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Lord Higgins: I am grateful to the noble Lord for giving way. If he is advocating compulsion in that sense, does he feel that there needs to be some protection to ensure that the pension which is eventually paid is above the level of minimum income support?
Lord Goodhart: In principle, yes. If it was contributed over a lifetime of work, that would be the case. However, some people might be in employment for only a relatively short period of time and then might unexpectedly lose it. They would be unable, therefore, to build up enough rights. But I would certainly hope that the level of contribution would be such that people who had been in employment for most of their working lives would be at a level above income support.
Without proposals of this kind, stakeholder pensions will never guarantee proper pensions for those in the lower and middle earnings ranges--that is, £12,000 to £25,000 a year. I hope the Government will accept that they need to move in the direction which I have proposed.
Lord Freeman: I have considerable sympathy with the amendment moved by the noble Baroness, Lady Turner. I think that her diagnosis is right. We need to encourage employers to make a contribution to pension provision for their employees. But I think that her cure is wrong. I have proposed an alternative route in Amendment No. 17, which seeks to permit dual membership. I believe that the noble Baroness's amendment is flawed because, as the noble Baroness, Lady Castle, said in a powerful speech on the earlier amendment, we must do everything we can to ensure that we do not move away, or encourage a movement away, from defined benefit to money purchase schemes which are cheaper for the employer to contribute to but are a poorer deal for the pensioner.
The noble Baroness's amendment might encourage employers to close a defined benefit occupational pension scheme and make the minimum contribution to the stakeholder pension scheme, which is a money purchase scheme. That would help the cashflow and the cost base of the employer but it would be to the detriment of the employee. I strongly believe that
Lord Peston: All my emotional instincts are to support my noble friends on this proposal but I think that there is a small problem with the economics of it which I feel obliged to draw to the Committee's attention.
First, as a broad principle, the pension received by the average worker will in any system be paid for in full by the worker. Unless one believes that switching from one system to another--for example, from a state system to a stakeholder system or to an occupational pension scheme--leads to an economic revolution and suddenly the economy improves beyond all recognition, there are no free rides. In other words, all pensions are paid for. In general, the average person pays for what he or she receives. One hopes that in a decent system the rich finance the poor. I have made that point previously. I agree that it may be highly controversial to noble Lords opposite, but it has never been a problem for me. That is one part of the background. I shall say more about the numerical consequences in supplementing the points drawn to our attention in an important way by the noble Lord, Lord Goodhart.
The difficult economics question is: who pays the employer's contribution? The naive view is that the employer does. I have spent my life teaching economics and pointing out that that is not true; the worker does. The noble Lord, Lord Goodhart, has already alluded to that. The employer's compulsory contribution is simply part of the remuneration of a worker. In any reasonable labour market, unless the employer has monopoly power to a degree that I do not think employers have even in our system, the worker pays. I am not against the compulsory approach, but we should not mislead workers into believing that they are getting something for nothing. They are not. So there is nothing wrong with the idea of compulsion--
Lord Freeman: There is a difference, is there not, between an occupational pension scheme where the employer makes a contribution to the deferred pay of the pensioner in addition to the employee's contribution and a stakeholder pension where the employee pays the whole amount?
The noble Lord, Lord Freeman, raises another important point in his Amendment No. 17 which also enables me to reveal my ignorance. It had never occurred to me that the problem that he mentions was a problem. It had never occurred to me that people could not have more than one pension. It may be convenient for my noble friend Lady Hollis to elaborate on the point in replying to this amendment. As someone who believes that saving and deferred pleasures are good, I had taken it for granted that the more pensions a person has and the more a person saves, the better--for the very good psychological reason that I prefer not to be dependent on anyone else, not least the state.
Perhaps I may make a remark on a subject that intrigues me. Again, it relates to the point that people pay for what they get. In broad terms, I have assumed that if one is in full employment for 40 years, and lives for 60 years, essentially one's contribution would be approximately one-third. That is what would be taken out of one's pay. But then we switch to the fact that one would not require equal consumer spending through life. We divide the final part by two, and we get the state pension of approximately half of average earnings; so we get to 15 per cent. It seems to me that, assuming that one has paid for one's house, that part can be knocked off, plus paying for one's dependants, and one ends up within the range of 10 to 15 per cent of income as the likely contribution procedure. I believe that that is what the noble Lord, Lord Goodhart, had in mind. For those of us who have lived through university life, that has broadly been the case. I think I contributed 5 per cent and my employer 10 per cent, but I know that I actually contributed the whole 15 per cent. If my contribution had been nought, I should simply have received 15 per cent less income in the first place.
The numbers are manageable. My real point is this. Let us assume that we do not have stakeholder pensions--which I support--but pensions on a fully taxed basis. We are then talking about adding 10 per cent to the standard rate of tax. In other words, to repeat my point, one gets nothing for nothing; one gets something for something.
In conclusion, compulsion is vital. The noble Lord, Lord Goodhart, made a telling point. I should like to see it done by way of some compulsory employer contribution. But I do not think that any of us in this House should even remotely mislead our fellow countrymen and cause them to believe that even this great Government have devised a scheme whereby everyone can be better off when they are older without contributing anything while they are working.
Lord Stoddart of Swindon: I tend to support the amendment. I believe that it is necessary for employers to make a contribution to a pension scheme--a stakeholder scheme or call it what you will. I do not quite agree with my noble friend Lord Peston that in the field of pensions people cannot get something for nothing.
One great problem is that there are people at the present time, as Frank Field explained, who are in fact getting something for nothing because neither they nor their employers contribute to any basic pension scheme. The result is that when the many people who have paid contributions into a private pension scheme all their life and have forgone income as a consequence reach 60 or 65, they find that there is a range of state benefits that are not available to them because they have paid for their own pensions but which are available to those who have not paid any contributions--those people gain twice: they have not lost the income earlier in their life but they receive the benefits at the end of their life. That is the argument for compulsion. I believe that it will be absolutely necessary if any scheme is to stick over a long period of time.
I am sure that the Government are doing their utmost to bring forward a scheme that will be beneficial and lasting. Although I appreciate the difficulties in relation to businesses, I fear that if the scheme is not made compulsory it will break down for the reasons I have mentioned.
My noble friend is also right in saying that employers never pay. It is the employee who always pays. I know that to be the case. When I used to negotiate with the CEGB on the Electricity Council, and when I attempted to grind some extra wages out of the employers, they said to me, "Ah yes, Mr Stoddart, but you must not forget the large contribution that the CEGB and the electricity boards pay into the pension fund". So I appreciate what is being said.
Nevertheless, for many of the reasons that have been mentioned, I believe that the employer should be part of the stakeholder pension scheme. The employer should have some influence on the provision, not only of a livelihood for the personnel throughout their lives but also to see that they have a good livelihood at the end of their lives. I believe that that will help employees to support good pension schemes. For that reason, the amendment should be given a fair wind.
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