House of Commons Hansard Debates for 24 Apr 1995

Mr. Lilley: I am grateful to my hon. Friend, who played a not inconsiderable part in highlighting the problems in that area. I hope that the whole House will be content with the change that we have announced.

Mr. Donald Dewar (Glasgow, Garscadden): I welcome the Minister's announcement on behalf of the Opposition. The amendment that he has accepted was backed by the Labour Front Bench in another place. As far as I am aware, the only hon. Members who voted against it were those on the Government Front Bench. Why was that so?

Mr. Lilley: I am sorry that the hon. Gentleman has tried to make a party political point about a matter of national importance, which will alter rules that have been in force for 50 years under a variety of Governments, at such an inappropriate time.

I refer to another amendment that was also introduced in the House of Lords. We are aware of the strength of feeling about the issue of equal treatment of pensions upon divorce and we have listened to the concerns

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expressed. It is a complex issue and we believe that the courts already have powers to offset pension rights against capital assets in divorce settlements. We have responded in the House of Lords with proposals that re-emphasise the courts' ability and that enable the courts to value those pensions.

The amendments carried in the other place will allow pension payments to be included in a deferred maintenance order. They will also allow courts to require pension schemes to make payments under deferred maintenance orders rather than require individuals to pay their former spouses. We accept the intention behind the amendments, although their details will have to be resolved in Committee and there may be further technical amendments to achieve the required effect.

Mr. Butterfill: Does my right hon. Friend agree that it would be preferable if those arrangements could be more immediate and if the separation of assets was made at the time of divorce? Would not it also be better if they reflected the number of years that the couple concerned had been married?

Mr. Lilley: The amendments are enabling, not requiring. They do not require the courts to make such orders in any or all cases, but enable the courts to do so when they think that that is right in the circumstances. In general, the courts have preferred to make clean-break settlements. If my hon. Friend is referring to the possibility of the courts having power to split the assets in the fund, that extremely complex issue certainly could not be resolved in the time span of the Bill. When hon. Members study the details, as I have done, they will see that the problems are far greater than at first sight. The cost could be considerable, with something like £300 million in tax revenues forgone. The reason is that a divorced couple would effectively be in a more privileged tax position than a married couple. I do not believe that the House wants to create a tax advantage on divorce. Perhaps the Opposition will say if they want to do so.

Mr. Dewar: Will the right hon. Gentleman give way?

Mr. Lilley: I shall, but the hon. Gentleman is always more interested in making partisan points than in informing the House of Labour's policies in response to my questions.

Mr. Dewar: I assure the right hon. Gentleman that I shall say something about that issue when I make my contribution to the debate. There will be some disappointment at the Secretary of State's remarks about the possibility of splitting the pension fund at the time of divorce. I shall return to that point. I want to ask him a specific question. If it is to be a form of deferred maintenance, with the pension split in payment between the ex-spouse and the pension holder, a proposition that found favour in the House of Lords was that the duty to pay should be on the pension provider and not on the pension holder. Do the Government accept that, or do they intend to reverse that policy?

Mr. Lilley: I was explaining that we shall accept that and make it technically more feasible.

Mr. Cohen: Will the right hon. Gentleman give way?

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Mr. Lilley: I want to make progress. I have given way a number of times on that and other issues. The hon. Gentleman will be able to make his points in his own speech.

Mr. Cohen: I had a ten-minute Bill on the subject.

Mr. Lilley: I am sorry. I did not realise that the hon. Gentleman has been pursuing the issue. I am happy to give way to him.

Mr. Cohen: I am grateful for the general principle of accepting the division of a pension on divorce, but as my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) said, there will be disappointment that the courts will not be given the power to split the fund money. Why not give the courts that power in principle? That proposal is supported by the Pensions Management Institute. The cost could be met by the couple themselves.

