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Inherited SERPS

4.50 p.m.

The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham): My Lords, I would like to repeat a Statement on inherited SERPS. The Statement is as follows:

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    by the new rules. My announcement today will remove any worry for pensioners about providing for their spouse. For men and women who are more than 10 years away from state pension age we are giving them the proper notice to which they are entitled. For those within 10 years of their state pension age we will phase in the changes.

    "Due to the timing of these changes the costs will be comparable over the next three years. The reforms I have announced today will cost around an extra £1.5 billion over 10 years and an extra £4 billion over 50 years.

    "This problem should have been sorted out 14 years ago. What happened in the years after 1986 was a series of colossal blunders which were inexcusable and caused untold distress to millions of people. The then Conservative government have to take full responsibility for what happened. We are now taking the responsibility for sorting it out. I commend this statement to the House."

My Lords, that concludes the Statement.

4.57 p.m.

Lord Higgins: My Lords, the House will be grateful to the Minister for repeating the Statement which was made in another place by the Secretary of State. This whole problem has been described as the most expensive act of maladministration since the war. I believe that it is probably true to say that it is the most expensive act of maladministration ever. It has been an extremely long-running saga. That saga is given in very great detail by the report of the Commons Select Committee on Public Administration entitled Administrative Failure: Inherited Serps published only a few days ago. When I first saw on the Annunciator that there was to be a Statement, I assumed that it would be a response by the Minister to that report. In fact, I now understand why it is not mentioned.

I very much regret the tone of the Minister's Statement in the other place; I do not refer to the Minister in this place. Discussions on this matter have shown that we on this side fully recognised responsibility for what happened in our period in office. But we have also recognised, as I believed the Minister had done, that there was a responsibility on the other side as well. That is set out very clearly indeed in the report to which I have just referred. It states:

    "We believe that the failure of the department between 1996 and 1999 to take adequate action to inform their staff and the public perpetuated an already unsatisfactory situation".

So we do not accept what the Minister said in her final words, that then then Conservative government have to take full responsibility for what has happened.

Indeed, it is also the case that as regards responsibility, throughout there has been an appalling breakdown in communications, but that has not been deliberate. However, paragraph 17 of the report states:

    "A Pensions Bulletin was issued in January 1999, which summarised the changes to inherited SERPS in four paragraphs. However, subsequent Bulletins only provided holding answers for

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    staff to give to the public. Rachel Lomax [the Permanent secretary] told us that the failure to fully inform the public at this stage was a conscious ministerial decision".

There is a significant difference between a situation where there is an inadvertent breakdown in communications and one where there is a deliberate decision not to give the public full information.

I shall not detain the House by going into some of the other matters referred to by the Select Committee. This whole problem raises important issues as regards the relationship between officials and civil servants. I am glad that the report will do something to improve that because it is still impossible to find out who was responsible for what has happened. When I was the chairman of the Liaison Committee in another place, we dealt with this matter at great length. The report raises important questions--which I hope the Government will study carefully--as to the relationship in the House and in Parliament between officials and Ministers.

We spent many hours on previous Bills debating this issue. In particular, we commented on the ombudsman's report, which the Government said they accepted. The ombudsman recommended a global solution, which the Government's proposal for a protected rights scheme clearly was not. We now have a new situation which will, I hope, deal with the problems envisaged by the Select Committee.

The Select Committee was very concerned. It stated:

    "Our fear is that the original maladministration in this case may well now be compounded by a redress scheme that has all the makings of an administrative disaster".

Given that the Select Committee expressed that fear, and given the matters that we raised during previous debates on this subject, I welcome what the Minister has now said.

This is certainly an improvement on the previous scheme, which clearly would not prove to be practical. It is extraordinary that it has taken the Government so long to realise that that is the case. None the less, what is now proposed is better than the procedures previously envisaged--on which the House spent so much time and which are now, willy-nilly, dropped at a moment's notice.

It is a complex proposal and it will take time to understand it. Therefore, other than saying it is better than the previous proposal, I should not like to comment in great detail until we have had an opportunity to study it.

