Clause 1 - Meaning of “Savings and Retirement Account (SaRA) schemes”

Part of Rights of Savers Bill – in a Public Bill Committee am 2:30 pm ar 14 Rhagfyr 2005.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Malcolm Rifkind Malcolm Rifkind Ceidwadwyr, Kensington and Chelsea 2:30, 14 Rhagfyr 2005

I find it interesting that the Minister is so nervous about the procedure that he proposes that, unlike me, he has taken the trouble to find out which were the two Bills, no doubt hoping that it would give him some sense of relief. I assumed that he would say that the wicked Thatcher Government or the Major Government had done some such thing. He has had to go back to 1919 and 1955. Is not he ashamed of himself for being the third example in 100 years of such nefarious conduct?

The Minister’s approach is also extraordinary because, when he was good enough to reply to the Second Reading debate, he began by stating that it

“has been much more enjoyable than I anticipated”.

God knows what would have happened if he had not enjoyed Second Reading. It is difficult to imagine what his reaction would have been in such circumstances. He also stated:

“I welcome the opportunity today to pursue that debate and to help build towards a consensus.” —[Official Report, 28 October 2005; Vol. 438, c. 576-77.]

Is this the Minister’s idea of building towards a consensus? Is his idea of continuing a debate to negative each clause without further consideration? I have no doubt that he will respond in his own charming and inimitable fashion to the points that I have raised.

Clause 1 lays out the basis of the new saving and retirement account proposal, which is one of the major elements of the Bill. It provides for a major new savings scheme, and the objective is to create the flexibility of an individual savings account with the kind of pension security that would normally be available from a pension product. At the time when the stakeholder legislation was introduced, which is the Government’s great claim in this field, it was estimated that approximately 5 million people with earnings of between £10,000 and £20,000 a year were not in an occupational pension scheme. Many have suggested that much of the stakeholder money has simply been transferred elsewhere. Stakeholder pensions have been bogus and a failure for the Government, even though they still try to deny it.

I find myself agreeing with the conclusions of the July 2004 Treasury Committee report, which stated that for the purpose of restoring confidence in long-term savings—a confidence largely destroyed by the Government’s own actions—the Government should consider introducing more flexible access to pensions as a means of making savings more attractive. That is exactly what the Bill does. The Minister acknowledged as much on Second Reading, yet all he can do is seek to delete it without further debate when it comes before the Committee.

The savings and retirement account will also be particularly attractive to the low-paid and to women. With its proposed low administration costs, the charges are not disproportionately high on low levels of savings. The flexibility of transferability makes it particularly attractive to those who may change jobs or, as for women, take career breaks to bring up children. It is also in theory possible for one-off contributions to be made to such an account, which would be beneficial to those on intermittent incomes.

I will briefly spell out the contents of the clause. It sets out the meaning and the conditions that a savings and retirement account scheme must meet. Many of the conditions are actually set out in clauses 2 to 6. Clause 1 provides that, as with a stakeholder scheme, the scheme has the option to be put into trust. However, that is not a necessity. Clearly, the administrative costs would be reduced if that option were not taken up.

To answer a question that has been raised, the provision of a properly regulated wrapper and a scheme administrator will provide the security required. Advice will be available on the underlying investments. The investments, by their nature, will be easier to advise on and to manage.

Subsection (8) provides that members of such a scheme are unrestricted in the contributions that they make to the scheme,

“subject to such minimum contribution levels and other restrictions as may be prescribed”.

In theory, there will be no maximum, although the lifetime allowance of £1.5m coming in at A-day will in practice provide an effective cap. However, as we are gearing ourselves towards low-income savers, that figure clearly is not particularly relevant.

Subsection (9) permits a scheme to accept transfer payments in respect of a member’s rights under other pension schemes and annuities, provided that such transfers do not prevent the account from being eligible for tax relief under current legislation. I believe that this proposal will be particularly beneficial to those who have a large number of different policies—something that is also dealt with later in the Bill. There will need to be a valuation of funds to be transferred by the scheme actuary or administrator. The investor will then need to make a decision—much as is already the case—as to the financial benefits or otherwise of the course of action.

Subsection (10) provides that the account shall benefit from tax relief that other pensions schemes enjoy, as set out by the Pension Schemes Act 1993. The Committee may decide to amend the scheme, and I will be happy to respond constructively to any serious proposals for amendments.

Subsection (11) recognises the savings and retirement account as a suitable alternative pension saving vehicle under the law.

To sum up the primary matters covered by the clause, we are dealing with a problem that the Government and the Turner commission have recognised and which needs a novel and flexible approach that builds on the success of ISAs. I do not think that there is any opposition to that. I would be happy to see constructive proposals to improve the scheme further. The House approved the Bill in principle by giving it an unopposed Second Reading. The Minister should think very hard if he believes in consensus and in working with others who have constructive proposals. If he were simply to turn down the proposal on the basis that it was not invented by his Government, party or Department, that would be   a pretty clear marker of the rather inadequate and unimpressive attitude of Ministers to such a crucial policy area.