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Lord Varley: I did not, my Lords. There was a bit of a row, but nothing like there is now. There was nothing like we see now in the press, where someone called Wheatcroft regularly writes about these issues. She was not writing at the time about these issues in the pages of The Times. However, I am ready to concede that there has been a significant deterioration of the stock market, and that the tax concessions which the pension funds used to receive but no longer receive have added to the problem. The latter, however, has had a less significant effect than has the reduction in equity values. But I had better move on so that I can make my main point.
There is one aspect of pension policy that is bizarre and unfathomable to me—the application of Inland Revenue limits to pension increases paid under some annuity policies. During the 1980s and early 1990s, the trustees of many medium-size occupational pension schemes purchased annuities on behalf of their members when they retired. Some of the contracts with the annuity providers—mainly the large insurance companies such as Norwich Union, Prudential, Legal and General, Clerical Medical and all the others—stipulated that there would be a 5 per cent annual up-rating of the annuity paid directly to the pensioner annuitant.
As the House will recall, in the 1980s and 1990s, the year-on-year inflation rate often greatly exceeded 5 per cent. Under this Government's financial management, aided by the Bank of England Monetary Policy Committee, inflation is now well under control. However, the Inland Revenue limits mean that current annuities are capped at 3 per cent. A great deal of the income generated by the original lump-sum purchase of the annuity which the insurance company would have invested in gilt-edged securities is locked up and retained by the insurance companies and may never be released for the benefit of the annuitant or the Treasury.
I ask my noble friend the Minister whether that will be looked at seriously. We have a situation in which, because of that cap, the Treasury voluntarily forgoes revenue—which I estimate amounts to millions of pounds—that it could have. If the cap were lifted, depending on the marginal tax rates, up to 40 per cent of the money would go to the Treasury. The Chief Secretary to the Treasury has acknowledged that this is a problem. I wrote to him some time ago and he pointed out that there would be a review. I hope that the review will consider the matter seriously, and I hope that my noble friend, in her reply, will give us some hope about it.
The debate on pension policy will run and run. As people live longer, the demands on pension funds, both private funds and public funds, will become much more burdensome. I wish my noble friend the Minister and all her colleagues in government the very best in putting this issue right as quickly as possible.
7.45 p.m.
Baroness Turner of Camden: My Lords, I thank the noble Lord, Lord Fowler, for introducing this timely debate on pensions policy. It gives me the opportunity to pay a personal tribute to my noble friend Lady Castle of Blackburn. Had she still been with us, I am sure that she would have made her usual robust contribution.
It is very rare that even talented politicians—and my noble friend was certainly that—can be said to have materially changed the lives of fellow citizens, and to have done so for the better. Yet she did so in many ways, not least because of the pensions plan which she was responsible for introducing in the mid-1970s. The two-tier system—with SERPS, which was a major innovation—truly did change lives for many people. It
really was a partnership between good private and good public provision. Had it been honoured and fully implemented, the commitment to increasing the basic state pension in line with the earnings index, instead of simply the retail prices index, taken together with the original modified SERPS, would have ensured that there would today be very few poor retired wage earners. I supported Lady Castle in the pleas that she repeatedly made for a return to the philosophy that underpinned that innovatory plan of hers.The last time Lady Castle spoke in this House it was on the State Pension Credit Bill. She was rightly critical of it, since she saw that it would ultimately mean that about 50 per cent of future pensioners would attain some kind of basic income only via means-testing. She was opposed to that, believing that as well as being expensive to administer, means-testing inevitably entailed low take-up. To her, means-testing was an affront to the dignity of older people.
However, another aspect to the Castle plan had a very considerable impact. It was possible to contract out of SERPS only if a better occupational alternative was available. That of course meant a scheme offering defined benefits—a final salary scheme. I well recall, as I was a union official at the time, that that led to a growth in final salary schemes, often taking the place of existing money-purchase plans.
