Clause 100

Pensions Bill – in a Public Bill Committee at 12:15 pm on 19th February 2008.

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Exclusion of transfers out in certain cases

Question proposed, That the clause stand part of the Bill.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions 12:30 pm, 19th February 2008

I am slightly puzzled by the clause, which is tucked away all on its ownsome. We had significant, substantive debates earlier in our proceedings about transfers in and out of personal accounts, and I wonder what the clause is for. As I read it, it seems to deal only with transfers out of schemes set up under clause 50, but it harks back to the Pension Schemes Act 1993, so perhaps I am wrong about that. It seems to give the Secretary of State a power to make regulations under that Act to prevent transfers out of a clause 50 scheme. On what basis would that power apply, and in what circumstances?

The concerns that we have expressed in previous debates have been about transfers into personal accounts and trying to retain a Berlin wall between existing provision and personal accounts—in other words, trying to ensure that personal accounts do not undermine good and more generous existing provision. The clause seems to be about only transfers the other way, and I am I sure that the Minister can explain it—in a sentence, if he is so minded.

Photo of John Greenway John Greenway Conservative, Ryedale

I will be brief, because we want to make some progress. I agree with my hon. Friend and would like the Minister to tell us what the prescribed circumstances are. I may have this wrong, as if so I apologise to the Committee and the Minister—[Interruption.] The other Minister, the Under-Secretary. Not having been able to be in the Committee throughout the whole process, I apologise if this has already been discussed and debated.

My reading of the clause is that it enables the Secretary of State, through regulations, to effectively prohibit transfers out of clause 50-type personal account schemes.  If that is the case, we also need to consider what limited exceptions there may be in which transfers out are permitted. The Under-Secretary will recall that, during the public evidence sessions, I raised the question whether, when and to what extent it might be prudent to allow limited transfers out, for example in respect of migrant labour. I mentioned the importance of ensuring that a personal accounts scheme is not eventually cluttered up with literally millions of relatively small, insubstantial contributions.

The Under-Secretary is nodding reassuringly to say that I am on the right point. In that case, I shall take 30 seconds longer to say that if what I have said is the case, we need him to clarify precisely what the prescribed circumstances will be and what time frame he envisages. If I remember correctly from the questions that we put to both Ministers on when transfers out might be permitted, it will probably be 2017—five years into the personal account arrangement—before that will be allowed. That is nine years away. For the purposes of the record and proper scrutiny, we ought to have something on the record to clarify the position. We cannot just leave it where it was at the end of the public evidence sessions when the Minister for Pensions Reform was one of the witnesses.

Photo of James Plaskitt James Plaskitt Parliamentary Under-Secretary, Department for Work and Pensions

I know that the hon. Member for Eastbourne hoped that I might dispense with the clause in a sentence. Alas, no, because it is important to clarify exactly what it does. It is right to see it as, in essence, a paving power; that is its purpose. Let me explain how it relates to the earlier clauses to which the hon. Gentleman referred. It is right to say that there is a linkage, but the clause is there for a good reason.

We discussed our commitment to banning most transfers into and out of personal accounts when we debated clause 53. Clause 100 enables the Secretary of State to prohibit personal account members from transferring pension funds to other pension schemes. Our rationale for banning pension fund transfers is to position personal accounts as an effective, complementary addition to the existing private pensions market. The Government’s policy on transfers, and their commitment to review it in 2017—that is important—was widely supported by all stakeholders, as I am sure hon. Members will recall.

Let me explain in some detail why the clause is structured as it is. I think that that will answer the points that have been raised. Chapter IV of part IV of the Pension Schemes Act 1993 gives members of pension schemes the general right to transfer out of their scheme into another one, but section 93(1B) of that chapter contains a limited regulation-making power that enables schemes to ban transfers out in some limited circumstances. However, the power is not broad enough to allow a ban on transfer out of personal accounts, and therefore clause 100(2) widens its scope.

Clause 100(3) amends section 101F of the 1993 Act to enable the Secretary of State to introduce regulations to prevent members from transferring their pension credit benefit, which we discussed earlier, out of the personal accounts scheme. We plan to exercise the regulatory power in subsections (2) and (3) only in respect of the personal accounts scheme.

There may be some minor specific circumstances where we will want to allow a certain amount of  flexibility. The hon. Member for Ryedale asked for a bit more information about them. It is important to stress that this will be looked at in 2017, at the time of the review, but we can already see circumstances for which it might be appropriate to make exceptions. Of three that have been identified, one is the stranded pots issue, which we touched on before. That is where someone who is over 55 wants to aggregate all their pension pots in different schemes into one fund in order to purchase an annuity. We might want to allow some flexibility in that area when introducing the transfer out regulations.

A second identified example is unvested pension funds. If an individual leaves an exempt scheme during the pre-vesting period, they may be allowed to transfer their accrued funds into personal accounts. Those will be cash transfers, not standard pension transfers of the type that would be prohibited, and the amounts will not count toward the annual contribution limit. The third example, which we discussed earlier, is the discharge of pension shares. That, too, would be appropriate in some circumstances.

However, as I said, the fundamental opportunity to review the matter in its entirety will come with the 2017 review, which is a long way off from now but not so long after the start of personal pensions. That would be the appropriate time to look at it. We will specify in legislation the prescribed circumstances in which personal account members will be prevented from transferring out of the scheme. The legislation will not prevent other transfers between existing pension schemes from taking place. It is important to stress that. The wider position on transfers will be kept under review until later.

The clause is integral to the design of personal accounts schemes. It will allow the Secretary of State to make regulations which will do three essential things: first, keep the scheme focused on serving the needs of the target market; secondly, facilitate the smooth introduction of the new scheme, reducing any risk of market turbulence; and, thirdly, promote simplicity for employers, individuals and the personal accounts administration.

That is why the clause was included. I hope that I have answered hon. Members’ questions and that they will agree to clause stand part.

Question put and agreed to.

Clause 100 ordered to stand part of the Bill.

Clauses 101 and 102 ordered to stand part of the Bill.