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Lord Higgins: My Lords, before the noble Lord sits down, it is true that the position is as he described. But many small employers may not realise that that is the position. Will the Government take steps to ensure that they are clear not only that they do not have a duty to give any such advice but that they are positively prohibited and that it is illegal for them to do so?

Lord McIntosh of Haringey: My Lords, I am sure that it will be necessary for there to be guidelines to employers on the implementation of the legislation. There will be regulations and there will be guidance notes for employers. I am sure that they will make the issue to which the noble Lord refers perfectly clear. But what we have done in the legislation is to put beyond any doubt the fact that employers are not under any duty to go further than is set out in the Bill as it will be amended. I beg to move.

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendments Nos. 29 and 30:


Page 4, line 14, at end insert--
(““employer" means any employer, whether or not resident or incorporated in any part of the United Kingdom;").
Page 4, line 21, leave out (“except those") and insert (“employed in Great Britain and also, in the case of an employer resident or incorporated in any part of Great Britain, all employees of his employed outside the United Kingdom, but with the exception, in the case of any employer, of any employees of his").

On Question, amendments agreed to.

Baroness Turner of Camden moved Amendment No. 31:


Page 4, line 26, at end insert--
(“( ) Regulations may prescribe that, when a designated scheme has been agreed, the employer and the employee members shall each have the obligation to make at least minimum payments into the scheme.").

The noble Baroness said: My Lords, with this amendment we return to an issue that was raised in Committee. The amendment I proposed then provided that the employer should have to make a contribution. This amendment includes both the employer and the employee in the scheme.

If stakeholder schemes are to play a major part in pension provision in the future, steps must be taken to ensure that they really do make adequate provision for pensioners in the next century. We do not want to repeat with this provision--as I am sure the Government do not--even in a minor way, the disaster that occurred with personal pensions.

The new stakeholder pension schemes will be on a money purchase basis, as has been explained on several occasions during earlier debates. In other words, the resulting pension will be based on what the investment of contributions has earned during the

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working life of the pensioner. It is my experience that very few people understand what that could mean. Nor is it always realised just how much they may have to pay into a scheme in order to receive an adequate income on retirement if they are simply contributing by themselves. Many people will not see pension contributions as a priority, particularly at a time in their lives when they are paying off the mortgage and bringing up children.

A good occupational pension scheme--preferably one based on the final salary concept--is still the best way of securing a comfortable income in retirement. The Bill proposes that employers should have the obligation to make stakeholder access available to employees and thus introduce the concept of the designated scheme. But that does not carry with it an obligation on the part of the employer to make any payment into the scheme. The only obligation is for the pension provider to be given access to the employees, and of course the employer then has the obligation to deduct contributions. That approach has certain problems to which I have referred. There is a possibility that some employers may prefer a stakeholder scheme to a good occupational scheme. We have already discussed the issue in relation to previous amendments. I still feel that there is a problem in that respect. However, so far as concerns the amendment, many employers now see that if they have to make contributions they will have to have some care and interest in the kind of designated scheme that is on offer.

Incidentally, the NAPF research to which I referred earlier raised the very real possibility that some employers would be short-sighted enough to want to close their schemes and embark upon a stakeholder scheme. But if they have to pay into the stakeholder scheme, the temptation to do so is likely to be reduced.

Therefore, the concerns that I expressed in regard to the previous amendment could be laid to rest via the proposition advanced in this amendment; namely, that employers should have the obligation to make a contribution into a designated scheme, which would mean that they would then have an interest in that scheme and its success and in encouraging their employees to belong to the scheme. In other words, it would not exactly duplicate an occupational scheme but have certain features of an occupational scheme. In that respect, it would be an advance on what is presently proposed in the Bill. I beg to move.

Lord Goodhart: My Lords, the noble Baroness may have been disappointed in the extent to which she received, or did not receive, support from these Benches on the earlier amendments which she and the noble Baroness, Lady Castle, moved. On this occasion, however, we strongly support the amendment. We believe that the idea of compulsory contributions by employer and employee is essential if the stakeholder pension is to be the success that we hope it will be.

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It is essential that people should be required to make reasonable provision for their old age. That involves the unfunded basic pension and the state second pension, which is also unfunded, for those on low earnings who cannot afford premiums to a stakeholder scheme. We also believe that those with higher earnings should be required, not just encouraged, to contribute to a funded pension. The provision for a funded retirement pension involves what is in effect a tripartite contract between employee, employer and the Government. The employee contributes part of his or her earnings. The employer also contributes, and in doing so recognises a social duty to provide for employees on retirement. The Government contribute by way of tax relief, because a funded pension relieves the Government of the burden of providing support in old age out of taxation.

If that scheme, that tripartite contract, is to work, employer participation is essential. We will not get good pensions for employees unless employers also contribute. We have already heard the figures: most large employers recognise this and provide occupational schemes for their employees, now widely recognised as deferred pay for doing the job.

Those who do not provide occupational pensions--many of them small employers who in practice cannot do so--should contribute to stakeholder pensions. But if it is compulsory for employers to contribute, it must also be compulsory for employees to join the scheme, because otherwise they will come under severe pressure from some of their employers not to join the scheme and to relieve the employers of the burden of contributing to it.

