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Pensions Bill

They then do not go into personal accounts and add to them; they go into another form of scheme. If they choose to do more for their employees, we must not discourage that. At the same time, we do not wish to divert pension savings from pension providers that are part of the backbone of our financial services industry. There is a great danger that this scheme, in the way that it is set up, will become a magnet, attracting all forms of additional contributions from all over the place. Some will be from employers and some from employees; we will come to that. That is the reason. My amendment does not preclude higher employee contributions, which is what the amendment of the noble Baroness was about. It is a default scheme, where employers contribute the minimum and that is it. If employers want to do more, they should be out in the marketplace. Amendment No. 111B is designed to place in the Bill what we understand to be the Government’s policy; namely, that there will be a maximum contribution level of £3,600 for any employee in any year. I have provided that this should be uprated in the same way as the earnings band under Clause 13. It is logical that the band should be increased; that should be provided. The £3,600 limit allows contributions to rise above the minimum allowed by the band, but not by such a huge amount that it would start to displace private sector provision. The earlier proposal for a £5,000 limit, as the Minister will be aware, generated considerable opposition from the pensions industry, which remains concerned about the Government’s intention. The Government have said that it is their policy. If that is the case, they should be prepared to place it in the Bill. Amendment No. 111C deletes subsection (3) of Clause 61, which allows the Secretary of State to prescribe an amount for top-up payments to be made by a member. The noble Baroness wants this subsection to be made mandatory. We believe that the Bill should specify an annual amount for contributions to the scheme, but the scheme should not get into the general investment business. Staying with the power, in Committee in another place, the Minister sometimes talked about a £10,000 limit under subsection (3) and sometimes about a higher limit, and even a lifetime limit. On Second Reading, the Minister said that the Government wanted flexibility, both in the amount of top-ups and for the period from which they will be allowed. I am not sure what the Government’s policy is. We have heard many figures and the traditional reference to flexibility. Could the Minister provide more clarity on that? We believe that the personal account scheme is fundamentally about annual contributions to pensions, to build up savings for retirement. It is not designed to be an all-purpose investment vehicle. There should be no possibility of the Bill turning it into that. As I have mentioned, this will be a nationalised undertaking. All past evidence is that when nationalised industries compete in competitive markets, they operate relatively badly. However, when there are market imperfections, which there could be if we are not very careful with the Bill, they tend to clean up. That would be a very serious problem if the personal accounts scheme achieves that by trading from its position as a government-backed organisation with no effective capital market disciplines constraining it. There is also a question of whether members will properly understand any ability to deposit additional money into the personal account scheme. Such payments will not attract any employer contribution—the noble Baroness, Lady Hollis, made that clear—and may attract tax relief; and, if fair competition rules the day, would not get tax relief. Again, the Government have not said what their position is in relation to additional payments. Both issues are vital to an understanding of whether it is a good deal to invest in the personal account scheme. The problem is that members could easily be misled by the general information provided by personal accounts. They could be misled into thinking that their additional contributions could produce the same returns as their annual contributions, which it is virtually certain will not be so, if only because they do not get the employer contribution on top of their top-up payments. The API has pointed out that top ups could be made in an advice-free zone if the personal account scheme was allowed to take them, and that members are very likely to make investment mistakes. Does anyone really want to get into the sort of mis-selling scandal that could be involved? The Government will have set up and be standing behind the personal account pension scheme, so we can expect mis-selling problems to end up, ultimately, on the Government’s door step. The Government may well think, as I am sure will the noble Baroness, Lady Greengross, that Amendment No. 111C, in removing the power in proposed subsection (3), is too hash. If so, the Government should come off the fence and say what they intend to do and argue that on the basis of an amendment to place in the Bill whatever limits and constraints there are. A debate can then be had, in particular with those in the pension provisions industry, about the impact of that on existing providers, on the future flows of investment money and the impact on the financial services industry generally.