Pensions Bill

moved AmendmentNo. 49: 49: Clause 15, page 19, line 1, leave out subsection (2) The noble Lord said: I shall also speak to the other amendments in the group. The amendments deal in particular with the treatment of the protected rights that members of contracted-out defined contribution schemes would have built up before contracting out on a defined contribution basis is abolished. I should explain a little about contracting outand protected rights. We were going to hear about contracting out in defined benefit schemes. Clause 15, Schedule 4 and these amendments deal with contracting out in defined contribution schemes, also known as money purchase schemes. Contracting out allows people to opt out of the state second pension by saving in a private pension scheme instead. Those who contract out forego some or all of their rights in the state second pension scheme. In return, they receive a rebate of national insurance contributions. In a defined contribution scheme, the national insurance rebate for contracting out, together with any associated tax relief, is invested in the person’s pension scheme. That amount and its investment return are known as protected rights, and certain rules apply to those rights. They can be invested only in certain specified products. They may be transferred only to schemes that are contracting out, and annuities purchased with the protected rights must be calculated on a unisex basis. In particular, protected rights must provide for a survivor benefit if a scheme member is married or a civil partner at the time that an annuity is purchased. The Government acknowledge that, becausethe protected rights rules do not apply to any other rights held in a person's pension pot, the separate tracking of protected rights can complicate scheme administration and restrict flexibility for members. In order to simplify matters, we want to remove as many of those rules as possible, but we need carefully to consider the potential impact, especially on women, of removing the rule requiring a provision of a survivor benefit. That is because such removal could result in a survivor not receiving a pension from either the private pension scheme or the state second pension. In another place, the Bill was amended to insert a power to abolish or vary by regulations the rules applying to protected rights. The Government's intention was to take decisions on the use of that power in the light of the findings of the joint DWP/Treasury review of the open market option for annuities. One of the fundamental aims of that review is to ensure that people make informed choicesabout their annuity type and fully understand the consequences of their choice. In particular, it will consider the provision of joint life annuities. However, the Delegated Powers and Regulatory Reform Committee considered that changes to the rules on protected rights were too significant for a regulation-making power. It recommended that the changes be included in a future Bill, once decisions on the policy had been made. I have written to the committee accepting its recommendation. As a result, the amendments will remove the delegated power in line with the committee's recommendation. At the same time, the amendments remove all the rules that apply to protected rights, except for the provisions concerning survivors. The consequence of those changes is that protected rights will be treated in the same way as non-protected rights when being invested or transferred. Furthermore, at the point of annuitisation, members will no longer be required to purchase a unisex annuity. Unisex annuities are not required, or indeed generally provided, for non-protected rights. That change means that in future those who are not married or in a civil partnership will be able to buy just one annuity with their protected and non-protected rights. That will bring about some simplification for schemes and members. We acknowledge, however, that further simplification could be achieved by removing the rules on survivor benefits. I am sure that the Committee will agree that it is right to consider the question of survivor benefits in greater depth and that a decision on protected rights and survivors must await the outcome of the review of the working of the open market option for annuities. When that decision is taken, any changes to legislation will be placed in a future Bill to allow a full discussion. Contracting out is a complex matter which has given rise to many legislative provisions with multiple cross-references. In order to achieve the abolition of contracting out on a defined contribution basis, a number of amendments and repeals are being made to existing legislation by virtue of Clause 15 and Schedule 4. The minor and technical changes in this group of amendments allow cross-references to the provisions that are being amended or repealed to be corrected in other legislative provisions. Amendment No. 54, in the name of the noble Lord, Lord Skelmersdale, seeks to remove all the protected rights rules, although I understand that he may not move it. As I have said, our amendments abolish most of the rules, but they will preserve the rule that requires the purchase of a joint-life annuity if the scheme member is married or in a civil partnership at the point of annuitisation. The Government acknowledge that the removal of this remaining rule would further simplify the schemes for members, but we believe that such an important matter must be looked at in greater depth before that decision is taken. I beg to move.