Mr. Lilley: The Pensions Management Institute and others discovered how complex the issue is when they examined it. The more that one does, the more complex it becomes. For example, what would be the treatment of SERPS, especially when one does not know the rights that an individual will have until the end of the whole period, because of various allowances for years off and the interaction between husband and wife? The matter is far more complex than it even struck me at the beginning. The more that one studies it, the more one realises that a snap, off-the-cuff judgment would be the wrong way to approach such a serious issue.

Mr. Alan Howarth (Stratford-on-Avon): I am sure that the House agrees with my right hon. Friend that there should not be financial advantage in divorce. I welcome his desire to ensure a fair deal for occupational pensioners, but I invite him to agree that we ought to act to remedy a wholly unsatisfactory state of affairs in this respect. If a married person enters long-term residential or nursing home care, the local authority is entitled to take the whole of that person's occupational pension, leaving the spouse--most often a wife--worse off than if she or he were divorced or widowed. Will my right hon. Friend agree that we ought to act to remedy that state of affairs and provide that, in such circumstances, the spouse should be entitled to half the occupational pension?

Mr. Lilley: I know that that is a matter of concern, but the Government give advice to local authorities, which have some discretion in that matter. I hope that local authorities will act in the spirit of that advice and not as my hon. Friend and a number of others have suggested they do. We are talking usually about Labour authorities, which could perhaps be influenced by Labour Front Benchers.

Mr. Dewar: No partisan points.

Mr. Lilley: The hon. Gentleman brought them in first.

Another point endorsed by Labour Front-Bench Members in the House of Lords was to be found in the amendment to the way in which the state earnings- related pension scheme will be calculated. The amendment stated that SERPS should be based on the best 44 years of earnings instead of on a full working life. The amendment would increase expenditure in a poorly targeted way and would cost more than £2.5 billion a year by the middle of the next century.

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I believe that my proposals provide for a viable and affordable SERPS in the longer term, and I shall therefore be asking the House to reverse the effects of that costly Labour amendment.

As I said at the beginning, pensions are a Tory success story. Pensioners' incomes have risen nearly as much every year under this Government as they did in the entire four years of the Labour Government. That is because we have routed inflation, which was destroying pensioners' savings at the rate of 25 per cent. a year under Labour, and we have encouraged an ever rising proportion of people to make pension provision for themselves by means of occupational and personal pension schemes.

Dr. Godman rose --

Mr. Lilley: I shall try in future to give way to the hon. Gentleman: he is a regular.

In 1979, 43 per cent. of pensioners had occupational pensions. Among those currently retiring, the proportion is nearer 70 per cent. The Labour party is in a state of confusion and disarray over its pensions policy, as I have shown. The Opposition cannot make up their minds, because their political instincts are in conflict with their electoral calculations. Instinctively, the Opposition still hate private pension provision. They seize on any problems with relish and they pour scorn on successes. They would prefer compulsory monopoly state provision; but they know that the British electorate will not stand for it and that the taxpayer cannot afford it.

By contrast, this Conservative Government have a clear, coherent and successful strategy. It is being copied abroad and has been endorsed by the World bank. The recent Federal Trust report makes it a paradigm for pension provision throughout Europe.

When the Bill is enacted, I believe that we can give a fresh impetus to the pension-owning democracy in Britain--safer occupational pensions, more group personal schemes and more flexible personal schemes. The Bill will bring greater security, equality and choice to our pensions, and I commend it to the House.

4.13 pm

Mr. Donald Dewar (Glasgow, Garscadden): I beg to move, to leave out from "That" to the end of the Question and to add instead thereof:

"That this House declines to give a Second Reading to the Pensions Bill [Lords] because although it contains some welcome proposals drawn from the report of the Pensions Law Review Committee intended to strengthen the regulatory framework within which occupational pension schemes operate, it does not fully reflect the importance of pensions as a form of deferred pay, takes too rigid an approach to the equal treatment of men and women under the State pension scheme, and includes a range of proposals designed to undermine the State Earnings-Related Pension Scheme and disadvantage occupational as against private pension provision."

