Debates — Pensions Act 2008

Report stage in the Lords

27 Oct 200888 speechesView in Hansard ↗

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord McKenzie of Luton)My Lords, I beg to move that the Bill be now further considered on Report. Moved accordingly, and, on Question, Motion…
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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord McKenzie of Luton)Labour
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My Lords, I beg to move that the Bill be now further considered on Report. Moved accordingly, and, on Question, Motion agreed to.
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Lord McKenzie of Lutonmoved Amendment No. 65:
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Lord McKenzie of LutonLabour
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moved Amendment No. 65:
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Baroness NoakesMy Lords, I am grateful to the Minister for introducing the amendment and for responding constructively to the issues t…
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Baroness NoakesConservative
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My Lords, I am grateful to the Minister for introducing the amendment and for responding constructively to the issues that I raised when I moved my amendment in Committee. It is helpful to have directors dealt with in the Bill. The more I research the issue and discuss it with the Minister and his officials, the more I realise that there is no simple answer to this issue, because much depends on the facts of individual cases. I support the approach that the Government have taken. I have just one plea: when the department or, as is more likely, the regulator issues guidance to employers on how to apply the Act, will they make it clear that the default or normal position is for non-executive directors not to be auto-enrolled except in particular circumstances, that being the purpose of the amendment that the Minister has just moved?
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Lord Oakeshott of Seagrove BayMy Lords, we, too, support the amendment and think it a very satisfactory outcome to our discussions in Committee. On Q…
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Lord Oakeshott of Seagrove BayNon-affiliated
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My Lords, we, too, support the amendment and think it a very satisfactory outcome to our discussions in Committee. On Question, amendment agreed to. Clause 96 [Interpretation of Part]: [Amendment No. 66 not moved.]
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Lord McKenzie of Lutonmoved Amendment No. 67:
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Lord McKenzie of LutonLabour
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moved Amendment No. 67:
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Baroness Noakesmoved Amendment No. 68:
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Baroness NoakesConservative
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moved Amendment No. 68:
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Lord Oakeshott of Seagrove BayMy Lords, we on these Benches certainly have some sympathy with this amendment. The noble Baroness is right to make our…
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Lord Oakeshott of Seagrove BayNon-affiliated
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My Lords, we on these Benches certainly have some sympathy with this amendment. The noble Baroness is right to make our flesh creep at the prospect of another major computer project, given the Government’s—“erratic” is a kind way of putting it—experience so far. I obviously look forward with interest to hearing what the Minister has to say in response. Our main concern, given the obvious risks involved, is how much a report six months after the day and then annually thereafter will actually help us. There is a danger of there being too much pulling up of the plant to see how it is growing. Having said that, we share many of the noble Baroness’s concerns.
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Lord McKenzie of LutonMy Lords, we return to the financial operation of PADA and the trustee corporation. As the noble Baroness has made clea…
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Lord McKenzie of LutonLabour
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My Lords, we return to the financial operation of PADA and the trustee corporation. As the noble Baroness has made clear, Amendment No. 68 seeks to put an absolute duty on the Secretary of State to produce a report six months after this Act has been passed, setting out amounts incurred and estimates on a range of financial and operational issues. The report must be prepared annually thereafter. I recognise that Parliament has a legitimate interest in the financial affairs of both PADA and the trustee corporation, and that interest extends to getting information on a timely basis. It reasonably extends to the decisions that will have to be taken on such issues as the charge structure and charge level. As the noble Baroness will be aware, some of the items that are listed in the amendment will already be included in the annual report and accounts of both PADA and the trustee corporation. These reports will be available to Parliament and will present the full picture of costs, revenues and how members’ contributions are invested. The information included in these annual reports will be consistent with guidance from the Treasury in respect of NDPBs. I accept, however, that some of the information listed in the amendment will not be contained in the annual reports or the accounts, although some might be included, but at a high level, in business plans and corporate plans of PADA and the trustee corporation. However, in aggregate—including information included in the DWP supply estimates—this does not cover all of the detailed forward-looking information that the amendment would require. Some of that information we do not know, while other information has been treated as commercially confidential at this stage. I do not apologise for that. We may disagree as to whether it is the right judgment, but the clear advice to us is that it could seriously prejudice the procurement exercise. PADA will shortly begin negotiating with potential suppliers for the administration contracts needed for the scheme. Publishing even forecasts of costs over the next 10-year period, as the amendment would require, could undermine the negotiation process. We must ensure that PADA can obtain the best deal for members and, if there is government funding, the taxpayer. Releasing figures prematurely could damage PADA’s negotiating position, and could prejudice PADA’s ability to obtain the best deal. I recognise that the noble Baroness’s amendment seeks to deal with the issue of commercial sensitivity in subsection (8) of the proposed new clause, but this is not simply an issue of value for public money. Members’ charges will ultimately pay for the personal accounts scheme, and members’ pension incomes will suffer if we do not respect commercial confidentiality. However, there will be points in the future when decisions have been made, detail has been developed and the procurement process is sufficiently advanced. At these points, information that does not, or no longer, impacts on the commercial negotiations should be revealed. So I today make the commitment that the Government will, on a timely basis, make statements concerning the issues raised by the amendment. This information will supplement and explain that contained in the future annual reports and accounts of both PADA and the trustee corporation. We will seek to make available any information or analysis that we are able to at the same time as those accounts and reports are produced, although this would not preclude statements at an earlier time. Unlike the amendment put forward by the noble Baroness, these statements will complement rather than duplicate information provided through the normal reporting framework for an NDPB and a pension scheme. It should therefore provide an appropriate balance between ensuring financial and operational transparency in a way that protects taxpayers’ and members’ interests without adding significant burdens to the Personal Accounts Delivery Authority and the trustee corporation. I urge noble Lords to bear in mind that as the procurement process is due to start early next year and be completed by summer 2010, a report at six months after Royal Assent would not take us much further given the necessity of commercial confidentiality. Similarly, reporting at rigid annual dates thereafter might preclude producing information about a decision or event in as timely a manner as the noble Baroness is seeking. In Committee we debated fears about whether personal accounts will be delivered on time. We have no information or reason to assume that the Government’s position as set out then has changed. Frank Field has been prayed in aid in respect of suggestions that personal accounts will implode. I should like to know the basis on which that judgment is made, which is a million miles away from our understanding. Charging levels for personal accounts are important but, as we debated previously, until procurement is undertaken and the funding structure for personal accounts is concluded, we cannot be absolutely clear about the charging structure or the end result. However, on the work that has been done, we believe that personal accounts can be delivered on the basis suggested by the Pensions Commission with low charges and that they will be self-funding in the long term. We have talked about subsidy. Perhaps it would be better to describe what the Government have in mind—if we go down this route at all—as compensation for the public service obligation being imposed on personal accounts. If the Government deemed that necessary and appropriate, it could become a reality only if we complied with European state aid rules. Compensation could be delivered to personal accounts only in those narrow circumstances. Beyond that, we are clear that it must be self-funding, and believe that it can be in the longer term. I acknowledge the noble Baroness’s legitimate interest—and that of the whole House—in this issue and her reasonable desire to allow parliamentary scrutiny of the scheme’s funding requirements as a way of ensuring the taxpayer is protected. Following a debate on the first Report day, I propose to look again at the financial provisions within Clause 80 and Schedule 1 to ensure they clearly reflect the Government’s intention that the scheme is delivered at no overall cost to the taxpayer. I hope that I have said enough to persuade the noble Baroness not to press her amendment. I reiterate that I desire to help her achieve her objectives within the framework of commercial confidentiality and protecting the interests not only of the taxpayer but of future personal account members.
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Baroness NoakesMy Lords, I am intrigued by what the noble Lord said about the possible inclusion of additional material in the documen…
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Baroness NoakesConservative
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My Lords, I am intrigued by what the noble Lord said about the possible inclusion of additional material in the documents produced by PADA, the trustee corporation and possibly even the department. Are the Government prepared to put that in the Bill at Third Reading?
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Lord McKenzie of LutonMy Lords, we do not think that necessary. I am sorry that I cannot give a firm commitment on the record. If the noble B…
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Lord McKenzie of LutonLabour
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My Lords, we do not think that necessary. I am sorry that I cannot give a firm commitment on the record. If the noble Baroness thinks there are ways in which we can strengthen that commitment and put it on the record, I shall be happy to consider them. We have to accept that we are all dealing in good faith on this, but we need flexibility if we are to achieve what she seeks. To put something very rigid in place may not fit that purpose. There will be plenty of information in the accounts, but we recognise that that will be historic information that will be looked at in retrospect. We are trying to help the noble Baroness with a forward look at the information that she seeks, in a way that is consistent with commercial confidentiality. I hope that by putting it on the record today, the noble Baroness, her colleagues and the rest of the House will be prepared to accept that assurance. I can give chapter and verse, if necessary, on the ability of the Secretary of State to cause that to happen and to cause those data to flow from PADA or the trustee corporation, which is enshrined in various bits of the legislation. We jousted a little on that on the previous day on Report.
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Baroness NoakesMy Lords, I am disappointed with the Minister’s overall stance. While seeming to open up to more transparency, he is in…
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Baroness NoakesConservative
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My Lords, I am disappointed with the Minister’s overall stance. While seeming to open up to more transparency, he is in fact inviting us merely to have extra information in the annual report, which by definition is quite late. It is certainly out of date in terms of costs. I do not think that we have PADA’s annual report for last year yet, so we cannot rely on information coming promptly from these organisations.
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Lord McKenzie of LutonMy Lords, PADA’s annual report and accounts were filed late last week. I accept that it is only a short period and it d…
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Lord McKenzie of LutonLabour
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My Lords, PADA’s annual report and accounts were filed late last week. I accept that it is only a short period and it does not tell you very much. If we had a flexible approach, we would not have to wait for specific events or timelines in terms of the production of accounts and reports, or for the annual reporting event that the noble Baroness suggested. We could seek to make statements at appropriate intervals when the relevant information became available.
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Lord Oakeshott of Seagrove BayMy Lords, what did the Minister mean when he talked about giving further reports or information in a timely fashion, wh…
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Lord Oakeshott of Seagrove BayNon-affiliated
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My Lords, what did the Minister mean when he talked about giving further reports or information in a timely fashion, which I think is what he said?
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Lord McKenzie of LutonMy Lords, it is self-evident. It was in part to deal with the point made by the noble Baroness; that accounts for the p…
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Lord McKenzie of LutonLabour
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My Lords, it is self-evident. It was in part to deal with the point made by the noble Baroness; that accounts for the period up to 31 March do not arrive on 1 April each year. We know that there can be a delay, and sometimes that delay is longer than we would hope. By recognising that the information requested should not wait for specific trigger points that could be at some time in the future, I was trying to see whether we could help her along the way. I cannot define it any more closely than that. That was the purpose of using the expression.
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Baroness NoakesMy Lords, the Minister continues to disappoint me. The issue is very clear. We have considerable concerns about this pr…
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Baroness NoakesConservative
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My Lords, the Minister continues to disappoint me. The issue is very clear. We have considerable concerns about this project, particularly about when it will be delivered and the cost. We do not accept that personal accounts are acceptable at any cost, and considerable doubts have been raised about what those costs might be. The amendment was seeking to get into the public domain information equivalent to that produced in the context of commercial confidentiality concerns for identity cards. The Government are not seeking to be as transparent and open as they should be. Nevertheless, I do not think that it is appropriate to divide the House on this amendment. We have heard what the Minister has said. If the Minister and his Government do not deliver on that promise, we will all be clear where the blame will lie if and when the project does what many fear it will do, in the words of Mr Frank Field, implode. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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Baroness Noakesmoved Amendment No. 69:
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Baroness NoakesConservative
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moved Amendment No. 69:
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Baroness Turner of CamdenMy Lords, I have had some doubts about the conditional indexation model in relation to final salary schemes. As noble L…
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Baroness Turner of CamdenLabour
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My Lords, I have had some doubts about the conditional indexation model in relation to final salary schemes. As noble Lords will remember from previous debates, I have always been very much in favour of final salary schemes, and it is a matter for regret that a number of them have been disappearing. In my opinion, the problem with the conditional indexation model is that it could simply precipitate the flight from existing schemes to conditionally indexed schemes, even when employers have no difficulty in funding their current schemes. There is a fine balance to be struck between encouraging employers to retain DB provision where they would otherwise switch to defined contribution schemes and not incentivising employers to switch to risk sharing where they would otherwise retain their final salary scheme. I understand that the Government are committed to considering regulatory change, as necessary, and I should be happy for that to proceed. However, I am not at all convinced that the effect of adopting the scheme recommended in the amendment would be the retention of final salary schemes where employers were not under any pressure, either financially or in any other way, to switch to DC schemes.
