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Lord Mackay of Ardbrecknish: My Lords, I thank my noble friend for his kind opening remarks. I believe that I am right in saying that he is, perhaps, the longest serving incumbent of the Department of Social Security—although it may not quite have been called that—of anyone around today. I accept that there is a fair amount of knowledge to hand, as there are a number of other people in your Lordships' House who have passed through the Department of Social Security at various times. On the question of a debate, I believe that I would get into deep trouble with the usual channels if I made any comment in that respect, other than to say that I shall, of course, pass on my noble friend's remarks.

As regards VAT and the compensation for cold weather, I must tell my noble friend that clearly it would be impossible to identify and compensate exactly for each individual fuel bill. Therefore, we have to do it the way that we have and take a fairly broad brush approach by putting those extra amounts of money onto certain groups; for example—and I am using the pensioner as the basic starting point—£1 per week for a single pensioner and £1.40 per week for a couple.

I turn now to the problem of cold weather. It is possible that my noble friend did not notice that I mentioned that the cold weather payments, which rose this month from £6 to £7 a week, will in fact rise to £8.50 in 1995. That is £1 more than was originally announced. Perhaps I may also point out that the extra £10 million that I announced for use in insulating houses is a very important way in which people can not only reduce their heating bills but also make their houses a

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great deal more comfortable to live in. I very much hope that people will take up the offer of the money which is available.

I can confirm that there was nothing in the Statement about the equalisation of pension ages. Perhaps if the matter comes to the House in about the year 2010 it may begin to appear in the uprating statements. However, I can tell my noble friend that a Bill will shortly appear on the subject. I have no doubt that we will spend many happy hours discussing it.

Lord Jenkin of Roding: My Lords, I have one very short question to ask. My noble friend referred to a change in statutory sick pay. Do I understand from what he said that the Government have accepted the alternative scheme that was written into the statutory sick pay legislation, which was to be subject to consultation and to a final decision?

Lord Mackay of Ardbrecknish: My Lords, I am happy to confirm to my noble friend Lord Jenkin of Roding that that is indeed the case. Employers will compare their statutory sick pay payments in a tax month with their national insurance contribution liability for the same month. Where the SSP paid exceeds 13 per cent. of their NIC liability, the SSP paid in excess of the percentage threshold will be eligible for reimbursement. I understand that that point was argued by my noble friend when the legislation went through the House. The department consulted widely and I am happy to say that the new scheme has been given a wide welcome by both business and the TUC.

Lord Dean of Harptree: My Lords, can my noble friend the Minister confirm, first, that the Statement fully honours the Government's commitment to restore the real value of pensions and benefit on an annual basis? Secondly, I do not believe that my noble friend mentioned war pensions. Can he confirm that there will be similar increases in war pensions at the same time?

Lord Mackay of Ardbrecknish: My Lords, I can confirm that the uprating part of today's Statement honours the Government's obligation. Uprating is based on the RPI in the month of September. We have fully honoured that commitment. War pensions will, in fact, join the other pensions to which my noble friend referred.

Pension Transfer Schemes

7 p.m.

Lord Haskel rose to call attention to the consequences for members of occupational and other pension schemes transferring their pensions to private insurance companies and the need for remedies and satisfactory consumer protection in the future; and to move for Papers.

The noble Lord said: My Lords, on 15th June this year my noble friend Lord Jay and other colleagues drew to your Lordships' attention the problems of a large number of pensioners, present and future, caused by the Government's drive towards personal pensions.

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Since that debate we have had the Government's proposals to rectify this damage. I should like to examine these proposals and show that unless regulation is much stronger a lot of the damage will not be rectified and further difficulties will arise resulting in yet more calls on the benefits system.

I wish briefly to remind your Lordships how all this came about. In 1986 the Government decided to encourage people to move from state earnings related pensions, known as SERPS, and occupational pension schemes, to personal pension schemes. The reason given was portability of pensions. The real reason was to move pensions from the public sector to the private sector. Some £14 billion was spent on this exercise. Some £4 billion was spent to fund a 2 per cent. bonus to persuade people to opt out of SERPS. Some £10 billion was spent on National Insurance rebates. A further £1.2 million was spent by the Government on a TV and press advertising campaign to persuade people to move into private personal pensions.

Some of your Lordships may remember the frenzied activity that went on at that time; the advertisements shouting that this was the only time the Government would give you money, and urging people to liberate themselves from the public sector. Of course, the voice of reason was drowned out by the hard sell of the pensions industry, ably abetted by the Government. The Consumers' Association, the National Association of Pension Funds, the CBI and even one or two of the large pension companies all warned of the dangers of people ending up with inadequate income by contributing to a personal pension plan rather than by contributing to a defined benefit scheme.

In the early 90s the warnings began to come true and people started to find that their pensions were in fact inadequate. Some made a fuss and because of this the regulators—one wonders what they were doing all this time—started to investigate and unearthed a whole culture where the mis-selling of pensions, deliberate or negligent, had been allowed to flourish. It is estimated that some 5 million private pensions had been sold during that time, and each one would have to be investigated and where there had been mis-selling the customer would have to be compensated.

The Securities and Investment Board, SIB, decided to split up the 5 million customers into priority groups. The first priority group, consisting of 1.7 million people, are those who are approaching retirement. They will have their personal pensions looked at during the next two years. The steps to be followed have been laid down in great detail. First, the pension provider examines each personal pension plan to see if there has been any loss because of the changeover. If there has been a loss, then the pension provider examines the records to see if there has been any mis-selling. The customer is sent a form to complete to help the pension provider with this work. If there has been any mis-selling, the pension provider calculates the compensation based on certain actuarial assumptions and makes an offer to the customer. If the customer is not satisfied, there is an appeals procedure eventually going to the Pensions Ombudsman.