I am afraid that I may occasionally stray into what the Secretary of State will call a partisan point--but his own record of the past 40 minutes allows me that luxury.

I start, non-contentiously, by repeating our welcome for what the right hon. Gentleman said about war widows pensions. I welcome the decision to accept the amendment moved in another place. It was agreed to after considered debate, and I shall no doubt raise the Secretary of State's ire when I say that he is now making something of a virtue of necessity. According to the newspapers, there was a battle in the Cabinet Committee between the Treasury and

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the DSS. Perhaps, therefore, I should congratulate the right hon. Gentleman on beating the Chancellor--although I do not know whether he would welcome that accolade. I suspect that the decision had a lot to do with the approaching anniversary; that, too, was mentioned in the reports. Nevertheless, I welcome the decision; it is a change that will mean something to an important group in the community. The Secretary of State made a somewhat slighting reference to the fact that we are to vote tonight. I concede that it has not been entirely easy, because there is a balance to be struck, there are points to be made and there are points of importance, which I shall come to, but that does not detract from the fact that the Opposition support much of what is in the Bill. The regulatory framework for occupational pensions needs strengthening. It is all too clear in the aftermath of the Maxwell disaster that that is so. It is not just a matter of Maxwell. There has also been an enormous increase in the amount of litigation over pensions, which reflects the unhappiness about the way in which the system has been working. There is an increasing public awareness, which I welcome, of the importance of pensions as assets of the individual. For all those reasons, there has been a spotlight on the regulatory framework, and it is clear that it needs strengthening, hence the Goode committee report, which Opposition Members have consistently welcomed.

The Bill undoubtedly goes some way--although I am not convinced that it goes far enough--to meet the requirements. We welcome what we have, but for reasons that I shall explain I think that there is a case for more.

We have tabled an amendment because the Bill departs from the Goode agenda and moves on to a darker side when it feeds on what I believe are the Government's prejudices. I was asked recently by a brave optimist whether I could send him a copy of the Bill, because he wanted to read it and know what was intended. I have met many optimists in my time, but I fear that he will learn little from reading the text. Hon. Members may remember that Alice in Wonderland thought that no book without conversation and pictures was worth reading. The Bill certainly fails that particular test. It is a peculiarly opaque document.

Mr. Gyles Brandreth (City of Chester): Will the hon. Gentleman give way?

Mr. Dewar: No, I wish to make a little progress.

One of the problems is that this is very much government by regulation-- enabling and empowering, not the people, but certainly the Secretary of State. That concern was mentioned in many of the representations that we have had. The Bill prescribes change in the balance of the system. That is one of my concerns. It is a change that has been largely unnoticed, but it is undoubtedly a change of intent. The arithmetic has been weighted in a number of ways and there is an undermining of rights on a scale that demands debate. It will be of major interest for hon. Members who are fortunate enough to obtain a place on the Standing Committee--I can hear the rush of tiny feet from Conservative Members.

Perhaps the easiest way to illustrate the point is to draw the attention of the House to the Government Actuary's report on the Bill--Cm 2714. It contains some helpful tables and projects the expenditure on the state earnings-related pension scheme to 2050. It shows it as it was and as it will be after the Bill is enacted. There are some

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revealing facts. In 2050, for example, it is envisaged that SERPS will be worth, or that it will cost the Treasury-- whichever way one likes to put it--some £19.3 billion. After the Bill is on the statute book--admittedly, we are talking about a long-term time scale--that sum falls to £9.9 billion. It is almost halved. That fact does not appear on the face of the Bill, in the explanations or in the briefings. No one could accuse me of being partisan if I said to the House that there is a very strong case for a genuine debate about what is happening in that area, why it is happening and what it means. We are determined to have such a debate.

Mr. Tim Smith (Beaconsfield): What significance should we attach to the figures that the hon. Gentleman has just given to the House, when the oldest person who will be affected by what he has just announced is aged 10 at present?