The occupational pensions movement has been responsible for one of the great successes of the past century. As a result, many people have been able to retire in comparative comfort. That does not mean, as the Government sometimes assert, that there are masses of rich pensioners—only 5 per cent of the pensioner community pays income tax at the higher rate—but at least a modest level of comfort has been secured. Incidentally, what level do the Government regard as wealth for a pensioner? The noble Lord, Lord Fowler, made that point. I ask the question because, although the tax system provides for modest age allowances, the taper at which entitlement to age allowances is lost begins at £17,900 a year, which is not exactly wealth. If one earns a little bit more, entitlement is lost entirely. There is sometimes an assumption that life is cheaper for a pensioner than for the working population. I say to my noble friends on the Front Bench—they may find this out for themselves eventually, as I have already—that that is a mistaken assumption.
We now have another pensions crisis. As we have heard, large companies are increasingly turning away from providing adequate occupational pensions for employees. It is clear that state provision will not be an acceptable or viable alternative. It is also government policy to reduce the state commitment to funding pensions and to move as many as possible onto the private sector. Hence stakeholder pensions where individuals take responsibility for themselves and rely on the market. Take-up so far has been disappointing. It is clear also that many people have no idea just how much they are going to have to put away to be sure of a reasonable, indeed, a liveable, income in retirement. It is estimated that a pension pot of over £200,000—an
enormous figure to most people—would be needed in order to produce a modest income of around £10,000 per annum.There is no compulsion for people to pay into such schemes and an employer does not have to pay either, simply to allow a stakeholder provider access to his workforce. In the meantime, as we have heard this evening, many large firms such as BT, Sainsbury's, Whitbread, ICI and Lloyds TSB are shutting down their defined benefit schemes and offering a much poorer alternative in the shape of a money purchase scheme. Shortfalls in pension funds have followed "contribution holidays" employers gave themselves during the stock market boom. There is the falling stock market. There is the withdrawal of relief from advance corporation tax, which no doubt added substantially to the Treasury's coffers but further undermined middle level pension schemes.
The new accounting mechanism known as the Financial Reporting Standard 17, already referred to by the noble Lord, Lord Fowler, is claimed by many companies to be a factor in their decision to move away from final salary schemes. There is no doubt at all that the moves away from defined benefit schemes have set alarm bells ringing among employees and their unions. My own union, MSF, now Amicus, has called for government intervention to prevent what many employees regard as a kind of theft.
Certainly there is a need for a further review of pension policy. I believe it to be unrealistic to expect people to take on much more added responsibility for pension provision individually, particularly at a young age when it is most advantageous for them to do so. They are certainly unlikely in my view to do so voluntarily. The stakeholder experience would appear to demonstrate that. Young people endeavouring to get a footing on the housing ladder in large towns are unlikely to be willing to set aside money for a retirement in 40 years' time.
Now financial advisers are advising their clients to get into SERPS. Perhaps the time may come when we shall look again with favour on the scheme introduced more than 25 years ago by the remarkable lady to whom I have sought to pay tribute this afternoon.
7.52 p.m.
Baroness Barker: My Lords, I declare an interest as I work for Age Concern England. I, too, pay tribute to Lady Castle. In the short time that I have been a Member of this House I have witnessed her in the Chamber looking physically frail but standing up and laying into all before her, specifically those directly before her, with passion and vigour on the subject of pensions. Some in the House may have dismissed her views as being out of time. However, it is worth noting that during the previous Parliament pensioners were the only group to prise open the coffers of the Treasury. It was due to the leadership of Lady Castle that they were able to do that. Many of us did not agree with her politically but I think that all of us admired the fire and the passion with which she pursued the subject of pensions, seeing them as a key to overcoming poverty.