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I am sure that by now your Lordships will be wondering how the customer is going to cope, but do not worry, the SIB has produced a 12-page booklet for the consumer with helpful advice, such as that on page 7 which states that if someone receives an offer of redress, he should read it carefully. It further states,

    "you will have to decide whether you agree or disagree with the assumptions",

ontained in this offer.

But never mind, there is a telephone help line. The Pensions Hotline is an 0171 number, which means that the caller has to pay, and it is open from 9 a.m. to 5 p.m. Monday to Friday only. Noble Lords may like to compare this with the Cones Hotline to complain about roadworks. This is an 0800 number, which means that it is free to the caller, and it is manned 24 hours a day seven days a week. Obviously roadworks are more important than pensions. A friend of mine telephoned the hotline and was advised to contact the regulator. The regulator said that he was not allowed to comment on compensation and advised my friend to go to an independent financial adviser—perhaps the one who got my friend into the mess in the first place! If the consumer wants true, independent advice from a solicitor or accountant, he will have to pay. Perhaps the Minister will tell us if he is satisfied with this consumer protection.

Sorting all this out is a huge task. Let me remind your Lordships that there are 1.7 million priority cases. There are also lots of hazards in the way. There are missing records; firms which have gone out of business or which are deliberately dragging their feet; and potential disputes between the pension providers and their intermediaries. And there is more to come. The first investigation does not cover SERPS. This is to come in 1995. There also seems to be some trouble looming about the mis-selling of endowment policies, mortgages and investment advice. Nobody knows how many cases will merit compensation in the end, but, in anticipation, the Ombudsman is appointing two assistants and increasing the staff. Who will pay? Most firms and independent financial advisers have professional indemnity insurance, but this usually only covers part of the cost. The rest of the money will have to come from the pension providers or from a levy. At the end, this enormous cost will come from our insurance premiums.

So what lessons should we learn from this sorry mess? First and foremost somebody must look after the consumers' interests and see it through. Can this be the regulator? Not as at present organised. The Personal Investment Authority, or PIA, was set up in June by SIB to raise standards and tighten up on regulation. But it is a kind of hybrid institution. On the one hand it is supervised by SIB, which is in turn responsible to the Treasury. But on the other hand the PIA has to bid for members of the pension industry to join it because without their funding the PIA cannot exist. So it is not pure self-regulation, and neither is it independent regulation. The public must have confidence that the regulator is impartial and detached.

This conflict between the demands of the pensions industry and the demands of public interest will be impossible to resolve. I believe that the self-regulation

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that we had in the 1980s has had its day, and that eventually we must have a system of direct regulation. Meanwhile, I urge the Government to strengthen SIB yet further while an orderly changeover takes place. The regulators will be very unwilling to damage their own paymasters, and so will have every incentive to keep the compensation low.

A second lesson to be learnt from this is how foolish the Government were to rush in and create a false market in personal pension plans. Indeed, because of their advertising and the financial inducements offered, one could fairly say that the original mis-selling was by the Government themselves, but the financial cost of putting this right will eventually fall on all policyholders. Not only were the Government warned of the problems: the data on which they acted were wrong. Their data assumed that all of us would work continuously until aged 60 or 65. This is now manifestly untrue. With the benefit of hindsight we can see that the collective provision of pensions plus the encouragement of personal savings is a far cheaper way than buying annuities out of personal pension plans. Only an independent financial adviser and somebody with a dislike of the public sector, could think otherwise. I hope that the Government have learnt their lesson and, in rectifying the situation, will look at alternatives, such as universal private pension provisions to run alongside the state scheme, or the national pension savings scheme suggested by the Social Justice Commission.

A third lesson to be learnt is that we must keep standards high. During this past year there has been a great deal of euphoria about the joys of deregulation and self-regulation. That has not been shared by pensioners because the private sector is also capable of low standards. It has allowed people to buy private pensions but contribute no more than the contracting out payment. After deduction of commission and charges, virtually no pension is provided. In exactly the same way as some bad employers use the benefits system to supplement low wages, so a low level of pension will have to be supplemented by social security.

It is in the interests of all of us to see that standards are raised, and part of the regulator's duty must be to see that people's pensions are properly funded. Low standards of pension funding now only means a call on the benefits system later.

Looking to the future, I welcome the important step that next year we shall have much more openness about commissions and expenses. That will help the consumer to make more informed decisions. Had that information been available during the 1980s as many of us on these Benches requested, many mis-sold private pensions might well have been avoided.

There are other problems to be dealt with. Both occupational and personal pension schemes have serious drawbacks. The treatment of early leavers in occupational pension schemes and the high administrative costs of personal pension schemes are but two examples. However, the more flexible arrangements regarding the purchase of annuities for those with personal pensions announced yesterday by the Chancellor are a step in the right direction.

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The basic state pension does not provide adequate income, and more than 1.5 million pensioners are entitled to income support. One in four do not claim it. The basic state pension is only 15 per cent. of average male earnings. On current calculations, it could be worth just 6 per cent. of average earnings in 40 years' time. That is what makes pensioners the new poor.

I hope that we shall hear from the Minister that the pensions Bill proposed in the gracious Speech will tackle those problems and give your Lordships a further opportunity to debate this important and urgent problem. It is urgent, because, if pensions are not properly funded, a smaller workforce will be paying for a larger retired population. That makes pensions an urgent and major area of welfare reform. If, as a result of this scandal, adequate pension arrangements are made and direct regulation ensures that the quality of advice to consumers is good, then something will have come out of this. I beg to move for Papers.

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