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Lord Oakeshott of Seagrove BayMy Lords, the noble Baroness, Lady Turner, is probably living in a bit of a dream world if she believes that there are…
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Lord Oakeshott of Seagrove BayNon-affiliated
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My Lords, the noble Baroness, Lady Turner, is probably living in a bit of a dream world if she believes that there are now many private sector schemes which are not under pressure, particularly given what has been happening to stock markets in recent weeks. Hundreds of billions of pounds have been wiped off the assets of pension funds in general, and even some of the strongest and best funded private sector pension schemes are clearly now in a much more difficult position. I pay tribute to the work of the Association of Consulting Actuaries, which has had meetings with us and other noble Lords, and has done a great deal of work on these amendments. I think it is right to raise this issue and the fact that we need a middle way between conventional DB schemes, which are now under so much pressure, and defined contribution schemes. However, I am not sure that I agree with the noble Baroness’s argument that, even if we are not certain that this is the right approach, we should table some amendments now and the Government can come back on them later. It seems to me that it is probably a little soon to set these out, and other serious organisations with a great deal of experience in pensions—I think particularly of the EEF—are sceptical about this way of doing things. I shall listen with great interest to what the Minister says but it is important that this matter is not kicked into the long grass. It is important that we explore the issue seriously and that the Government bring forward their proposals on conditional indexation soon. If the amendment is not accepted—and I believe that the Government do not want to accept it—I want to know what are they going to do and when.
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Lord McKenzie of LutonMy Lords, I thank the noble Baroness for tabling this amendment because it gives me a chance to update noble Lords on d…
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Lord McKenzie of LutonLabour
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My Lords, I thank the noble Baroness for tabling this amendment because it gives me a chance to update noble Lords on developments since we last debated this issue in Committee. Like the noble Baroness and other noble Lords who have spoken in this short debate, the Government are concerned about the trend of DB scheme closures. Back in July, when we debated these same amendments, we had just published a consultation paper, as has been acknowledged, on risk sharing. The paper was very wide-ranging and sought views on a number of proposals. It included material on risk sharing within the current regulatory framework, including what changes employers are making to their schemes, to illustrate what is currently possible. It also outlined some proposals for risk sharing put forward by stakeholders, which included conditional indexation restricted to new career average schemes or extended to all salary-related schemes, and collective defined contribution schemes. We received more than 80 responses, which reflected a diverse range of views with no clear consensus. For example, a number of respondents to the consultation on risk sharing felt that the idea of collective defined contribution schemes was appealing in principle. In collective defined contribution schemes, employers would have certainty about their contributions and the financial risks would be shared between the members rather than between the members and the employer, but respondents also said that further work would need to be carried out before it could be implemented. Other respondents asked us to look at the legislative provisions that apply to cash balance schemes, which are structured like defined contribution schemes but where a member’s pension pot is not exclusively reliant on contributions’ investment returns. These schemes are treated by DWP legislation as defined benefit schemes because of the guarantee about the size of the pot provided by the employer. We are looking further at those issues.
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Baroness NoakesMy Lords, I thank the noble Lord, Lord Oakeshott, and the noble Baroness, Lady Turner, for their contributions to the d…
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Baroness NoakesConservative
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My Lords, I thank the noble Lord, Lord Oakeshott, and the noble Baroness, Lady Turner, for their contributions to the debate. The noble Baroness appears to think that there are employers who will be happy to continue with defined benefit schemes. We always thought that the banks would carry on with their rather generous schemes, but I would be surprised if boardrooms will be so comfortable going forward, given the ravages to their finances over recent weeks. The trend in the private sector is clear. Defined benefit will disappear and it is just a question of time, unless something can be done to make the liabilities more manageable for employers. Those liabilities are large, unpredictable and difficult for companies to absorb. That is just a fact; I cannot tell the noble Baroness this in more straightforward terms. It is what the employer and business community believes strongly, which is why the director-general of the CBI made a plea for companies to be set free to design something that they would be comfortable in persuading their workforce was an appropriate set of benefits. The Minister said that the Government are looking at their consultation on flexibility. Inevitably there are different views, because some people are clinging to the belief that defined benefit will be kept in place by doing nothing. That is simply not the case. This is a serious issue. It is a failing by the Government that they have not used this opportunity to do anything in the Bill to help defined benefit. The Bill drives further and further towards defined contribution; that is what it is all about. I deeply regret that the Government are taking that approach. However, I will not divide the House on the issue. The Government said that the amendments are technically deficient, but that is not the most important thing. I recognise that, if the Government set their face against flexibility, there will be none. The Government will be judged on their record on defined benefit schemes, as they should be. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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Lord Fowlermoved Amendment No. 69A:
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Lord FowlerCrossbench
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moved Amendment No. 69A:
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Lord SkelmersdaleMy Lords, my noble friend Lord Fowler is quite right to remind us that in last year's Pensions Bill we passed an amendm…
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Lord SkelmersdaleConservative
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My Lords, my noble friend Lord Fowler is quite right to remind us that in last year's Pensions Bill we passed an amendment moved by my noble friend Lord Hunt of Wirral, which abolished the rule that people holding pensions must take an annuity by the time that they are 75. He and I were more than a little annoyed that in another place, the amendment was not even debated. It was deemed out of time because of the guillotine. My noble friend moved the amendment again in Committee earlier this year, although he withdrew it due to the Government’s enduring obduracy. Time has shown just how percipient he was in moving it; but his amendment, although remaining the Opposition's long-term policy, needs to be adapted to the situation in which we now find ourselves. After the worst autumn for the economy that most of us can remember, the financial security of pensions has deteriorated significantly. I congratulate my former temporary boss and noble friend Lord Fowler on picking up on something that my right honourable friend Mr Hague said at Prime Minister's Questions on 15 October. Referring to the extraordinary economic times we are now in, he spoke with feeling about the pensioners who are forced to buy an annuity, perhaps on reaching retirement or, by law, at least by the age of 75. He made the point that they will be locked into a lower income for the rest of their lives. In the amendment, my noble friend proposes a temporary suspension of those arrangements. To be fair, Ministers have said previously that they will look at that. Indeed, the right honourable lady Ms Harman, in response to my right honourable friend Mr Hague, conceded that, “the impact on family finances, businesses and jobs has been sudden”. She continued: “It is important to consider the question of the impact on people—albeit a small number of people—who have to buy their annuities within a certain period of time ... I know that the Department for Work and Pensions is talking to the Treasury about the issue”.—[Official Report, Commons, 15/10/08; col. 787.] It is an old saying that talk is cheap. It is the results, if any, of that talk that matter, and, currently, as I am sure the Minister is about to tell us, the omens are not good. Notwithstanding the fact that we on these Benches have always believed that the Treasury was 100 per cent wrong to maintain the rule of compulsory annuitisation by the age of 75, we reluctantly accept the right of another place to put the boot in and say, “No way”. At least, we did. However, as the right honourable lady said last Wednesday, the situation has indeed changed, and for the worse. She claimed that very few were affected, but the number is growing. If memory serves me right, the noble Baroness, Lady Hollis, told us in 1974 that we were worrying about only 1 per cent or so of pensioners. Last year, the noble Lord, Lord McKenzie, told us that it was 3 per cent of those in the group with pension pots of more than £100,000, although both figures now need to be updated. The last figure that I heard was 5 per cent, but the exact figure hardly matters when the Government admit that Amendments Nos. 78AP and 78AQ on the buy-back of state pensions, welcome though they are, will help only a maximum of 110,000 people. As my noble friend Lord Fowler has said, alternatively secured pensions were invented for fewer than 1,000 Plymouth Brethren. Not only that, the £100,000 figure on which annuity rates are quoted has become totally meaningless. In October last year, the FTSE 100 stood at a smidgeon under 6,500. On 1 October this year, it had fallen to 4,959.60. By 16 October, it had dropped through the floor, and closed at 3,861.40. Over the weekend, it dropped again, and significantly, stood at 3,765 at lunchtime today. The net result of all this, as my noble friend Lord Fowler has just pointed out, is that the FTSE is down by more than 30 per cent this year. It is not impossible to believe the NAPF when it says that pension pots, too, have shrunk by more than 30 per cent; nor that, according to Aon Consulting, assets of direct contribution schemes have plummeted from £552 billion to £395 billion, despite the £6.7 billion of contributions paid in by employers and employees during the year. These figures are already out of date because they are last week’s figures. Doubtless the situation is even worse today, as we are told that the FTSE dropped another 5 per cent at the end of last week. In other words, the £100,000 on which annuity rates are quoted has become less than £70,000. What a time to take your annuity. It is no good the Minister saying, as I expect he will, “You should have taken it earlier”. Hindsight is a wonderful thing, but in this case it goes against the grain of human nature, particularly in uncertain times when people will delay taking out their annuities for as long as possible in the hope that the Stock Exchange will rise. That is precisely why the Government need in their back pocket the statutory instrument that my noble friend proposes. It is not, as he said, a blanket abolition of compulsory annuities; it would enable the Government to be flexible at a time of their choice but at a time of severe volatility on the stock market, which is precisely what we are seeing now.
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Lord Sanderson of BowdenMy Lords, my noble friend Lord Fowler has tabled an amendment at a critical moment, particularly for pensioners. Fate h…
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Lord Sanderson of BowdenConservative
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My Lords, my noble friend Lord Fowler has tabled an amendment at a critical moment, particularly for pensioners. Fate has done me a good turn. I was 75 on 30 April this year. I took my annuity at the time, and I am very relieved that I did. The present situation is undoubtedly extremely hard on those who are six months younger than me. They have saved all their lives, and have had a self-invested pension plan. They have taken risks because we have to do so if we want to improve our lot. That is what everyone wishes to do. But to have at this point a shotgun marriage of a pensioner of 75 with his annuity is criminal. I hope that the Government understand that the present situation is unusual, very bad for anyone with money in the stock exchange, and particularly so for anyone who has to take an annuity by law when they are 75.
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Lord Forsyth of DrumleanMy Lords, I am nowhere near 75 so I do not need to declare an interest, but I am extremely concerned about this. If we…
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Lord Forsyth of DrumleanLord Speaker
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My Lords, I am nowhere near 75 so I do not need to declare an interest, but I am extremely concerned about this. If we look at the root cause of the financial catastrophe unfolding around the world, it is clear that it is about people borrowing too much and not saving enough. Surely we should be doing everything we can to encourage people to save for the future. I strongly support my noble friend’s amendment, although characteristically he has been more moderate than I would have been. I do not think we should have this rule at all, and I believe that my noble friend is of the same view. But in the interests of pensioners who are going to suffer real hardship, it is a sensible and moderate compromise. I do not envy the Minister if he does not accept the amendment today because it will seem rather inexplicable when the Government can find huge sums to bail out the Royal Bank of Scotland and the Bank of Scotland. I mention those two banks in particular as their shares are typical of the kind held by elderly people. They believed that they were safe as houses and they considered the size of the dividend. The shares are part of their pension schemes, and now partly because of the Government’s insistence that no dividends are available, the funds are devastated. So even if the Minister is not able to accept the amendment now, I hope that the Government realise that there is real hardship and that the people who are suffering are those who have done the right thing—they are the people who have put money by. If, we are to recover in the long term, to coin a phrase from Keynes who seems to be very fashionable on the Benches opposite these days, we will do so because people and Governments put money aside for a rainy day. People should be encouraged to save. The tragedy for those who have done that, particularly with this Government—we saw it in the changes to the tax rules for dividend income and in the Government’s toing and froing on what people could and could not invest in their SIPPs—is that they are beginning to think, “I am not sure I will be safe by putting my money into a pension scheme because the Government can act in an arbitrary way and change or alter the rules at any time”. Surely we should be liberalising the rules as far as we can, consistent with not putting a burden on the welfare state. Again, I support my noble friend’s amendment, and if the Government are serious in their rhetoric that they will help people through this crisis, and if that has any value at all, surely the oldest and most vulnerable in our society who have done the right thing should benefit first from that rhetoric.