When pensions make headline news day after day and are as likely to feature on the "Today" programme as "Moneybox", something is badly wrong. It is therefore timely that we should have this debate so forcefully introduced by the noble Lord, Lord Fowler. It is a welcome opportunity to talk about pension policy outwith specific government proposals. As noble Lords have mentioned, across all industrialised nations the dependency ratio of pensioners to people of working age is increasingly fuelling a trend towards private and pre-funded pensions. But here and in the USA the private sector seems to be increasingly problematic. In the climate of today's headlines it is tempting to focus solely on the subject of occupational pensions but I believe that that would be wrong. In order to avoid the position where government provision is always seen as the thing to which people run in times of crisis, we need to look at the way in which public provision sits alongside private provision.
The noble Lord, Lord Fowler, mentioned the key word "confidence" and referred to the lack of confidence in the pensions industry. I believe that it is right to say that since 1979 some of the lack of confidence has resulted from the ways in which the state provision has been administered. I do not wish in the presence of so many eminent people to go over the details of the changes that were made to SERPS or the mis-selling of the 1980s or, indeed, the changes introduced in the Social Security Act 1986, but it is clear that the changes which those policies brought about—a total of £32 billion was taken off the value of public pensions—have been, and will continue to be, a significant factor as regards confidence in the whole of the pensions industry. I do not wish to dwell in detail on computer systems and the administration of benefit but it is a key factor that we cannot ignore.
In 1997 pensioners believed that things could only get better. Yet despite that, the average value of GDP spent on pensioners fell from 6.22 per cent in 1996-97 to 6.0 per cent in 2001-02. Since 1997 the number of pensioners missing out on benefits has increased. The latest take-up figures show that up to 700,000 pensioners are not receiving MIG to which they are entitled. Some £750 million worth of benefit is unclaimed by pensioners. Despite that the Government continue to favour an approach which is increasingly dependent on means testing. When the pension credit is fully implemented, between 50 and 70 per cent of all pensioners will be subject to means testing. The Select Committee questioned whether in that circumstance the state second pension will have a viable future.
As the noble Baroness, Lady Turner, noted, stakeholder pensions—the Government's fall-back position—have been taken up only slowly. The reasons for the slow take-up are not yet clear but concerns that such policies may, by the time they mature, have little value to the individual coupled with reluctance of advisers still reeling from accusations of misselling to recommend them must be contributory factors. But what is more worrying is the failure of the
individual pension accounts scheme. That was enthusiastically promoted as a means to transform pension provision and boost private pension savings, but only one company offered the product. Since they were launched alongside stakeholder pensions, hardly any have been sold. Overall, current government policy on state provision is starting to look a little piecemeal, short term and administratively over complex.I do not wish to spend a great deal of time talking about the change from defined benefit to defined contribution schemes. Many noble Lords have done that already in the debate. However, I simply wish to say to those companies which are rushing to follow suit that they would do well to look to the USA where similar moves have damaged employee relationships and companies which are suffering skill shortages have experienced the transfer of those skills away from their companies to those in which salaries are paid at a higher level to offset the lack of pension income. I also wonder to what extent we shall begin in future in this country to see increased redundancy levels among older employees with a knock-on effect to the public purse in unemployment benefits. Companies with skill shortages should think again about that matter.
One solution to the problem of increasing dependency ratios which many speakers have mentioned is an increase in the state retirement age. I remind noble Lords who may have seen the relevant article that Professor Alan Walker made the forceful point in Monday's edition of the Guardian that increasing the state retirement age in itself is not an answer; it has to be accompanied by anti-age discrimination legislation in employment or unemployment benefits currently paid to people aged 50 to 60 get shifted up a generation. Do the Government realise that there is a case for implementing the EU directive on age discrimination in employment before the deadline of 2006?
If the overall outlook on pensions is alarming, and according to the National Association of Pension Funds it is, there is one group of people who should be doubly alarmed; that is, women and the noble Lord, Lord Fowler. Evidence from the SAGE Unit at the LSE shows that inequalities in the pension system built in at the time of Beveridge remain and are compounded. The Beveridge report was founded on the assumption that a woman would qualify for her pension via her husband's contributions. Research published last week by my honourable friend in another place, Mr Steve Webb, shows graphically the damaging effect of that assumption on women today.