Mr. Dewar: That is a very interesting view: the House of Commons is not to bother about what happens to our children. Now there is a piece of Conservative philosophy that is quite remarkable. I am almost moved to agree with the hon. Gentleman, because he could have a word with the Secretary of State, who looks at any changes that are proposed over that time scale and immediately takes them as a pledge of spending intent for the next five years. The Government cannot have it both ways. Although the shift will occur over a lengthy period, it starts quite quickly and it will involve many people in this House and many of our friends, colleagues, children and successors. It would be blind prejudice were we simply to take what is before us without proper inquiry.

There is a fallacy that savings are painless and good. In fact, there is a converse, which is that almost always savings are at the expense of someone or something. That must be balanced in the equation, but it seems to be lacking in this Bill. For example, the Bill dealing with incapacity benefit will result in substantial savings, but they have been clawed out of the budget for the long-term sick and disabled. I do not sneer at savings; I accept that the Treasury has a natural interest in controlling public expenditure--that is the business of every Government. However, balances must be struck and in the immensely important area of pension provision we have a duty to consider these matters. At least arguably under attack are contributions that are currently being paid and that will be paid in future --investments in people's futures which are the result of thrift and proper provision through the state pension scheme, which I would have thought the House would hesitate to reduce in the way now proposed.

The proposed reduction is dramatic. I remind the House of the proposed change to the SERPS calculation--a highly technical matter. Currently, we value the total earnings for each year in line with the increase in average earnings and then deduct the annual lower earnings limit for the last complete tax year to produce the surplus on which the pension is based. In future, the annual lower earnings limit will be deducted before revaluation takes place each year. So what? Over the projection period I have mentioned, that will reduce the value of SERPS by £2.7 billion annually. It is an enormous change and an enormous deduction.

There is the equally difficult and technical matter of the contracting-out provision and the consolidation of female

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SERPS entitlements, which will be aligned with those for men. The Government Actuary reckons that by 2050 that will mean taking £4.2 billion annually from the value of SERPS.

Those are enormous sums, but they have been nodded through in the fine print without any of us having had the opportunity to raise and debate the issue. I give the Secretary of State fair notice--which I hope he will take in the spirit in which it is offered--that we will want to look closely at this area in Committee. I know that he will not personally be in Committee, but I hope that he will receive reports and closely monitor what emerges. There is no doubt that the drop from £19.3 billion to £9.9 billion, at a time when national insurance contributions have just risen to 10 per cent., is a remarkably serious matter that is worth a thought and a pause for further reflection.

I am aware that the Government have not established a major reputation for keeping their promises, but they have kept one promise. This point will be especially important to the right hon. Member for Sutton Coldfield (Sir N. Fowler). When he halved the value of SERPS--to put it in shorthand--it was promised that there would be no further devaluation until the year 2000. The Government have kept their promise--the changes will come into effect on 6 April 2000. The Government have not hung around in the general task of dismantling and demolishing, although I stress that they have kept to the letter of their promise.

The Bill represents a major shift. The Secretary of State fairly said that we live in a pay-as-you-go system. That produces difficulties and burdens that have to be shouldered. However, I object to the fact that the Government are altering the inter-generational contract by stealth, in a way that I do not think is defensible. It represents a substantial shift, which is something that we must take into account.

I raise another case of a little local difficulty for the pension industry.

Mr. Bernard Jenkin (Colchester, North): Does the hon. Gentleman accept that SERPS was originally established in the mid-1970s on a completely unsustainable basis, and that the changes that have been made in the 1980s by my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler), and subsequently in the Bill, put Government finances and pensions on a more sustainable basis? What robs pensioners is financial irresponsibility such as the high inflation that we had under the Labour Government.

