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Lord Higgins: My Lords, I agree with the noble Lord that one should not believe everything that one sees in the press, although his response seems to suggest that one does not know whether to believe it or not. At all events, I understand from his answer that the question of the 1 per cent charge cap is still under consideration and that the Government have not yet made up their mind. As I said earlier, a number of subsequent amendments relate to that question and to the particular question of charges for advice and so forth. It is probably better to defer further discussion until the matter is dealt with at an appropriate place in the Marshalled List. I beg leave to withdraw the amendment.

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Amendment, by leave, withdrawn.

Baroness Turner of Camden moved Amendment No. 9:

Page 1, line 22, leave out from (“that") to (“or") on page 2, line 2, and insert (“no part of--
(a) any payment made to the scheme by a member of the scheme;
(b) any income or capital gain arising from the investment of a payment made to the scheme by or on behalf of a member;").

The noble Baroness said: My Lords, I beg leave to move Amendment No. 9 standing in my name and that of my noble friend Lady Castle of Blackburn. The subsection would then read that:

    “no part of--

    (a) any payment made to the scheme by a member of the scheme; or

    (b) any income or capital gain arising from the investment of a payment made to the scheme by or on behalf of a member,

    may be used to defray the administrative expenses of the scheme, to pay commission or in any other way which does not result in the provision of benefits for or in respect of members".

The effect of the amendment would be that the whole of the schemes; expenses, commission and so forth, would be borne by the employer or the provider of the scheme. The employee's contributions and funds and the funds' investment income would be used solely for the provision of benefits. That would have two advantages. First, the employer would have to contribute at least the amount needed to meet those expenses. That would have the advantage that the employer would have an interest in endeavouring to keep down the charges. Secondly, there would then be no need to lay down a minimum level of charges.

I believe that the House is aware that my noble friend and I are supporters of the concept of occupational pensions. This amendment is in a way an attempt to ensure that members who participate in a stakeholder scheme have some of the advantages which accrue to members of an occupational scheme, in that employers in an occupational scheme obviously have to bear an amount of the cost and have also to make a contribution themselves. The amendment does not demand, as later amendments do, that the employer should make a contribution, but it suggests that the employer should contribute at least a minimum amount to meet expenses, or the provider if it is not a case of an employment situation.

I believe that that measure would be of benefit to employee members and would perhaps encourage the growth of stakeholder pensions in situations where there was no occupational scheme but where employees needed to have the benefit of coverage. I beg to move.

Baroness Hollis of Heigham: My Lords, I rather imagined that the noble Lord, Lord Higgins, would not be rising to support the amendment, and I was not disappointed.

Amendment No. 9 would mean that stakeholder pension schemes could make no charges on their members. Effectively, under the amendment, schemes could not operate unless costs could be recovered from an employer or other sponsoring organisation--perhaps the Government. If the costs were met by the scheme provider, they would have to be recovered by them in some other way; perhaps in terms of the effectiveness of either the

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investment policy or the gap between buying and selling of funds held in the scheme. They would certainly not be carrying that out on a non-profit basis.

Amendment No. 9 would mean that charges could not be taken from members and therefore would have to go somewhere else. Of course we want schemes to offer value for money. That is one of the reasons we have proposed that charges should be made only in a certain way and should be below a limit of 1 per cent of the value of the fund. To go further and prevent charges entirely would undermine the schemes altogether. Many of the people whom we are seeking to help work for employers who have elected not to fund an occupational scheme. To expect such employers then voluntarily to meet those charges is not realistic; nor, as I have explained, do we see this as the area on which it is appropriate to concentrate state help.

The net effect of the amendment, were it to be pursued by my noble friend, would be to prevent the operation of stakeholder schemes. That would leave around five million people without the opportunity to join a stakeholder pension scheme. We think that the new schemes are a vital part of pension choice. We want them to be readily available. Therefore I hope that my noble friend will not pursue her amendment.

Baroness Turner of Camden: My Lords, I thank my noble friend for her response to the amendment. I do not share her view that the amendment, if passed, would mean that stakeholder pension schemes would cease to operate. If a similar amendment--perhaps not with this wording--were to be passed, such schemes would be very attractive to employees and would perhaps result in greater pressure for a scheme to be introduced. However, in view of what has been said this evening, it is certainly not my intention to call a vote on the issue. I shall look carefully at what my noble friend has said in Hansard tomorrow morning. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Goodhart moved Amendment No. 10:

Page 2, line 4, leave out (“, to pay commission").

The noble Lord said: My Lords, in moving the amendment I shall speak also to Amendment No. 11 which is tabled in my name and grouped with it.