Before 1977, women could opt to pay a reduced rate of NI. Many did so without being aware that they would be foregoing their future pension rights, and are only now learning that they have a pension entitlement of just a few pence. Some were advised that they would receive 60 per cent of their husband's pension, but until their husband reaches 65, some receive nothing. In 1989, changes in the law reduced the NI bill for low earners. It was then advisable for some to opt back into the full rate scheme. Many appear not to have been advised and have ended up paying more national
insurance contributions on the reduced rate than their colleagues who pay the full rate for a full state pension. All now face retirement on a very low income—some to a dramatic extent.Women are the most prevalent among the lower paid. In a lifetime, they can expect to earn more than £250,000 less than their male counterparts. They are likely to have an occupational pension. The state second pension assumes a working contribution of 49 years, which very few women have. Stakeholder pensions are supposed to bring flexibility but stakeholder pensions depend on fund performance.
One of the key areas, as many noble Lords have said, is the urgent need to reform annuities. Dr Oonagh McDonald of the Retirement Income Reform Campaign makes the important point that while defined benefit schemes do not discriminate on the basis of gender, defined contribution schemes do. Defined contribution schemes compel members to purchase annuities, which discriminate on the grounds of gender more than any other factor. Despite the fact that life expectancy of men and women is growing closer—the gap is now less than four years—most schemes still make payments to women that are 20 per cent lower than those to men.
Life patterns are changing and there is now a growing case for a thorough overhaul of pensions policy on the ground of gender. Otherwise, as the noble Lord, Lord Fowler, said, women will face a great deal of poverty in future.
In the short time remaining, I wish to commend to the Government two courses of action. First, in order to bring stability and transparency to state provision, the Government should cease their current policy of increased and complex targeting. Everybody needs to be able to calculate what their basic state benefit will be, even though that will be inadequate and they will have to make their own private provision on top of that. Secondly, in partnership with the private sector, a concerted effort to increase education about pensions and retirement income should be initiated as soon as possible. As a spokesperson for the Co-op Insurance Society said in March 2002:
- "Consumers need to be clear about what to expect from government, and with the right incentives to save they can then successfully make their own private provision for retirement. Only when a state solution is achieved and understood will individuals appreciate the risk of not having saved is greater than that of having saved".
8.3 p.m.
Lord Higgins: My Lords, I join noble Lords in congratulating my noble friend Lord Fowler on initiating this debate. He made a distinguished, powerful and alarming speech, which I hope will receive widespread attention. He also paid tribute, as have many noble Lords, to Lady Castle. I share the sadness at her absence and the fact that she is not able to advance her views. Those views were, I stress, supported by the Select Committee in another place. We found ourselves agreeing more and more. I was not particularly worried about agreeing with her but I
believe that she may have been somewhat worried about agreeing with me. Her loss is a sadness; we respect her memory.I declare an interest as the chairman of trustees of an occupational pension scheme. I disagree with the noble Lord, Lord Varley. I believe that there is a crisis in pensions provision and that that crisis is now. The danger is that the effect will be felt for a very long time. My noble friend rightly drew attention to that crisis.
At the risk of some repetition, it is worth stressing the cumulative effects of the various factors now affecting pensions provision. It is of course affected by the fact that people are living longer—the age of the population is increasing. We warned about the long-term effect of the Chancellor's action on ACT from the very beginning. The noble Lord, Lord Oakeshott, stressed why that is becoming apparent.