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Baroness Hollis of HeighamMy Lords, I shall not vote on this amendment if the noble Lord, Lord Fowler, proposes to put it to a Division, but it i…
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Baroness Hollis of HeighamLabour
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My Lords, I shall not vote on this amendment if the noble Lord, Lord Fowler, proposes to put it to a Division, but it is a sensible proposal, and I should like to say why. I have supported it on previous occasions. Perhaps I may start where I suspect my noble friend will be coming from—this has been alluded to by other speakers. The argument is that it will affect only a tiny percentage of people; the 3 to 5 per cent of the well-to-do who, if they can postpone taking an annuity until they are 75, must have other resources on which they can live and therefore this is relatively marginal to their financial well-being. In any case, it is argued, their savings pot has been protected and wrapped around with generous financial subsidy because it is meant to be exclusively a retirement income and not available for other purposes. While I hope that I am wrong, the argument I suspect my noble friend will adduce is that, first, it is a matter only for the well-to-do who are cushioned by other resources; and, secondly, that it goes against public policy for which the tax privileges of pensions were designed. Let us take a moment to unpick those two arguments because I do not think they are valid, and have not been so for some time.
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Lord CrickhowellMy Lords, I agree with every word that the noble Baroness has just said. I declare a rather unpleasant interest, in the…
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Lord CrickhowellConservative
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My Lords, I agree with every word that the noble Baroness has just said. I declare a rather unpleasant interest, in the sense that I fit two of the categories that have been described here. I am shortly to be 75 and I had an excessive investment in the Royal Bank of Scotland and other banks, because my stockbroker thought that they were a good dividend yield that would produce the sort of income that was needed in a pension scheme. All pension schemes are now going to be wrecked by the Government’s decision that dividends from banks should not be paid for a long time to come. I rise, though, for another reason. I suspect it is possible that the Minister may introduce a topic that has already been referred to today, and which, if a quotation in one of last week’s papers is correct, led the Chancellor of the Exchequer to say, “Oh, there’s no need to do this because there is already an escape route. An alternative is already in place”. It is the escape route that my noble friend referred to as having been designed for the Plymouth Brethren. He said it applied to only a tiny handful of people. In fact, that rule is never restricted to the Plymouth Brethren; a large number of people took it up because they saw a way of avoiding estate duty. The Government intervened, perfectly reasonably, to stop that escape route, but the proposition that you can take out an alternative secured pension remains. Indeed, I have one. For some time, I have had what is known as a drawdown arrangement in my personal pension scheme—managed by my broker, not tucked away in an insurance company or in any other way—and therefore do not have to buy an annuity. I do not begin to understand why, if the Government are prepared to allow that escape route, they are going to be so rigid about giving a rather wider escape route to all those who have not followed that route and for whom it might be quite difficult to enter into an alternative secured pension and a drawdown arrangement in the final months before the annuity rule applies to them. If it is right and proper that a considerable number of pensioners can manage their affairs in this way, and quite a lot of them do, I see no possible reason why the Government should object to my noble friend’s other proposition that there should be a temporary escape mechanism—that is all he is suggesting—during this horrendous moment when the markets have been plunging through the floor. Like a number who have spoken, I think the whole rule should be dropped altogether, but let us be content for the moment with the amendment and rescue those people who do not have the escape route that I have provided for myself. I hope, and it is just possible, that some of my investments may recover in time for me to get rather a better pension than it looks as if I might at the moment, but at least I will not be forced in the next five months to buy an annuity at almost the worst possible moment. If the Chancellor is saying, “It’s all right, I don’t have to do anything; there’s an existing escape route”, he should warmly embrace my noble friend’s proposition and offer an escape route for all those facing the kind of desperate situation that I would have been in if I had not already taken the drawdown and alternative secured pension route. I am not a member of the Plymouth Brethren, and there was no actual restriction applying it to them. There were statements that that was why it had been introduced, but a large number of people who do not belong to the Brethren have alternative secured pensions. It is a legitimate thing to do, and the Chancellor and the Government are now apparently saying so. Let us have no more nonsense; let us accept my noble friend’s amendment and give hope to a lot of people who are otherwise in a pretty desperate state at present.
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Lord Howarth of NewportMy Lords, I, too, hope that my noble friend the Minister and the Government will find themselves able to look sympathet…
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Lord Howarth of NewportLabour
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My Lords, I, too, hope that my noble friend the Minister and the Government will find themselves able to look sympathetically and constructively at the amendment tabled by the noble Lord, Lord Fowler. I should like to reiterate a couple of points that have been made. We have seen in recent years a substantial move towards people saving for their pensions by way of defined contribution schemes. The Government have smiled upon this; they have certainly not discouraged it, and all the signs are that that trend will continue. Although many people in defined contribution schemes must certainly be deeply worried about the future of their pension savings, there is, I think, no likelihood—and the present nightmare events in the stock market only reinforce this—that we shall see a return to defined benefit schemes as the norm, so people will have no choice. But as things are, and given that no one has been able to devise a way to smooth the exit into an annuity for people saving in money purchase defined contribution schemes, they face a kind of Russian roulette, and it is the responsibility of the Government to do what they can to help those people secure themselves in circumstances which could be absolutely catastrophic. The other point to reiterate is that the Government want people to save more. They want people to work for longer and to be more flexible about the moment of their retirement. You must have a pensions regime that supports them in that approach and in taking those decisions. The noble Lord, Lord Sanderson, said that the present circumstances in the market are very unusual, and indeed they are extreme. However, market fluctuations are entirely normal and, that being the case, it must be wrong to require people rigidly to annuitise and take their pension at a fixed age, certainly in the circumstances we are considering. It could be cruel and even ruinous to require people in defined contribution schemes to take their annuity according to the letter of the present law. So I very much hope that my noble friend will be able to tell the House that the Government are indeed looking urgently and seriously at the very sensible and practical proposal that the noble Lord, Lord Fowler, has put forward.
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Baroness Dean of Thornton-le-FyldeMy Lords, I, too, support the amendment of the noble Lord, Lord Fowler. A number of us in this House think the current…
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Baroness Dean of Thornton-le-FyldeLabour
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My Lords, I, too, support the amendment of the noble Lord, Lord Fowler. A number of us in this House think the current annuity provisions and requirements are wrong anyway and need changing. The amendment does not do that: it simply meets the current circumstances that are facing people. Yes, we have had and always will have ebbs and flows in the stock market, but the current situation is different. There will be no going back; once people have taken their annuity at a much lower return, that will decide their pension for the rest of their lives. There is fairness in the amendment, so I look forward to the Minister’s response. It seems fair and equitable to realise and accept that these are extenuating circumstances. There is a time factor related to the amendment, and I hope that the Minister will say that he will move on it.
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Lord Oakeshott of Seagrove BayMy Lords, it seems to be the fashion in this debate for most, if not all noble Lords, to declare their age and pensions…
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Lord Oakeshott of Seagrove BayNon-affiliated
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My Lords, it seems to be the fashion in this debate for most, if not all noble Lords, to declare their age and pensions arrangements, so I am happy to declare mine. I am 61, so I could be buying an annuity—I just have a defined contribution pension—but, luckily, I have a good salary and do not need to do so now. If I were older, the last thing I would want is a temporary suspension, be it for six months or two years, not knowing where I stood. I am afraid that the speeches that we have heard, particularly the powerful speeches from the Conservative Benches, are effective in favour of not this amendment but Amendment No. 77 or Amendment No. 77A, in my name and that of the noble Lord, Lord Fowler, which would permanently raise the limit by a significant number of years. The point has been made very powerfully that people will need a few years to rebuild their pension pots, which have been cruelly savaged by recent market movements. I congratulate the noble Lord, Lord Fowler, on finding an ingenious way to bring his amendment up the batting order, but many of the arguments are essentially those with which we shall deal later.
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Lord Forsyth of DrumleanMy Lords, I appreciate that there is in history perhaps less experience of government on the noble Lord’s Benches, but…
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Lord Forsyth of DrumleanLord Speaker
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My Lords, I appreciate that there is in history perhaps less experience of government on the noble Lord’s Benches, but it sometimes helps to provide a Minister with a way out having rejected one thing. Given what is at stake here, which is many people’s livelihoods and pensions, would it not be sensible for the noble Lord to treat the amendment as giving the Government a way out, which can be reviewed subsequently, and deal with the matter immediately at hand, rather than being gratuitous in his comments about my right honourable friend’s fag packet? This is an attempt to provide the Government with a way out to help people who are in real need. Does he not see that?
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Lord Oakeshott of Seagrove BayNo, my Lords. I have probably rather more experience advising Governments either than the noble Lord or the right honou…
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Lord Oakeshott of Seagrove BayNon-affiliated
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No, my Lords. I have probably rather more experience advising Governments either than the noble Lord or the right honourable David Cameron. I was a special adviser in the 1974 Government when conditions were even more turbulent, which is why I say what I say. I also have 32 years’ experience of pension fund investment management. I believe that serious people in government have been thinking about compromise, which would, by however many years the limit were raised, be sensible and sustainable in the long term, but no serious Government would be able to accept the way forward proposed by the amendment. That is why I do not think that this proposal will work and we will not be able to support it. However, I hope that noble Lords will support Amendment No. 77A of the noble Lord, Lord Fowler, which is very sensible.
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Baroness GreengrossMy Lords, I support the noble Lord, Lord Fowler. The amendment is a modest but effective way of dealing with the presen…
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Baroness GreengrossCrossbench
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My Lords, I support the noble Lord, Lord Fowler. The amendment is a modest but effective way of dealing with the present, unfortunate situation, which will affect a lot of people. I shall also support the noble Lord, Lord Oakeshott, later. The amendment is a sensible way forward. It deals with the crisis at the moment and behoves us to support it.
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Baroness Howe of IdlicoteMy Lords, I was quite amazed by the various contributions to the debate and became more convinced as it wore on. Being…
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Baroness Howe of IdlicoteCrossbench
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My Lords, I was quite amazed by the various contributions to the debate and became more convinced as it wore on. Being 75-plus, I am glad, I suppose, that I have been able to take my annuity, although I wriggled like mad at the time, because, it will not surprise any noble Lords to know, annuities are not my favourite subject and they discriminate against women. I am amazed by the views of the noble Lord, Lord Oakeshott, on this amendment, because I see it as being a temporary arrangement that cannot last for more than two years. My goodness, if the situation that we are now in lasts only two years we will be very lucky indeed. The amendment has a degree of flexibility attached to it, although I am equally likely to support raising the age of retirement, not least because I shall again have the opportunity to argue my case about the sex discrimination that exists. What the noble Baroness, Lady Hollis, said, with her background and knowledge was, as always, convincing in every way, although I also thought that the noble Lord, Lord Fowler, moved the amendment very thoroughly. I am just surprised that so little attention has been given to any of this in the other place.
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Lord McKenzie of LutonMy Lords, this has been an interesting debate. I will start by comforting noble Lords with the fact that the Government…
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Lord McKenzie of LutonLabour
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My Lords, this has been an interesting debate. I will start by comforting noble Lords with the fact that the Government do not feel that they need a way out of this issue. I very much agree with the noble Lord, Lord Oakeshott, that the debate has been around 75 or some other date. It has not focused on issues of temporary suspension. That is a significant issue. Stakeholders out there in the pensions community are not enamoured of this suggestion either. As the noble Lord, Lord Fowler, said, we face a global financial crisis that is imposing lots of challenges. The noble Lord, Lord Forsyth, said that we should be doing everything that we can to encourage people to save and I very much agree with that. That is why the Government have taken action to produce stability in the banking system through the measures that the Prime Minister and the Chancellor have announced. That is why the measure that is before us today in this House—and has been for several weeks—is about automatic enrolment into pension schemes to encourage further saving. That is why the Government introduced the PPF to protect people who might have lost their savings and, after some challenging debates, have dealt with VAs to protect people who lost their pension savings. That is why we strengthened the role of the Pensions Regulator, which we will come on to later. We have been encouraging people to save in this environment. The amendment would allow suspension of requirements to buy an annuity by the age of 75. I will take this opportunity to clarify that there are no such requirements on the statute book. The noble Lord, Lord Crickhowell, hit the nail on the head with understanding what the regime says. The requirement is to have started to draw an income—either through an annuity, a pension scheme or, since 2006, an alternatively secured pension. There is nothing that says you have to annuitise by the age of 75. That is an important distinction and I want to reiterate that: nobody is forced to buy an annuity with their pension savings. Indeed, my noble friend Lady Hollis advanced the proposition, as she has before, that people should be able to take a modest income out of their pension pot and withdraw tax savings, and then the rest has nothing to do with government policy. In essence, that is exactly what alternatively secured pensions achieve. Under an ASP, you are required to take between 55 per cent and 90 per cent of the annuity value of the pension pot. If there is anything left at the end of the day not taken as an income it has a tax exit charge. That is exactly the proposition advanced by my noble friend.