I say frankly that the point is something of a hobby-horse of mine and indeed has been for some years past. Insurance brokers and advisers act in law as agents of their clients--the people who go to them to receive recommendations on what kind of insurance policy they should buy. The brokers are paid for their services not by their clients, but by the insurance companies whose policies they recommend their clients to buy. There is therefore an obvious and straightforward conflict of interest on the part of the insurance brokers between their own personal interests and those of their clients.

The law in general requires an agent to account to his client for any benefit received from a third party in connection with the agency. However, there are some Victorian cases which held that that principle does not apply to the case of insurance. I believe that that is wrong. I believe that the general law should apply to insurance brokers and advisers in the same way as it applies to agents

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generally. The duty of an agent is to act solely in the interests of his or her client. If one insurer is offering the agent a bigger commission than other insurers, there is a strong and obvious inducement for the broker to recommend the policy with the bigger commission. No doubt many insurance brokers and advisers resist that temptation, but it is one which should not be there.

The loophole also encourages insurers to compete in offering larger commissions rather than larger benefits for a given premium. Commission in those circumstances is frankly no less than legalised bribery. The buyers accept it because the real cost is hidden by the front-end loading of policies which absorbs the cost of the commission paid to the insurance broker. What we should do is say to the buyers of policies, “If you want honest and disinterested advice, you are more likely to receive it if you pay for it yourself". As the Social Security Committee in the other place quoted from a witness in its report on pensions and divorce,

    “if advice has got a value then it also has a cost".

If you pay for advice yourself, you get more insurance for the same premium. Therefore, I should like to ban those who hold themselves out as independent brokers or advisers from taking commission at all. Such a ban might be in practice--perhaps not technically--outside the scope of the Bill were that to be applied across the board to all kinds of pension policies. But surely at least we can start with stakeholder pensions, particularly as advice is less likely to be needed in the case of such pensions which are relatively simple and straightforward and where the great majority of people are in any case likely to go for what is a designated scheme in their individual case. Therefore, I propose that commission should not be a permitted expense of providers of stakeholder pensions. I beg to move.

7 p.m.

Lord McIntosh of Haringey: My Lords, I am grateful to the noble Lord for admitting that this is what he describes as a “hobbyhorse". In Committee he described commissions as “institutionalised bribery" and I can see how strongly he feels on the issue. However, I hope to persuade him that, given that we have now agreed that there will be a limit both on the total charges to be made by providers of a scheme and a single method of calculation of how that limit shall be arrived at, his amendment would be an intrusion into matters which are not properly the concern of government.

Traditionally, of course, the noble Lord is right. Those involved in the sale of personal pensions have been remunerated at least in part by the payment of commission. The payment of commission upfront can often lead to charges which bear heavily in the early years. That is why personal pensions can be poor value, particularly for those who find that they have to stop paying after a short period in the scheme. That was one of the major issues in the mis-selling of personal pensions in the 1980s and early 1990s. It is also one of the reasons why there is a complex structure of charges which bear heavily on small investors and make it difficult for scheme members to understand how the overall charge is worked out. As far as that goes, I am entirely in sympathy with what the noble Lord says.

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However, I am not convinced that it is necessary to go so far as to ban the payment of commission for stakeholder pension schemes. We are confident that our proposals for minimum standards, which we set out in the consultation paper in June, will ensure that schemes cannot charge in ways which would impact disproportionately on those with moderate earnings or penalise those who need to take contributions breaks. As I explained when we were debating Amendment No. 8, stakeholder pensions could charge only in a certain way; that is, through a single charge on the value of the fund. We propose also that there should be a 1 per cent limit on total charges; low additional charges for transferring in or out of the stakeholder scheme; or for stopping or changing contributions. We believe that that will provide the simple and transparent charging structure that is essential if stakeholder pensions are to provide members with good value for money and make it easy for them to make comparisons between different schemes.

As I said in Committee, I do not believe that whether or not commission is paid is an issue for government at all. Perhaps I may be so bold as to quote myself. I said,

    “it seems to me that commission is a way of incurring marketing costs--and marketing costs are part of the costs of running a pension scheme".--[Official Report, 24/6/99; col. 1128.]

It is not for us to decide how a pension scheme provider should allocate this cost. So far as concerns the customer, commission is the same as any other back-office cost or any other cost. It reduces the value of the individual fund.

Given the protection which is provided for in the way in which a charge can be made and which will be provided for in regulation on the amount of the charge, I hope that I have persuaded the noble Lord, Lord Goodhart, that his amendment is an unnecessary restriction on the commercial judgment of pension scheme providers and that he will feel able to withdraw it.

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