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Lord Higgins: There are two points here. If the Government suggest that minimum level which I understand is the figure they are suggesting now, presumably it may subsequently be adjusted for inflation and so on. The question nonetheless arises whether any provider of a stakeholder pension is prepared to take on the paper-work and so on involved, given that the charge it would be allowed to make would be about £1.20 a year.

Baroness Hollis of Heigham: I obviously did not make myself clear. We do not expect people to go into a scheme and pay £10 a month. What we expect is that people who are in a scheme may lose their job and want to keep ticking over by dropping down to a contributory rate of £10. It may also be a way of enticing people on very low pay to make a start.

Nobody disputes the noble Lord's assertion about whether, at £10 a month and with the level of charges that would need to be made, a viable pension would be produced. But the provision does produce flexibility to enable people who may be temporarily out of the labour market, temporarily unemployed, looking after children or whatever, to keep a scheme ticking over. Then hopefully they will be encouraged to make good that shortfall later. No one is suggesting setting up a new scheme for somebody for the most part on £10 a month. It may be the case on one or two occasions, but it is much more likely to be a drop-down rate rather than a starter rate.

Lord Higgins: The expression "tick-over" rate which the noble Baroness used is perhaps a convenient way of describing it. As she says, it may also be a start-up rate. None the less, I would have thought that there must be some minimum level below which, on average, a provider was not particularly keen to take on all the administrative hassle and so on for £1.20 a year.

The other issue is whether ticking it over at that rate will provide a pension which is in reality worth anything at all because it is below the minimum income level

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which the Government propose. Presumably it is possible to do the calculation to show how much one would have to pay into a scheme in order to produce the Government's income level. Indeed, that would be a rather useful calculation to have done generally because it would clarify the situation. One of our concerns, as I pointed out in an intervention during a speech by the noble Lord, Lord Goodhart, is that people will be deterred from saving at all or find that they have had a very bad deal. Then one is into mis-selling territory if they do not know. I leave on one side the issue concerning the disabled which we shall come to later.

It would be helpful to have this figure because it would give people some idea of whether it is worth while ticking over, for example, or going for a period. Obviously for the arithmetic one must make certain assumptions about whether the contribution is paid regularly or spasmodically. I presume the Government have done the calculation, and it would be helpful to have the figure.

Baroness Hollis of Heigham: I am not sure that it is a realistic figure that the noble Lord has asked for. People on such a low income that £10 a month is the only realistic contribution they can make to a pension scheme will not be in the stakeholder pension; they will be in the state second pension, an unfunded scheme for the low-paid earning less than £9,000 a year.

What we are talking about here are the circumstances of people, perhaps at the beginning of their working lives, expecting to make increased contributions and getting them into the pension habit. People in work who became unemployed--took time out--in the old days stopped their pension contributions. But we are allowing a tick-over. We do not expect a £10 a month contribution or sporadic lump sums of £20 here and £30 there to be a sustainable basis for a pension scheme, but the provision gives a flexibility to people whose incomes or earnings are somewhat erratic but who none the less feel that it makes sense to remain in the stakeholder framework rather than the state second pension. That is all that we are doing with it.

Lord Higgins: We have the same problem as with Amendment No. 1. We do not know exactly what the position will be on the state second pension.

Perhaps I may press the Minister. She may be unable to give the answer now. There are two cross-over points. What level of contribution on average floats people out of the state second pension into a stakeholder pension? At what level of contribution on average, on some reasonable expectation about the lifespan of the individual, would it not be worth while contributing because one runs into the problem of the guaranteed minimum pension? I should have thought that that can be calculated. It would be helpful to know.

8.30 p.m.

Baroness Hollis of Heigham: If the noble Lord is serious in his request, he must write to us with a list of the assumptions that he wants us to build in. That would

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include, for example, inflation and what has happened to the equity market in a funded scheme; it would have to make assumptions about that man's or woman's earning capacity, and so on. I am not sure why the noble Lord is pressing us on this. This is a drop-down rate or an early start rate for someone who will remain within the stakeholder pension.

