Previous Section Back to Table of Contents Lords Hansard Home Page

Lord McIntosh of Haringey: I entirely agree with that point. When stakeholder schemes start, there will be no investment record that will be relevant to the decision which the individual has to make. Without that, it is difficult to see a distinction as between stakeholder schemes.

However, the noble Lord, Lord Higgins, had a wider point regarding people who need to make a judgment between stakeholder schemes and other forms of financial provision. I recognise that in some cases, although not in all, that is desirable and even essential. However, his amendments would make it a prerequisite without which one could not enter a scheme. Some people do not fit into that category.

Lord Higgins: Perhaps I may take up the point made by the noble Lord, Lord Goodhart, with regard to commission. In an earlier debate, we referred to the fact that the Bill provides that some of the costs which are to be allowed are commission payments to those providing stakeholder pensions. I agree with the noble Lord. There is a danger that a provider of a stakeholder pension who is paid commission will argue that his scheme is better than other schemes. That is one of the reasons why people will need to take advice. There are two angles to the advice. One is the advice that is needed by the

24 Jun 1999 : Column 1157

person taking out the pension and the other is the advice that is needed by the employer in deciding which scheme to recommend to his employees. We shall come to that matter in a later amendment.

I did not find the Minister's reply very satisfactory as to whether the Government feel that they should in some way provide independent advice and that the individual should get independent advice. It would seem that the Government's view as far as concerns stakeholder pensions is that people do not need advice.

Lord McIntosh of Haringey: I specifically deny that. I have said that on many occasions advice is desirable and even necessary. What I am contesting is the view, required by the wording of the amendment, which is that advice is always necessary.

Lord Higgins: I am slightly puzzled by that reply. The stakeholder pension is a fairly clearly defined scheme. In taking out a stakeholder pension, one either does or does not need advice. My view is that one will need advice. I am not clear where people will get that from.

We may return to this matter at a later stage, after I have looked carefully through what the Minister said and other government statements on the matter. Subject to that, and the point I made about commission, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 agreed to.

[Amendments Nos. 17 to 20 not moved.]

Lord Higgins moved Amendment No. 21:

After Clause 1, insert the following new clause--


(" . The Treasury shall publish annually a decision tree showing the relationship between stakeholder pensions and all other types of pension and other forms of saving to enable employees to decide what is the most appropriate form of provision for retirement for them to make.")

The noble Lord said: This amendment was my own idea. I have subsequently discovered that the Government have had the same idea. I believe I am right in saying that, in the Green Paper or elsewhere, the Government have suggested providing such a decision tree.

Clearly, individuals are to have a wider choice of products than ever to enable them to provide for their retirement. Some of those products are appropriate for people in certain income groups--for example, between the well known limits of £9,000 to £18,500 or so--while others will find it more appropriate to go for the state second pension, and so on.

It is important that, as soon as the stakeholder pension becomes a live issue for individuals, as well as being able to assess whether that is appropriate for them, they should be able to take into account the other government products, in particular the state second pension. They should be able to decide whether there is a more appropriate form of provision than the alternatives that are set before them. Even at this early stage perhaps the

24 Jun 1999 : Column 1158

Government will consider producing a decision tree of this kind. Individuals can then decide whether one option would be better for them than another.

A further dimension is required in relation to timing. One of the problems is that, as I understand it, the stakeholder pension will not be up and running until 2001. The expectation is that the state second pension will not be up and running until some five years later. Despite the noble Baroness's earlier remark about the legislative timetable, the estimate of five years after the stakeholder pension for the state second pension has been generally accepted, albeit apparently to the noble Lord's surprise. So there is also a sequential problem, as well as one of timing, about whether people should take up a particular form of provision now rather than later.

That is important in this sense. If people defer making any provision for, say, two or three years early on in life, that has a far more dramatic effect on the actual pension that they will receive than if they were to lose the final two years of pensions contributions for simple reasons of compound interest and so on. So I hope that the Government will consider this proposal, not in a formal sense but by way of a general publication. It would certainly be more valuable than the one we discussed in relation to the first amendment by the noble Baroness, Lady Castle, which seems grossly over-priced at £5. A decision tree would give individuals a better idea of how to deal with this matter. We need to encourage people to make provision.

Leaving compulsion on one side, it is quite apparent that in 20 years' time it is likely that a large proportion of people will still be on means-tested benefits rather than using the result of their own funded pension. We need the best information we can have and I hope that the Government will undertake to do that. I beg to move.

Lord McIntosh of Haringey: We are very much on the same side; we are in favour of good quality and understandable information and advice. We are also in favour of decision trees. I do not know whether the noble Lord saw the Explanatory Notes to the Employment Relations Bill. For a 40-page schedule on recognition procedures, it had four decision trees. That was the only way in which I got even close to understanding what the schedule was about. So I am in favour of the format as well as the objective of what the noble Lord proposes.

However, decision trees will not be a complete substitute for advice. We think it is right to consider whether a change in the balance between information and advice could reduce overall costs. A decision tree, together with clear supporting information, will enable many people to make an appropriate choice for themselves. But there will, inevitably be some people who, as I said--although the noble Lord did not believe it--will need more detailed, individual advice, particularly those who have already taken out a personal pension. The decision tree will direct such individuals towards taking appropriate advice.

I understand the concerns that underlie this amendment. We made clear in the pensions Green Paper published last year that we would work with the

24 Jun 1999 : Column 1159

Financial Services Authority and the industry to develop appropriate arrangements for the provision of information and advice to prospective members of stakeholder pensions. We want to consider the scope and contents of the decision trees; whether there should be a single standardised decision tree; and who should be responsible for making it available and ensuring that it remains relevant and up-to-date.

