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Baroness Turner of Camden: It simply remains for me to thank the Minister for that detailed explanation. I am, of course, aware of much of what he said. But it still does not settle all my worries about the disappearance of the GMP test. For one thing, it is argued that the GMP test is too complicated. If it were so complicated, why did the Government decide in 1988 to abandon the requisite benefits test and instead maintain the GMP test? I believe they did so at that time because they saw its value as an individual guarantee to the individual scheme member or the individual worker.

The Minister referred to the solvency test and other guarantees available. The requisite benefits test, and so on, are guarantees of the scheme itself, not to individuals. I believe that that is terribly important. I do not think that there is any point in pressing the issue to a vote at this stage, but I am unhappy about the whole section of the Bill. I am very much afraid that it could leave some poor people worse off than they are at present with the GMP test. As I said in my opening remarks, whatever else we do, whatever pension reforms we endorse, we should seek to ensure that the worst paid and the worst off will not have their conditions worsened as a result of what is done in the Bill.

Moreover, it seems to me that although the Minister made much of the complications of the GMP test, with modern computerised administration the complexity and difficulties of handling it have been rather exaggerated. My recollection is that the Occupational Pensions Board progressively eased enforcement procedures, as it did while I was a member. No doubt what it has been doing will be taken over by the DSS which could continue the policy.

I do not intend to divide the Committee at this stage, although I am not happy with the Government's response. I shall read it carefully in Hansard.

Clause 120 agreed to.

21 Feb 1995 : Column 1051

Clause 121 [State scheme contributions and rebates]:

Lord Lucas moved Amendment No. 184C:

Page 72, line 35, after ("made"") insert:
("( ) in subsection (5), for "alteration" there were substituted "determination"").

The noble Lord said: The purpose of the amendment is to replace the word "alteration" with the word "determination", so far as the report under Clause 42(1) (a) of the Pension Schemes Act 1993 is concerned, in recognition that the rebate percentages following the first review of contracting out terms after the passing of the Bill will be set for the first time under the terms of the new contracting out system. I beg to move.

On Question, amendment agreed to.

Lord Lucas moved Amendment No. 184D:

Page 73, line 18, at end insert:
("( ) If the Secretary of State pays an amount under subsection (3) which he is not required to pay, he may recover it from any person to whom, or in respect of whom, he paid it.").

The noble Lord said: In moving Amendment No. 184D, I wish to speak to Amendments Nos. 184E and 184F. Amendment No. 184D allows the Secretary of State to recover any erroneous payments of "top-up" age-related rebate made to contracted-out money purchase schemes. A similar power is already in place in primary legislation for rebate payments made direct to appropriate personal pension schemes. Those are used principally in the case of incorrect earnings information supplied by employers.

Such overpayments may be recovered from the scheme to which the rebate was paid or the scheme member. Under the new arrangements for direct payments of age-related rebates by the DSS, overpayments can be recovered and the national insurance fund protected.

Amendments Nos. 184E and 184F concern the age used to determine the rate of age-related rebates payable to members of contracted-out money purchase schemes and holders of appropriate personal pensions. As drafted, the Bill would lead to someone born on 6th April receiving a higher rate of rebate than they would strictly need to compensate for the SERPS forgone in that year and so higher than other contracted-out money purchase scheme members born in the same tax year. The amendment corrects that anomaly. I beg to move.

On Question, amendment agreed to.

Lord Lucas moved Amendment No. 184E:

Page 74, line 8, leave out ("first day of the") and insert ("last day of the preceding").

On Question, amendment agreed to.

[Amendments Nos. 184EA and 184EB not moved.]

Clause 121, as amended, agreed to.

Clause 122 [Minimum contributions towards appropriate personal pension schemes]:

4.15 p.m.

Baroness Hollis of Heigham moved Amendment No. 184EC:

Page 75, line 3, leave out subsection (2) and insert:

21 Feb 1995 : Column 1052

("(2) In subsection (1), for "41(1)" there is substituted "42B(1)".").

The noble Baroness said: This amendment is quite technical. Basically, it is along the lines of the level playing field and it is intended to stop a subsidy being paid to personal pension providers by national insurance contributors. As worded at present, the Bill will ensure that age-related rebates paid to appropriate personal pensions will be higher than for those people who have a contracted-out money purchase scheme. That is because the Pension Schemes Act 1993 provides for the two rebates to be calculated separately so as to reflect the cost of providing benefits. Thus, as the costs of personal pensions (especially the costs of administration and marketing) are higher than in a money purchase scheme, the rebates will be higher.

I believe that from recent information we all accept that the typical level of expense of a personal pension can range from 15 per cent. up to 30 per cent. of the contributions in administration and selling costs alone. However, the cost of a money purchase scheme is often below 10 per cent. of the contributions. So it seems unfair to us that holders of an appropriate personal pension should receive a higher rebate simply because they have chosen the higher cost form of provision with higher commission charges, which is favoured by the Government. That is particularly bearing in mind that it comes from the national insurance scheme. I beg to move.

Lord Mackay of Ardbrecknish: As the noble Baroness explained, the amendments seek to have the same age-related contracted-out rates for appropriate personal pension schemes and contracted-out money purchase schemes. We believe that there need to be different levels of rebate.

