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In regard to the transitional arrangements, there are some problems. First, people will be uncertain as to what they will do when stakeholder pensions eventually arrive. Meanwhile they may have engaged in other schemes and there may be considerable disadvantages for them if they have to stop one scheme in order to become a member of a stakeholder pension scheme. In particular, there will be difficulties with regard to the transfer values, if the Government persist in their view that one can hold only a stakeholder pension scheme but not any other scheme at any given time. I hope that attention can be given to the problems of the transitional arrangements, given that it will be some while before stakeholder schemes become operational.
Secondly, how will the £3,600 limit--if the limit remains at that figure--or the £5,000 limit, if that is accepted, be indexed? Will it be indexed in line with the RPI, as is normal with tax indexation, or with wage inflation? If it is the former, the effect will be to reduce annually the proportion of earnings that may be paid into a stakeholder pension scheme where the maximum contributions are being paid. Assuming that wage inflation continues at a low rate, in practical terms that will significantly reduce the pension that someone would expect to receive from the stakeholder pension scheme. Summarising that, will it be indexed on the usual tax basis of RPI or wage inflation?--otherwise, the pension will decline as a proportion of what might have been expected.
Thirdly, in regard to AVCs--a matter I raised originally--do the Government feel that people in the scheme can have AVCs in addition to the existing £3,600 or the £5,000 limit? If so, I wonder whether that will require any changes to the regulations of the existing pension scheme arrangements which would seem to allow that to be the case at present.
Amendment No. 12 refers to placing on the face of the Bill a maximum limit for contributions to stakeholder pension schemes. We propose a single flat rate of £3,600, or total earnings, whichever is the lower. At the moment we do not propose that people can go up to £3,600 in two schemes. However, that is a matter under consideration and under consultation. Amendment No. 12 seeks to increase this maximum limit to £5,000, or some other limit based on a proportion of earnings, whichever is the higher.
Given that the target group comprises those earning between £9,000 and £18,000 a year, the limit of £3,600 is, therefore, generous enough to allow them to make significant contributions if they wish. Anyone who wishes to pay in more than £3,600, and who would be allowed to do so under the relevant contribution limits, will still have the option of taking out a personal pension scheme if they do not have access to an occupational scheme. As I say, we are considering the point made by the noble Lord, Lord Goodhart, on AVCs and their equivalent.
On the issue of whether membership of stakeholder pension schemes should be allowed in addition to membership of another type of pension, as is proposed in Amendments Nos. 17, 18 and 20, that is another issue that we are considering in the light of responses. A number of noble Lords have argued--we have heard the arguments put very eloquently--for concurrent membership of a stakeholder and an occupational scheme. We are mindful of the argument that that would encourage more people to join occupational pension schemes when they are offered, but still allow them to keep a stakeholder pension scheme alongside that.
We have also received strong views on the question of allowing membership of a stakeholder pension scheme in addition to personal pensions for those not in occupational pension schemes. A number of noble Lords have argued that allowing contributions up to only £3,600 in a stakeholder pension scheme could raise difficulties when someone would like to pay more because their earnings have risen. It was agreed that if the personal pension contribution based on earnings was higher, it could be inefficient and confusing to have to switch to a personal pension at that stage.
We are considering all these points, but we have to consider the other side of the matter. There is the risk of adding complexity to the operation of stakeholder pension schemes if providers have to check that total contributions, including to a stakeholder pension scheme and an occupational pension scheme, do not exceed the overall limit. There is a real problem concerning the transparency and the tracking of such contributions from the point of view of the Inland Revenue. Some noble Lords have had experience of a similar situation.
A significant part of the costs would arise in relation to those who already use the tax allowance and occupational schemes to the full. I do not believe that they are the main priorities for additional help. So our concern would for those in an occupational scheme wanting to top up with a stakeholder pension rather than doing it the other way round.
Lord Freeman: Would the Minister be amenable to putting on the record the basis of the calculation of the £400 million? It may be helpful for me to be in touch with her office to determine what the right mechanism for that might be.
Baroness Hollis of Heigham: I suspected that that question might be raised. The assumption underlying that figure is that those people who invest in stakeholders on the free-standing AVC contributions might do this to take advantage of a tax-free lump sum or whatever, and there will be a doubling of current investment levels so the cost in extra tax relief would be £250 million. There are currently around 900,000 free-standing AVC arrangements.
The second assumption is that around 400,000 people are in occupational schemes near to the maximum that they can invest. It is assumed that they would contribute to stakeholders at between 4 and 10 per cent, at a cost in additional tax relief of £100 million. It is assumed that 40,000 of those earning in excess of the current limits for occupational schemes will each contribute the maximum of £3,600 to a stakeholder pension scheme at a cost in additional tax relief of £50 million. Personal pension holders will take the higher of the limits currently applying so there is no additional cost for tax relief above that in the Green Paper estimates. Those are the bases of the assumptions we are making which underpin the figure and calculate that it could be up to £400 million in Inland Revenue tax relief on pension schemes.
The second question that arises, apart from tax concession, is that allowing membership of both a stakeholder pension scheme and a salary-related occupational pension raises the further issue that salary-related schemes are subject to a limit on the final benefit payable as well as a limit on the contributions. We would therefore have to consider carefully how the two regimes could be calibrated within arrangements such as those proposed in subsection (3) of the clause. In seeking to require proposals as to how this could be achieved rather than immediate introduction, the Committee will recognise the difficulties.
Lord Goodhart: Before the noble Lord, Lord Higgins, replies, perhaps I can say that I regard this position as deeply unsatisfactory. We have here two very important questions: the right of members of stakeholder pensions to pay AVCs into the pension scheme and the right of dual membership.
It may be adequate if, though these are not on the face of the Bill, we are told what the Government intend to put into regulations. But we are not told that; we cannot be told that because the Government have not yet made up their mind. We are told that there is going to be a continuing consultation process which will no doubt last well beyond the debates on this Bill in your Lordships' Chamber. I find it unsatisfactory that we are asked to legislate on that basis. That reinforces the idea that the proposals in Part I of this Bill are somewhat premature.
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