Mr. Dewar: None of us enjoys inflation's impact on any fixed income or any savings--I concede that. I shall not fight the battles that were fought in the late 1980s with the right hon. Member for Sutton Coldfield-- that is history. If, however, the hon. Member for Colchester, North (Mr. Jenkin) is saying that we must do this to SERPS because we cannot afford to provide for pensions, I would question that. I think he is saying-- certainly the Government are saying--not only that we cannot afford to provide those pensions, but that we must provide for more. The question is how we do it. Should it be through SERPS or some other form of state- provided scheme, or should it be through personal pensions in particular? Admittedly, risks are involved in both solutions, but, given the history of recent years, no great confidence exists that private pensions are the obvious way forward.

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The argument must be conducted in that way. It is fallacious and totally irresponsible to say that we must knock down SERPS because the community cannot afford to pay for decent retirement in old age. If we take that view, we will not provide for that in the private sector either, and we are all in trouble. Let us fight on the argument seriously, sensibly and on the grounds on which it must be contested. We should not put up bogey men in the way that is far too common.

Let me turn, because it is important, to the second level playing field argument. I was talking about private and public. Let us consider occupational pension schemes and private pension schemes--approved private pensions and private pensions themselves. In the time available to me, I cannot go into details--again, that will happen in Committee--but burdens exist on occupational pension schemes in terms of indexing, for example, and in terms of the pension level that they must provide, where no equivalent exists in the personal pension sector.

I see the hon. Member for Bournemouth, West (Mr. Butterfill) nodding at least in partial agreement. I do not want to pin him down too completely, but he recognises that point, and well he might as he is connected with the industry, and he knows that the National Association of Pension Fund Managers and a number of other organisations feel anxious and, in some ways, angry about what they regard as the further weighting of the balance against occupational pensions and in favour of personal pensions. Again, having considered the record, I ask: is this the right time and does any justification exist for a further weighting of that sort? Let me give an example. I read the story--I think first in the Financial Times in an article by Norma Cohen--that, when the contracting-out settlement was made, and when the framework for contracting-out payments was redrawn, a heavy weighting would be introduced in favour of personal pensions, which would receive an administrative payment within the contracting-out payment three or four times greater than that given to occupational pension schemes. The Government were saying that the taxpayer should pick up the tab for the charges and the commissions of selling private pension schemes. I did not believe the story. I did not think that that would happen because it seemed such a preposterous proposition, but it has happened.

I protest that we are picking up the tab for charges that I think most of us believe should be minimised--not feather-bedded--in the interests of the public. It is another example of the lack of a respective and level playing field. It has been tilted on the basis of prejudice. We have a duty to examine it and it justifies the reasoned amendment that I and my right hon. and hon. Friends have tabled today.

Mr. Butterfill: I know from having shared platforms with the hon. Gentleman that he recognises the importance of occupational pension schemes. I hope, however, that he will not be tempted to go down the road that some trade union colleagues are urging him to go down in terms of imposing additional burdens on occupational schemes through the Bill, and then damaging them in the way that has occurred in the United States of America, where they have virtually disappeared.

Mr. Dewar: The hon. Gentleman and I have shared platforms at what I might call trade gatherings, if those people who were at them do not mind the term. I said then and I will say now that I recognise that there is a

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trade-off, a balance to be struck. Of course, I do not want to frighten employers out of, for example, the provision of defined benefit schemes. I am clear, in my own mind at least, about that and I will perhaps say a word or two about it when we discuss the difficult matter of the minimum funding level, in respect of which that trade-off is peculiarly painful and difficult to adjust. I do not believe that we should again artificially encourage private pension provision, but not because I believe that there is no market for it. I believe that there is a market for it and I hope those who would benefit from it will use it. However, the advertising campaign in the late 1980s, and the 2 per cent. premium that was offered, showed how it was possible to stampede many, many people, who were rather uncritical in their enthusiasm, into buying pensions that were totally unsuited to their needs and which those people imagined were building up an entitlement for their retirement when they were not.