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Lord CrickhowellMy Lords, is it not remarkable that, having tried desperately to minimise the number of people who took this route and…
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Lord CrickhowellConservative
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My Lords, is it not remarkable that, having tried desperately to minimise the number of people who took this route and suggesting that it was only introduced for a small number of religious objectors, the Government now turn around and say, “There has never been any pressure to buy an annuity. It is entirely a myth that has been thought up by the Opposition”? This is an extraordinary statement from the Minister, and an extraordinary development in government policy.
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Lord McKenzie of LutonMy Lords, it is not. I was stating a matter of fact and the law. There were changes in 2006 to the alternatively secure…
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Lord McKenzie of LutonLabour
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My Lords, it is not. I was stating a matter of fact and the law. There were changes in 2006 to the alternatively secured pension regime, but I am doing no more than reiterating what the law says.
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Baroness Hollis of HeighamMy Lords, will my noble friend clarify to the House what happens to the residual money in the pot of ASP on death? Wher…
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Baroness Hollis of HeighamLabour
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My Lords, will my noble friend clarify to the House what happens to the residual money in the pot of ASP on death? Where does it return to?
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Lord McKenzie of LutonMy Lords, it depends upon the precise arrangements. In some instances it goes to charity but, if it goes to people with…
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Lord McKenzie of LutonLabour
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My Lords, it depends upon the precise arrangements. In some instances it goes to charity but, if it goes to people with heirs, then there is an exit charge on it which does exactly what my noble friend was proposing: drawing and clawing back the benefits of the accumulative tax relief that has been achieved. That is how it works, so people must face three alternatives by the time they reach the age of 75. The additional flexibility introduced by the Government in 2006 allows people to leave their pension funds invested indefinitely beyond the age of 75 and an alternatively secured pension. The only requirement is to draw down an income from the fund of at least 55 per cent of that which would have been provided by an annuity. Consequently, suspension would only really benefit those who do not need to take any income from their pension savings and who may therefore wish to use them as a means of making bequests partly funded by the taxpayer. I see the noble Lord, Lord Forsyth, bristling at this point; let me see if I can help him. Should you sadly die before reaching the age of 75, and before an income has been crystallised, then, routinely, the fund goes tax-free—free of inheritance tax to survivors. Of course, once you are into an income-crystallisation event—whether annuitisation or an alternatively secured pension—that is not the case, as I have just discussed. I am aware of the strength of feeling on this issue; I have seen it in today’s debate. However, I ask noble Lords to consider the implications of such a suspension, the point that the noble Lord, Lord Oakeshott, focused on. A temporary suspension of the income requirements, either just for annuities or for all means of drawing an income, would add uncertainty, complexity and cost both to those making pension savings and the companies providing pensions and annuities. Those approaching retirement would face uncertainty about the choices that they must make and when they must make them. Annuity providers and pension companies would be faced with the same uncertainties and the additional costs in terms of system and literature changes that may well be passed on to consumers. There are systems in place that are currently geared to events at the age of 75. If you had to suspend them, not knowing when they were going to be reinstated or at what time, that would present real, practical commercial challenges to providers; go and talk to them and they will tell you that that is the case. We should also consider the message that would be sent out to people by instigating such a suspension. There is a risk that those approaching retirement would believe that taking an annuity is not the right thing to do. While delaying annuitisation may be something that some people decide is in their best interests, and which they are free to do under the current framework, there are vital issues that they would have to consider in taking such a decision. After all, there is no guarantee that their assets will improve or even maintain their value. It is also possible that annuity rates could fall, potentially reducing the income available. In combination, a stagnation or fall in asset prices alongside a fall in annuity rates would have a severe impact on the income available from a person’s pension savings. For anyone relying on their pension savings to support themselves in retirement, these are serious risks. It would be irresponsible for the Government to do anything which could lead people to delay taking their pension income and expose themselves to such risks without fully thinking through the consequences. There are also problems inherent in allowing an option to extend suspension. This would compound the uncertainty faced by consumers, companies and advisers. Those approaching retirement need certainty and stability. Those advising savers and those providing income products need to know that the rules which govern them are not subject to change on the basis of an undefined set of criteria.
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Baroness Hollis of HeighamMy Lords, I am sorry to keep intervening, but is my noble friend arguing against the amendment on the ground of pre-emp…
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Baroness Hollis of HeighamLabour
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My Lords, I am sorry to keep intervening, but is my noble friend arguing against the amendment on the ground of pre-emption because, if it were passed, we could not then discuss the subsequent Amendments Nos. 80 and 85, which, given his emphasis on the uncertainty of this as opposed to other ways forward, might be measures that he would favour?
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Lord McKenzie of LutonMy Lords, I am perfectly happy to offer my noble friend the Government’s view on those amendments when we reach them. A…
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Lord McKenzie of LutonLabour
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My Lords, I am perfectly happy to offer my noble friend the Government’s view on those amendments when we reach them. As regards the amendment we are discussing, I argue that temporary suspension is simply not the way to address this. It would compound a challenging issue. My noble friend rightly referred to the fact that people are building up increasingly bigger pots in DC schemes. If you project forward 20 or 30 years, particularly with auto-enrolment, that will increase substantially. However, in the second quarter of 2008, there were something like 114,000 annuity sales, nearly 40 per cent of which were for pots of less than £10,000 and only 13 per cent of which were for pots in excess of £50,000. Therefore, we are a long way from that situation at the moment. I am disappointed that when we debate this matter the focus of attention is on people at or around or approaching 75, whom I have sought to deal with. However, we have not discussed people who might be in more challenging circumstances—those who annuitise early because they need the income. Those people have very real deadlines driven by their economic circumstances. Frankly, I am more concerned about those people than those who have the options I have outlined. I think that the temporary suspension is the worst of all options that we face at the moment.
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Lord SkelmersdaleMy Lords, at the end of the noble Lord’s remarks, which, like some of my noble friends, I found almost unbelievable, he…
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Lord SkelmersdaleConservative
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My Lords, at the end of the noble Lord’s remarks, which, like some of my noble friends, I found almost unbelievable, he referred to people needing to take an annuity at an earlier stage. Surely the whole point about that decision is that it is influenced by their individual circumstances; it is not imposed by government or anyone else.
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Lord McKenzie of LutonMy Lords, I thought we were discussing the practical circumstances that people face and what current equity values have…
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Lord McKenzie of LutonLabour
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My Lords, I thought we were discussing the practical circumstances that people face and what current equity values have meant for individuals. I was simply making the point that if somebody needs to convert their pot into an income because they need that income, that is very much a deadline for them now, even though they may not even be close to 75. That point is reinforced by the fact that only 5 per cent of people annuitise after 70.
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Lord FowlerMy Lords, frankly, that was a deeply disappointing reply from the Government. The Minister talked about uncertainty. Th…
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Lord FowlerCrossbench
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My Lords, frankly, that was a deeply disappointing reply from the Government. The Minister talked about uncertainty. The uncertainty is caused by the worst financial position that we have had in this country in living memory; that is the uncertainty that would-be pensioners are living with. It is significant that out of 10 speakers apart from the Minister, only one, the noble Lord, Lord Oakeshott, argued against the amendment. I thank my noble friend on the Front Bench for his support, and I thank my noble friend Lord Sanderson. My noble friend Lord Forsyth pointed out that the people who we are harming are those people who have done the right thing and have saved for their retirement. Surely the aim of policy should be to help them, not to damage their interests. The noble Baroness, Lady Hollis, made a powerful speech, which was made all the more powerful because of her knowledge as a former Pensions Minister. She rightly said again that the impact of this will be on future pension policy, and it will be profound. We want to encourage pension saving, not discourage it. The noble Lord, Lord Crickhowell, made a very interesting point about alternatively secured pensions. The Government have suddenly become the greatest supporter of alternatively secured pensions. We never heard that argument from the Government before; up to now, they have regarded it as a bit of a loophole. Up to now, they have said, “Okay, the Plymouth Brethren can do it”. I had not realised that this was a central plank of government policy, or that they were putting it forward for everyone up and down the country. I had not realised that they were saying to financial advisers and banks, “Please tell people to take alternatively secured pensions”. This is entirely new; I do not remember that argument. If the Minister will forgive me for saying so, it is a very odd line. He is really saying, “We have this rule on compulsory annuities, but take a bit of advice and you can get around the rule”. It is the most extraordinary excuse that I have heard from a Minister for many years. I thank the noble Lord, Lord Howarth, and the noble Baroness, Lady Dean, for their interventions. The noble Baroness said that there were ebbs and flows in the stock market, but we are not dealing with ebbs and flows. The comment made by the deputy governor of the Bank of England, Charlie Bean, was: “This is a once in a lifetime crisis, and possibly the largest financial crisis of its kind in human history”. That is not an ebb and flow; that is a crisis. The Government keep on saying that they will have policies to help people through this crisis. We challenge them to provide something in this area, and they do absolutely nothing. The noble Baroness, Lady Greengross, with her vast experience in this area, also supported the amendment, as did the noble Baroness, Lady Howe. The only person who argued against it was the noble Lord, Lord Oakeshott. To be honest, I am puzzled by his position, although I could put it more strongly than that. He seems to basically be saying, “If you will not have my amendment, you cannot have any other amendment”. I am quite happy to go with my amendment if that is his only argument. The fatal flaw in his argument is that he is arguing for annuities at the age of 85. I do not see any sign whatever that the Government are going to give in to that position, so the noble Lord is arguing with the Government about annuities at 85. If the Minister wants to stand up and say that he will introduce annuities at 85, I am happy to give way, but I very much doubt that he is. In those circumstances, I really would ask the noble Lord, Lord Oakeshott, to reconsider his position, because he is going forward on a proposition that will be rejected by the Government. This is the whole case—and I do not doubt the noble Lord’s goodwill—but we are both putting forward proposed solutions, and the Government are saying no to everything. This is a moderate, middle-of-the-road proposition. This is a question of justice for men and women who have saved for their future, but have been caught in a financial storm which they have had no way of influencing and very little chance of avoiding. We have an opportunity of seeking to deal with that injustice. That was the challenge to the Minister which he was unable and unwilling to take up. In those circumstances, I would like to test the opinion of the House.
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Lord McKenzie of Lutonmoved Amendment No. 71:
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Lord McKenzie of LutonLabour
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moved Amendment No. 71:
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Baroness NoakesMy Lords, I thank the Minister for tabling this amendment. I was much encouraged in Committee when he said that he view…
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Baroness NoakesConservative
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My Lords, I thank the Minister for tabling this amendment. I was much encouraged in Committee when he said that he viewed my amendments “with some warmth”, but of course when we got down to the small print in his detailed response he revealed a difference of view about who should call the shots on actuarial valuation. That difference remains today. The amendments that I spoke to in Committee made it clear that it should be the Government Actuary who determines actuarial equivalence. That is, after all, what actuaries spend all those years learning to do. The Government’s amendments leave the discretion in determining actuarial equivalence with the Secretary of State. I cannot ever recall a Secretary of State having an actuarial qualification and so being qualified to opine on actuarial equivalence. The truth is that the Government like to pick and choose actuarial assumptions, as we have seen, whether it was DWP Ministers or Treasury Ministers working behind the scenes. When it came to contracted-out rebates, they ignored the Government Actuary’s advice on the basis of something that they called “sustainable affordability”. I accept that the Government have improved on the clause that they introduced initially, as they must now involve the Government Actuary and explain to Parliament if they do not follow his advice. Moreover, the regulations will be subject to the affirmative procedure. On that basis, I have decided not to seek further amendments and to accept my half a loaf. On Question, amendment agreed to.
