Pensions Bill [HL]

Lord Stoneham of Droxford Excerpts

Thursday 3rd March 2011 Grand Committee

[Lord Stoneham of Droxford]

My Lords, we have had a discussion on some of the main reasons for the move in the threshold. We are understanding of that move. There are a number of reasons for it. The documentation that we have received from a number of organisations questions the rate of return on the savings of people at these levels of earnings.

We have heard mention of the replacement-to-income argument. It is almost certainly true that at these levels of earnings a lot of individuals are less prepared to save. Of course, there is also the burden of administration. I take the noble Lord’s arguments on the threshold being linked to the tax threshold. You would expect us to be committed to raising the tax threshold to £10,000. We want neither a deterrent to doing this nor a deterrent to those who are trying to improve their savings and pensions. I hope therefore that we will have a commitment to look at this each year and that it will not be related necessarily to the raising of the tax threshold, as that would take a lot of people out of the net, which is not what we are trying to do.

I accept that there is an increase in these thresholds, but I want to go back. I apologise for repeating some of the earlier arguments, but I want to make the point that there are a number of things that we need to do—or the Government need to look at—which would be helpful to people who could be vulnerable to these changes. I have mentioned the tax threshold and I hope that we will have a firm commitment on that.

Secondly, we will discuss later the pots of savings and what people will be able to do with them. If they can be brought into NEST, and if we can encourage that process, that would be a most helpful change. It would make the overall change more acceptable.

I was very supportive of the arguments on multiple earnings. It is a big issue that will grow. I am pleased that there was a commitment to 2017. We underestimate the number of women in this position and, even though we may not be able to act now, we could be saying that it is an issue that we will try to address as the new system beds in. We also want to see a degree of commitment to encouraging people to stop opting out. We will address that matter in later amendments. In the context of raising the threshold, these are a number of points that we think are important to make that acceptable. I accept that, ultimately, running through this Bill is a trade-off with the Treasury on all kinds of aspects. We must make sure that we get a good trade-off.

[Lord Boswell of Aynho]

Perhaps I may briefly invite my noble friend to consider one particular point about the raising of the threshold. There is no need for a commitment at this stage, although it has been implied that it will be considered. Can my noble friend give some thought to, and discuss with his Treasury colleagues, the way in which this might be introduced annually into the national consciousness? I hesitate to dangle another red herring before the Committee in the shape of the national minimum wage, on which I have some prior form. However, if we are beginning to look at the impact on labour markets of a number of items, and some of the misguided or inappropriate claims that are made, or the fact that people say, “I don’t think I can afford that anymore and I want to pull out”, it would be useful to have a national economic snapshot. Although this is strictly about the labour market and within the Minister’s remit by definition because he is legislating on it, it is part of a national economic snapshot. Some people may have noticed today in relation to the national minimum wage a suggestion with which I do not agree—that we should announce it and defer it for 12 months. I merely make the point that probably on the occasion of a Budget it would be useful to have an annual appraisal that was keyed in and could be related by the commentators to tax rates, take-home pay and so forth. It would add to clarity and transparency.

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Moved by

[Lord Stoneham of Droxford]

34: After Clause 8, insert the following new Clause—
“Transfer to national employment savings trust
In section 16 of the 2008 Act (qualifying schemes) after subsection (2) insert—
“(2A) The Secretary of State must make regulations to enable transfers of qualifying pension schemes into a national employment savings trust.””

[Lord Stoneham of Droxford]

This amendment tries to deal with the problem of stranded pension pots. The wording is inadequate and rather than reading,

“transfers of qualifying pension schemes”,

it should read,

“transfer of individual entitlement into the national employment savings trust”.

What the amendment seeks to do is to provide some protection for individuals who have a number of small pension pots. We are aware that NEST is meant to supply a gap in the market for those companies and individuals unable to find pension provision elsewhere. Inevitably, small saving pots will be left in a variety of different schemes which will be a problem, not only for the employees but also for the employers. So in the interest of simplification, every attempt should be made to encourage some consolidation of these pension pots and we would like to see the Secretary of State making regulations to that effect so that these transfers can easily happen. I beg to move.

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[Lord Stoneham of Droxford]

My Lords, I am grateful for the generous support that my Amendment 34 has been given and for the very generous response of my noble friend. Two points stood out: first, everybody recognises that facilitating transfers is critical and that it should go beyond NEST; and, secondly, we should look at the principle of early access. In that spirit, I am very pleased to withdraw my amendment.

Amendment 34 withdrawn.

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Moved by

[Lord Stoneham of Droxford]

40: After Clause 9, insert the following new Clause—
“Continued saving following employment lasting less than two years
The Secretary of State shall by regulations provide support for continuing savings towards a pension for persons with qualified pension schemes relating to periods of employment of less than 2 years.”

[Lord Stoneham of Droxford]

In the interests of brevity as time is short, I am very happy to speak to Amendments 40 and 41, which are grouped separately.

Amendment 40 is related to the previous amendment, which concerned small pension pots. We want to ensure that small contributors to pensions over short periods are given due protection. We want to see that individuals do not lose out where they have less than two years’ service, particularly losing the employer’s contribution if withdrawn. We should like to see some ongoing discussion and review of how the position of these savers and pensioners can be protected. However, I accept that the transfer of pension capital is critical to this.

Amendment 41 is a probing amendment. It goes back to the discussion that we had on the past couple of amendments on the whole issue of the costs of pension schemes. We remain concerned that there are still no incentives for employers to be responsible for minimising the costs of the occupational pension schemes in which they are involved. We accept that progress has been made on this but we also accept that the Turner commission originally recommended more action on this point. We would like to make sure that, as the scheme is developed, there is an ongoing commitment to review whether the employer’s contribution should be net of the costs of the schemes. I beg to move.

[Lord McKenzie of Luton]

My Lords, in relation to Amendment 40, from the earlier response that we got from the Minister in relation to small pots and all the activity that is going on there, I presume that the sort of protection that the noble Lord, Lord Stoneham, is looking for will be encompassed within that whole exercise. Accordingly, I should be interested to see the outcome of that in due course. Unless I am misunderstanding this, that is where it would be dealt with.

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[Lord Freud]

I reassure the noble Baroness, Lady Drake, that if the research shows that charging levels are creeping up, we have the power under the Pensions Act 2008 to regulate to set a charge cap for qualifying schemes and auto-enrolment schemes. NEST will offer low-cost provision to individuals on low to moderate earnings. As the noble Baroness knows better than anyone else in the world, the annual management charge will be 0.3 per cent. If the contribution charge is taken into account, the overall annual charge is the equivalent of about 0.5 per cent. That will provide a clear benchmark for pension providers.

Given the safeguards that will be in place, and in light of the assurances that I have been able to give on Amendment 40, I urge my noble friends Lord Stoneham and Lord German not to press their amendments.

[Lord Stoneham of Droxford]

I beg leave to withdraw the amendment.

Amendment 40 withdrawn.