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While I have some sympathy with what the noble Baroness, Lady Noakes, has been saying, I think that her amendments promote inflexibility in personal accounts for the reason she outlined. Amendment No. 111B fixes in primary legislation the amount of the annual contribution limit at £3,600, which will mean that it is very difficult to vary it. The strict annual limit of £3,600 per year, uprated from 2005 prices, is very inflexible, given the Government’s other pension reforms, which have swept away and tidied up so many other pension rules. I understand that this annual limit is the result of consensus built up following the report of my noble friend Lord Turner. Were it not for that, I would be tempted to suggest no upper limit at all.

I do not think that this provision would crowd out the other schemes that the noble Baroness, Lady Noakes, talked about because it is targeted at a group of people who currently tend not to save at all and tend not to get involved in a private pension scheme. It is a bit like the levelling-down argument; I do not feel that this would damage the industry and I certainly would not wish to do so. I feel that it will not.

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Amendments Nos. 112A to 112C seek to set in statute what the Minister has already committed to—that transfers in and out should not be permitted before 2017. I have more sympathy with those amendments, given the consensus that personal accounts should be given a period of time to get established before we consider whether transfers in or out should be permitted. However, what happens if PADA or the wider pensions industry realises that some kind of flexibility is needed before 2017? It will not be possible to make that happen without another DWP Bill, and even then it would take a lot of time. For instance, this Bill will be in Parliament for almost a whole year before it gets Royal Assent. As Which? has already pointed out, one type of transfer into personal accounts will already be permitted: the unvested money when someone leaves an occupational scheme before reaching the end of the vesting period, usually two years. Meanwhile, the other place—especially a member of the noble Baroness’s party, John Greenway MP—has grappled with the thought that some people may have a legitimate reason for transferring funds out of personal accounts prior to 2017; migrant workers returning home, for example.

I do not like inflexibility. The object of my amendment is to build greater flexibility into the contribution limits of personal accounts. It is a probing amendment. I am not sure that the wording “must” is the best way to achieve this and accept that some work needs doing on it. However, the point is that we want people to save more. The contribution limits for personal accounts do not seem to encourage this on a voluntary basis.

I understand the Minister’s desire for simplicity. I also understand PADA's desire to be able to market a simple low-cost scheme to personal account members. The 4-3-1 idea outlined by Tim Jones is a form of “BOGOF”: buy one, get one free. If the employee contributes 4 per cent, the employer must contribute at least 3 per cent and tax relief tops it up with another 1 per cent. My amendment would not confuse that message of simplicity, as that message relates to those who are auto-enrolled into personal accounts and will be getting an employer contribution. My amendment would apply to those who made contributions voluntarily, who would not necessarily have an employer contribution. I should like to see greater flexibility there.

Specifically, the amendment would require the Government to prescribe additional contribution limits into personal accounts in addition to an annual contribution limit. Rather than “may”, they “must” do so; as I said, the wording needs some attention. The sort of additional limits I had in mind are a lifetime lump-sum limit, or a higher contribution limit in the first year; another would be to enable missed contributions to be made up at a later date, tying in with the amendment of the noble Baroness, Lady Hollis, which seeks to do just that.

Which? believes that to support saving in the run up to 2012, consumers should be able to put aside money for their retirement which would be then rolled into personal accounts in the first year; others have also suggested it. I know that the Minister is sympathetic, too—he indicated as much at the briefing session on the Bill that I hosted for Peers prior to Second Reading. More to the point, the Government's White Paper

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actually suggested a £10,000 limit in year 1. Perhaps the existing ISA vehicle could be used for this purpose in the two years leading to the “go-live date”—that is, from April 2010.

The Government should also examine the feasibility of establishing a lifetime limit in addition to the annual limit to allow consumers to pay in lump sums, such as an inheritance, redundancy payments or bonuses, or to make up missed annual contributions—the subject of the amendment of the noble Baroness, Lady Hollis. This sum could be around £50,000 across a member's lifetime. If this is not acceptable to the Minister, then I would agree with the noble Baroness, Lady Hollis, that personal account members should be able to, as her amendment says,

“make good the shortfall where contributions fell below the maximum amount in a preceding tax year or years”.

