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Pensions Bill

moved Amendment No. 111: 111: Clause 61, page 31, line 12, at end insert ““and must provide that additional contributions may be made by or in respect of a member in any tax year to make good the shortfall where contributions fell below the maximum amount in a preceding tax year or years”” The noble Baroness said: I shall speak intermittently also to the other amendments in this group, but I reserve the right to respond to the noble Baroness when she develops her arguments. This is a probing amendment which will, I hope, provoke us to spend a moment or two discussing the adequacy of personal account pots. I am sure that the amendment is technically deficient; I am not sure that it is even technically necessary, as my noble friend the Minister may tell the Committee. The point of personal accounts is to ensure that low-paid workers—poorer women in particular—are encouraged to save for their retirement, but some of them may have a pay-to-save debate, which is an issue that we have explored under previous amendments. I have in mind the amendment of the noble Baroness, Lady Thomas, on advice, and Amendment No. 89 of the noble Lord, Lord Skelmersdale, on means-testing reviews. Therefore, such workers need, as I hope your Lordships may agree, a full basic state pension as well as much state second pension as possible. However it is important above all that the personal account pot is as large as possible. Only that will securely float savers off, and allow them to stay off, pension credit. If the Committee will bear with me, I shall give some figures so that they may be recorded in Hansard—I am sure that your Lordships are already familiar with them. Over 40 years, a woman on median earnings of around £21,000 will build a pot of around £190,000, or about £14,000 a year on a level annuity—half of that on an indexed annuity. I am grateful to the IMA for these figures. On half of median earnings over 40 years—£11,000—that pot will be £65,000, or £5,000 a year on a level annuity and about half that on an indexed annuity. Now we come to the risky area: over 20 years, if a woman starts saving at 45 and stops at 65, the woman on median earnings will retire with a pot of £45,000, or £3,500 on a level annuity and £1,750 on an indexed annuity. If she has half of median earnings—that is the woman whom personal accounts should seek to help in particular—is working from 45 to 65 and paying into a personal account pot, she gets a pot of £16,000, or £1,200 a year on a level annuity and £600 a year on an indexed annuity, possibly within the range of trivial commutation depending on how it is developed. A pot of £16,000, 20 years’ saving and trivial commutation is much higher than the cut-off point for pension credit, an issue to which we shall return on a much later amendment. However, I think that your Lordships can already see where the rocks are. Over and beyond issues of housing benefit and its tapers, the problem is for older women who are low paid, who save for a limited period and as a result have pots which may interlock them with a pension credit system depending effectively on the income of any second person in the household. If their partner or husband has a generous pension, they will not come within pension credit; if they do not or if they are solo, they will. If some women a little above the trivial commutation figure take a level annuity, they will probably be free of pension credit in opening years but increasingly dependent on it in later years. If they take an indexed annuity, which they probably will not, they will need less pension credit but need it earlier. If they do the sums, they may decide not to save. So the answer, I repeat, is to help them to build a bigger pot. It is absolutely key; it is the only decent, affordable and deliverable way in which to make it worth saving. That is why, as I understand it, I am opposed to the amendments in the names of noble Lords opposite, Amendments Nos. 111A and 111B, which appear to ban the possibility of an employer seeking to contribute more than 3 per cent. If the employer wishes to contribute more than that—because after all, if it was a conventional DC scheme, he would pay in 6 per cent on average—why should he not? It would not only be a decent thing to do, given the current state of DC schemes, but it would allow the pot to build. We can perhaps argue that point more fully in a moment. We can look at the trivial commutation level under a later amendment. We can look, as a way in which to build a bigger pot, at unisex annuities, so that women get a better return from their pot, as I am sure the noble Baroness, Lady Howe, will argue later. They can shop around for a better return, as the noble Lord, Lord Oakeshott, has argued. All these are ways in which to help get better value from the pot and possibly to disassociate that pot from interaction with means-tested benefits. Above all—and this refers to a previous amendment that I moved, to which I will almost certainly return—we need to look at removing the £5,000 threshold. If we did that, we would double the pots of women on half-median earnings and transform the situation; they would go from £16,000 to £32,000 at a stroke. For poorer women, possibly the single most important issue in the Bill that we will address is the ability for them, if they choose, to come into a pension scheme at nil earnings if they were already in it and then have a matching contribution. It is the only sure way in which they choose to build a bigger pot and ensure that it pays to save. If noble Lords opposite agree, as I am sure they do, and are concerned, as I am sure they are, about the worries of means-tested benefits, they should really help us to build bigger pots, and not seek to press amendments that cap the pot size. If they do, they lock poorer, older women into means-tested benefits. This amendment tackles the problem in a different way—and in a way that is frankly less satisfactory than the way I would like to see. It would increase the contributions paid in particular years, which could be done by exceeding the contribution cap in any one year by £3,600, adding a right to transfer up to £10,000, say, from a small inheritance or a lump sum from divorce pension sharing, or by including small, stranded sums. That is something that I want to raise under the next amendment from the noble Baroness, Lady Noakes, or the noble Lord, Lord Skelmersdale. None of us wants to recycle money from existing schemes and destabilise them, but sometimes people acquire small, stranded pots and it would be useful for them to corral them into their personal accounts. Another way is to allow people to pay in for missing years, which is what this amendment does. My noble friend may argue, and he may be right, that that should not be necessary. In practice the limit of £3,600 caps you at some £40,000 a year. In practice a woman on half-median earnings will contribute £1,000 a year and, on median earnings, £2,000 a year; simply upping their own regular contributions beyond that minimum would help but it would not attract additional employer contributions, especially if a subsequent amendment were to have any support in the House. The other way in which to bring new money into what was clearly not drawn from the existing scheme is to allow contributions to make good missing previous years. That seems to me an innocent way forward to deal with this problem. I refer to those years in which people did not pay into a pension at all because they were not in work, they had children or were looking after an older person. Of course, they might have continued while not in work, but financial pressures may have interrupted their contributions. But several years later, possibly because they had a small inheritance or possibly a pension-sharing lump sum on divorce, they acquire a lump sum of £10,000 or £15,000, and they can see that they have missed the five previous years. This amendment would allow them the financial head space to put the whole sum in rather than having to drip-feed it in over later years between what they should pay in under the 8 per cent and the maximum cap available. That drip-feeding lowers their investment returns. It is a modest amendment, a probing amendment and not a very satisfactory amendment. It is one of several ways in which we could, I hope, help lower-paid women to build up their pots. If we do not help women to do that, the pay-to-save argument, the fear of mis-selling and issues of advice about whether women should or should not auto-enrol will loom ever larger as 2012 approaches. I hope my noble friend will pay serious attention to the reasons behind an amendment such as this. I beg to move.