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Lord Desai: Since we are having a very good seminar this afternoon, perhaps I may be allowed to contribute to it. I agree that if people are irrational, and especially the young who do not want to take part in saving, giving them the illusion that the employer pays a pension is a perfectly welcome piece of subterfuge. Of course, people themselves pay, but if they think that the employers pay, that is fine.
Given the remarks of my noble friends Lord Peston and Lord Haskel on an earlier amendment, in the new labour market will there be administrative problems in tying employers down, because employers change? It is not like working for the electricity industry over a lifetime. I have worked for only one employer for 34 years--I hope that I do not get sacked for another six years! If people work for different employers, going in and out of employment, how can one best manage to obtain the element we want? It is an important question
Lord McIntosh of Haringey: My noble friend Lord Desai described this as a seminar. I am not too keen on seminars which take place in the afternoon given that some people stay for the afternoon but not for the rest of the work which has to be done in the evening. I am not talking about anyone in particular, I hasten to say, but it is a trend that seems to have arrived in recent months and years.
I am pleased that the noble Lord, Lord Goodhart, has brought back the link between Amendments Nos. 2 and 19. We originally grouped them together but some centrifugal force which I do not understand took place and separated them. They ought to be debated together because you cannot have compulsion for employees without having it for employers and vice versa. It has been a sensible debate and I am grateful for that.
I should declare a past interest as one who ran a pension scheme for 30 years which, until 1988, was an occupational pension scheme, a final salary scheme. It was wrecked by the government of which the noble Lord, Lord Freeman, was a member. His government not only wrecked SERPS by reducing the outcome from the average of the best three of the last 10 years to the average of the last 20 years so that the value of SERPS was much worse after the Conservative Government wrecked it; but they also wrecked much of the final salary occupational pension schemes by removing the compulsory element of membership of those schemes. So I do not take any moralising about compulsion from any Conservative Members of the Committee. The compulsion was removed. My scheme was largely wrecked because I had many young people who knew they would move on. In my business you do not stay for 40 years working for the same employer. The young people would not join the scheme and it lost its funding rationale. I had to introduce a group personal pension scheme instead.
Of course, any good employer--and I was a good employer--will want to contribute to a pension scheme. I shall not become involved in the economists' arguments about transfer charges; we do not need to do that for the purposes of the Bill. The argument is about who ultimately pays. The good employer will want to contribute to a pension scheme and will encourage his employees to do so precisely for reasons of self-interest, if that is the way to maintain, retain and motivate staff. Therefore, we should be doing everything we can to encourage employers to contribute to pension schemes. That is not necessarily to say that compulsion is the right solution.
Stakeholder pensions are aimed at those people who do not have access to an occupational, salary-related pension. I say that to the noble Lord, Lord Freeman, who seemed to think that they were a generalised alternative. They are designed specifically to provide a cheap, value-for-money way for people on moderate earnings to build up a funded second-tier pension. So it is vital that we make the schemes as attractive as possible, both for employees and employers. In
In Clause 3 we propose that employers should offer access to a stakeholder pension scheme for those employees who are not offered access to an occupational scheme. This will be an additional burden on employers, but we believe it is a reasonable requirement. We have made it clear that we shall strive to minimise the burden.
If it is any consolation to Members of the Committee who are worried about the minimum income guarantee question, we have looked at the amount of money that will be achieved after the basic pension and the statutory second pension which will be paid at the level of £9,000, even for those who earn less, including carers and the self-employed. After a reasonable working life, we can say that the return on the basic and the SSP will be more than 100 per cent of the level of means-tested benefits. That really makes a difference for those who think that there is a realistic alternative of refusing to have anything to do with it and relying on the state at the end. There is, therefore, already an element of compulsion in the pension scheme.
Lord Higgins: Perhaps I may press the Minister on the question of more than 100 per cent. That would suggest it would be a small amount above. Presumably he has done the calculations and can tell us what percentage the Government expect above the 100 per cent.
Lord McIntosh of Haringey: Yes, if you have only the statutory second pension and the basic pension. But we are not talking about the stakeholder pension here. The whole point is that everything you put into a stakeholder pension on top of the basic and the SSP is above the minimum income guarantee and therefore it is returned to the pensioner in due course. I was talking about the SSP and the basic pension, not about the stakeholder pension.
I said that there was an element of compulsion in the pension system. National insurance contributions are paid by all workers except the lowest paid. They provide entitlement to the basic state retirement pension which is the basic building block of pension provision available to all workers, with the assistance of credits
In addition, national insurance contributions for employees give entitlement to the state earnings-related pension. Employees who choose to make an equivalent arrangement through membership of the contracted-out occupational pension--I mean those who choose to or are able to because one is on offer to them--or an appropriate personal pension can receive a rebate of national insurance contributions.
State pensions have many strengths and it is important to recognise that current compulsory pensions do not ensure a decent provision for many people, particularly the lowest earners. That is partly because SERPS has been cut back from its original design and because demographic and labour market changes are tending to reduce the periods over which people are able to contribute; SERPS also, by its nature, gives the smallest benefit to the lowest earners.
We considered whether it was right to increase the level of compulsory saving in the system, which is what is being urged by Members of the Committee in Amendments Nos. 2 and 19. I do not believe that it is the right answer to the pension problems we face. I say to my noble friend Lord Peston that it is not that it is not viable; it is. We would not have considered it if we did not think we could do it; but it would provide little extra pension for the lowest earners, who would be likely to find the burden of higher compulsory contributions the hardest to bear. At the same time, it would force higher earners to build up a significantly larger pension.
Compulsory contributions by higher earners are already at a level where the resulting pension is likely to lift them well clear of the minimum income guarantee in retirement. We know that two-thirds of those who earn over £15,000 a year already save an extra 5 per cent of their earnings voluntarily in occupational schemes or personal pensions. Compulsion is a blunt weapon. The new framework that we propose for pensions, in particular the new state second pension--I appreciate that it is difficult to view the stakeholder pension without reference to the state second pension--will ensure that those who need the most help, in particular low earners and carers, get higher pensions without the need for extra compulsion.
At the same time, we believe that many people who can afford to do so will benefit from making extra pension provision. We want to encourage higher voluntary savings and need to make it worthwhile. The state second pension will provide a decent second pension for all workers and carers and remove the threat of means-testing in retirement. We want to ensure that more people are aware of the need for pensions, and we intend to improve the information that is available.
I hear what the noble Lord, Lord Goodhart, says about our two cut-off points, but I do not believe that the difference is other than one of degree. We are working towards the same objective. The development of stakeholder pension schemes will ensure that all
Lord Goodhart: I am most grateful to the Minister for giving way. I am afraid that an unfortunate glitch has arisen. What I intended to say was that the contribution rate should not exceed 7 per cent. Therefore, it would be twice the contribution rate of employees.
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