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(a) the effect of provision made under section 69 (maximum amount of contributions),
(b) the effect of any restrictions on rights to transfer into the scheme or transfer out to another pension scheme, and
(c) such other matters as the Secretary of State may direct.
(a) 1 January 2017;
(b) the end of five years beginning with the first day on which contributions are paid to the scheme by or in respect of members.
(a) prepare a report of the review, and
(b) send a copy of the report to the Secretary of State.
The noble Lord said: My Lords, as noble Lords will be aware, we are committed to a review of all aspects of the personal account scheme in 2017. When we debated this issue on Report, my noble friend agreed to consider putting that commitment in the Bill. Following this consideration, the amendment puts into the Bill a requirement for the Secretary of State to commission an independent review of the features of the personal accounts scheme that are designed to focus it on the target market; specifically, the annual contribution limit and the prohibition of pension fund transfers to and from the scheme. As my noble friend explained, the review will consider these policies and gauge whether they have been effective in focusing the scheme on its target market without detriment either to the scheme or to its members.
We also debated whether the scope of the 2017 review should be extended to include other issues. My noble friend Lady Hollis, for example, suggested that it should consider voluntary contributions on earnings below the contributions bands. We agree that it might be right to include other issues in the review. We have therefore included in the amendment scope for a future Government to decide the exact remit of the review. This is not something that we can or should decide so
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We have always been clear that it is our aim to have a review in 2017; that is, five years after the scheme became operational. We see no reason why the scheme would not become operational as planned, but the amendment, in line with the spirit of the amendment tabled by the noble Lord, Lord Skelmersdale, and the noble Baroness, Lady Noakes, on day one of Report allows us to ensure that there will be a gap of five years between the scheme becoming operational and the date of the review.
On Report, the noble Lord, Lord Skelmersdale, expressed interest in how we would define operational. The amendment makes it clear that it means the first day on which contributions are paid to the scheme by or for members. This ensures that the timing of the review is tied to when the scheme starts to act in its capacity to accept contributions and invest them for its members.
Our approach, on both the scope and the timing of the review, is to make clear our intentions but to allow for all eventualities. We believe that this is the right approach when developing pensions policy for the long term without the benefit of hindsight. I beg to move.
Lord Skelmersdale: My Lords, I must first express my gratitude to Ministers for accepting that it would be right to put the review into a formal setting in the Bill. However, the amendment is a lot more definite than mine was. For one thing, the word must appears four times in it. I have never, in all my time in your Lordships House, seen any Act of Parliament, which this Bill will become, with the word must in it four times.
The Government are still maintaining what my noble friend and I believe is a fictionthat personal accounts will start on or about 1 January 2012. I do not think that they will, so I was surprised to see in proposed new subsection (2) that the appointment of the individual to conduct the review, and the review itself,
Baroness Hollis of Heigham: My Lords, I obviously welcome this amendment. I, too, am puzzled at the use of the word must rather than shall, which is conventional parliamentary counsel language, but no doubt it is desirable if it adds extra emphasis. Subsection (1)(b) of the proposed new clause refers to,
Does that mean that, despite my understanding of the assurances from the Minister about the departments approach to stranded pots, nothing will be done before 2017 and only then will it be reviewed; therefore, any action may take until one or two years after that? People may find that any money they put into a personal account between 2012 and 2017 could end up being a stranded pot because they cannot move it into another pot that they already hold. I should like some assurances that stranded pots will be dealt with as of now and not postponed to 2017. It is an injustice. It is institutional theft of money and should not happen.
All this is on the accountability of the Secretary of State to Parliament once the report has been completed. Will my noble friend assure me that, as regards the scope of such a report, there will be either a letter to which we can respond or, better still, a debate or some other format so that Members of your Lordships House can add to the shopping list of issues to be reviewed in the report and not merely depend on such other matters as the Secretary of State may direct? I could conceive that the views of the Secretary of State as to what should be reviewed could be at odds with what many of your Lordships might wish to see reviewed. I do not want to see those issues missed because the power lies exclusively with the Secretary of State to determine the reports content. I ask my noble friend to assure us that vehicles will be devised, of whatever form, for this House and, no doubt, the other place, as well as other stakeholders and players in the field of pensions, to have input on the issues of concern to the person handling this report, back to the Secretary of State and then on to Parliament.
Lord Oakeshott of Seagrove Bay: My Lords, I shall, rather than must, speak on this amendment, which we on these Benches support, as we supported with our votes the original amendment tabled by the noble Lord, Lord Skelmersdale. I also strongly support what the noble Baroness, Lady Hollis, has just said about stranded pots. That has been one of the cop-outsI hope that I can put it that wayin this Bill. It is very unsatisfactory that it has not been dealt with and I hope that we do not have to wait for five years or, if the crystal ball of the noble Lord, Lord Skelmersdale, is right, even longer, before action is taken to rectify this, as the noble Baroness puts it, serious injustice.
