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Baroness Dean of Thornton-le-Fylde: My Lords, I thank my noble friend Lord Haskel for introducing the debate this evening. It is a debate on an issue which affects us all; it is not the prerogative of any party or group of people. Pensions affect the overwhelming majority of people in Britain today. It is therefore regrettable that we are in the present position. In my industrial experience, one of the successes of the past 20 years has been the growth of occupational pension schemes. For the individuals concerned there is the income support that it will give them during retirement and therefore the confidence to look forward to retirement. They do not have to rely on the state and therefore the taxpayer. That built a confidence around pensions schemes. The reference to the strong arm of the insurance companies protecting the individual was believed by the majority of people. That confidence extended itself to occupational pension schemes.
There is no doubt that for some people occupational pension schemes are the answer. It is equally true that, in the world in which we now live, with changing employment patterns and shorter-term employment guarantees, personal pensions are the answer for many people. It is true that, with both of those, we need to restore the confidence which was there but which has been severely eroded because of the experience of the past few years.
The noble Lord, Lord Jenkin, mentioned the Maxwell fiasco, and I was very closely involved with it. Way back in 1986 when we started to have anxieties about the schemes that he took over with IPC and a number of other companies, we were told when we took professional advice that our anxieties were unnecessary. We could get no further with the inquiries we were making and that definitely created a lack of confidence among people. The exposure of the massive fraud and corruption in those schemes undermined the confidence of many people.
The problem is that the majority of occupational pension schemes in Britain today are well run. They have conditions which are within the proposals of the Goode Report. The effect has been not to drive people out of pension schemes but to start them becoming more involved and questioning the schemes more. That, coupled with the divulgence of the information relating to personal pension schemes to which my noble friend refers in the Motion, has created a tremendous lack of confidence. The issue is important not just because of that but, I suggest, because an occupational pension scheme is one which deals with deferred payment for employees. Apart from buying one's home, the individual personal pension scheme is probably the most important investment that any individual ever makes. So it is absolutely crucial that we have not only strong regulations but effective regulations covering the schemes.
I shall not dwell on it this evening but great stress is caused by that lack of confidence and there is a need to get to grips with it and to introduce measures that will not only restore confidence but will also put in place strong support which guarantees that the undertakings that are given are met. That is important. It is too late when the horse has bolted from the stable, it is too late when we talk to peopleas I had toin their early 60s who expect to retire at 65 and are confident that they will get a decent pension but whose pension now has a big question mark over it. That creates a mass fear which may be ill founded, but who can blame people who feel like that?
The subject is also important for another reason. We are all living longer; there are far more of us in retirement in the community. The number is 10 million today; in 40 years' time it will have increased to just over 15 million. In pension accumulation terms, 40 years is not a long time and it is important that we have a savings philosophy within our society by which people either join an occupational scheme or provide for a personal pension scheme.
Those are the reasons why I welcome the debate this evening. The measures which have been introduced, such as the disclosure requirements from next year, have been welcomed across the board, from the responsible life assurance companies right the way through to occupational pension schemes. As long as they are effectively enforced, they are to be welcomed. Increased competition and knowing what one is paying for financial advice are crucially important in rebuilding confidence. Training programmes for sales people who sell personal pension schemes are important, as are standards of conduct within the selling of the schemes which are generally accepted and endorsed across the board.
We shall come back to the issue time and time againand rightly so. We shall have the opportunity next year to discuss the Goode Report and the measures which it proposes, and it will be interesting to see which measures are taken up. Much of the lack of confidence and the lack of a feeling of security about the benefits which people felt they had within pension schemes will be dispelled, in my view, by effective regulation. It will be helped by not making it an ideological issue but a practical one that protects the personal investment which individuals make in their pension. That will be absolutely crucial.
I close my short presentation by offering my deep and sincere apology to the Minister and my noble friend Lord Haskel, as well as to the House. Unfortunately, I have another commitment which I cannot postpone and I shall not be able to stay to the end of this important debate.
The Earl of Clanwilliam: My Lords, I thank the noble Lord, Lord Haskel, for this welcome opportunity. He mentioned at the end of his remarks that the matter would be dealt with in future legislation. That legislation will be able to cover all the problems that have arisen and solve those which the noble Baroness mentioned of the requirement to make proper provision for the future.
I should also like to take the opportunity to congratulate the Government on the extension of the use of personal pension plans and the money purchase principle of pension provision. They are the right product for many investors, especially for the self-employeda point which my noble friend Lord Jenkin has already coveredand those who leave occupational pension schemes. Many people are highly mobile and they will need personal pension schemes so that they do not rush from one lost transfer to another.