Pensions provision has also been affected by the fall in the stock market, the fall in the savings ratio—it is barely half what it was in 1997—low annuity rates (which reflect the Government's policy on gilts) and the Government's persistence on the 75-year rule, despite the fact that the House has twice voted against it. It is also affected by the Government's policy on uprating the national insurance pension, as against the minimum income guarantee, the contracting-out rebate, which is tending to push people out of private schemes and back into the state scheme, the change—this point has not been mentioned—of many pension schemes to a market-related basis and, of course, the effect of FRS 17.
All of those factors are having a cumulative effect. Some of them are short term and perhaps temporary, but others are long term. Some can be affected by government but others are beyond government control. It is essential for the Government to do all they can to improve the situation.
My noble friend Lord Fowler discussed company schemes and the noble Baroness, Lady Turner of Camden, rightly stressed their importance in the system. The major shift from final salary to defined contribution schemes is a matter of grave concern. There seems to have been something approaching panic among some companies. As the noble Baroness, Lady Barker, said, they should take account of the reasons why they are producing pension schemes in the first place. There is also the danger of a knee-jerk reaction and the fact that it is becoming fashionable to change from one scheme to the other. A major transfer of risk is involved. The extent to which that is from the company to the individual and the extent to which that is important depends on the size of the pension fund compared with the size of the company. In some cases, the pension fund may be a great deal bigger. As a result, the fluctuations in the company's financial position—that is a result of FRS 17—may be sufficiently large to prevent it paying dividends and so on, which is of great importance. The number of company schemes closing down has nearly doubled in the past year.
I want to say a word on FRS 17. In a short time we shall move towards a European standard. It is absurd to go for FRS 17 at this stage if one is going to have a
system under the European standard that allows a degree of smoothing. Accountancy bodies are right to argue for a degree of transparency but I hope that the move to the European scheme may alleviate the tendency for companies to change from final salary to defined contribution schemes.The Government have a responsibility, which the accountancy standards body does not, of taking account of the wider issues. Concerns have been clearly expressed. Fluctuations in a company's balance sheet as a result of market pressures are important.
On the funding issue, it is important that as many schemes as possible should be funded. There are increasing doubts in both political parties about the "pay as you go" scheme. That was implicit in the remarks of the noble Lord, Lord Desai, who said that there is no guarantee that future generations will pay up in relation to such a scheme. Indeed, as the number of people who rely on the minimum income guarantee increases—perhaps the noble Baroness can give us an idea of how many people she believes will be receiving the minimum income guarantee by, let us say, 2020 or even 2050—then of course the question arises of who will pay. That is not at all clear. A large percentage of the population will be on the minimum income guarantee and I suspect that relatively few will receive higher pensions for which they have made provision themselves.
Alas, I do not have time to go into detail about the state pension arrangements, except to say that there is now considerable confusion so far as concerns the national insurance contribution system. We are about to deal with the National Insurance Contributions Bill. I believe that the fact that the money from national insurance contributions provides both for the NHS and for pensions through the National Insurance Fund leads to a great deal of confusion. It is high time that we segregated out those two so that we know exactly how much money is going in one direction—that is, to the NHS—and how much to the National Insurance Fund.
So far as concerns the stakeholder pension, to which a number of noble Lords have referred, I suspect that to a large extent it has missed its target. The take-up has not been as great as any of us would have hoped. So far as concerns the state second pension, there have been several criticisms of it, most notably by Mr Timmins in the Financial Times. We still do not know when it will change from a graded basis to a flat-rate basis. Fundamentally, all that suggests that the Government's objective of reversing the ratio of 40 per cent of pensions being provided by the private sector and 60 per cent by the Government is increasingly in doubt.
