Clause 53

Part of Pensions Bill – in a Public Bill Committee at 3:15 pm on 31st January 2008.

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Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions 3:15 pm, 31st January 2008

Yes. Subsection (1) we believe enables us to do that. Therefore, we would not need primary legislation. We are clear that our aim is that personal accounts should complement rather than replace good-quality pension provision, in order—[Interruption.] I am sorry. I believe that subsection (3) rather than subsection (1) would enable us to do that.

As far as our overall aim is concerned, we are not seeking to replace any good-quality pension provision. That has never been our intention. Indeed, the whole process is to complement not compete or replace current provision.

In order to achieve this we have taken some specific measures to focus personal accounts on the target group. An annual contribution limit of £3,600 and a prohibition on transfers in and out of personal accounts, at least in the initial stage, are part of that process. We have consulted widely on the level of annual contribution limit which involves a trade-off between focusing personal accounts on the target group and providing individuals with flexibility to save. We have been quite clear that we intend to set the contribution limit at £3,600 in 2005 figures. We have reached a broad consensus with stakeholders that this is appropriate.

We have not put the actual amount in the Bill for a number of reasons. First, the level of the limit will not be £3,600 in 2012 because we have undertaken to uprate this figure in line with earnings from 2005.

Of course, I hear what the hon. Member for Eastbourne says about how we could have a figure in the Bill and a mechanism for adjusting it. That is possible and is certainly done in Finance Bills, but it is much easier in Finance Bills as they come around annually. We are looking at a Pensions Bill that we hope will still be looked at in 2020. Having such a figure in the Bill becomes much odder.

It is better to say that the figure will be annually uprated in line with earnings, so we are clear about where we are. We do not have any proposals to change that, and I know that the Opposition Members, should dire things happen at election time, would have no wish to alter it either. I think that the industry has the level of reassurance that it needs about the political consensus.

We have said that we would consider a higher limit of £10,000 in the first year and subsections (1) and (3) provide scope for that limit. As we have said in earlier debates, we are making pension policy for the long term. Without the benefit of 20:20 foresight, we believe it is important to retain an element of flexibility in setting the level of the contribution limit. We believe this approach makes clear our intention but does retain flexibility at the same time, and it is the right approach. So the industry knows our intention—it is all very clear—but I do not think that we need to put it in the Bill.

We have also been clear that it is our intention to uprate the annual contribution limit in line with earnings. This will prevent the value of the limit from being eroded over time as a proportion of an individual's  earnings. But again, flexibility is important. Amendment No.77 would remove the flexibility for the Secretary of State to adopt another index should it become apparent that uprating by earnings is not appropriate. This amendment would also prevent the introduction of a higher contribution limit in year one.

We are considering—as I have indicated—the £10,000 limit, but we are not in the position yet to close down that debate. We have asked the delivery authority to advise us on the cost and implementation issues around a higher contribution limit in the first year of the scheme.

Amendment No.29 would pre-empt this work, categorically ruling out a higher limit in year one. We also recognise that there will be some individuals with irregular contribution patterns who may want to make one-off payments to their personal account to boost their pension savings. Consumer groups in particular have been keen for members to have this facility. I have already indicated what our view is and I do not propose to close that down now.

As far as amendments No.30 and No.103 are concerned, both affect the development of a limit—such as a lifetime lump sum—but in diametrically opposite ways. Amendment 30 would prevent the ability, whereas amendment No.103 would prescribe a limit of £30,000—significantly undermining the purpose of the limits.

As an additional measure to protect existing good quality schemes when personal accounts are introduced, Amendment No.29 seeks to put a blanket ban on transfers in the Bill. We have made clear our commitment to banning most pension transfers into and out of personal accounts. However—as always—we must allow the flexibility for exceptions. There are some very limited circumstances—such as pension sharing on divorce and, as I have indicated previously, the small stranded pension pots—where we would want to have the ability to look at these issues. Paving powers for this ban are at clause 100 of this Bill, and we plan to set out the detail in the scheme order. We will therefore have the opportunity for some further discussion at a later date.

I would like to make clear that we are committed to carrying out a review of the contribution limit and the ban on transfers in 2017. In answer to the hon. Member for Inverness’s question—we intend it to be a real review. Quite what happens in 2017 will depend on the Government at the time. But our intention is certainly that that would be a real review.

These measures are important to protect good quality provision when the personal account scheme is introduced. But they do have cost implications for the scheme, and therefore it is right that we should review them once the reforms have bedded down to see whether they remain appropriate. It is right that, following a review and a debate in the House, the Secretary of State has the power to remove the requirement for a contribution limit. Amendment No. 58 would remove that flexibility and require primary legislation should the review conclude that no contribution limit is necessary. I believe that we have the balance right in the approach we have taken to this legislation.

There are some stakeholders who have different views and seek reassurances on particular points—the £3,600 figure is one. But the way we have sought to  present this, and the level of consensus around it, provides them with the level of security that they need and also enables us to keep some issues open. One of these is the £10,000 issue, where there is still a way for that debate to go and where getting a consensus is likely to be possible. It is not there yet, however, and it may well take some time—perhaps a year or so before we are in a position where the industry and the various groups are able to come together and take a view on this. I am anxious to enable that process to continue, so I hope that will not be circumscribed by these amendments. Having said that, I hope the hon. Gentleman will consider withdrawing the amendment.