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Lord McKenzie of Lutonmoved Amendment No. 72:
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Lord McKenzie of LutonLabour
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moved Amendment No. 72:
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Lord Tunnicliffemoved Amendment No. 73:
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Lord TunnicliffeLabour
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moved Amendment No. 73:
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Lord Kirkwood of Kirkhopemoved Amendment No. 74:
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Lord Kirkwood of KirkhopeLiberal Democrat
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moved Amendment No. 74:
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Baroness Turner of CamdenMy Lords, I am sure that the noble Lord will not be surprised to learn that I oppose the amendment. I do so because the…
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Baroness Turner of CamdenLabour
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My Lords, I am sure that the noble Lord will not be surprised to learn that I oppose the amendment. I do so because the present salary and pension structure for civil servants is the result of agreements between the Government and the unions, and because it is generally accepted that the pension package is an element of deferred income. As has already been stated, this is a question of deferred pay for the civil servants covered by the package. It is true that the present arrangements are non-contributory, but I understand that Civil Service salaries are effectively reduced by around 6 per cent in comparison with similar employment in the private sector to account for the non-contributory aspect. We really are not talking about highly paid people. The average Civil Service pension is around £5,400 a year, with a quarter being less than £2,000 a year. Any attempt to make savings in public sector pensions will have a greater impact on women pensioners who have lower pensions than men due to their lower average salaries and shorter service records. Furthermore, if those pensions are taken away, the taxpayer will fund further payments under pension credit, since the people who would be disadvantaged if this package were removed would be those eligible for pension credit. As we all know, many of those who are eligible to receive means-tested benefits do not actually get them. Pension credit is not an easy way of covering the loss to those who otherwise would be compensated through the Civil Service pension scheme. I understand that Civil Service pensions have already been through a process of evaluation and reform. The principles for reform of the scheme were agreed by the Government and the TUC in the Public Services Forum in October 2006. These principles recognise that public service pensions are a key benefit of public service employment and should be celebrated as such. It is important to maintain their good quality through retaining defined benefits and index linking. That is an important commitment. If the amendment to establish a commission was accepted, those covered by the present arrangements would be concerned lest the Government attempted to go back on what has already been agreed in the process of negotiations. I therefore urge that the amendment should not be accepted. We discussed this proposal during proceedings on a previous pensions Bill and the House rejected it. I hope that it will do so again. We have a negotiated agreement and there would certainly be difficulties if it was thought that any attempt was being made to go back on what has already been agreed. I suggest that this amendment should be decisively defeated.
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Baroness NoakesMy Lords, we wholeheartedly support the principle behind the amendment just moved by the noble Lord, Lord Kirkwood, and…
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Baroness NoakesConservative
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My Lords, we wholeheartedly support the principle behind the amendment just moved by the noble Lord, Lord Kirkwood, and I agree that the recent report from the Pensions Policy Institute is valuable because it illuminates what we know and what we do not yet fully understand. We on these Benches have warned for some time that the increasing disparity between the pension benefits available in the public sector and those in the private sector is unsustainable. Increasingly, the country reflects a tale of two workforces. The latest official statistics show that employee membership of defined benefit schemes in the private sector continues to fall, with around 1.5 million still in open DB schemes, although the Association of Consulting Actuaries uses a much lower figure of around 900,000. On the other hand, 5.2 million people are in public sector defined benefit schemes which are obviously still open. Not only do these schemes give full DB benefits in retirement, they often have much earlier retirement dates than in the private sector. The result is a huge cost burden which taxpayers have to pick up. Some of the schemes are funded, which is imposing a considerable cost on the services to which those employees are attached, but as the noble Lord, Lord Kirkwood, pointed out, many schemes are unfunded. The noble Lord also told us how difficult it is to get a fix on how much is actually involved, partly because of the delay in the numbers coming out and partly because of the assumptions that are used. If we add together some figures that were available in 2006 and 2007, we believe that the estimate on the Government’s assumptions is around £760 billion. But those figures use the perfectly ludicrous assumption of AA corporate bond rates in the discounting when it is obvious that the only correct rate to use for the state’s liabilities is the risk-free gilt rate. If that rate is used, the Institute of Economic Affairs earlier this year came up with a figure of £1,071 billion, which itself is out of date because the figure will be higher even now. But just that figure represents 73 per cent of GDP. That is what is overhanging our economy, which, as we know, is in a precarious state as it is. If the Government were a private sector company, which of course they are not, the answer to the financial facts would be clear, because we can see what boardrooms have been doing consistently over recent years. They have been closing their defined benefit schemes to new entrants and have been revisiting whether or not future accrual would be modified or possibly even stopped. What has happened in the private sector is plain, and I outlined it earlier when speaking to my conditional indexation amendment. However, the Government live in a completely different world. I understand what the noble Baroness, Lady Turner, said about a negotiation between Ministers and the TUC, but the plain fact is that that negotiation has sold taxpayers down the river. The solution at the end of that negotiation was a minimalist one, and there could not have been less produced. The noble Lord, Lord Kirkwood, gave us the figure of £13 billion over 50 years—around 1 per cent of the total liability on the assumptions I discussed earlier. Indeed, it is interesting to note that when the noble Lord, Lord Turnbull, was with us—he has much expertise in this matter and it is a shame that he is not in his place today—he described all criticism of the deal as entirely justified. Noble Lords on these Benches find it difficult to support amendments that involve public expenditure. I am not sure that a pensions commission to look at public sector pensions would necessarily involve a large amount of public expenditure, and could even be contained within the margins of the DWP’s existing provision, but it is important to know how much it would cost. As I have explained, we believe that there is a big issue here and that any responsible government should address it in the future, if only because there will be anger from taxpayers who have to sustain a level of pensions that they themselves cannot even hope to have. Whether we need a report to make that happen is perhaps a moot point, but the issue is very important and one that must be addressed.
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Lord Oakeshott of Seagrove BayMy Lords, I thank my noble friend for his remarks about my eloquence last year. I hope he will be rather more effective…
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Lord Oakeshott of Seagrove BayNon-affiliated
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My Lords, I thank my noble friend for his remarks about my eloquence last year. I hope he will be rather more effective than me in getting this amendment through the House. I share very much the concerns of the noble Baroness, Lady Noakes, about the figures she quoted and I hope she will feel that if there is a very modest element of government expenditure involved in the amendment it is a drop in the ocean compared with the potential savings and the importance of properly identifying what are the costs of allowing these liabilities to continue. I again pay tribute to the Pensions Policy Institute and the Nuffield Foundation which financed its excellent report on assessing the cost of public sector pensions which has recently been published. They have performed a signal service for informed debate in this crucial area. As always, the report is written in balanced and measured tones, but the figures contained in it are a substantial and devastating analysis of the unfairness and unaffordability of public sector pensions today compared with the clearly much poorer pension provision for the rest of our citizens who have to pay for the public sector pensions. Who does the noble Baroness, Lady Turner, think is paying for these pensions? Their costs come from taxpayers, and council taxpayers in particular, who, on average, have less good pensions by far than people in the public sector. I shall quote some of the figures for the noble Baroness. I do not know whether she has read this balanced report but, on average, employers in the public sector contribute £4,000 per year per employee whereas the figure is £1,600 in the private sector. On pay rates, the report points out that there is no general pattern of public sector pay being lower than that in the private sector. It states that in the comparison between private and public sectors, “women and low-skilled male workers seem to be paid relatively more on average in the public than the private sector. High-skilled male workers are paid more in the private than the public sector”. So there is no general pattern. It goes on to say that, “around 20 per cent of private sector employees who earn between £100 and £200 a week are members of an employer-sponsored pension scheme, compared to around 70 per cent of public sector employees”. The noble Baroness referred to costs, but the negotiations and reforms that she mentioned have had the effect, basically, of producing savings of tuppence ha’penny in the pound on the total cost. The effect of those changes on the taxpayer—and remember the taxpayer is the employer here—is to reduce the employer contribution from 24 to 21 per cent in public sector pension schemes. For example—and this is for new entrants only—in the Armed Forces, the police and fire service, which are the most extreme versions, the contribution has been reduced from 37 to 33 per cent. Again, there is a distinct difference between the retiring age—or the pension age, should I say—in these sectors. So the changes have been very small. In the previous debate we were talking about how the value of private sector pension savings and pension schemes has been seriously affected—that will not change any time soon—but the figures today are even more dramatic. No one is saying that the public sector should not go on having high quality pension schemes. What we are saying is that there needs to be proper, detailed, independent, regular analysis, as the Turner commission proposed, of what the costs are and how they should be paid for over the longer term.
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Lord McKenzie of LutonMy Lords, we have debated this topic before, as the noble Lord, Lord Kirkwood, and others have acknowledged. We recogni…
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Lord McKenzie of LutonLabour
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My Lords, we have debated this topic before, as the noble Lord, Lord Kirkwood, and others have acknowledged. We recognise the importance of the issues raised by the noble Lord and I am happy to try once again to reassure him about our intentions. Much of the previous debate perhaps was less about the relevance of a commission—I understand that the proposition is for a standing commission rather than an ad hoc commission—and more focused on the position of public sector pensions as portrayed. Our opposition to the amendment is not an attempt to avoid discussion of these important issues; nor does it reflect any reservations as to the usefulness of a commission in subjecting fundamental issues to rigorous scrutiny and establishing consensus on the way forward. As I have made clear, we are enormously indebted to the noble Lord, Lord Turner, and his colleagues for the work of his commission. However, that work having been completed, we feel the priority now is to implement the reforms to pension arrangements in both the public and private sectors that have been agreed in the light of the Turner commission’s findings. Noble Lords should note that public sector pension schemes have been undergoing major reforms. This was referred to in a somewhat dismissive way. The reforms already agreed or in train should mean that these schemes remain affordable. I shall outline some of the changes that have taken and are taking place. All major public sector pension schemes have been under review since the 2002 pensions Green Paper and, as a result of these reviews, reforms in these schemes are now well under way. These reforms aim to ensure the long-term sustainability of the schemes. Thus far, agreement was reached in May 2006 with teaching unions on a set of reform proposals for the teachers’ pension scheme, and a new scheme has been operating since January 2007. Cost sharing with employees and capping of the employer contribution rates form a part of the scheme rules laid down in legislation. The Cabinet Office announced a new Civil Service scheme which has operated since July 2007 and which also included in amendments to the scheme rules laid before Parliament in September 2008 cost sharing and capping. The NHS employers implemented new arrangements for the NHS pension scheme which are also inclusive of cost sharing and capping from April 2008. The new local government pension scheme has been operating since April 2008 and is also due to incorporate cost sharing and capping arrangements. These reforms to the NHS, teacher, local government and Civil Service pension schemes ensure that any future increases in costs will be fairly shared between employers and employees. In addition, the cost capping mechanism will ensure that there will be an upper limit on the cost to the taxpayer should costs increase. Eighty-two per cent of public sector workers are now covered by cost sharing and cost capping. Reforms also include increases in normal pension age for new entrants from 60 to 65 for the three main central government schemes, and the local government scheme includes arrangements to phase out the rule that has enabled scheme members to retire without a reduction in pension before reaching that scheme’s normal pension age of 65. New schemes for the Armed Forces, police officers and fire fighters have already been introduced in 2005 and 2006. So there has been a significant change. It is suggested also that there is a lack of information about public sector pensions. A large amount of information is already publicly available on the terms, benefits and affordability of schemes. Public service pension schemes are monitored on a regular basis through built-in mechanisms such as the annual resource accounts and evaluation reports on the majority of schemes. Alongside these, in 2004 the Government introduced an annual evaluation of the financial sustainability of spending on unfunded public service pensions as part of a long-term public finance report published by the Treasury. The latest report, published alongside the Budget Report 2008, makes it clear that the long-term spending on unfunded public service pensions is affordable and sustainable. I say to the noble Baroness, Lady Noakes, that one can come up with all kinds of figures depending on what discount rates you apply to projected streams of figures, but the real test for unfunded schemes should surely be the Government’s ability to fund them year by year on a long-term basis. That is exactly what the long-term financial report seeks to address. I do not believe it is necessary to establish a commission further to review or evaluate these schemes. Indeed, we fear that such a body, which could not come free of charge, would act as a destabilising influence, a point made by my noble friend Lady Turner, compromising the successful implementation of reforms that are starting to deliver better value for taxpayers. I hope that the noble Lord is reassured by what I have said and will feel able to withdraw his amendment. I suspect not.