I want to make one or two more brief points. I believe that the Government are proposing to tell people what their pensions are likely to be. My noble friend Lord Freeman and, I believe, the noble Lord, Lord Varley, suggested that that was a good thing. I do not believe that a satisfactory forecast of that kind is
likely to be accurate. Certainly, if the attempt had been made 10 years ago, it would by now have been proved to be very inaccurate.It would be more helpful if the Government were to tell us what size of pension fund will be necessary to give people an income above the minimum income guarantee level. Whether it be at the lower levels of company schemes on defined contributions, on stakeholder schemes or whatever, there is a real danger that people will contribute a considerable amount of money throughout their lifetime but find, when they come to retire, that that will all be taken away because those contributions will be taken into account in calculating the minimum income guarantee. I believe that we need to know what size of pension fund is necessary in order to provide people with a sum above that level. That would be more helpful than a very speculative estimate as to what individuals' pensions might be.
I want to make one final point. The Government continue to avoid saying what the pensions liabilities of the national insurance scheme are so far as concerns their balance sheet. We had a Bill which was supposed to produce a government balance sheet. The liabilities of the pension commitments of the Government have not been reflected in that. It is an important point.
As I said, this has been alarming debate, but I believe that it has provided a warning signal that needs to be heeded. Action needs to be taken in many areas in order to prevent this crisis developing further and adversely affecting the standard of living of generations to come.
8.14 p.m.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham): My Lords, I am grateful to the noble Lord, Lord Fowler, for initiating an extraordinarily well informed and very interesting debate. Like others, I deeply miss Lady Castle. But I know that my noble friend Lady Turner will continue to fly the standard for her.
I am very pleased to have the opportunity to discuss pensions today. The noble Lord, Lord Fowler, started by saying in, I believe, almost Disraelian language that he was worried about the development of two nations. I agree. And my noble friend Lord Desai said that we were perhaps the last of the lucky generation. That is true, but I want to correct him. Some of us have had access to good occupational schemes—indeed, we have been members of a lucky generation—but, for decades, women, unskilled men, those living in areas of chronic unemployment and those suffering chronic ill-health have never been lucky.
Hence our strategy to tackle the growing inequality between rich and poorer pensioners. On average, older people who have already retired are much better off than was the case 20 years ago. However, when we came to government the picture was mixed and we have taken action to help those in need. We have introduced the minimum income guarantee, and we have provided support through the Pension Service, as
well as making increases in the basic state pension. We have given extra support to pensioners with a real-terms rise of approximately £6 billion since 1997, of which £2.5 billion has been spent on the poorest third.The result can be seen in the latest April HBAI statistics. Those show that using 1996-97 as our baseline, 27 per cent of pensioners were below 60 per cent median AHC figures when we came into government. That is now 15 per cent. The figure has reduced from 27 to 15 per cent using those 1996-97 baseline figures—that is, it has virtually halved. Therefore, we are beginning to narrow the gap in absolute terms between rich and poor. As I said, we can see that the incomes of our poorest pensioners have grown twice as fast as average earnings in real terms. Therefore, relatively their position is improving dramatically.
The noble Lords, Lord Freeman and Lord Oakeshott, and others called tonight for a rise in the retirement age to 70. There is not a retirement age of 70; there is an age at which the state pension is paid, and that is 65. Here I agree with the noble Baroness, Lady Barker, that the problem is not that the retirement age is 65 and that it should be 70; the problem is that the state retirement pension is paid at 65 and too many people drop out of the labour market at 55, 58 or 60. They live off their savings and therefore port poverty into their old age. Anyone of the age of 65 can defer taking the state retirement pension and receive an increment worth about 7.5 per cent a year. Thus, effectively they can have a flexible decade of retirement. However, as your Lordships know, we shall be considering such issues over the next few years.
The first part of our strategy was to try to narrow the gap between poorer and richer pensioners. The second stage is to address the disincentive for people to save. I am delighted that the noble Baroness, Lady Greengross, was able to pay tribute to the work of pension credit. To talk about pension credit, as some press reports have done, as penalising thrift is simply absurd. At present, for example, anyone who has a private pension income at a level between the retirement pension and MIG receives a deduction pound for pound—that is, it is a 100 per cent deduction. In future, under pension credit there will instead be a taper of 40 per cent. That is, indeed, a help to those on modest savings and modest occupational pensions.