Lord Tunnicliffe: My Lords, I thank the noble Lord, Lord Skelmersdale, for counting the musts. Apparently we are at a watershed and parliamentary counsel has changed its general view from the word shall to must. Noble Lords here are the first to note it. I hope that I do not have to withdraw any of these words, but that is what my note says. I understand that our commitment is not to 1 January 2012 but to during 2012. We continue with confidence that we will achieve that.
We have given a series of assurances during the passage of this Bill on stranded pots and other matters. This amendment in no way modifies those assurances. This is an enabling amendment and does not in any way limit the commitments we have already given. I am not willing to give a specific assurance about how we will handle the scope. That will be for 2017. But
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The noble Lord said: My Lords, I shall also speak to the other amendments in this group. They have similar wording and intent, but the amendments to Clause 80 apply to financial provisions for the delivery authority while those to Schedule 1 are to provisions for the trustee corporation.
There has been considerable interest in the financial arrangements for the personal accounts scheme during the passage of the Bill through the House. I recognise the legitimate concerns raised by a number of noble Lords, particularly the noble Baroness, Lady Noakes, that there must be adequate protection for the taxpayer. That is the Governments intention but I accept that there is scope to make that clearer on the face of the Bill. On Report I undertook to look again at the financial provisions in Clause 80 and Schedule 1, and as a result I have tabled these amendments to the finance provisions in the Bill to make clear that any financial assistance that the Secretary of State may make to the delivery authority or the trustee corporation will be consistent with general rules on government lending. In particular, the amendments specify that any loans must attract an interest rate consistent with the conditions that would apply under Section 5 of the National Loans Act 1968; that is to say, at a minimum they must cover the Governments cost of borrowing. The amendments therefore reinforce our policy commitment to delivery the scheme at nil cost to taxpayers and that the scheme should be self-financing over the longer term. These amendments give Parliament further reassurance of the Governments intentions with regard to funding the personal accounts scheme. I beg to move.
Baroness Noakes: My Lords, I thank the Minister for bringing forward these amendments, and in particular for clarifying the basis on which loans should be made, which follows in part a suggestion I made in one of my amendments on Report. The Bill still allows non-commercial terms to grants to be made to either the delivery authority or the trustee corporation when that is up and running. I simply note for the record that we on these Benches do not accept the concept of a universal service obligation necessitating long-term subsidy for the personal accounts scheme, but we are grateful for these amendments.
Lord McKenzie of Luton: My Lords, I am grateful for that support. I note that the noble Baroness has not changed her position on the universal service obligation that we believe these provisions imply, but that is a debate that will doubtless continue.
(c) in the case of a loan, must be given on a condition requiring the loan to be repaid with interest at a rate approved by the Treasury.
(3) Section 5 of the National Loans Act 1968 (rates of interest on certain loans out of the National Loans Fund) has effect as respects the rate of interest on a loan under this paragraph as it has effect as respects a rate of interest within subsection (1) of that section.
20: Clause 97, page 50, line 9, at end insert or (where section 9 applies) a worker in relation to whom there are direct payment arrangements (within the meaning of section 111A of the Pension Schemes Act 1993 (c. 48)) between the worker and the employer;
(1) The Secretary of State must carry out a review of the operation of sections 38A and 38B of the Pensions Act 2004 (c. 35) (which were inserted into that Act by paragraph 2 of Schedule 9 to this Act) during the period of 4 years beginning with the day on which that paragraph fully comes into force (the commencement date).
The noble Baroness said: My Lords, this amendment would introduce a new clause after Clause 124. I should state at the outset that I am quietly confident that the Minister will look kindly on it, not least because I accepted all the Governments helpful drafting amendments. Clause 124 and the associated Schedule 9 introduce amendments to the Pensions Act 2004, the most significant of which is the new material detriment test for contribution notices in Section 38A and its associated due diligence defence in Section 38B. I will not go over the history of this; suffice it to say that we welcomed on Report that the Government had rethought this approach, and in broad terms we supported what is now in Schedule 9.
On Report, however, my noble friend Lord Lucas and I raised a number of specific concerns with the Minister, based largely on concerns raised with us by organisations such as the Confederation of British Industry, the British Venture Capital Association and several professional advisers. The Minister gave a number of helpful replies, which was appreciated by both the House and those outside who follow our proceedings.
