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Lord Higgins: In light of that response, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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Baroness Castle of Blackburn moved Amendment No. 6:

Page 1, line 18, after ("are") insert ("not")

The noble Baroness said: We have had a useful air-clearing this evening. We really began to see through the fog of obscurities of some aspects of government intentions. I would be much more impressed by the Minister's argument if stakeholder pensions were not intended to be a substitute for SERPS; if they were an option. Some of us have argued all along that we should give people a choice so that they can either continue with the SERPS with the Government's promise to retain it indefinitely, with newcomers entering a new SERPS with all the contribution details given to them, or choose a stakeholder pension which, by the Minister's definition, will be paltry in size. It will not have an employer's contribution. It is designed for people who are at the bottom of the scale and cannot afford SERPS and it will be risky.

Incidentally, SERPS, which has been applauded by Eagle Star as I quoted to the House at Second Reading, has the most portability of any scheme. There is just one fund--the National Insurance Fund--and it does not matter which job we move to, which remains the basis of our security. But I point out also that as SERPS never advocated final salary schemes for people and we wanted to give working people a second pension, we suggested that a pension should be based on the 20 best earning years of a man's or woman's life. That is the only effective way of meeting the point made by the Minister.

If the Government are honest with their figures, their statistics and information, people will be shocked to realise how little they will receive. They will be on their own. They carry their own risks and carry all the costs. I am asking the Minister to allow me to expand my arguments as she expanded hers. I am not suggesting that we should put it to the vote today. I beg to move.

7 p.m.

Baroness Hollis of Heigham: We are in some difficulty here because Amendments Nos. 5 and 6 were grouped, and we have now effectively de-grouped them.

I take issue with some of my noble friend's assertions. I totally understand her degree of commitment to the SERPS, which she devised and which, at the time and under the conditions with which she surrounded it, was superb. However, some 20-odd years later and with so many of the conditions that my noble friend inserted into it--for example, the 20 best working years--the scheme is no longer meeting the needs that it could were we back in the late 1970s. In future, people who would have been protected by my noble friend's scheme will be able to go into a state second pension, which will offer to the lowest paid three to four times the levels of benefit offered by SERPS.

I turn now to the stakeholder pension, which my noble friend was dismissive of by saying that the contributions would be "paltry". I can tell the Committee that they will be no more and no less than those of the average money purchase scheme. In fact, the stakeholder pension will probably offer rather better

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value, given the tightness of its charges. From our research, we expect that perhaps one third to a half of employers may contribute; but that pension will offer better value as an alternative to many of the personal pensions which currently exist. On reflection, I hope that my noble friend will accept that the state second pension that we will be introducing is SERPS without the earnings related component and, therefore, better devised in today's conditions, as opposed to those in the late 1970s, for the poorest people in our society who do not have a pension. We take the spirit of what my noble friend was doing at that time and we are adapting it to meet the needs of the current labour market.

Earl Russell: I hope that the Minister will forgive me for taking up a few more minutes of the Committee's time to add a footnote to what I said on the previous amendment. The Minister is quite right to say that any final salary scheme must depend on a fairly long and continuous period of service. One of the things that I believe should concern us all about the funding of pensions is the reduction in the average number of earning years in some people's lives.

When I started work, I was in pensionable employment at the age of 23. I do not know how many of us have children of whom we can say the same; not very many, I suspect. I can remember when most people were in regular employment up to the age of 65, but the figures now for people over the age of 50 exempted from actively seeking work, and who have not been in employment in the past 10 years, are really quite frightening. If you lose your job when you are over 50, your chances of getting re-employed are really very small.

We need to be thinking about pensions in the context of the labour market. But if we are thinking about the labour market, we also need to be thinking about a rather longer period of earning years. I hope that we will keep that in the back of our minds throughout the discussions on this part of the Bill.

Baroness Castle of Blackburn: I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 7:

Page 1, line 21, at end insert ("but there shall be no requirement to take a stakeholder pension in the form of an annuity by a specified age")

The noble Lord said: I am sure that the Committee will be well aware that problems have arisen with other types of pension scheme where the provisions are such, especially those imposed by the Inland Revenue, that a pension must be taken as an annuity by a specified age. Many people have suffered considerably in the past few years because they have had to take their pension at a particular time when, for a brief period, the stock market declined very substantially. In addition to that, annuity rates have plummeted.

I noted a press article some while ago which reported that the Annuity Bureau had said that a man with a pension fund worth £100,000 could have secured an

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annual income of £15,823 seven years ago; a year ago he could have got an annuity of £9,700; but today he would only get £9,494. That disregards the effect of stock market collapse at certain times. I made a calculation at about that time that, in some of the worst cases, people would be lucky if they got 60 per cent of the pension which they might reasonably have expected to receive 18 months previously. It is obviously a serious matter, and is set against the background of very low rates of inflation--indeed, as low as we have had since the 1960s.

There is no guarantee at all for the person who retired about a year ago, in the circumstances I described, that inflation rates will remain where they are. Indeed, all kinds of factors can come into play in the future. Whereas at the time of Beveridge the life expectancy of a man beyond his retirement age was something like two years, nowadays it can be very long. Therefore, someone may find that he is stuck with the kind of pension that I outlined but then goes on living for another 20 years. Inflation is not likely to be as low as it is now throughout the whole of that period; indeed, it could be substantially higher.

The purpose of this amendment is to seek to avoid a situation where the stakeholder pensioner is restrained in such a way. Of course, against the background that I described there are increasing arguments for saying that it should not be necessary to buy an annuity, or that one ought to be able to buy some other form of asset, which might cope with inflation in the future or perhaps give a better yield than the present rates of annuity, and so on. Similarly, widespread discussions are taking place which stress that the age of 75 should not be a deadline. One well realises that the murky hand of the Inland Revenue may appear at this point and say, "You got all the tax reliefs when you were paying in; and, therefore, you ought not to be able to extend the thing indefinitely". There are even bigger arguments about whether one should be allowed to cash in one's pension at that point and transfer it to one's heirs.

This situation has developed comparatively recently. As I said, rates are now down to where they were in the 1960s, but there seems to be a case for relaxing the rules as far as concerns stakeholder pensions. No doubt the Inland Revenue will have a view on that and doubtless the Minister has a view on whether or not this amendment is acceptable. But, against the background I have outlined, I should have thought that it is not an unreasonable consideration to put before the Committee. I hope that the Minister will give me a sympathetic reply. I beg to move.

Lord Monson: Unlike the noble Lord, Lord Higgins, I am no expert on this matter. Nevertheless, I am very pleased to be able to support him. One of the reasons that annuities are such poor value at the moment is that annuity yields are linked to gilt yields. For technical reasons, gilts are presently exceptionally high, even allowing for the current low inflation environment. If those retiring were allowed to invest their retirement fund directly into debentures or good quality euro bonds and, in addition, to withdraw a maximum of, say, 2 per cent per annum from capital, they might receive

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almost as much annual income as they would if they had to invest in annuities, but they would also have a capital sum left over to pass on to their families on their death. This capital sum would, of course, be subject to capital transfer tax, so the Treasury would not lose out.

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