Pensions Bill

My Lords, I thank the noble Baroness for these amendments and all noble Lords who have spoken in this wide-ranging debate on some fairly narrow amendments. We are committed to ensuring that the personal accounts scheme remains focused on the target market of low to moderate earners. We have been very clear both in this House and in the other place that we will introduce a number of measures to protect existing pension provision when the scheme is introduced, in particular provision for an annual contribution limit and a general ban on transfers to and from the scheme. Our aim has always been to ensure that the personal accounts scheme should complement rather than replace good pension provision. Amendment No. 48 sets out that the scheme order must include a ban on transfers into and out of the personal accounts scheme except in prescribed circumstances, and that the ban will be removed in 2017. Similarly, Amendment No. 49 seeks to insert into the Bill an annual contribution limit until 2017, adjusted annually in line with the qualifying earnings band. We have clearly committed to set out in the scheme order the detail of the ban on the transfer of pension funds into personal accounts. We have also committed to specifying through secondary legislation the ban on transfers out of the scheme. Existing legislation, the Pension Schemes Act 1993, gives individuals the right to transfer out of a pension scheme. Clause 130 therefore makes amendments to those provisions to give us the scope to introduce a general ban on transfers out of the scheme. This amendment is therefore not necessary to give effect to the ban on transfers in and out of the scheme. Furthermore, it would tie a future Government to the date by which a transfer ban must be removed. On the contribution limit, we have always been clear that we intend to set the limit at £3,600 in 2005 terms. That has not changed. We fully expect to uprate the annual contribution limit in line with changes to average earnings on an ongoing basis. We must remember the uniqueness of this feature in an occupational pension scheme. We have agreed that it should be a feature of the personal accounts scheme to protect the existing market. However, as we also recognise the impact that it might have on an individual’s capacity to save, we need to avoid tying the hands of future Governments when it comes to ensuring that the annual contribution limit maintains its value. Amendment No. 49 would also have the effect of removing the annual contribution limit from 2017. Combined with the lifting of the ban on transfers, this would enable an individual to place an unlimited amount of contributions in the personal accounts scheme from that date and to transfer pension funds in or out of the scheme. The aim of the 2017 review is to establish whether the transfers ban and the contribution limit remain necessary. These amendments would pre-empt the outcome of the review. Our current policy of setting out in the scheme order the detail of the ban on the transfer of pension funds into personal accounts and specifying in secondary legislation the prescribed circumstances in which members will be prevented from transferring out of the scheme does not pre-empt the review. Only the current drafting of Clause 69—which allows for a contribution limit but also allows the Secretary of State to repeal it if evidence in future suggests that that is appropriate—covers all outcomes of the 2017 review. Amendment No. 50 seeks to remove the Secretary of State’s ability to prescribe other contribution limits. We have always been aware that there will be individuals with irregular contributions or broken work patterns who may want the scope to make lump sum payments to their personal account to boost their pension savings. This is why, as discussed previously, we are taking a discretionary power to allow for an additional facility such as a lifetime lump sum contribution limit that could run alongside the annual contribution limit. We have also been very clear from the start that we would implement this facility only if it can be done while delivering on the principles of low cost and minimising the impact on the existing industry. That is why, as noble Lords are aware, we have asked the delivery authority to advise on this issue. The delivery authority has provided its advice and recommended against having a higher limit of £10,000 in the first year of the scheme or introducing a lifetime lump sum limit when the scheme commences because that would introduce additional complexities and complicate communication with individuals as well as increase risk for the administration of the scheme. It has also recommended that we reconsider the lifetime lump sum facility in 2017 when the scheme is fully up and running and when we know more about the saving behaviour of the target market. We have considered its advice very carefully and accepted its recommendation. However, we understand the concerns of those stakeholders who have called for these two features. That is why it is important that subsection (3) remains in the Bill, so that the scheme can offer an additional contribution facility from 2017 if that is considered appropriate and necessary. I shall pick up on one or two other points. My noble friend Lady Hollis asked about stranded pots in pension schemes, an issue we touched on in Committee. We agreed to examine the Government’s approach to individuals with stranded pots. Although officials have discussed with stakeholders the extent and nature of the problem, there is no agreement on the scale of the problem or immediately obvious solution. Officials are currently working with the ABI and other stakeholders to understand the extent of the problem and the barriers that prevent individuals transferring their pensions into a single pension fund. Abolishing contracting-out provisions in the Bill will help to alleviate stranded pots in defined contribution schemes. It was previously suggested that individuals should be allowed to transfer small amounts into the personal account scheme. However, we do not think that that is the solution for stranded pots in other pension schemes. Preventing transfers between personal accounts and the rest of the pensions market will keep the scheme focused on serving the needs of our target market, facilitate the smooth introduction of the new scheme, maintain simplicity in administration for individuals and employers, prevent replication of services for existing providers and, most importantly, help to keep costs down for members of the scheme.