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Pensions Bill

At this stage I will speak to Amendment No. 112 standing in my name and to the other amendments in the group. I particularly support Amendment No. 111 tabled by the noble Baroness, Lady Hollis. Like my amendment, it is aimed to promote flexibility. I am grateful to the People's Pension Coalition and to the organisation Which? for their advice on Clause 61. While I have some sympathy with what the noble Baroness, Lady Noakes, has been saying, I think that her amendments promote inflexibility in personal accounts for the reason she outlined. Amendment No. 111B fixes in primary legislation the amount of the annual contribution limit at £3,600, which will mean that it is very difficult to vary it. The strict annual limit of £3,600 per year, uprated from 2005 prices, is very inflexible, given the Government’s other pension reforms, which have swept away and tidied up so many other pension rules. I understand that this annual limit is the result of consensus built up following the report of my noble friend Lord Turner. Were it not for that, I would be attempted to suggest no upper limit at all. I do not think that this provision would crowd out the other schemes that the noble Baroness, Lady Noakes, talked about because it is targeted at a group of people who currently tend not to save at all and tend not to get involved in a private pension scheme. It is a bit like the levelling-down argument; I do not feel that this would damage the industry and I certainly would not wish to do so. I feel that it will not. Amendments Nos. 112A to 112C seek to set in statute what the Minister has already committed to—that transfers in and out should not be permitted before 2017. I have more sympathy with those amendments, given the consensus that personal accounts should be given a period of time to get established before we consider whether transfers in or out should be permitted. However, what happens if PADA or the wider pensions industry realises that some kind of flexibility is needed before 2017? It will not be possible to make that happen without another DWP Bill, and even then it would take a lot of time. For instance, this Bill will be in Parliament for almost a whole year before it gets Royal Assent. As Which? has already pointed out, one type of transfer into personal accounts will already be permitted: the unvested money when someone leaves an occupational scheme before reaching the end of the vesting period, usually two years. Meanwhile, the other place—especially a member of the noble Baroness’s party, John Greenway MP—has grappled with the thought that some people may have a legitimate reason for transferring funds out of personal accounts prior to 2017; migrant workers returning home, for example. I do not like inflexibility. The object of my amendment is to build greater flexibility into the contribution limits of personal accounts. It is a probing amendment. I am not sure that the wording ““must”” is the best way to achieve this and accept that some work needs doing on it. However, the point is that we want people to save more. The contribution limits for personal accounts do not seem to encourage this on a voluntary basis. I understand the Minister’s desire for simplicity. I also understand PADA's desire to be able to market a simple low-cost scheme to personal account members. The 4-3-1 idea outlined by Tim Jones is a form of ““BOGOF””: buy one, get one free. If the employee contributes 4 per cent, the employer must contribute at least 3 per cent and tax relief tops it up with another 1 per cent. My amendment would not confuse that message of simplicity, as that message relates to those who are auto-enrolled into personal accounts and will be getting an employer contribution. My amendment would apply to those who made contributions voluntarily, who would not necessarily have an employer contribution. I should like to see greater flexibility there. Specifically, the amendment would require the Government to prescribe additional contribution limits into personal accounts in addition to an annual contribution limit. Rather than ““may””, they ““must”” do so; as I said, the wording needs some attention. The sort of additional limits I had in mind are a lifetime lump-sum limit, or a higher contribution limit in the first year; another would be to enable missed contributions to be made up at a later date, tying in with the amendment of the noble Baroness, Lady Hollis, which seeks to do just that. Which? believes that to support saving in the run up to 2012, consumers should be able to put aside money for their retirement which would be then rolled into personal accounts in the first year; others have also suggested it. I know that the Minister is sympathetic, too—he indicated as much at the briefing session on the Bill that I hosted for Peers prior to Second Reading. More to the point, the Government's White Paper actually suggested a £10,000 limit in year 1. Perhaps the existing ISA vehicle could be used for this purpose in the two years leading to the ““go-live date””—that is, from April 2010. The Government should also examine the feasibility of establishing a lifetime limit in addition to the annual limit to allow consumers to pay in lump sums, such as an inheritance, redundancy payments or bonuses, or to make up missed annual contributions—the subject of the amendment of the noble Baroness, Lady Hollis. This sum could be around £50,000 across a member's lifetime. If this is not acceptable to the Minister, then I would agree with the noble Baroness, Lady Hollis, that personal account members should be able to, as her amendment says, "““make good the shortfall where contributions fell below the maximum amount in a preceding tax year or years””." My simple amendment would be consistent with the Treasury's publicly stated desire for pension saving to be flexible. I could not put it better than HM Treasury itself when it concluded, in its review of pension tax simplification in 2003, that, "““those on modest earnings who leave their pension savings late will not find that they are restricted in the amount of extra contributions they can make each year””." Perversely, personal accounts may fail this test without Amendments Nos. 111 and/or 112. Which? research found that 70 per cent of people agreed that there should be flexibility about how much can be paid into a personal account. Flexibility will allow people who take career breaks, or who have fluctuating incomes, to make up contributions in other years.