We have already said today that the state second pension will be expected to cover people up to between £9,000 and £12,000. But between £9,000 and £18,000 or £20,000 it makes sense go to into a funded scheme. At £20,000 one is almost certain to be in an occupational scheme or able to afford an adequate personal pension.

I do not see why there is any problem about cross-over points. But if the noble Lord wants us to do some calculations and will specify the assumptions he would like us to include we shall have a look at them. However, as posed his question is unable to be answered.

Lord Higgins: I accept that one has to make assumptions. I shall give further thought to that.

My concern is that people should not invest in a stakeholder pension and find at the end of the day that they receive nothing. We need to have some parameters within which the scheme operates. Let us see whether we can make progress on it. Subject to that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 12:


Page 2, line 12, leave out ("and other restrictions as may be prescribed,") and insert ("up to a maximum of £5,000 a year of the proportion of earnings which may be relieved of income tax if invested in an eligible pension scheme for a person of the relevant age in accordance with current Inland Revenue rules, whichever be the higher,")

The noble Lord said: Perhaps the Minister can confirm that it is suggested that we should link this amendment with other amendments, including the amendment tabled by my noble friend Lord Freeman.

Baroness Hollis of Heigham: It is the same issue about concurrence, dual membership and tax relief. It is essentially a tax relief issue.

Lord Higgins: As the noble Baroness rightly said, Amendment No. 12 has some tax implications. I think that I am right in saying that at present the maximum figure which has been suggested by the Government is £3,600. We are suggesting--it is an arbitrary figure--that we should raise that to £5,000 to establish exactly what the situation is with regard to taxation.

Other amendments raise the question of whether one should be allowed to be in more than one scheme. As we understand, one is not allowed to have both a stakeholder pension and another pension. I believe that that is the case, whether or not the individual has more than one occupation. But no doubt the noble Baroness can confirm the Government's position.

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First, if an individual has two unconnected jobs, each of which has a stakeholder pension scheme, is it permissible for contributions to be paid to both stakeholder schemes where the aggregate contribution to both amounts to more than £3,600? If not, how does each employer know the amount of contributions to the other scheme? If there is an overall limit, on which scheme does the restriction apply? We need to know the relationship in dual employment.

My second question relates to additional voluntary contributions. What is the position as regards the £3,600 limit, which I understand is an aggregate contribution limit, so far as concerns AVCs? Does that limit apply in that case too? No doubt as the matter has been raised also by my noble friend Lord Freeman he will have a number of additional points to make in relation to dual membership. I leave him to spell those out. I beg to move.

Lord Freeman: I speak to Amendment No. 17. Because it is a probing amendment, I make plain that at the appropriate time I shall not move the amendment. I hope that the Minister will accept my comments on Amendment No. 17 as part of this debate.

My concerns relate to the rights to dual membership by individuals in a single employment. It is beyond doubt that so far as concerns Inland Revenue rules, if one has two or more employments one might have different pension provisions. For example, one might be in an occupational pension scheme for one's main employment. One might have a personal pension scheme at present; or some other form of pension provision for other employments. My concern relates to single employment and rights to dual membership.

Amendment No. 17 refers specifically to rights to dual membership of occupational pension schemes and a stakeholder's pension. It seemed to me that that is where the issue particularly arose. For the sake of my brief arguments, I define an occupational pension scheme as a defined benefit--for example, a final salary scheme.

At present, under Inland Revenue rules it is effectively impossible under tax law for those in single employment to have dual membership. It has to be one or the other. The noble Lord, Lord McIntosh, referred to the change in the law in the 1980s. He was right to describe it as presenting a problem to some in the sense that those in an occupational pension scheme have to leave that scheme in order to set up their own personal pension plan for that employment. Indeed, employers were not allowed to make it a mandatory condition of employment that one had to join an occupational scheme; otherwise one would have been in the situation of trying to promote personal pensions and effectively being unable to offer them to those in single employment. I believe that dual membership makes sense.