Pension credit will signal the end of the weekly means test. The noble Baroness, Lady Greengross, was right to say that we should be talking the language of entitlement and not means-testing. Instead of a weekly means test, there will be something like a quinquennial review of income. Supported by the new Pension Service, I hope that take-up figures, which everyone wants to see achieving the level that is appropriate, will include the pensioners who need the money most. We are making significant moves in that direction. I believe that what we are doing through the Pension Service and pension credit will see us get there.
I now want to talk a little about our strategy to ensure that future pensioners have a decent income in retirement. That brings us to the point that most
people dwelt on tonight—that is, the need for a good second pension. The key point to emphasise—it has not been mentioned tonight—is that a decent occupational pension reflects not what one does when one is in one's 50s, let alone what one does in one's 60s; it reflects the fact that one has gone into work and obtained an adequate job with an adequate pension scheme in one's 20s. It is compound interest that pays.Our responsibility is also to ensure that we do not penalise individuals so that those who were poor before they retire continue in poverty once they reach retirement age, particularly women and carers. For those two reasons we want to ensure long-term pension commitment for those in the labour market and financial support through a pension for those who are able to enter the labour market only intermittently because of care responsibilities or disability. For that reason we introduced the state second pension, which will make it worth while for people on low and moderate earnings to save for their retirement.
We also want to ensure that people have a decently funded scheme, which is where employers have a vital role to play. The noble Lord, Lord Freeman, wanted to know what kind of information would be made available. He asked about reviews. He is absolutely right that unless people know the sums and the prospects they will not save.
The Pickering and the Sanders reports will be published this summer. The response to the Myners report has already been published, but we are consulting on some of the specific recommendations on trustees and the like. We expect—probably in the autumn—to have an across-the-board government response, but with health warnings attached.
What Myners said relates back to what the noble Lord, Lord Higgins, said. He showed in his review that what really matters in terms of pension funds is their record of asset management. It followed from that that ACT, whose loss has been much regretted and deplored by the noble Lord, Lord Higgins, is probably less than one-tenth of the difference between the best and the worst performing providers of pensions.
As people are concerned that they should have a decently funded second pension, we have introduced not just the state second pension, which is not funded, but the stakeholder pension as well. The latest figures show that something like 815,000 pensions have been sold up to the end of March. That is not the disappointing result suggested by the noble Baroness, Lady Barker, and my noble friend Lady Turner. Something like three-quarters of a million more people are now saving for retirement than a year ago. We have to achieve the correct balance, as we believe we are, which is why there is a review.
There has been much talk of a pensions crisis. My noble friend Lord Varley batted those words around. Defined benefits pension schemes are still the most widespread form of provision. In 2000 in the private sector, 53 per cent of employees in companies with 20 or more staff had access to a defined benefit scheme. A quarter of all employees in companies with 20 or more staff were active members, and 45 per cent had some kind of employer-sponsored provision.
There is a significant problem, but I do not believe that it is a crisis. In my view the problem is not so much the switch from defined benefit to defined contribution schemes. There are differences, such as the rate of portability with defined contribution schemes, and there is less security with defined contribution schemes. We know that those may or may not be regarded as offsetting each other. I believe that the noble Lord, Lord Higgins, was right to say that the real problem is that this opportunity has been taken by finance directors to cut employers' contributions. That is the basic problem.
All the statistical forecasting that I have seen shows that if one can ensure that the employer-employee contributions together remain at the same figure as under a defined benefit scheme, over time the outcome between a defined benefit and a defined contribution scheme should be little different. Precisely because that does not happen, and as the NACF has shown the average employers' contribution has halved from about 12 or 15 per cent to 6 per cent, the crisis to which the noble Lord, Lord Higgins, referred, may occur. That is because employers are seeking to use this as an opportunity to cut their contributions.
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