amendment No. 53:
The Secretary of State shall by regulations provide that a qualifying scheme or an automatic enrolment scheme shall allow a jobholder or worker to withdraw a tax free lump sum or sums during his or her working life.”
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The noble Baroness said: Obviously this is a probing amendment; almost equally certainly it is a technically deficient amendment. I would like to restart the debate launched by the party opposite—by Mr Willetts and Mr Rifkind in the other place—for a lifetime savings account. I was persuaded by their arguments, if not the technicalities. The point of raising it today is that it is appropriate to see whether there is any support among the political parties, business and industry for such a scheme, because unless there is it is obviously not going to go anywhere.
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