At Second Reading on 10th June, the noble Baroness, Lady Hollis--I shall paraphrase the essence of her helpful comments--said that the issue was complicated, that discussions were taking place with the Inland Revenue, that Her Majesty's Government were

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reflecting upon the issue of dual membership and that their mind was not closed to the issue. All that is extremely helpful. The issues may have moved on, and it may be that some resolution is close at hand. There are further stages to the Bill in this House. If it is not possible to resolve the matter tonight I hope that before Third Reading it will be possible to resolve the issue. I think that it is important to those in the industry. I do not speak for them but I am well aware of their concerns. Those who make provision and those who provide need to be clear about the position.

Why is the Inland Revenue involved? Why is tax law relevant? There is control over the deductibility of pension contributions by employees and employers. The noble Lord, Lord Peston, is not in his place but he seemed to argue for no tax restrictions on deductibility. I think that that is asking too much. There are laws in place. If one allows today unlimited provision for pensions in the future one will lose tax revenue. It will be recouped when the pensions are paid, but the short-term cash position is disadvantageous to the Government.

I would argue that a limited degree of relaxation is called for. I agree with my noble friend Lord Higgins that a simple way of relaxing provision is to allow those in one employment to have rights to remain in an occupational pension scheme whose tax rules are complicated and different from the simple tax provision for which the regulations will provide for stakeholder pensions--an upper limit of £3,600 or whatever. That is tax deductible, no questions asked: a lump sum provision by the employee. There is room to permit an employee to have both tax deductions under the different regimes that would apply to a stakeholder pension--I imagine that we are talking only about an employee's contributions and not an employer's-- and an occupational pension scheme.

Why? There are two simple reasons I want to put to the Minister. I assume that we shall find a number of examples of employer-funded pension schemes, whether they are defined benefit or money purchase, to which the employee can make contributions and which cover employees in the salary range £10,000 to £20,000. The Minister earlier implied that one was dealing with a continuum of pension provision into which one could neatly fit different categories of people. She is largely right, but I am afraid there is some overlap. There are a number of examples of smaller companies, particularly in the engineering industry, which are employing people at £20,000 per annum, which are providing an employer-funded contribution pension scheme, and they should be encouraged.

Therefore, I am pressing the issue of dual membership for two reasons. First, in order to avoid the awkward decision when someone is coming out of self-employment, or employment where there is no employer-funded pension scheme, into full-time employment where there is an employer-funded pension scheme, avoiding the difficult decision as to whether he should continue his stakeholder pension. The economic arguments might be in favour of ceasing contributions to the stakeholder pension scheme and going into the employer's pension scheme. Frankly, in some cases it

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may be sensible to continue to top up one's stakeholder pension scheme. The figures that I have seen which indicate or moot a maximum contribution level of £3,600 per annum--that is, applying the normal 15 per cent tax deductibility rule--would give a salary of £24,000. Fifteen per cent of one's salary at £24,000 a year is quite a large sum. But if one was in an occupational pension scheme and was paying 5 or 6 per cent, with the employer paying perhaps 10 per cent, there would still be sufficient room to top up one's stakeholder pension scheme by 9 or 10 per cent of one's salary.

In the real world, many people will wish to maintain contributions to a stakeholder pension scheme throughout their working lives. It provides continuity. One needs to make contributions over a great number of years in order to have a meaningful pension. Ten pounds a month--£120 a year--even with a full working life, will provide only a modest pension of perhaps £10 or £15 a year. That is the pension one would get on retirement at 60 if one made that contribution for 20 or 30 years, given normal annuity rates.

The second and more important reason for the arguments lying behind my amendment is to avoid the problem referred to by the noble Baronesses, Lady Castle and Lady Turner, and my noble friend Lord Higgins. It is to avoid the problem of some employers closing their own schemes, to which they make contributions, and saying, "We have to provide introductions and advice to facilitate a stakeholder pension scheme in our little company or factory. We are going to stop our scheme. We don't have to make a contribution. Times are hard. Here is your scheme to which you as an employee will contribute."