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Lord Kirkwood of KirkhopeMy Lords, I am grateful to the Minister for that reply, but it just will not do. I set myself a little test of whether…
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Lord Kirkwood of KirkhopeLiberal Democrat
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My Lords, I am grateful to the Minister for that reply, but it just will not do. I set myself a little test of whether we would be given two particular figures. The first was the Government’s figure for unfunded liability, and I noticed that we did not get an answer to that. The figure was from 2006, but this is 2008. These are big sums of money. Speaking for myself as a parliamentarian, I think we are entitled to that level of information at the very least. The second thing that I was anxious to see whether the Government would share with us was the essential year-on-year cost saving from the 2002 Green Paper reforms. Answer came there none on that question either. If the Minister cannot give me figures for these things, that illustrates the fact that this is very hard. He talks about available information, but some of it is technical and you have to know where to look for it. I did my best over the past week to get all the information that was available to me. If I had not had the Pensions Institute’s report, I would have been struggling to form a view about whether this was a sensible thing to do. There is a huge amount at stake here, and this is an issue for Parliament. If we as parliamentarians are willing to let the Government get away with not being required to produce the information that we need to make objective decisions, we are not doing our job properly.
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Lord McKenzie of LutonMy apologies, my Lords; I did not address those specific questions. With regard to the unfunded public service pension…
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Lord McKenzie of LutonLabour
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My apologies, my Lords; I did not address those specific questions. With regard to the unfunded public service pension liabilities as calculated, the latest figure I have is the one the noble Lord cited, £650 billion. That figure looks at a stream of payments and applies some form of discount rate to it. I urge the noble Lord—this is the more important thing—to look at the projections for public service pensions that are made in the long-term public finance report, because they reflect the agreement made in 2005. The latest report, published in March 2008, showed that expenditure on unfunded public service pension benefits remains affordable; it is projected to increase from around 1.5 per cent of GDP to a maximum of 2 per cent over the next 50 years. I remind him, when he considers those figures, that they partly reflect that there are now more people working in the public sector than in the past: more nurses, more teachers, more doctors. We should be pleased about that. However, the sustainability of that can be seen in the long-term public finance report.
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Lord Kirkwood of KirkhopeMy Lords, I am also grateful for that, although the Minister refers me back to a document that I have already been look…
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Lord Kirkwood of KirkhopeLiberal Democrat
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My Lords, I am also grateful for that, although the Minister refers me back to a document that I have already been looking at. Something like a Turner-commission view of that technical document would be much more useful to me as a policy-maker. Of course the Government produce raw technical data, but having an oversight on a long-term basis by people who have a lot of experience in the field, as all three of the Turner commissioners had, adds value in a way that such a commission would but which the raw data that the Minister has adverted to just do not supply. I am a simple seeker after the truth. We do not have the information we need to do the job properly, and the amendment would be a way of guaranteeing that all we had was the facts. If that destabilises anything, then that is seriously sad. If people are upset by others being required or commissioned to think about these things carefully and put information into the public domain, then I am sorry, but as a parliamentarian I cannot do the job that is asked of me unless I get the kind of information that at the moment is absent. The amendment is a way of putting that information into the public domain in a way that could be trusted and would help in the long term in an important area of public policy. I would like to test the opinion of the House.
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Lord Fowlermoved Amendment No. 75:
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Lord FowlerCrossbench
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moved Amendment No. 75:
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Lord CrickhowellMy Lords, perhaps I may be even briefer than the noble Lord. At an earlier stage, I strongly supported the case advance…
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Lord CrickhowellConservative
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My Lords, perhaps I may be even briefer than the noble Lord. At an earlier stage, I strongly supported the case advanced by my noble friend. I would add one other good reason to those that he listed: when things go wrong, as they occasionally do—and they have gone wrong in the case of the parliamentary scheme—and corrections and adjustments have had to be made to people’s pensions, there is a great deal more confidence in those who are managing the scheme if it is known that they are elected and that the pensioners have had the opportunity to elect and know exactly who represents them, and that there are adequate means of communication between the trustees and those who represent them and pensioners. That was not exactly the case in the past. I hope that the discussions that my noble friend has described will lead to a satisfactory outcome to this problem.
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Lord MacGregor of Pulham MarketMy Lords, I support the amendment, and do so as a former chairman of the Parliamentary Contributory Pension Fund up to…
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Lord MacGregor of Pulham MarketConservative
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My Lords, I support the amendment, and do so as a former chairman of the Parliamentary Contributory Pension Fund up to my retirement from the other place in 2001. Perhaps I may make one comment about the parliamentary scheme, which is frequently misunderstood in the media. The parliamentary pension scheme gets wrapped up with all public sector pension schemes, which are unfunded so frequently are non-contributory, as though it were exactly the same as them. The parliamentary pension scheme is like any other private sector pension scheme in that it is contributed—indeed, at one point, for much of my career in the other place, the members’ contribution was 9 per cent of salary, and I discovered that only 4 per cent of all occupational pension schemes had a members’ contribution as high as that—and it is funded. There is a Treasury contribution, but it is usually negotiated quite tightly and simply represents the contribution that a company would make in the private sector. The parliamentary pension scheme is very similar to all the private sector occupational pension schemes, which have other legislation applied to them. As chairman of the parliamentary pension fund, I got the first pensioner trustee nominated, the noble Lord, Lord Stewartby, but as my noble friend Lord Fowler said, he had to be appointed. He was a very good trustee, but it was an appointed arrangement. If I had looked at this proposal during my time as chairman, I would have been a little hidebound by the fact that, as I understood it then, it would have required a small legislative amendment, and small amendments of this kind do not command high priority in any government programme. However, if, as my noble friend has just said, this is not necessary, that objection disappears. The Pensions Act 2004 considerably increased the responsibility of trustees and the methods by which they became trustees, and that, too, has changed very much since my time. I have always supported the Association of Former MPs in seeking for a pensioner trustee or trustees, as have occupational pension schemes in the private sector. I have since become chairman of three pension funds, one of them very large. The contribution of the pensioner trustees is extremely valuable because they raise points that those who are still employees would not raise. As my noble friend said, it is peculiar that we have not yet been prepared to bring the legislative requirements for the parliamentary fund into line with those which we impose on all pension funds. There is a lot of expertise in pensions in the other place. Elections for the member-nominated trustees would bring about much additional expertise and be valuable to the pension fund. For all these reasons, I hope that we can make progress and get this proposal implemented whether by legislation or otherwise.
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Lord Oakeshott of Seagrove BayMy Lords, I speak with some trepidation as the only non-member of the parliamentary pension scheme to contribute to thi…
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Lord Oakeshott of Seagrove BayNon-affiliated
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My Lords, I speak with some trepidation as the only non-member of the parliamentary pension scheme to contribute to this debate. The noble Lord, Lord Fowler, makes a strong case, and, as he knows, we on these Benches are always in favour of election rather than appointment.
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Lord McKenzie of LutonMy Lords, I thank the noble Lord, Lord Fowler, for the chance to update the House on the Government’s position. I fear…
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Lord McKenzie of LutonLabour
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My Lords, I thank the noble Lord, Lord Fowler, for the chance to update the House on the Government’s position. I fear that I may disappoint him for the second time today on the substance of his case, but I am happy to update him on the process and the way forward. I say to the noble Lord, Lord MacGregor, who made reference to the parliamentary pension scheme, that the Senior Salaries Review Body is undertaking a major review of the arrangements, although it is not expected to report until later in 2009. As the noble Lord, Lord Fowler, indicated, I have previously committed to facilitate engagement with ministerial colleagues so that the issues raised by him could be considered further. I am pleased to say that this consideration has taken place, and I understand that the noble Lord met the former Deputy Leader of the other place on 1 October to discuss his proposals. I understand, as the noble Lord suggested, that the meeting was helpful to both sides, and although a new Deputy Leader, my honourable friend Chris Bryant MP, was appointed in the recent reshuffle, I can assure the House that he is already engaged on this matter and is very happy to continue the dialogue with the noble Lord and others with an interest. Indeed, I am aware that a number of representations from other parties have been made since the noble Lord, Lord Fowler, tabled his amendments in Committee. The noble Lord has raised a number of concerns. He has, however, acknowledged that the position relating to the ability to draw on professional pensions expertise in the running of the parliamentary scheme has changed in recent years. This is an important point that is worth reiterating, as there has been considerable work undertaken. I have been given assurances that the secretariat to the trustees is now staffed by suitably qualified pensions experts, and that the day-to-day administration has been outsourced to a reputable third party. I understand that the current trustees have the broad range of skills and experience that a body of this type looks for, and that they have either sat the relevant examinations of the Pensions Management Institute or are undergoing a course of study. Member involvement is the other issue which the Deputy Leader is looking at. As the noble Lord knows, there is already involvement in the running of the parliamentary pension scheme by members of the scheme. The scheme regulations require all the trustees to be either Members of the other place or former Members who are entitled to a pension from the scheme. However, it is essential that noble Lords have confidence in the running of the scheme and it is clear that changes might be necessary to the appointment process to instil a sense of ownership. The Deputy Leader will continue to explore ways of doing this with the noble Lord, Lord Fowler, and other stakeholders. I must admit that we do not believe that the major changes that the noble Lord proposes are appropriate at this stage, particularly in advance of the major review of the parliamentary pension arrangements announced by the Leader of the other place in a Written Ministerial Statement on 17 June. The interaction between the various pieces of legislation is complex and we do not yet have a consensus on exactly what should be done. As such it is right that we continue to look at and talk about this issue. I assure the noble Lord, however, that, as the former Deputy Leader of the other place made clear in her meeting with him, any changes to the selection process and, if it is felt appropriate, the removal of the Pensions Act exemption could be achieved without the need for primary legislation, which is one of the points on which the noble Lord pressed me particularly. The noble Lord also asked whether electoral college arrangements would be possible. I understand that that would be a possible option and we are continuing dialogue to get started on subject and other options. I hope that I can indicate to the noble Lord a degree of process, although the key point is that dialogue should continue. Certainly, my honourable friend in the other place is keen for that to happen. Any changes that might need to flow from that dialogue do not need primary legislation and do not need to be dealt with in this Bill. I hope that that will satisfy the noble Lord that there is some movement on this although I suspect that it is not as robust and fast as he would like.
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Lord FowlerMy Lords, the Minister can say that again. He said “not as robust and fast”, but this is snail-like progress. It certai…
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Lord FowlerCrossbench
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My Lords, the Minister can say that again. He said “not as robust and fast”, but this is snail-like progress. It certainly does not in any way fulfil the implied promise in the comments of Ministers up until now. I noticed the careful phrases that the Minister used when he talked about the appointment process, and the careful way that he managed to steer away from the concept of elections. If you are in any other pension scheme the power to elect trustees is a matter of right. That comes with the rations and rightly so. My noble friend Lord Crickhowell made an important point: if things go wrong the fact that there are elected trustees, who are to some extent accountable either to contributing members or pensioners, helps the matter considerably. My noble friend, Lord MacGregor speaks with the experience of a past chairman. He said that this is a contributory scheme and the Pensions Act 2004 laid down further duties on the trustees. Frankly, I can see no reason whatever why similar rights should not be given to contributing members or retired members of this scheme. That is the position in every other scheme and I cannot see why it cannot be extended to Parliament. It seems absurd that Parliament, the home of democracy, does not allow this kind of step forward. The Minister’s reply bordered on reactionary in the sense that he offered nothing. Perhaps I overstated that and that he is offering talks. Very well; my colleagues and I will seek to have talks on this issue. However, at the next stage of the Bill this is something that can be brought back. Although we do not require legislation to change the pension scheme, the Bill does not exclude legislation to change that scheme. It is with the background that talks might be entered into that I will pursue this matter with the Minister and the Deputy Leader of the House of Commons. In the mean time, I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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Lord Oakeshott of Seagrove Baymoved Amendment No. 76:
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Lord Oakeshott of Seagrove BayNon-affiliated
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moved Amendment No. 76:
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Lord SkelmersdaleMy Lords, I for one find this a curious amendment, as the noble Lord, Lord Oakeshott, knows because we discussed it las…
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Lord SkelmersdaleConservative
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My Lords, I for one find this a curious amendment, as the noble Lord, Lord Oakeshott, knows because we discussed it last week or possibly the week before. It is clearly well intentioned, because it is certainly in pensioners’ best interests to get value for money when annuitising their pension pots. However, the 400,000 that he just mentioned presumably includes those people whose pension schemes pay out in the form of an annuity immediately after they retire. That is the whole predication of a particular pension scheme. Any generic advice that they received would of course encourage shopping around, not least because a quick reference to “annuities” on Google will tell you that competition is alive and well in the annuities market. However, it is not always the consumer who has to do the shopping around. It might well be the pension scheme that they signed up to while they were in employment.