As we understand it, the ultimate government aim is to make it more beneficial for those earning more than £9,000 to opt out of the state second pension and into the stakeholder pension. It cannot be compulsory at the crossover level of about £9,000 because there are many people whose incomes will fluctuate around that level. But we believe it should be compulsory to join a stakeholder pension or an occupational pension once the employee's earnings exceed, let us say, £12,000 so that there is a substantial margin above the £9,000 crossover point. I shall not go into what the precise figure ought to be. That cannot be done before the second state pension is introduced and it should not include an obligation for people to join stakeholder pensions if they are at an age where they cannot build up a meaningful stakeholder pension before their retirement. But we believe that basically the scheme--which we think is in many ways a good one--will not work in anything like the way it should unless there is compulsory membership either of the stakeholder pension or an alternative occupational or pension scheme. We believe, therefore, that, as proposed in the amendment, powers to make this a compulsory requirement should be included in the Bill so that they can be exercised once the state second pension is up and running.

10.15 p.m.

Baroness Hollis of Heigham: My Lords, Amendment No. 31 provides powers to require

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employers and employees to contribute a minimum amount into the stakeholder pension scheme designated by the employer. This is a difficult point. Noble Lords will recall that we discussed the issue of compulsion in Committee and I explained then why the Government had decided not to increase the level of compulsory saving by individuals or to require a contribution by employers.

We also said in Committee that there is already an element of compulsion in the pension system. Everyone, apart from the lowest paid, must pay national insurance contributions, giving entitlement to the basic state retirement pension. For employees, national insurance contributions provide entitlement to the state earnings-related pension. Those employees who choose to make an equivalent arrangement through joining a contracted out occupational pension scheme or an appropriate pension scheme receive a rebate of their national insurance contributions or pay contributions at a lower rate to reflect the SERPS benefits they have given up.

I am sure that your Lordships would agree that the current compulsory pension system--that is, for those who are employees above LEL--has many strengths. But the fact remains that for a number of reasons it does not ensure a decent pension for all employees. The basic state pension has a lower value in real terms than when SERPS was introduced. SERPS has been cut back severely from its original design. Labour market changes mean that many people tend to contribute over shorter periods, and because it is earnings-related--a point discussed fully earlier this evening--SERPS gives the smallest benefits to the lowest earners. Therefore, they take the poverty of their working lives into their old age.

When we embarked on our review of the pensions system we seriously considered whether increasing the level of compulsory saving was the most appropriate response. We think now that it is not. To make the lowest paid save more will do little to improve their final pension and will place a considerable extra burden on their already stretched finances. To force moderate earners to save more in a pension would not necessarily lead them to save more overall; they would possibly save less in other forms.

Higher earners--those who are well up into the stakeholder range and beyond--already contribute enough into the state system to lift them well clear of the minimum income guarantee in retirement. Two-thirds of those earning over £15,000 a year already save an extra 5 per cent of earnings in occupational or personal pension arrangements without any additional compulsion; in other words, compulsion would be necessary precisely for those people who can least afford to make pension contributions. Compulsion is not a panacea.

Our new proposed framework, in particular the new state second pension, will ensure that the lowest earners receive much more help. We shall bring carers and some disabled people into the state second pension for the first time without any additional compulsion. We must also increase awareness of the need for

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pensions. People need to understand what kind of retirement income they can expect and how any additional quite modest extra saving, provided it is begun sufficiently early in working life, can make a useful addition. That is why we propose that everyone should receive an annual statement of the pensions that they have currently accumulated, both state and private, and what those pensions are likely to be worth when they retire.

To return to the amendment, I understand the concerns behind my noble friend's proposal to increase the level of compulsory savings by stakeholder pension scheme members, but I also note that quizzical eyebrows have been raised by the noble Lord, Lord Goodhart. I am rather intrigued as to why my noble friend has not proposed that membership of the employers' designated scheme should be compulsory for employees. To impose a minimum level of contribution on those who have joined a scheme voluntarily may possibly be a strong incentive not to join the scheme at all. I am sure that that is not what my noble friend intends. However, I am sure that we share the same objectives. Where we differ is in the best way to achieve them. We believe that the state second pension, with as much attraction as possible of those currently not covered--the self-employed--into the stakeholder scheme, may be the best way to extend coverage, which is what this is all about.

The amendment also provides for a minimum payment from the employer. We have said before that we see an important role for employers in their employees' pension provision. Many firms, particularly larger ones, already make valuable contributions to occupational schemes and in some cases to group personal pensions. However, stakeholder pensions are aimed primarily at those who are not fortunate enough to have access to an employer's scheme. They are intended to help those on moderate earnings--those in the £9,000 or £10,000 to £20,000 range--build up a funded second-tier pension. If they are to succeed in meeting our objectives we need to make them attractive to employers as well as employees.

Clause 3 of this Bill will require employers to offer access to a stakeholder pension scheme for those employees who are not offered an occupational scheme. This will be an additional responsibility on employers but we believe that it is reasonable. As we have made clear, we shall take steps to minimise the burden of that responsibility. But to go further and require employers to contribute to their employees' stakeholder pension schemes would be unreasonable. There would be a significant extra new cost for employers and the benefits to lower paid employees--those most in need of help--would be small. They are the ones who would normally come within the state second pension. We do not believe that it is appropriate to require employers to contribute more than they already do via the national insurance system.

We shall evaluate the effect of our proposed reforms, but we are not convinced that additional compulsory saving by employees, or compulsion on employers to contribute, is the best way to address the

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challenges that we face. Therefore, I hope that in the light of my response tonight my noble friend will feel able to withdraw her amendment.


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