The noble Lord, Lord McIntosh, said that all good employers will wish to keep their employer contribution scheme in order to attract people to the company. The Association of Consulting Actuaries, in a sample of 572 companies, reported that 12 per cent stated that they would close their scheme under the Bill as presently drafted. Perhaps that is an exaggeration, but every time an employer ceases making a contribution to an employer contributory scheme, however generous that may be, it is a retrograde step. Dual membership is a very modest way of increasing total contributions to pension provision in later life and maintaining employer responsibilities at the same time.

8.45 p.m.

Lord Goodhart: I rise to support both the amendment which have been introduced and to speak to my own amendment, No. 20. That amendment covers two issues. First, can a member of a stakeholder pension scheme use that scheme as though it were a personal pension and make contributions up to the Inland Revenue limits, even if they exceed the £3,600 proposed limit on stakeholder contributions? Secondly, can a member of a stakeholder pension also be a member of another scheme? As we have heard, the first issue is dealt with by Amendment No. 12. The second issue is covered by Amendments Nos. 17 and 18.

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I am not in complete agreement with Amendment No. 12 because the first part of the agreement deals with the limit to contributions and puts it at £5,000 a year as against the Government's proposal, which is to impose an upper limit by regulations of £3,600 a year. I agree that it is a good idea that anyone should be allowed to contribute up to £3,600 a year to a stakeholder scheme, provided that that does not exceed his or her total income.

The existing rules on maximum contributions imposed by the Inland Revenue are complicated. It seems that it is a good idea to have a simple rule for relatively small contributions. However, in our view, £5,000 a year is on the high side. While we cannot say that we regard it as a major issue, we would be more in support of the Government's proposed limit of £3,600. That is the point at which the Inland Revenue limits should come into effect.

However, we are in wholehearted support of the rest of Amendment No. 12. Let us assume that a young employee is taken on at relatively low salary. He does well in his job and reaches a salary level where the Inland Revenue limits are more than £3,600 a year. He may well prefer to continue to pay the full amount into the one stakeholder pension of which he is already a member and to make additional voluntary contributions. Is it intended that under the Government's regulations he will be allowed to do that? I can see no good reason why not and I strongly urge the Government to allow it to be done. There is no clear reason that that should not be allowed.

I turn to Amendments Nos. 17 and 18. Alternatively, if the Government are not willing to allow that, or if the individual prefers to be a member of a separate non-stakeholder pension scheme in respect of the sum over and above £3,600, there must be a strong case for allowing the employee to be a member of two schemes at the same time; one a stakeholder scheme and the other some form of approved pension provision. It can be a personal pension or membership of an occupational scheme. If the hypothetical employee cannot do that, the only possibility would be for that employee to transfer his or her existing funds out of the stakeholder pension scheme into a personal pension scheme or an occupational pension scheme, or leave the money in the stakeholder pension scheme as a deferred pension. None of those solutions seems attractive. Furthermore, I believe that that would be both unnecessary and undesirable.

The simple question is: why not allow dual membership? For the reasons clearly explained by the noble Lord, Lord Freeman, Inland Revenue limits are needed. If those limits are not exceeded, why does it matter that those contributions are made partly to one scheme and partly to another? Why not allow the contributions to be made to two different schemes?

I can see technical problems if one scheme is a money purchase scheme, which a stakeholder pension scheme must be, and the other is a defined benefit scheme. That is because the Inland Revenue limits are calculated in different ways. That does not seem at all impossible to me. It should certainly be within the abilities of the

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high-powered people who staff the Inland Revenue to provide a solution. That is why we have provided, in subsections (2) and (3) of Amendment No. 20, for an immediate right to become a member of a stakeholder pension scheme and another money purchase scheme. Where the alternative scheme is not a money purchase scheme, we have proposed, in subsection (4), that proposals for legislation should be laid before Parliament for consideration at a future date.

Having said that, it seems to me that the principle is clear. We want to make stakeholder pensions as attractive as possible. We believe that it is highly desirable that it should be possible to contribute up to the Inland Revenue limit in stakeholder pension schemes, even if those limits are higher than £3,600, and that it should be possible to have dual membership of a stakeholder pension scheme and a tax-exempt non-stakeholder scheme at the same time, provided that the total Revenue limits are not exceeded.


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