My simple amendment would be consistent with the Treasury's publicly stated desire for pension saving to be flexible. I could not put it better than HM Treasury itself when it concluded, in its review of pension tax simplification in 2003, that,

“those on modest earnings who leave their pension savings late will not find that they are restricted in the amount of extra contributions they can make each year”.

Perversely, personal accounts may fail this test without Amendments Nos. 111 and/or 112.

Which? research found that 70 per cent of people agreed that there should be flexibility about how much can be paid into a personal account. Flexibility will allow people who take career breaks, or who have fluctuating incomes, to make up contributions in other years.

Baroness Noakes: Can transfers be covered by an order under subsections (1) or (3) of Clause 61? I ask that because the noble Baroness, Lady Greengross, has spoken to transfers, which I was intending to deal with in the next group of amendments. If the Minister believes that subsections (1) or (3) of Clause 61, which are the objects of these amendments, can cover transfers in and out, I will need to speak to my amendments in the next group at this stage for the convenience of the Committee. Looking at the clause again, I was not quite clear whether existing powers could specify transfers in and out.

Baroness Hollis of Heigham: Without prejudicing my noble friend’s reply, even if they do I hope that the noble Baroness will resist the temptation to run those other amendments in with this. The group will just become too large; we are picking up three or four themes already. I would hope that the distinct issue of transfers would be separately addressed.

Baroness Thomas of Winchester: I support Amendment No. 11 of the noble Baroness, Lady Hollis. I am glad to be one of the usual suspects led by the noble Baroness whose mission in life in this context is to try to help low earners with irregular working lives, usually women, save enough for a better pension.

We on these Benches support the amendment, which, as we have heard, would allow employees to make contributions into personal accounts over and above

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the annual contribution limit in order to make good any shortfall in the preceding year or years. As the noble Baronesses, Lady Hollis and Lady Turner, have explained, this would particularly help women with broken work records in one year to top up their contributions as their circumstances improved in the next. It would also help older workers who will not start to save for a pension until 2012 and who will need all the help they can get to build up a significant pension by the time they retire. Neither should we forget what could be another group: those who have not been pensioned yet and leave it comparatively late to start saving for a pension because of debt problems at the start of their working lives. This last group may be graduates with student debt, whose earnings are generally expected to be quite high—but that will not necessarily apply to all graduates or all people with large debt problems.

Last week, we heard about the Government's plans to help women gain salary equality with men. Bravo for that, but in other fields there is clearly a long way to go before financial equality between the sexes is achieved. Women need the Government to understand how difficult it is for many of them regularly to put enough money by for a pension and why flexibility in the annual contribution limit for personal accounts is desirable, so that they have the option of making good a shortfall if their circumstances change.

To those who say that employees can find other pensions savings schemes besides personal accounts into which they can deposit any extra funds they have available, as the noble Baroness, Lady Noakes, said, research from the consumer organisation Which?, cited by the noble Baroness, Lady Greengross, shows that anyone wanting to make such contributions above the annual limit may struggle to find an appropriate pensions vehicle outside personal accounts. One reason is that the pensions industry does not offer cost-effective alternatives. Which? found that 52 per cent of people would be put off saving more by the,

“hassle of finding and opening a separate pension plan”.

Which? also makes the comment, which is worth repeating, that the Treasury, no less, was quoted as saying that those on modest earnings who leave their pension savings late should not find that they are restricted in the amount of extra contributions that they can make each year. That was in a paper entitled Simplifying the Taxation of Pensions of November 2003. Perhaps the right hand of the Government should take account of what the left hand is saying. I urge the Government to accept if not the amendment, then the spirit of the amendment.

6.30 pm

Baroness Howe of Idlicote: I have listened very carefully, but I cannot pretend that I have understood every word of what has been said. I certainly get a very strong message on Amendment No. 111, which was so ably moved by the noble Baroness, Lady Hollis. What comes over to me is that certainly we do not want to have competition for the poor old insurance industry in respect of large sums of money, which of course should go to the market and get the best price. It is clear that we are not talking about those. I hope that

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personal account pots will be attractive to women who probably would not be saving at all but for them. Certainly, if one looks at the older woman who has had far less opportunity to save, and we look at why the women are probably poorer—because they have been saving the state huge sums of money in their caring capacity—surely we should to a certain extent look at this as compensation.