Perhaps I may ask the Minister one or two specific questions. First, as to the question of cost, I am rather surprised that, given the Government's proposal, the cost is smaller--amounting only to billions and billions--than one might have expected. As a point of comparison, can the Minister tell the House how the costs now to be incurred compare with the costs of not going ahead with the proposal to reduce SERPS at all?

Secondly, the Minister referred to a very small group of people who have documentary evidence. So far as those matters are concerned, will it still be the case--as previously recommended by the

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ombudsman--that the onus of proof will rest with the Government and not, as now proposed, with the normal administrative procedures?

Finally, we welcome the statements made in regard to better information for pensioners. It has emerged clearly from this saga that private pension providers have onerous obligations to provide correct information. It appears still to be the case that the Government have only a duty of care to provide proper information. The two are very different. Are we to understand that the Government propose to strengthen that position and that there will be a more onerous obligation on them to provide correct information than has hitherto been the case?

5.4 p.m.

Lord Goodhart: My Lords, we welcome the Statement. The inherited SERPS disaster has been debated on several occasions in your Lordships' House, both in the present Session and in the previous one. This is clearly the most serious administrative failure for decades--although, in relation to its effect on pensioners, it is not as serious in the end as the disastrous pensions mis-selling scandal, which was introduced as a result of the unfortunate decision of the previous Conservative government to allow people in occupational schemes to opt out of them.

Any fair remedy for this disaster will be very expensive. The ultimate cost appears to be something of the order of £6.5 billion--that is some £2.5 billion for the deferral to October 2002 and an additional £4 billion. The Government's preferred remedy before the Statement was made was deeply unsatisfactory. It proposed that compensation should be given only to those who had acted--or, more likely, failed to take action--in reliance on incorrect information.

The burden of disproving a claim, once made by a pensioner, was placed on the Government. This meant, first, that the burden of initiating the claim rested on the pensioner. Many pensioners were unlikely to make a claim; many would have failed to appreciate the need to take action at all; and many others would have been deterred by the consequent involvement in the bureaucracy of having to deal with the DSS. But, because the claim, once made, was difficult to disprove, the scheme could have been a charter for fraud, as the Select Committee on Public Administration pointed out.

The Government's new proposals are therefore a great improvement. We welcome the age-related exemption from the reduction in SERPS as a better solution than the further deferral of the change in the system. We also welcome the tapered exemption for those who will be within 10 years of the state pension age on 6th October 2002. We shall obviously want to look at the detail of the proposals, but we believe that, in principle, they are acceptable.

The only part of the Statement with which we disagree is the attempt to place full responsibility on the Conservative government. It took the present Government two years after they discovered the

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existence of this mess to sort it out, during which time serious distress was caused to many people because of uncertainty and the possible loss of an expected benefit.

The Statement is not the end of the matter. Two things need to be done. First, there is a need to ensure fair treatment for present and future pensioners; and, secondly, there is a need to prevent any similar disaster happening again. The Statement deals in a broadly satisfactory manner with the first of these issues; it does not deal at all with the second. That is not a criticism of the Statement. This is a wider issue. It is not a matter for the Department of Social Security alone; it concerns every government department.

This disaster may well have been due, as Sir Christopher France suggested in his answer to question 188, to something as elementary as a proof-reading error. That should not have been possible. Plainly, the antiquated IT system in the DSS may well have played a part. Here I shall refer to the evidence of Mr Peter Mathison, who was the chief executive of the Benefits Agency from 1995 to 2000. At question 248 he stated:

    "Most local offices, very few people in the local office network have access to the intranet or PC-based thing, it is all very old systems. When I came in, in August 1995, I had not seen a black and green screen for nearly eight or nine years. I could not believe the state of the IT support. In pensions, there are, I think it is, something like 14 guides of 50 volumes and they are all paper-based, and that is just on pensions. Across the whole range of benefit, there are 500 manuals and guides people need to refer to, to answer one of any million of questions, and all of them are paper-based".

Then he was asked:

    "It must have depressed you enormously?".

He replied:

    "And it depressed me that we could not get the investment to do something about it; and since I have been outside I would give my eye-teeth to have some of the stuff I have been using recently. I have got better IT support in the spare bedroom at home".