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The provisions can apply to individuals. Will they be used in that way in practice? Will directors and others start to behave in a risk-averse way against that possibility? We are promised that there will be guidance to cover the concepts of likelihood and materiality, which are an integral part of the material detriment test. Will that guidance in practice prove satisfactory and easy to apply? The statutory code of practice contains a list of circumstances in which contribution notices might be issued but does not preclude the regulator from issuing contribution notices in other circumstances. Will that happen in practice, thus undermining the usefulness of a code? The defence in Section 38B is not framed as an objective test but rests on the regulators judgment. Will it in fact protect those whom it is intended to protect?
There is also an overarching issue in that several of the concerns we aired were met by a ministerial response that the regulator had to act reasonably. We need to see what that means in practice because one mans reasonableness can be anothers irrationality. We also had a debate about what reasonably actually means in practice. Is it reasonableness in the context of the regulators own duties or is it set in a broader context? Our advisers say that there is no settled case law on this, so we need to see how the regulator will in fact behave.
In the light of all this and some other detailed points, I felt that a review of the workings of the new sections was not an unreasonable thing to put in the Bill. A review would need to establish whether the new sections did in fact help to protect pension funds and the PPF from the unreasonable acts of employers in the areas set out in the code, but there is the other side of the coin in the impact that the new sections will have on commercial life. Will, as some suggest, the new provisions stop beneficial corporate transactions from happening where a defined benefit scheme is involved? Are there any unintended consequences such as exponential growth in indemnities and warranties with associated complexity and cost? Will the volume of clearance applications be high or low? Will they be handled expeditiously, and will they cost a lot or very little?
The amendment does not require it, but I hope that the DWP would consult broadly in carrying out the review required by this amendment. It may be that the fears expressed to us will prove completely unfounded, but it is no bad thing to search for that answer.
On timing, the new clause asks for the review to be carried out after four years, with a report available within 12 months from that. I confess that I would have liked a review to start sooner, but I have accepted the Governments opinion that a meaningful review would need the time-frame set out in this amendment. I look forward to the Ministers response and I beg to move.
Lord Oakeshott of Seagrove Bay: My Lords, this allows what seems to be a reasonable time to elapse before the review is carried out, and when all is sweetness and light in this way between the Government and the Official Opposition Front Bench, far be it from us to interfere.
Lord McKenzie of Luton: My Lords, I thank the noble Baroness for tabling the amendment and I thank the noble Lord, Lord Oakeshott, for his support. I shall start by saying that the Government accept the principle that the operation of new Sections 38A and 38B should be kept under review. These are new provisions and we want to ensure that they operate as intended, which is to provide adequate protection for members and the PPF, and that they do not have unforeseen consequences for business. Under current arrangements, these provisions will be monitored by the regulator and the department. The regulator will want to keep the operation of the anti-avoidance measures under regular review, as they have an important role in encouraging appropriate behaviours. These powers will also be overseen and evaluated by the department as part of the regular liaison between the departments officials and the regulator. This regular review will assess and evaluate the operation of policy and legislation alongside formal performance reviews and liaison at senior official and ministerial levels.
The Government recognise that stakeholders and the Opposition have raised a number of concerns about the operation of these provisions. Unless the noble Baroness presses me to do so, I will not go back through them, as they are on the record, but I would be happy to try again if she so wishes. However, concerns have been raised about the operation of these provisions in respect of whether there will be any unintended consequences, in particular that, while deterring what we would all agree is bad practice, they should not operate unreasonably to deter genuine and desirable corporate activity. I appreciate that there may be a desire for a commitment in the Bill for the department to carry out a review to ensure that the policy is operating as intended. Therefore, we are content to agree to the noble Baronesss amendment seeking a formal review with a report to Parliament. This will put beyond doubt our commitment to evaluate the operation of these provisions.
On the time period, two years is too short; four years is a more realistic and appropriate timeframe for a review. It is important to allow time for the legislation, the regulators code of practice and its guidance to bed in and for these to be tested in operation. A period of four years will provide the regulator with an opportunity to properly implement the amended powers and for employers and those who advise them to become more familiar with the regulators approach. A four-year timeframe will ensure that the immediate and longer-term impacts can be properly considered, based on a robust and substantial body of evidence.
Following the introduction of the 2004 Act moral hazard provisions, there was a period during which the market adapted to the legislation. It is important to note that the regulator experienced an initial high volume of clearance inquiries as the market responded to the 2004 Act changes. This has since stabilised and there has been a decline in clearance inquiries since 2005. Similarly, there may be an initial increase in inquiries relating to the amended powers, but we expect that this will decline over the longer term. We therefore believe that a review after four years would better ensure that the business community has had sufficient opportunity to understand the new powers and that
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