I was interested in the exchange between my hon. Friend the Member for Southampton, Itchen (Mr. Denham) and the Secretary of State. I presume that the right hon. Gentleman misunderstood my hon. Friend, although that would have been difficult, but it is not, I fear, true that the Securities and Investments Board, the Personal Investment Authority, the Investment Management Regulatory Organisation or any other regulatory body has given a guarantee in the cases of many hundreds of thousands, perhaps millions, of people who are buying personal pension plans, sometimes in disregard of the opportunity to enter an occupational pension scheme, and who are contributing the minimum contracting-out payment and building up almost no reasonable entitlement. I would be delighted if the sort of guarantee that is being offered on the mis-selling of transfers and opt-outs was being offered on that wider basis, but it is not. I ask the House to bear those matters very much in mind.

I do not have time to say anything about the guaranteed minimum pension but I mention it at this point simply because it is another matter that was not covered by the Goode report.

Mr. Brandreth: Earlier, the hon. Gentleman set himself, rightly, against opacity. Now that he has mentioned the guaranteed minimum pension, perhaps he could clarify this point, which was raised with me at the weekend by a constituent who understood that the Labour party's Commission on Social Justice favoured a guaranteed minimum pension and that that has been endorsed--I did not know this--by the Leader of the Opposition. Is that the case and, if so, would the hon. Gentleman, in the interests of setting himself against opacity, make clear the level of the guaranteed minimum pension?

Mr. Dewar: I have to say to the hon. Gentleman, in no hostile sense, that his question shows a misunderstanding. We have, of course, been considering a scheme for a minimum guaranteed pension, but I am talking about the guaranteed minimum pension in the present legislation. I am sure that the hon. Gentleman understands that distinction. The importance of the guaranteed minimum pension is that it gives protection.

When the Maxwell crash happened, the Government made a great virtue--and perhaps I would have done the same--of the fact that they were giving the pensioners a guaranteed minimum pension. That was a statutory need. It is, therefore, a protection in hard times.

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Even with the compensation fund in place, there may be examples where there has not been theft, fraud or misappropriation and, in those circumstances, the guaranteed minimum pension, together with its indexing, may be an important safeguard. That is why we believe that the guaranteed minimum pension should be retained. However, if the hon. Gentleman is volunteering for the Committee, he will have lots of time to discuss that with me and many of my hon. Friends in the weeks ahead.

May I now move on--

Sir Norman Fowler (Sutton Coldfield): Swiftly.

Mr. Dewar: Not at all swiftly. I am not usually accused of being swift when I am on my feet. However, I will do my best to push on at this stage.

I now turn to the Goode agenda which is enormously important. Many people have congratulated Professor Goode and his colleagues; perhaps it is now time for sober thanks. To be fair, they must take some satisfaction from seeing many of their recommendations being implemented. There is much to endorse without reservation, but there are some gaps and difficulties and I hope that the House will not forget our general endorsement if I move on to talk about some of them.

The hon. Member for Wantage (Mr. Jackson), who has now left us, made the fair point that there were anxieties--he instanced the Consumers Association--about the role of the regulator. Some are the fault of the Secretary of State. I notice--I have referred to this before in his presence and I shall do so again--that he uses in the White Paper, presumably with much thought, the word "long-stop" as a description of the regulator's role. Coming from Scotland, I have little experience of cricket although I occasionally tried to play it. I used to be sent to field at long-stop on the ground that that was out of sight and out of mind. I later rose to be scorer, which showed a certain political aptitude, and got myself out of those embarrassments. The very idea of the regulator as a long-stop has reinforced a number of fears.

We have had reassuring noises from, for example, the hon. Member for Wanstead and Woodford (Mr. Arbuthnot), the Under-Secretary of State. I cannot think of anyone better qualified to make reassuring noises than him; his manner is custom built for it. I am sure that, in a sense, his comments are well meant.