It has been strongly stressed that there is a need for flexibility, which has come up on many amendments. In this area, it is surely absolutely right that there should be the possibility of paying in some lump sum that one might inherit, or if a husband gets an extra windfall that he is prepared for it to go to his partner’s pension. As Which? has said, if above all flexibility is what is needed and is seen as important by the people who go to Which?—my goodness, it has so much basic experience of this group of people that it really knows what it is talking about—surely we should back the approach of the noble Baroness, Lady Hollis. It may not be perfect, and she has admitted that nearly all the amendments are probing amendments. I, too, have some sympathy with what I think my noble friend Lady Greengross is trying to achieve.

I hope that the Government will look very carefully at allowing greater sums of money—be they £10,000 or £15,000 or as high as £50,000—if that is not going to get everyone in a state again about doing down the poor old insurance industry. I am very much one of the usual suspects here.

Lord Oakeshott of Seagrove Bay: I wonder whether I, as the first man to speak in this important debate, can join the usual suspects. We have been talking about the poor old insurance industry. I had a charming letter today from the Association of British Insurers thanking me for my contributions on previous days of debate. I appreciated that, but I do not think that I will be getting another letter from it on what I am about to say.

We on these Benches oppose the Conservative amendments. The noble Baroness talked about the fears of the Association of British Insurers and the industry about what I think she called a vortex, sucking in all manner of pension contributions. Frankly, if only anything could suck in more contributions from all around. Saving in this country has collapsed in the first quarter to 1 per cent of income. We should be very careful about restricting any vehicle that is efficient, low-cost and targeted to lower income people. As my noble friend Lady Thomas said, we do not really support limits as restrictive as they are here. It is a pretty open question whether there should be any limits at all on contributions into personal accounts, because we are desperately keen to encourage saving and we favour maximum consumer choice.

The noble Baroness, Lady Noakes, asked the noble Baroness, Lady Turner, why people would want to put extra money into personal accounts when they could have an ISA. As we have heard, there is the extra complication for people of doing so, but part of the argument is that personal accounts are low-cost and efficient. ISAs are quite expensive. The whole point of personal accounts is that it is a low-cost, straightforward scheme. Also, people, perhaps particularly women,

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might not want something that is too easily accessible. There is a certain feeling that people might want to tuck something away for their old age. Why are we restricting consumer choice here? I do not believe that the insurance companies should worry, except in so far as they are not behaving very well.

The Daily Mail last Wednesday pointed out that:

“Tens of thousands of savers with money in old work pensions are being hammered with higher charges”,

and that two of the main companies have put up the charges from 0.4 per cent a year to 0.75 per cent and from 0.37 per cent to 0.67 per cent respectively. This is where people have moved on, have small pots left in old schemes and are in a sense trapped in those schemes. It is perfectly reasonable and it is a good competitive position that if they are being squeezed in that way and if they want to do so, they should be able to take the money out and put it into personal accounts. The insurance industry should not worry so much. Personal accounts are here to help. They maximise consumer choice and they will particularly help low-paid people and women with broken records who are not saving for a pension. We should be much more positive about them.

We have heard already, and I will not repeat, the very good points made by the members of the People’s Pension Coalition, which we support. I remind noble Lords of the report on personal accounts by the Work and Pensions Select Committee in another place, which was very much encouraging last year a more open and less restrictive attitude. I will not read them out, but there were responses from the Government at that stage looking at additional contributions and additional flexibility. I would be interested to know where the Government’s thoughts have got to on that. We are very much in favour of opening things up and de-restricting. Heaven knows any form of pension saving in this country must be made as easy as possible.

Lord McKenzie of Luton: I thank everyone who has spoken in this debate; the usual suspects plus one. It has been fascinating, and it has covered a range of different views and perspectives. My role as Minister is to disappoint everyone. I say to the noble Baroness, Lady Greengross, that to quote Treasury edict to DWP Ministers is grossly unfair.

It has always been our aim that personal accounts schemes should complement rather than replace good pension provision. As noble Lords are aware, we have made a commitment to introduce a number of measures to focus the personal accounts scheme on the target market of moderate to low earners. The key measures in this respect are an annual contribution limit and a general ban on transfers to and from the scheme. To deal with the question asked by the noble Baroness, Lady Noakes, about where transfers fit in, a ban on transfers into personal accounts, subject to the exceptions, will be in the scheme order, and transfers out will be prohibited under Clause 111. Clause 61 is to do with contribution limits, and those are the mechanisms to deal with transfers.