Where we part company, I am afraid, is that we are not convinced that a government department is best placed to develop and issue this information, which is what the amendment proposes. It may be more appropriate for schemes to be responsible for decision trees, as they will be able to build in tailored elements such as where individuals can go for more information. Any information the schemes provide will, of course, be subject the normal FSA regulation of marketing material to ensure that it is accurate and not misleading.

We are seeking further views on these issues. I would not want to pre-empt the outcome of that consultation by ruling out any options at this stage. This work is going ahead, and we shall shortly be issuing a consultation paper setting out our proposals for the provision of information and advice. I hope that that will convince the noble Lord that it is right to withdraw the amendment.

Lord Higgins: I am grateful for the sympathetic response from the Minister. I believe there is a case for it being a government publication and I am glad that the Minister is prepared not to rule it out at this stage. It is important that the Government should take some responsibility for introducing the new products and ensuring that people understand them and make the right choice between the options. "Choice" is the crucial word. Subject to that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 [Registration of stakeholder pension schemes]:

Lord Higgins moved Amendment No. 22:

Page 2, line 30, at end insert--
("( ) the premiums received will provide a pension in excess of what will be provided by the minimum pension guarantee;")

The noble Lord said: Amendment No. 22 stands in my name. Noble Lords opposite may be right in saying that it should have been grouped with some of the other amendments. I was confused because it comes in a different clause and I misunderstood your Lordships' procedures.

The amendment proposes that the Government and the schemes should ensure that the premiums received will provide a pension in excess of what was provided by the minimum pension guarantee. Despite our earlier debates, we have not had a clear assurance from the Government that that is so. Earlier, the noble Baroness said that we would carry out calculations to give us some indication of what the term is likely to be for any given level of contributions on certain assumptions which I have undertaken to suggest to her. However, we

24 Jun 1999 : Column 1160

are still worried that people will simply pay into the scheme and that it will turn out not to have a real pay-off because the pension which the contributions provide is less than the minimum pension guarantee. Mr Frank Field stressed that at considerable length. I would have thought that if this amendment was accepted it would ensure that that was the position. But we must be sure that it is not mis-sold, in the sense that the eventual return from the contributions is effectively zero. I beg to move.

9.45 p.m.

Baroness Hollis of Heigham: Amendment No. 22 adds an additional condition for the registration of stakeholder pension schemes. It would mean that for a scheme to register itself as a stakeholder scheme the trustees of the scheme (or other responsible individuals in schemes set up under any possible alternative structure) would have to declare that the contributions paid into the scheme will provide a pension, perhaps 30 years down the line, in excess of the minimum pension guarantee.

The minimum income guarantee provides an essential fall-back for those who cannot save enough to provide themselves with a decent income in retirement. It currently provides an income of at least £75 per week for a single pensioner and £117 per week for a pensioner couple. As resources allow, we shall uprate these in line with earnings. Next April they will rise in line with earnings. Therefore, it is a decent and proper commitment to protect today's poorer pensioners, which is our immediate priority.

We are also looking at ways to modify the rules on capital so as to reward savings. But, as I mentioned in an earlier debate--we tried to group these amendments--the minimum income guarantee is a safety net for those who cannot afford to save for retirement. In particular, the safety net is for those who now have not saved enough in work for retirement, primarily older women who have not participated in the labour force, by virtue of children and so on, compared with women today.

Those who can save will be helped by other parts of our reforms. The new state second pension will give extra help to the lowest earners who currently receive the least from SERPS. However, moderate earners are in a position to save more than the compulsory minimum and to build up funded pensions which can lift them clear of the minimum income guarantee. These are the people to whom we want to give an opportunity to save in stakeholder schemes.

Amendment No. 22 takes a different approach and seeks to require an undertaking from stakeholder pension schemes that they will provide a pension (unspecified) in excess of the minimum income guarantee (unspecified) in years ahead (unspecified). As I explained earlier, this raises a number of difficulties. It requires schemes to look into the future and give an undertaking that a member will receive a pension in excess of the minimum guarantee. Of course, investment returns are subject to a degree of uncertainty. There must also be some uncertainty as to the level of the

24 Jun 1999 : Column 1161

minimum income guarantee in 40 years' time when the youngest members of stakeholder schemes will retire. I do not believe that this is an undertaking that we can reasonably expect schemes to give.

The amendment also raises an issue about who is liable in the event that the scheme does not deliver the promised pension. I fear that most commercial undertakings would simply not take on the kind of open-ended commitment which is implied by the amendment. It seems to me that the practical effect of the amendment would be to force schemes to accept only members who undertook to pay a level of contributions that could be safely expected to produce a pension well in excess of the minimum income guarantee. That could restrict stakeholder pension schemes to higher earners and undermine our aim of extending good value funded pension opportunities to moderate earners. Further, the amendment does not take into account the basic state pension. Even relatively small second-tier pensions when combined with the basic pension will be enough to lift people above the minimum income guarantee. I remind the Committee that the minimum income guarantee is about £7 or £8 above the basic state pension. The amendment would effectively deny such people the opportunity to join a stakeholder pension scheme.

We are determined to ensure that as many people as possible retire on an income above the minimum income guarantee. The amendment, however, seeks to impose what I fear would be an unworkable requirement on stakeholder pension schemes. It would ask them to speculate as to the situation in 40 years' time and accept liability if their speculation proved unfounded, and to do so on stakeholder pensions alone. No similar requirement is envisaged for other pension schemes, such as money purchase schemes. I urge the Committee to reject this amendment.

Next Section Back to Table of Contents Lords Hansard Home Page