The rates set for occupational schemes might be expected to be lower than those for personal pensions schemes for two reasons. First, the different types of schemes have different levels of expenses. While personal pensions and occupational schemes are both money purchase arrangements, there are significant differences which affect the expenses incurred. The rebates will need to reflect that fact.

Most fundamentally, occupational schemes relate to a particular employment, whereas personal pensions are entirely individualised. This means that occupational schemes would generally be expected to incur lower expenses due to economies of scale. Each member of an occupational scheme has his own fund and all the members will work for the same employer. Their contributions can be collected from the same payroll and so on. Personal pensions are entirely individual, as I have said, and can thus be expected to incur greater expenses. The Government Actuary will be asked, in advising on the levels of age-related rebates, to make allowance for the reasonable costs and charges of the more efficient personal pension providers.

Secondly, for administrative reasons, members of occupational schemes and their employers will receive part of the rebate during the course of the tax year. This will be in the form of a reduction in their national insurance contributions. The balance will be paid after the end of the tax year. For personal pensions, the whole

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rebate will be paid after the end of the tax year. This means a loss of investment return on the rebate, which will also be taken into account in calculating the rates.

The net effect of these differences is that the rebate for occupational schemes is expected to be lower than for appropriate personal pension schemes. It is important to remember that the rebate is intended to represent the amount which will need to be invested to replace the SERPS given up. If the rebate is insufficient to do that it will generally not make sense for someone to contract out through that route.

In the scenario proposed in the amendment, it would be personal pensions which would be expected to receive a lower rebate. It could well be insufficient to replace the SERPS given up. The majority of personal pension holders would, in these circumstances, be best advised to return to SERPS. It is important to remember that a personal pension is the only alternative to SERPS for many people. So there would be a reduction in choice and a greater burden would be placed on future generations through increased SERPS liabilities. With that explanation of what we propose in that part of the Bill and of the effects which the noble Baroness's amendments would have, I hope that she will be able to withdraw Amendment No. 184EC.

Baroness Hollis of Heigham: I thank the Minister for his reply. I should like to take up a couple of points. First, he said that there needs to be a different subsidy—that is what we are talking about —because personal pensions have different levels of expenses and rebates (I quote his phrase) "need to reflect that fact". They do not. That is a political decision by the Government and a personal decision by the individual. If they choose that flexibility, they must expect to pay the price for having an individually tailored personal pension scheme. There is no justification whatsoever for us, as taxpayers and contributors to the national insurance scheme, to subsidise that choice.

Earlier, when we discussed state financing of the regulator and when it suited the Minister, he was insistent that because only half the population were in occupational pension schemes, the whole population should not pay for regulation. Now, when it comes to personal pensions and we are dealing with perhaps one-fifth of the population in such schemes, it suits the Minister to argue that all of us should help to subsidise the cost. I hope the Minister realises that we shall be quoting back at him the need for the public to subsidise the particular interests of a less than complete minority when we return to this issue. He cannot have it both ways. It is a political decision by the Government to set preferential terms in order to bait people into personal pensions with our money.

My second point is this: it would be acceptable if personal pensions were indeed directed, and limited effectively, to those groups. I accept that there are those who need personal pensions. I think we all accept that for the highly mobile, the self-employed, and in some cases the highly paid, personal pensions make a suitable form of provision for their old age. But with rebates such as this, the Government have bribed people with their own money into schemes that are unsuitable. For

21 Feb 1995 : Column 1054

example, those in the public sector, miners, nurses and teachers have been bribed to give up good occupational schemes, and sometimes SERPS, to go into personal pensions for which they are clearly not suited and for which they will receive reduced benefits. Moreover, personal provision has gone not to the better-off, but to the low-paid. The average income of a man on a personal pension is below £10,000 a year; that of a woman is below £7,000 a year. In consequence, merely rechurning the rebates that the Government will give will not produce security against poverty in old age.

What is the option? Either you have to confine the target audience for personal pensions, increase the rebates or require an additional contribution. The Government, for ideological reasons, are not willing to do the first; at our expense they propose to do the second; and we, at a later stage, may return with an amendment to do the third. The only way that personal pensions will provide suitable protection against poverty in old age is if, in addition to rebates, those who contribute to them make a personal contribution of at least 5 per cent. out of their own earnings. Unless they do that—and two-thirds presently do not—they will continue to suffer poverty.

What the Minister is saying is that he will use our money—the taxpayers' money—out of national insurance to lift up the rebates for personal pensions to cover sales costs because personal pensions, otherwise, are too poorly directed and will produce too low a return for people in their old old age.

The right response to that problem is not to put up the rebates. It is, instead, to ensure that personal pensions are taken out only by those for whom they are suitable, and then only with the addition of a personal contribution from the individual holder of a particular scheme. I suspect that we shall return to this matter at much greater length on Report. But let the Minister not think that this issue is ideologically neutral. The Minister is continuing to encourage people to go down a road which we already know to be full of pitfalls for ordinary people. In human decency, he should not continue to do that. But I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 184ED not moved.]

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