There is, however, a case for looking at what is not there. The Secretary of State said that the Government had implemented Goode. I think that we were all meant to sit back relieved and to cast away our worried frowns. One has only to look at the role of the regulator to see that there are gaps. I take one example, albeit not a dramatic one. Goode recommended in paragraph 83 that the annual certificate of solvency should go not only to the pension fund concerned, but to the regulator. The Government said that that was not necessary. Clearly, they do not think that the regulator should be bothered with that. There was an important point about surpluses in which Goode recommended a role for the regulator. The committee said that he should have to give permission if there was to be a transfer of funds in strictly defined circumstances. That is gone and scored out; it is not now the business of the regulator.

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There is also a great argument about whether the expenses should be met by the state or by a levy on the industry. The House will remember that Goode said:

"most fundamentally, we believe that the protection of individual rights is properly the function of government and that the disinterested status of the Regulator will be best protected through government funding."

The industry feels strongly about that and, to be fair, its concern goes beyond merely wanting to avoid a £10 million levy for the regulator's expenses. The recommendation was rejected despite the tremendous weight that Goode put on it.

Obviously, we shall have to probe these matters in Committee. However, I point out to the Secretary of State that there are reasons for worry. The regulator is seen as someone who waits for trouble--an ambulance party sent in to pick up the casualties--rather than someone who is trying to prevent the trouble at source. It is important that we get the matter straightened out to the best of our ability and we shall look for suitable amendments to achieve that.

My next point concerns the number of trustees. The Government have accepted the recommendation that one third should be selected by the active members. Strangely, they have not accepted Goode's point about money purchase schemes where two thirds of the trustees should be selected by the active members. Again, that is something for the Committee to think about. We have consistently taken the view--it was the Goode committee's declared intention--that the Government should put best practice into legislative form. We shall try to persuade the Committee, and ultimately the House, that the one third figure should increase to 50 per cent. It is a figure that is used widely by some of the best blue-chip companies in Britain, which tell me that it works to their total satisfaction. To use the 50 per cent. figure would also be an important symbolic reflection of the fact that, as European courts consistently maintain, a pension is a form of deferred pay. We shall also look at the possibility of a pensioner trustee as well.

Hon. Members may say--I would understand it--that this is all rather foolhardy optimism because the Government are unlikely to concede anything in this area. However, I turn with hope to the Minister of State, who will serve on the Committee. I read with great interest his remarks in the August 1994 edition of Pensions World when he was interviewed by the editor, Stephanie Hawthorne. He was asked: "Why did you settle for one third only of member trustees?" The answer was interesting and the Minister will remember it. He said: "To avoid additional complexity." Obviously, a third is easily understood, but 50 per cent. gives rise to additional complexity. All that, no doubt, can be explained when we come to it. The Minister went on to say:

"The main point about trustees is that some should not be appointed by the employer. The precise proportion doesn't probably matter that much."

If that is the Minister's view, I hope that he will listen to those who believe that the proportion matters quite a bit and that he will give way on that issue. We look forward to later comments.

Mr. Alan Howarth: May I put to the hon. Gentleman an admittedly somewhat tangential point about trustees? Does he agree that many trustees of pension funds are in one capacity industrialists, who routinely complain about

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City short-termism, and in another capacity are for ever applying pressure on pension fund managers to deliver short- term performance? Will he say something about how the Labour party would ensure that the massive resources of pension funds--of the order of £500 billion--are invested not only in the best interests of pensioners, but in the best long-term interests of the economy as a whole?

Mr. Dewar: I have a great deal of sympathy for that point, and it would be a fascinating road down which to go, but I am already up against certain time constraints. It is important that trustees remember their legal duty and their role under trust law. That goes for those who are appointed by employers or those who may be selected by active members. In Committee, we should certainly look at the training arrangements and the need to give a sophisticated and balanced view on important matters of the kind to which the hon. Gentleman has referred, but I hope that he will spare me criticism if I say that it would make it impossible to deal with other points if I went down that road.

Mr. Jenkin: Will the hon. Gentleman give way?

Mr. Dewar: No. May I make a little progress, since I really am up against time?