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Baroness Hollis of HeighamMy Lords, I have a lot of sympathy with the objectives of the amendment. In a sense, it is almost a subset of the need…
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Baroness Hollis of HeighamLabour
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My Lords, I have a lot of sympathy with the objectives of the amendment. In a sense, it is almost a subset of the need to get generic financial information. We are talking about ensuring that people use their money in the best possible way when purchasing an annuity, so that they are aware of all the factors that affect it. I could add that gender might be included, but I know that the noble Lord and I do not see eye to eye on this issue. I have two questions; whether my noble friend or the noble Lord, Lord Oakeshott, can best answer them I do not know. First, I am not comfortable with the idea of the proposed new clause being in the Bill. I am not sure that this is an appropriate place for it. Secondly, I am not sure that it should not be done straightforwardly by the Financial Services Authority. I see no reason why the Financial Services Authority should not be encouraged, through its consumer panel—chaired by the noble Lord, Lord Lipsey—or whatever, to take this forward. It is a worthwhile thing to do and explore. In so far as the amendment is a useful hook for that debate, I welcome it. I do not go along with the noble Lord, Lord Skelmersdale, about people trying to create or avoid moral hazard by shifting addresses and things. That is not likely to happen. However, I am not sure that it is the Government’s job at this stage to lay the duty on the FSA, and for the FSA to, in turn, lay the duty on pension or annuity providers. This issue should be explored with the FSA, if it is not already doing so. It is a perfectly sound idea. However, from my feeling of where the Bill is going on this, I do not think that it is the right medium for a clause of this sort. In so far as we can encourage the FSA to take this issue forward as part of the post-Thoresen debate, I welcome that very much.
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Baroness O'Neill of BengarveMy Lords, the amendment has a serious consumer-protection objective, but I doubt whether it can achieve it. Consent for…
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Baroness O'Neill of BengarveCrossbench
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My Lords, the amendment has a serious consumer-protection objective, but I doubt whether it can achieve it. Consent forms in most areas of life, particularly complex forms, simply do not ensure that purchasers are fully aware of the matters to which they are appending their signature. A supply-side solution is more likely to be effective. A consent form is an ornament too far.
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Lord McKenzie of LutonMy Lords, I thank the noble Lord for moving the amendment; it gives us a chance to discuss an important issue. The Gove…
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Lord McKenzie of LutonLabour
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My Lords, I thank the noble Lord for moving the amendment; it gives us a chance to discuss an important issue. The Government fully support the objective underlying the amendment. People choosing an annuity should have the best possible understanding of the options available to them, and of the potential impact that their choices can have on their own retirement income and that of their dependants. However, the Government also believe that it is vital to avoid imposing unnecessary, and potentially costly, legislative burdens on pension savers and annuity companies. The most effective way of ensuring that people make an informed annuity choice is to give them the best possible information at retirement, rather than legislating to make them sign additional forms. I agree with the noble Baroness, Lady O’Neill. If you get people to sign forms and tick a box, there is a great risk that they will take their eye off the ball of what they should really be doing: ensuring that people have information. We are actively working to ensure that people have good information about their annuity choices. Legislation and FSA rules require providers to disclose relevant information about annuities to members and for members to sign the contractual documentation to take an annuity. In addition, FSA rules more generally require firms to treat their customers fairly and to disclose relevant information. These rules ensure that a baseline level of information is available in all cases. However, we recognise that more can be done. Improving information was a key recommendation of the Government’s review of the open market option published with the Pre-Budget Report in 2007. Following one of the recommendations of the review, the Pensions Advisory Service has launched an online annuity choice tool to help people understand the complex issues involved. Initial feedback from those who have used the tool has been very positive. The Government support, and are taking, this type of action to help people make the right annuity choice. Therefore, while I support the spirit of the noble Lord’s amendment, it seems unnecessary. There is also the issue of compliance. A process would need to be determined for when an individual did not receive a form, or did not want to sign it, and all that that entails. In conclusion, the Government agree that it is vital that people should make an informed choice about their annuity, but we do not agree that legislating to add more forms and administration to the process of choosing is the right way to achieve this. Following the noble Lord’s discussion with Legal & General, I should be happy to engage with him and Legal & General to elicit any views that it may have, even if it is not particularly wedded to this approach. We have a shared objective, but I am not convinced that this prescription is the right way to go.
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Lord Oakeshott of Seagrove BayMy Lords, this has been a useful and thoughtful debate. However, I was rather confused by the contribution of the noble…
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Lord Oakeshott of Seagrove BayNon-affiliated
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My Lords, this has been a useful and thoughtful debate. However, I was rather confused by the contribution of the noble Lord, Lord Skelmersdale, which seemed in essence to boil down to saying that people do not need advice at all. The measure does not suggest that people do anything different or that insurance companies offer different options. It is not a question of moving or not moving. I do not think that insurance companies would be fooled by people moving at the age of 65 or stopping smoking. We are not talking about that but about how we ensure that vulnerable people get the right advice. Not for the first time today, I think that the noble Lord, Lord Skelmersdale, and I are not communicating properly, which may be my fault as much as anyone else’s. The contributions of the noble Baronesses, Lady Hollis and Lady O’Neill, were very helpful. I agree with the noble Baroness, Lady O’Neill, that a supply-side solution is much the best. I am not in favour of any more legislation or prescription than one has to have. Part of this process, and of trying to get publicity for the points we are making, is to put pressure on the industry to get its own house in order, and to encourage the FSA to focus a little more directly on these issues. I take the Minister’s point that the measure is probably a little too prescriptive. However, in some ways this is reminiscent of the debate we had on generic advice. I am delighted that some people are using an online tool, and that the feedback is positive. However, the problem arises with the people who are not using the online tool and who do things automatically. We are not getting through to those people. That is why I am trying to highlight this problem. There is a sloping playing field, particularly as regards some of the smaller insurance companies, which may be less scrupulous or less well informed about annuity options. There is a wide range of insurance companies in this country. Some companies such as Legal and General at the top of the tree are completely transparent—it is in their interest to have the most level playing field possible for everybody—while some smaller ones are, frankly, not as good as regards consumer protection. That is what I am trying to highlight. As I say, I thank all noble Lords for their contributions, which I hope will be noted by the people who need to make changes. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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Lord Oakeshott of Seagrove Baymoved Amendment No. 77:
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Lord Oakeshott of Seagrove BayNon-affiliated
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moved Amendment No. 77:
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Lord FowlerMy Lords, my Amendment No. 77A is grouped with Amendment No. 77. I shall not add much to what I have said. I have alrea…
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Lord FowlerCrossbench
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My Lords, my Amendment No. 77A is grouped with Amendment No. 77. I shall not add much to what I have said. I have already made two speeches on annuities this afternoon, and I think that by now everyone has a clear idea of where I stand on them. I want the total abolition of compulsory annuities. Indeed, the Minister’s suggestion that alternatively secured pensions are the way forward has rather torpedoed his own case in that respect. However, we shall have to see about that. In wanting compulsory annuities to be abolished, I differ from the Liberal Democrats, who do not want them to be abolished, but want the age limit to be extended. There is no question that there is a financial crisis and there is no point in repeating the detail of it. However, given that crisis, I seek a compromise and the provision of help to people reaching 75. However, the compromise has been rejected and the help is not forthcoming. The noble Lord, Lord Oakeshott, said that one of his objections to my proposal for suspending the annuity rule was that his proposal for an 85 age limit was the only answer. We shall see what the Government say. Frankly, I doubt very much that they will give ground. I do not know whether anyone on the Liberal Democrat Benches thinks that the Government will announce a sudden conversion to the 85 age limit for annuities. If anyone thinks that, they are living in a fool’s paradise. The Liberal Democrats voted solidly against my proposal and consequently we missed an opportunity to change the situation for the better, and the losers—
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Lord Oakeshott of Seagrove BayMy Lords, if the noble Lord will allow me, what is his basis for saying that he thinks the Government would not possibl…
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Lord Oakeshott of Seagrove BayNon-affiliated
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My Lords, if the noble Lord will allow me, what is his basis for saying that he thinks the Government would not possibly accept an increase in the age limit but that they would accept a temporary amendment? Why would they accept one and not the other?
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Lord FowlerMy Lords, I am not saying that. The Government will not accept either. I hate to teach the noble Lord his business, but…
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Lord FowlerCrossbench
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My Lords, I am not saying that. The Government will not accept either. I hate to teach the noble Lord his business, but the point is that we could have defeated the Government this afternoon, but we cannot defeat them now. I guarantee to the noble Lord that we will not defeat them now, because of the time and because of all the points that anyone with any sense knows about this House. If the noble Lord thinks that we are going to defeat them now, he is living in a fool’s paradise. We should not have arguments about such basic politics. The losers on this are going to be people in their 70s. I much regret that, and it is on the conscience of the Liberal Democrats that they have done that. The noble Lord, Lord Oakeshott, referred to tactics. I fear that his tactics this afternoon have not been very bright and the losers are a number of pensioners and people coming up to pension age. I very much regret that.
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Baroness GreengrossMy Lords, I support the amendment. I hope that the Government and the Minister will agree to reconsider this in the lig…
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Baroness GreengrossCrossbench
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My Lords, I support the amendment. I hope that the Government and the Minister will agree to reconsider this in the light of what has been said by the noble Lord, Lord Oakeshott, about increased longevity, which I think the Government and most people in this country underestimate. The change is phenomenal. Since the rules were brought into play, there has been an enormous change in life expectancy. We now have legislation encouraging older people to stay on at work. We have a great deal of encouragement for flexibility in work, in retirement and in increased activity to a much older age than we could have imagined in 1976 or 1986. In the light of that, it is absolutely essential that the age at which you need to convert savings into an annuity should be looked at again, I hope to as high an age as possible, or removed. It is high time that the Government took these proposals seriously in the spirit in which they are intended. Please look again and see whether something can be done.
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Lord MacGregor of Pulham MarketMy Lords, I very much regret that I was not able to be present for the earlier debate, owing to a long-standing lunchti…
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Lord MacGregor of Pulham MarketConservative
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My Lords, I very much regret that I was not able to be present for the earlier debate, owing to a long-standing lunchtime engagement that I had in Norfolk. I would certainly have strongly supported my noble friend Lord Fowler in his proposal. This proposal is obviously second best, but I wish to support it on the obvious ground of longevity, which the noble Lord, Lord Oakeshott, and the noble Baroness have just mentioned. Clearly, this is changing the whole scene for pension funds in so many ways. There is also another point—if this was raised in the earlier debate, I apologise for repeating it. The Bill is supposed to be about some further encouragement for everyone in pension provision. People have had so much discouragement already with company pension schemes, final salary schemes diminishing and so on. I can think of very few things more likely to discourage them than in the next two years to have a whole crop of media stories about people who had expected to have a pension beyond the age of 75, based on the kind of equity levels that we have had until recent years, who discover that there will be a massive reduction in the pension that they can get from the annuity after the age of 75. That is if the noble Lord, Lord Oakeshott, is right, and I suspect he is, that there will not be a big improvement in the equity situation in the next two or three years. That applies in particular to people over the age of 72 and approaching 75 now. One can just imagine the sob stories that there will be every weekend in the papers about that sort of thing. I ask the Government to look at it again, because it will be yet another discouragement among the many that there have been for people voluntarily to make greater contributions to their pensions themselves.