The success of the pension schemes is reflected in the number of people involved; I believe that a figure of 8 million has been mentioned since they were recommended, of which 5 million have opted out of SERPS. The 5 million did not all opt wrongly. It was quite a small number, about 500,000, who did. Many people opted into highly successful managed unitised pension funds with an excellent performance record and they are quite content with their lot. However, some were badly advised and they are the subject of today's debate. It is an extremely complex subject, in my view, as is the rather arcane system of many occupational pension schemes.
Be that as it may, the Government are to be commended not only for setting up the Pension Law Review Committee but also for their measured, responsible and comprehensive response set out in Volume II of the Secretary of State's document.
One concern is the cost of the actuarial assessment. I was listening the other day to some actuaries at a meeting upstairs in your Lordships' House and they mentioned a figure of an initial charge by them of £200 million before they could get anywhere. That figure is daunting. That there has been mis-selling is painfully obvious and the SIB report will be with us for a long time. No doubt it will take up many hours of your Lordships' House in discussion. I suspect that confusion will be worse confounded by the fact that many insurance companies have no records left of some of the subjects which need to be discussed.
One of the extraordinary factors is the motivation of a member of an occupational pension scheme. Two-thirds of his contribution is paid by the employer, but he suddenly decides to take a personal pension plan. Apparently he forgets that he is getting two-thirds of his pension contribution from his employer and he then has to pay the whole amount himself. How many people are there like that? It is claimed that there are many. Who would leave such a plan? It appears that there are people, including nurses, who did this. It is horrifying to think that people can be so irresponsible with their own money.
The SIB has laid down clear rules and the companies will have to act with all speed as soon as the letters that they have sent to their clients asking them to submit a complaint if they have one are returned. It will take a
It will be disastrous for many of the independent advisers, many of whom stand to be wiped out. They would be a great loss to the industry. There are some rogues and some very good advisers, but it would be extremely unfortunate if they were to be wiped out. Many of them will be unable to make reimbursement as calculated by the actuaries. The question that the noble Lord, Lord Haskel, asked is: who then will pay? I have no answer to that.
Much of the blame will also be levelled at the commission salesmen. Now that there is to be total revealing of all commissions I believe there will be a change in the industry. Because of the considerable up-front charge of a commission-only salesman, it is likely that most salesmen will be put on to a salary. The level of return will still be the same, but it will not be so frightening to the prospective user of a pension plan if he suddenly finds that a large lump of money will go as a prepayment against future premiums to the employee.
As a result of the furore, regulations instituted by Lautro, for instance, require immense detail to be provided and considered by salesmen and by the companiesnot necessarily to much avail. The principle of caveat emptor seems to have gone by the board in the welter of regulation. Are estate agents and car salesmen required to ask the client whether he has enough money to buy the car or the house? Is he asked to explain what his income is? No, he is not. But under the new Lautro regulation that is necessary. It seems to me to be quite ridiculous. Certainly, if you are in somebody's private room and you are discussing their personal affairs, you have to discuss the matter in detail. But the six-page documents are only confusing. They are as confusing to the prospective investor as they are to the adviser.
The noble Lord, Lord Jenkin, also mentioned the problem of the occupational pension scheme. The occupational pension scheme trustee should surely have made representations to individuals and should have told them what would be the result of their move out. It seems extraordinary to me that they did not do that. It is also very odd that many of the transfers that were arranged by the actuary were extremely low. The transfers were calculated from a number of notional factors, including the interest rate prevailing at the time of the transfer. That interest rate is quite irrelevant. The only matter that is of interest to the person who will be a pensioner is what the rate will be at the time he retires. So many of the factors that are produced by the actuaries are extremely inaccurate.
Occupational pension schemes were originally invented as a reward for long service and loyalty. They became an anchor, and indeed a threat which inhibited mobility of labour. At the same time, the assets became an important item in the balance sheet. There is no harm
That threat does not apply to the money purchase schemes, where policies are in individual names and are unlikely to be acceptable as collateral even if offered. Many excellent occupational pension schemes are run by our greatest companies, which are exemplary. Of course they serve a wonderful purpose for those people who will spend 40 years in one job. But there are not so many of them today. It will no doubt be the job of this House to work out a suitable plan when the pensions Bill is finally brought before us. I have various suggestions to make in that direction.
As I said, many of the occupational pension schemes are based on money purchase, and the money purchase principle is the one that will be most effective. The cost of occupational pension schemes of some 15 to 16 per cent. of salary is ludicrous. If you put that money into a personal pension plan, you would end up with telephone numbers.