I shall briefly consider another area: the famous minimum solvency requirement argument. I was at one time in the market for jokes about the Pensions Bill; it was a rather unrewarding market which produced very little despite the demand. It was an imperfect market, if I could put it that way. I went to a seminar just after the Barings collapse, at which a very learned actuary explained that if one wished to adjust one's portfolio to track the minimum solvency requirement profile, a little hedging in the derivatives market was recommended. That certainly raised a laugh. I heard a gentleman at another conference say that minimum solvency requirement meant what it said, but he has been upstaged by the fact that it has become minimum funding requirement, although nothing else has changed. I referred to the matter in response to the hon. Member for Bournemouth, West and I mean it when I say that it is extremely difficult to get the balance right because there are clearly competing priorities. Security must be given a very high priority, but I recognise that there are dangers of putting burdens on employers which may persuade them to withdraw and simply to hand over to either group money purchase or individual contracted-out money purchase schemes. That is a genuine danger which we must keep in mind.

We must consider a compromise. The name of the hon. Member for Bournemouth, West has become--I suppose--a sort of shorthand. The Butterfill letter contains the present compromise arrangements. He has achieved a sort of passing immortality thanks to the Minister. We must consider very carefully whether that formula, with its assumption that 25 per cent. of the pension liability should be calculated on the basis of equity returns, is right or whether we can do better.

There was some debate in the House of Lords, which I take seriously and perhaps more so today having talked to a number of parties about it, about the possibility of a contributions approach; the idea of trying to obviate the possibility of a gap appearing with a comfortable thought that at some future date there could be an injection of

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capital. If something goes wrong and there is a gap, everyone is in trouble. That gap may be able to be obviated by a contributions schedule, actuarially calculated, which would ensure that the gap was minimal, if gap there be at all. We should consider that in Committee, as well as looking at the possibility of a discontinuance fund of the kind practised, I understand, in some Scandinavian countries and in America.

I am not so arrogant as to imagine that I know the right answer. I am consoled by the fact that, having attended several actuaries conferences which have discussed the subject at length and with learning, I came to the conclusion that they were not very sure about it either. I hope that, in that spirit, the Minister will be prepared to consider matters in Committee.

Mr. Lilley rose --

Mr. Dewar: May I say a word or two about the retirement age, unless the Secretary of State wants to intervene?

Mr. Lilley: My point was not relevant to that.

Mr. Dewar: The right hon. Gentleman says that his point was not relevant to what I was saying, but it has never stopped him before.

Mr. Lilley: It was relevant to the clock. The hon. Member has now been speaking for 31 minutes. I am not sure, although he has made some interesting observations and promised to look at some things and to examine some others, that he has yet told us a single policy on anything which is attributable to the Labour party. We are dealing, among other things, with the biggest expenditure decision that any Government will take this century. We have a right to demand that the hon. Gentleman tell us the Labour party's position.

Mr. Dewar: First, I had just started a sentence in which I was turning to the retirement age when I unwisely gave way to the right hon. Gentleman; and, secondly, I was--I hope--addressing my remarks to the Bill that he has produced, which I think is the point of the debate. I know that a certain amount of leeway is allowed, but basically one is supposed to be discussing the Bill, which seems to be important. I am aware of the fact that the Government have picked 65 as a retirement age. The Secretary of State will know that the Labour party has long and consistently argued for a flexible decade of retirement.

No doubt the Secretary of State is about to read to me a passage from the report by the Commission on Social Justice. May I say--I hope that it will get through this time--that that report runs to 400 pages. The commission was an independent body, separate from the Labour party. Many of the things in the report will have influence and will have to be taken into account in formulating policy, but there is nothing more childish than the right hon. Gentleman taking a report, which says that it is a report over several Parliaments and not necessarily for one party, and assuming that its suggestions would be implemented in the first two years of a Labour Government and that it is therefore a public spending commitment. That does not do anything for the standard of public debate.

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