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Lord Howarth of NewportMy Lords, the noble Lord, Lord MacGregor of Pulham Market, has just made a powerful speech adding to the arguments that…
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Lord Howarth of NewportLabour
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My Lords, the noble Lord, Lord MacGregor of Pulham Market, has just made a powerful speech adding to the arguments that were put forward in the earlier debate, and I certainly do not intend to repeat any of them. I simply say to the Minister that there will be a not insignificant number of people who, under the present dispensation, will face an appalling crisis in their personal lives. I really hope that the Government will take this away and think very carefully, sympathetically and constructively about the inadequacy of the present dispensation and see what they can do.
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Lord SkelmersdaleMy Lords, following on from that point, surely the same happens at whatever age you decide to annuitise; whether 80, 85…
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Lord SkelmersdaleConservative
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My Lords, following on from that point, surely the same happens at whatever age you decide to annuitise; whether 80, 85 or 90. The crunch point can come at any point. The Minister said that, although not quite in those terms, on the last “abolition of annuitising” amendment. You just do not know whether it will come at a particular point for you. It is inevitable that annuity rates and the value of pension pots will vary over time. Who is then to say that annuitisation at any particular age will be appropriate for a particular individual, or even in general? It is only if you believe, and I have said that I do not, that there should be an age by which you have to annuitise your pension pot that you can argue for or against a particular age. I am not in that position, seductive though it might be—it clearly is on both sides of the House—to some noble Lords. I do not know whether it will be of any comfort to those noble Lords, but in all the discussions that we have had I have never heard anyone say that 75 is 10 years after the current state pension age. Only the Minister can tell us whether that was the Treasury’s original intention. If so, do the Government intend to compound their error of keeping to a specific age when state pension age for men and women increases to 66 in 2024, 67 in 2034 and 68 in 2044? Each rise will be phased in over two years. In other words, do the Government intend as a long-term expedient to have compulsory annuities when people are 76, 77 or 78? Perhaps the noble Lord could help the House by telling us.
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Lord McKenzie of LutonMy Lords, this has been a shorter debate, and I seek not to reiterate all the points that I made when discussing the pr…
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Lord McKenzie of LutonLabour
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My Lords, this has been a shorter debate, and I seek not to reiterate all the points that I made when discussing the proposed temporary suspension of the age 75 “annuitisation requirement”. I say to the noble Baroness, Lady Greengross, that of course the Government keep this under review, and we will continue to do so, although we are not in a position tonight to accept either of the amendments in this group. It is interesting that there is a difference of view. The noble Lords, Lord Fowler and Lord Skelmersdale, said that they did not want any age by which you have to annuitise. I am not sure whether that translated to them not wanting any age at all at which some form of crystallisation of income stream must take place. If that is their proposition, they have not said anything about the inheritance tax consequences.
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Lord SkelmersdaleMy Lords, the noble Lord has misunderstood that part of the argument. No one is suggesting that annuities should be mad…
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Lord SkelmersdaleConservative
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My Lords, the noble Lord has misunderstood that part of the argument. No one is suggesting that annuities should be made illegal. Of course, annuities will continue in one form or another. What the noble Lord, Lord Fowler, I hope, and I have sought to persuade the House of is the abolition of compulsion.
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Lord McKenzie of LutonMy Lords, I understood that point, but if there is no requirement to crystallise some form of income flow from the pens…
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Lord McKenzie of LutonLabour
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My Lords, I understood that point, but if there is no requirement to crystallise some form of income flow from the pension pot at any stage, that raises the question of what happens to the pension pot on death. Is that going to lead to some tax-free inheritance proposal? That would be what happens if someone should, sadly, die before they reach the age of 75 at the moment. The noble Lords need to address those issues as well, as to whether they would see any arrangements under which they propose that the pot should be converted to some form of income flow, which is the key purpose of the tax regime. The noble Lord looks as though he wants to have another go.
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Lord SkelmersdaleMy Lords, I would love to. Both last year and this year, the amendments in question have taken it on board that the tax…
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Lord SkelmersdaleConservative
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My Lords, I would love to. Both last year and this year, the amendments in question have taken it on board that the tax regime would change. It is for the Government to produce the tax regime, not the Opposition.
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Lord McKenzie of LutonMy Lords, it is interesting if that is implicit, or perhaps now explicit, in the Opposition’s proposal. It certainly wa…
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Lord McKenzie of LutonLabour
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My Lords, it is interesting if that is implicit, or perhaps now explicit, in the Opposition’s proposal. It certainly was not so in relation to the RRIF, which is one variation of achieving what the noble Lords want. More specifically on the amendments, I will go over the issues around tax relief, because pension savings receive significant tax relief—some £18.9 billion in 2007-08. By the time an individual retires, it is very possible that well over half their fund may be made up of tax relief. In exchange for this, it is not unreasonable that pension savings are used to provide an income in retirement. Tax relief is given so that people do not have to fall back on means-tested benefits and to encourage pensioners to save for a reasonable income in later life. Increasing the age at which income must be paid would mean that a minority of people would be able to use tax-relief pension savings to benefit their heirs, at a cost to the Exchequer. That would devalue the reason for which tax relief is given.
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Lord Oakeshott of Seagrove BayMy Lords, that response was disappointing and I am bound to say that I did not see the significance of the arguments th…
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Lord Oakeshott of Seagrove BayNon-affiliated
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My Lords, that response was disappointing and I am bound to say that I did not see the significance of the arguments that the Minister used at the end of his speech— that most people have already started taking the income before the age of 75 and that that is their choice. However, that is not the reason for saying that 75 is the right age for compulsory annuitisation. Secondly, he said that because returns are unrealistic for people beyond the age of 75, it was right therefore for annuitisation to be compulsory. The whole point is that if people do not like the returns, they will obviously not take them; however, I do not see why that is an argument that 75 is the right age. I thank noble Lords who have spoken, particularly those who supported the amendment, including the noble Baroness, Lady Greengross, and the noble Lords, Lord MacGregor and Lord Howarth. I should say to the noble Lord, Lord Fowler, in clarification of the substance of my argument, that I tried to reach compromise on an amendment on which the Government could have been beaten. I congratulate him on his ingenuity in working his temporary amendment—if I may refer to it that way—into the Bill rather earlier than otherwise would have been the case. I should be clear that we on these Benches were happy to combine and support the amendment of the noble Lord, Lord Fowler, on an age limit of 80. The Question would have been put in prime time if the Conservatives had not chosen, for their own reasons, to move another amendment, which they perfectly well knew we would not support. Let us not have any nonsense about whether the Government could or could not have been beaten today. They could have been beaten on the amendment of the noble Lord, Lord Fowler, which we were happy to support, to raise the age to 80—which we are now talking about. Let us not have any disinformation on that point. We were quite happy to give our support; we offered to do that and were rejected. Let me make it clear that we do not support a temporary change because that would be completely unworkable; I am unaware of any serious pension provider or anyone else who has examined such a proposal and said that it would work. It would create more uncertainty and instability in a very unstable situation. That is why we were unable to support such a proposal, but we believe that the age of compulsory annuitisation should be raised. Ideally, we would like it to be raised to 85 and we wish to test the opinion of the House.
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Lord Fowlermoved Amendment No. 77A:
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Lord FowlerCrossbench
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moved Amendment No. 77A:
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Lord Skelmersdalemoved Amendment No. 77B:
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Lord SkelmersdaleConservative
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moved Amendment No. 77B:
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Lord McKenzie of LutonMy Lords, I am not sure that I have a complete answer to the noble Lord’s amendment, but I will have a go with what I h…
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Lord McKenzie of LutonLabour
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My Lords, I am not sure that I have a complete answer to the noble Lord’s amendment, but I will have a go with what I have and follow up if necessary. I start by reminding noble Lords that there are already several mechanisms in place for disclosing information in the public interest. For example, Section 89 of the 2004 Act gives the regulator the power to publish reports of its consideration of any particular matter where it considers it appropriate to do so. The public interest is one of the factors that the regulator bears in mind when deciding whether publication is appropriate. The form, manner and timing of that report are matters for the regulator. In carrying out its functions, the regulator is the recipient of a considerable amount of sensitive information, much of it commercial in nature and provided in confidence. The noble Lord’s amendment would allow the regulator to disclose restricted information that it deemed in the public interest, having had, “regard to the rights, freedoms and legitimate interests of any person”. This would clearly lend itself to a wide interpretation and views on how it should be read would differ considerably. As a result, the regulator could be placed under pressure to disclose restricted information where it was inappropriate or premature to do so. It would be very difficult for the regulator to carry out its functions if providers of information could not be certain that the information would not be made public. Stakeholders would become reluctant to disclose commercial information in confidence to the regulator. That is a particularly valid concern where the regulator is involved in an ongoing investigation or considering a particular transaction. I believe that it is sensible to allow the regulator to conduct its business free of such pressures and to leave it to report at the appropriate time, which, in most cases, would be at the conclusion of its investigations. On the specific case, GP Noble is, as noble Lords will be aware, a firm of independent trustees that is currently under investigation by the regulator and the Serious Fraud Office, among others. I will endeavour to be as helpful as I can on this, although I am sure that the noble Lord will appreciate that I would not wish to prejudice the outcome of those investigations. On 18 August this year, Professional Pensions magazine published a news story revealing that the Pensions Regulator had appointed Independent Trustee Services Limited as trustee to 29 schemes for which GP Noble had previously been the trustee. The article included details that were not previously in the public domain and that the regulator considered to be “restricted information” under Section 82 of the Pensions Act 2004. Under that section, it is an offence for the regulator or for anyone who has obtained restricted information directly or indirectly from the regulator to disclose it other than in the circumstances set out in the Act. On 22 August, the Serious Fraud Office confirmed that it had arrested three men as part of an ongoing investigation into GP Noble. I believe that this highlights the importance of handling such sensitive data appropriately and that it is right and proper that personal and confidential information held by the regulator should be protected carefully. As I said, I believe that it is sensible to allow the regulator to conduct its business free of the pressures that the amendment could impose and to leave it to report at the appropriate time. I hope that that explanation is sufficient for the noble Lord. If he thinks that I could provide further information, I should be happy to try to do so.
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Lord SkelmersdaleMy Lords, I admit that I was speaking even faster than I usually do, so perhaps the Minister did not quite understand w…
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Lord SkelmersdaleConservative
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My Lords, I admit that I was speaking even faster than I usually do, so perhaps the Minister did not quite understand what I was getting at. He and I have both related the incident behind the regulator’s complaint. He relied on Section 89 of the Act, which I looked up while he was speaking, but that has nothing to do with the press, me, the Minister or anyone else; it concerns solely the regulator. The question here is what happens when, without reference to the regulator, an outside body—be it a member of the press, one of your Lordships or whoever—finds out what the regulator is doing and publishes that information. There seems to be no direction in the 2004 Act to cover that situation. In those circumstances, I will certainly take up the Minister’s offer of a meeting, with or without an exchange of letters, because we need to get to the bottom of this point.
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Lord McKenzie of LutonMy Lords, perhaps the noble Lord will permit me to reiterate what I said. Under Section 82, it is an offence for the re…
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Lord McKenzie of LutonLabour
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My Lords, perhaps the noble Lord will permit me to reiterate what I said. Under Section 82, it is an offence for the regulator or anyone who has obtained restricted information directly or indirectly from the regulator to disclose it other than in the circumstances set out. Therefore, someone disclosing information that they had received directly or indirectly would be acting outside the Act. However, I can see that that has not dealt with the issue about which the noble Lord is concerned, which I will take up separately.
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Lord SkelmersdaleMy Lords, this information did not come from the regulator or from anyone connected with the regulator, as I am told by…
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Lord SkelmersdaleConservative
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My Lords, this information did not come from the regulator or from anyone connected with the regulator, as I am told by Professional Pensions. However, we are not going to get any further tonight. I will certainly accept the Minister’s offer of further discussion. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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Baroness ThorntonMy Lords, I beg to move that further consideration on Report be now adjourned. In moving the Motion, I suggest that Rep…
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Baroness ThorntonLabour
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My Lords, I beg to move that further consideration on Report be now adjourned. In moving the Motion, I suggest that Report begins again not before 8.40 pm. Moved accordingly, and, on Question, Motion agreed to.
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EnactedPensions Act 2008