As I said, the key measures in this respect are an annual contribution limit and a general ban on transfers to and from the scheme. Clause 61 provides for the

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introduction of the contribution limit and the review of that limit in the future. I have listened with great interest to the points made on all sides of the Committee. Contribution limits are clearly a key issue for all who have spoken, and I know that interest is not limited to this House. Throughout the development of the personal accounts policy, we have listened to the views of a wide range of stakeholders, and the clause is a direct response to the consultation.

The Opposition may believe that I overuse the word, but I cannot think of a better example of establishing consensus than in the development of our policy around contribution limits. The majority of stakeholders agree that a balance has been struck between, on the one hand, focusing personal accounts on the moderate to low earners and not impinging on good-quality existing provision and, on the other hand, making sure that personal accounts can cater for the needs of their members. We are committed to an annual limit of £3,600, but based on 2005 earnings, which will be uprated in line with earnings to 2012 and beyond. This gives assurance to pension providers that personal accounts cannot take the place of existing products but will enable saving beyond the minimum for the majority of personal accounts.

Baroness Noakes: The Minister will be aware that other figures have been talked about by his honourable friend in another place. The pension industry is concerned about the level of that and indeed is content with £3,600 uprated in line with earnings. There is a lack of clarity. Would the Minister not consider putting this—with the appropriate formulation so that it calibrates itself correctly—on the face of the Bill?

Lord McKenzie of Luton: I do not see that we need to do that. The £3,600 figure has been around now for a while. I know it started at £5,000, there was a big debate around it and there is still discussion about a one-off £10,000 contribution and a lifetime limit. I will come to that. The £3,600 has, however, been around for some time. We are committed to it. I believe stakeholders know where we stand. I cannot believe there is any misunderstanding out there. If there is, we are always happy to seek to clarify and to confirm the Government’s position. We have, however, been very clear on that for a long while.

The £3,600 limit gives assurance to pension providers. Personal accounts, as I said, cannot take the place of existing products but will enable saving beyond the minimum for the majority of personal account members. Even somebody earning above the upper limit of the earnings band would receive about £840 per year in employer contributions and, coupled with the employee contribution including tax relief, this would increase to £2,240. This leaves ample headroom for both employers and employees to contribute more if they so choose. My noble friend Lady Hollis talked about someone on half median earnings with contributions of £1,000, which leaves considerably greater headroom.

I will now turn to the amendments on Clause 61. Amendments Nos. 111, 111C and 112 all address the issue of a lifetime contribution limit. We considered the concept of allowing a further limit to run alongside

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the annual limit as part of our White Paper consultation and decided that allowing such a facility warranted further consideration and discussion with PADA. Consequently we have allowed for a discretionary power on the face of the Bill. Allowing for saving beyond the annual limit has merits, as my noble friend Lady Hollis and the noble Baroness, Lady Greengross, have described, as have others. Such a facility may help women and others who take career breaks to undertake caring responsibilities who may wish to make additional contributions in later years to compensate for this shortfall. We are still considering this facility but we need to bear in mind the need to avoid additional bells and whistles when the scheme is introduced. Each additional design feature will add costs, which will be paid for by the scheme members. It is also important to remember, as I said earlier, that the annual limit provides considerable scope anyway for one-off payments.

The Personal Accounts Delivery Authority has provided us with detailed advice on the cost and operational complexity of introducing a lifetime lump-sum facility. We are considering its advice carefully and will make our decision in due course. Amendments Nos. 111, 111C and 112 would pre-empt this decision and limit flexibility to return to this important issue at a later stage—for example, as part of our 2017 review—on the basis of further evidence.

6.45 pm

Amendment No. 111A aims to fix a maximum level of employer contributions into the personal accounts scheme and Amendment No. 111B seeks to put the annual contribution limit on the face of the Bill. There is a general requirement for employers using occupational money purchase schemes, including the personal accounts scheme, to contribute at least 3 per cent of employees’ qualifying earnings. Amendment No. 111A would set the level of the employer’s contribution for the personal accounts scheme at 3 per cent, effectively prohibiting employers from paying more should they wish. That is the import of the contribution of the noble Baroness, Lady Noakes.

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