That is a devastating criticism of the failure of both the present and previous governments to invest properly in IT systems for the DSS.

Perhaps the most shocking passage in the Select Committee's report is the statement in paragraph 5 that,

    "Government departments do not have a duty to provide information on changes in law".

We want an assurance from the Government that the whole system will be overhauled. We want an assurance that this and future governments will accept that they have a duty to provide full and accurate information on changes in law to anyone who may be affected by those changes. We also want an assurance that, so far as is humanly possible, this scandal will never be repeated.

5.11 p.m.

Baroness Hollis of Heigham: My Lords, I am glad to receive the words of welcome for the Statement from the noble Lord, Lord Goodhart. I was a little disappointed at the tone of the response from the noble Lord, Lord Higgins. I thought it unusually grudging

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and half-hearted, and I was sorry about that. I am sure that he, the noble Lord, Lord Goodhart, and other noble Lords will accept that there is a very real difference between the position of the previous government and the present one. In 1986 the previous government took responsibility for making a variety of significant changes to SERPS. They included the 20 best years, the calculation in terms of annual, as opposed to incremental, changes in valuation, as well as the change in terms of inherited SERPS.

Any government who develop new policies have the responsibility at least to ensure that their literature is consistent with those policies. It was the then government's responsibility to ensure that the information that they gave out was accurate. They did not do so. That was a major failure on the part of the previous administration. I suggest in all modesty that that was rather different from the approach taken by the current Government who inherited the situation. As soon as they were aware of the problem, they took measures in the Bill that came before the House in the summer of 1999; they followed that with consultation; they came up with proposals in March this year, on which they subsequently consulted; and they are now responding. It has taken a fair amount of time, not only to consult properly, but to come up with proposals that the Government believe to be workable.

I remind noble Lords of our statement in July 1999 that,

    "no one has suffered any financial loss as a result of these changes, because they do not take effect until 2000".

We also said that we were,

    "considering which of those two routes is the better to follow or whether there is a third route which we have not yet explored. Several different responses have been given this evening and a variety of other suggestions have been made".--[Official Report, 6/7/99; col. 847.]

and that we were reviewing those suggestions. That was a proper, decent and honourable response. It suggests that the noble Lord, Lord Higgins, would be well advised to think again about such a churlish response. As soon as we were aware of the issue we took action; we came up with proposals; we consulted; and we have now changed those proposals in the light of further consultation. If only the noble Lord's own government had taken on the same degree of responsibility, we should not now be in the mess that we are in.

The difficulty for this Government is that when we realised the nature of the problem we thought that we could redress the grievance that lay at the heart of it; namely, that people were suffering, either from misinformation or from a failure of information, and that that had either added to their financial detriment or failed to act to their financial advantage. That was the problem that we sought to address. That was the basis of the protected rights scheme that we brought before the House in March 2000.

Having listened to people and taken part in consultation, we have now been persuaded that the problem is deeper and that we cannot merely redress

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grievances: we have to return to the drawing-board and redesign the scheme. I should have thought that the noble Lord, Lord Higgins, could have joined the noble Lord, Lord Goodhart, in welcoming the decency and propriety of our response, which I am proud to bring to this House.

Three specific questions have arisen, two of them shared by noble Lords. The first relates to costs. For the original scheme--the protected rights scheme--£2.7 billion was the cost of deferring any change until October 2002; there was to be a further £5.5 billion, making a total of £8.2 billion for the protected rights scheme. The scheme that we have now produced involves the same £2.7 billion through to October, and a further £9.5 billion, which brings the figure to £12 billion. I was asked what would be the cost of not going ahead at all. It would be £20 billion in total over 50 years.

The noble Lord, Lord Higgins, raised a point about remedy and maladministration. We shall now resort to the customary position of the DSS; namely, that if there is a case of maladministration the responsibility is on the DSS to ensure that the person is put back into the situation in which he or she would have been had the maladministration not occurred. That means that we are returning to a more conventional situation in which the person who is subject to the maladministration must show evidence to that effect.

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