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The Earl of Clanwilliam: My Lords, I am grateful to the noble Baroness for her remarks, and for giving way. I entirely agree. It is greatly to the credit of our great companies that they make these provisions. The only point I make is that at an additional charge of some 15 per cent of salary companies are finding it almost too expensive to provide those pensions.
Baroness Hollis of Heigham: My Lords, again it is a matter for the individual company whether it sets up funds and what the contributions will be, in particular in cases where companies have moved from defined benefits to the equivalent of money purchase schemes. The reason that blue chip companies offer good pension schemes is precisely because they see it as part of the total remuneration package with which they attract and retain good employees, which is what every company wishes to do.
The noble Earl, Lord Clanwilliam, and the noble Baroness, Lady O'Cathain, raised the question of minimum funding requirement and whether there had been a move from equities to gilts. I believe that I am right in saying that there has been no evidence of any major shift taking place. Where there has been any such shift, my advice is that it may well be due to the maturing of many pension funds rather than to any changes in the Budget. However, that is an issue which must be kept under review.
I turn now to the final speeches from the Liberal Democrat and Conservative Benches. The noble Earl, Lord Russell, reminded us of the ingredients of the Conservative menu for pensions, ranging from a universal basic state pension, a means-tested related earnings pension, a £5 slice, and attitudes towards SERPS. Listening to his speech, I supported part but not
I was delighted that the noble Earl joined with the noble Lord, Lord Lucas, in seeking to join us with the pension settlement which will have widespread consensus and staying power. I am sorry that he was so harsh on tracker funds in particular as some of my PEPs are in tracker funds. He regarded them as parasites on the market and, therefore, people like me as parasites on the market. I am not sure that his views would be widely shared by his colleagues behind him or by the pension industry as a whole. If I understood him correctly, I was also slightly puzzled by his proposal that people should be able to draw down mortgage equity released sums into their pension, considering the huge expense that this would involve to the public exchequer in terms of Inland Revenue rules. But perhaps now that the Conservatives are in Opposition, they feel free to make proposals which could have significant public expenditure in a way that they would not have done six months ago.
I also thought that he was rather harsh on the Pensions Act 1995, which he described as cumbersome and impractical. Again, I am not sure that that is a view widely shared by those behind him or in the pensions world. But I am sure that he is right to raise the questions he does even though some of them somewhat surprise me.
The debate has been interesting and wide-ranging. The issues raised have included coverage; flexibility; compulsion; simplification; and tax treatment. I have answered as many of your Lordships' questions as I was able to in the time. In so far as I have been unable to answer, I shall write to noble Lords, and shall certainly ensure that this debate is drawn to the attention of my honourable friend Mr. Denham and of the Pensions Review.
It is clear that we have inherited a major challenge on pensions policy. In the review we are conducting we want to lead the process with the help of all noble Lords on all wings of this House, so that we shall be able to meet that challenge and build a sustainable consensus on the future of pensions in this country.
The noble Lord, Lord Borrie, mentioned that support on these Benches for removing higher rate tax may not be as evident as he might think. There are complications in moving that tax relief. Secondly, I suggest to the Government that any move to remove tax of that nature or reallocate it is part of an overall strategy on tax and benefits. One of the points that I put to the noble Baroness related to whether the Chancellor is undertaking an overall benefits and tax review. Perhaps she will let me know later.
Baroness Hollis of Heigham: My Lords, it is certainly the case that the Chancellor has asked Martin Taylor to conduct the inquiry into tax and benefits. We await the recommendations that he will in due course make to the Chancellor.
Another point made by the noble Lord, Lord Borrie, related to defined benefit plans and how early leavers are not treated all that well. It is clear that in the way defined benefit plans are designed there is a cross-subsidy between the young and the old, and a cross-subsidy between the early leavers and the stayers. That is a fact of those types of plans. It is why, philosophically, many companies, particularly American companies, prefer to move to a defined contribution arrangement where those types of subsidies do not occur. I am not an apologist for defined benefit plans; however, I believe that they have a very important place in the pensions planning of this country. Defined contribution plans equally have a place; and other types of plans might be considered--clear average and cash balance, for instance. They also have their place. The critical issue in relation to early leavers is that their benefits are operated in line with inflation rather than national average earnings. If the Government decide to make that sort of change, it will add yet again to the cost of defined benefit plans.
Turning to the question of compulsion, mentioned by the noble Lord, Lord Grantley, it is to be hoped that we shall not arrive at a situation such as that in New Zealand, where there is great objection to the concept of compulsion. I totally understand the idea that it infringes on personal liberty. Now and again, personal liberties have to be examined in relationship to other issues. In particular, we do not make enough provision in this country for our retirement. Another point is that there is quite a degree of compulsion at the moment in our system in providing for a mandatory state earnings related scheme and the basic state pension. It is particularly important that in considering proposals, the Government--it is to be hoped with the help of
I congratulate the noble Baroness, Lady Hollis, on her very competent summing up. I enjoyed listening to her. I suppose that it will be another few months before she is unable to blame the previous Government for everything that she finds.
On ACT, the interesting point is that actuaries can never agree on anything; and the good thing is that economists can never agree. Is there any evidence that companies will reduce their dividends in the way that the Minister suggests--in that they will actually reallocate tax back into research and development or into other areas? I believe it was BAT which, following the tax changes, came under colossal pressure from shareholders for not increasing its dividend. The dilemma needs to be addressed. It is always nice to know that the economists are warped and distorted--perhaps that is an alliteration that I should not draw from the comments made.
As we move forward we shall certainly need to get used to some new terminology in this House: citizens' pensions, stakeholders' pensions, and designated personal pensions--which go by the slightly unfortunate initials of DPP. Perhaps the noble Lord, Lord Borrie, will be able to revisit his old stamping ground and help the Government through with that.
The debate has been about the need for the greater provision of pensions. In closing, I wish to draw the attention of the House back to the origin and terms of reference of the Pensions: 2000 and beyond inquiry by Sir John Anson and his colleagues. The report provides a final word on the matter which perhaps I may quote: