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Accommodation Level Crossings Bill [H.L.]

Read a second time, and referred to the Examiners.

King's College London Bill [H.L.]

Read a second time, and committed to an Unopposed Bill Committee.

Pensions Bill [H.L.]

3.32 p.m.

Lord Mackay of Ardbrecknish: My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved, That the House do now again resolve itself into Committee.—(Lord Mackay of Ardbrecknish.)

On Question, Motion agreed to.

House in Committee accordingly.


Clause 44 [Annual Increase in rate of pension]:

Baroness Turner of Camden moved Amendment No. 145C:

Page 24, line 21, leave out ("a public service pension scheme or").

The noble Baroness said: With this clause we come to a discussion on indexation of pensions. In a sense this is a probing amendment. Clause 44 refers to annual increases in the rate of pension but for some reason public service pension schemes are omitted from that requirement. It is true that such schemes already largely enjoy total protection against inflation so we seek clarification as to why the exclusion is thought necessary.

Such schemes either comply with the requirement already or they do not. In the former case the public sector schemes already offer something better and perhaps there may be no reason to include the clause in the Bill. However, in future there may be other public sector schemes established which do not have the requirements of some of the existing schemes. If they do not comply with the basic indexation requirement then the Government need to specify and to ensure that there is some provision that they should.

There is no reason to leave out a requirement in relation to public service pension schemes when it comes to indexation simply because a great many of them already meet it. There may be cases in future where schemes are established. It is necessary to ensure that future schemes have such indexation arrangements. Perhaps the Government will tell us why it is necessary to put the exclusion into the Bill. I beg to move.

Lord Mackay of Ardbrecknish: Perhaps I may explain to the noble Baroness, Lady Turner of Camden, why it is not necessary to have these words in the Bill. I believe that she is aware of the reasons because she mentioned them herself. It is quite simply that the increases in public service schemes are already guaranteed in statute.

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The Pensions (Increase) Act 1971 provides the mechanism for uprating pensions payable in the vast majority of public service schemes. Were we to take on board the amendment the interaction of two separate pieces of legislation would only serve to confuse the position. Increases under the Pensions (Increase) Act are linked to the full increase in retail prices which is a level of protection at least as good as the minimum level that the Bill currently seeks to require of private sector pensions. With that explanation I hope that the noble Baroness will be able to withdraw her amendment.

Baroness Turner of Camden: I thank the Minister for that explanation and I am very glad to have it on the record. The matter has been raised with me by certain individuals who are concerned about public service pension schemes. There was some concern that this quite specific exclusion was included in the Bill. In view of the fact that there are already legislative requirements which, I presume, will bind future public service schemes if they are introduced, I beg leave to withdraw the amendment.

Baroness Seear: Did I hear the Minister correctly? He said that the great majority of schemes are covered. Presumably, that means that some are not. It may only be a little one, but we do not want the housemaid's baby argument coming forward all the time. The fact that it is a little one does not make it unimportant.

Lord Mackay of Ardbrecknish: There are indeed very few public service schemes which do not index by RPI. However, they index by 5 per cent. of limited price indexation which, as I said, is at least the minimum requirement in the Bill.

Amendment, by leave, withdrawn.

The Earl of Buckinghamshire moved Amendment No. 145CA:

Page 24, line 21, leave out from ("scheme") to ("and") in line 22.

The noble Earl said: I wish to remind Members of the Committee that at Second Reading I made mention of my professional interests. I am a director of the Wyatt Company and on 1st March this year I shall become a partner in R. Watson & Sons. I wish to make that point quite clear because there are issues which we shall be discussing this afternoon which have a bearing on my professional life and I do not wish to have to repeat my interests each time I speak.

The amendment deals with limited price indexation for free-standing additional voluntary contributions schemes. As the Bill stands, currently employers make available additional voluntary contributions schemes under the trust arrangements of the occupational pensions arrangement. Free-standing AVCs or additional voluntary contributions schemes, are made available outwith the trust arrangements of the schemes.

The clause requires additional voluntary contributions schemes within the trust document to provide limited price indexation. The Bill as it stands does not require the same conditions to apply to free-standing additional voluntary contributions schemes. It seems to me that all forms of pensions provision should operate on an equal footing. It would certainly provide for a greater degree

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of flexibility and choice in the way in which free-standing additional voluntary contributions schemes are operated when an employee retires than under an additional voluntary contributions scheme. That seems a little odd. I should be grateful if the Minister could tell us why that condition should be applied to one form of additional voluntary contribution, but not to the other. Indeed, I hope that he will go further and accept the amendment. I beg to move.

Lord Mackay of Ardbrecknish: I thank my noble friend for the way in which he introduced this important amendment. One of the great merits of your Lordships' House is that people with real expertise in the areas that we discuss—in this case, pensions—are Members of your Lordship's House and can thus participate in our debates.

It is a regrettable fact that many people still do not make adequate provision for their retirement. We all want to change that position, but, even where provision is made, even quite low inflation can erode the value of a pension over time. People live longer and spend more time drawing their pensions. We believe that indexation is necessary to help to maintain an adequate income stream, protected against possible inflation, throughout retirement.

It is also regrettable that, on the basis of all the evidence that is available, individuals retiring with a pot of money from a money purchase arrangement will, if given the option, use that pot to buy a flat rate but higher starting pension rather than one protected against inflation. We are therefore requiring all occupational pension schemes, both salary-related and money purchase, to provide the level of inflation-proofing that we consider appropriate. By doing so, we are both ensuring protection against inflation and maintaining a level playing field between money purchase and salary-related provision.

However, we have to recognise that there are other circumstances where there is a large element of personal choice. Where individuals are not members of an occupational scheme there is no compulsion on them to save for their retirement. Even where they are members of such a scheme they might feel, for whatever reason, that the benefits provided will not give them an adequate income. We do not want to put in place measures that might risk deterring such individuals from setting aside adequate provision. It is possible that a requirement to index such optional arrangements might have just that effect.

Free-standing additional voluntary contributions fall into that category. They are contributions made (purely on the basis of an individual's choice) to a pension provider to purchase benefits over and above those provided by the occupational scheme to which they belong. Deterring such individuals from setting aside adequate provision for retirement is not in anyone's interests.

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I hope that I have explained the reasoning behind our inclusion of those provisions and why I am not able to accept my noble friend's amendment. I hope that, in the light of that explanation, my noble friend will withdraw his amendment.

The Earl of Clanwilliam: Does my noble friend agree that there is discrimination here in that whereas an employer with in-house AVCs is forced to provide indexation, an individual with a private pension plan and with free-standing provision is not required to have that? Surely that is not fair. It discriminates against in-house AVCs. Surely someone with in-house AVCs should have the same opportunities to arrange a pension as someone with free-standing AVCs.

Lord Mackay of Ardbrecknish: I see my noble friend's argument. It has to be a matter of balance. I think I have explained why we have reached the conclusion that we have about additional contributions that are made by choice. We do not think that they should fall inside the indexation rules whereas I believe that we all agree that other types of pension need to build in a certain amount of inflation-proofing. I repeat that we took that view because we should not like to discourage people from making that additional provision if they choose to do so.

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