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Lord Howell of Guildford: My Lords, is the Minister aware—I am not sure that she was when we pressed her on sanctions earlier in the week—that the Foreign Secretary undertook to review the whole operation of travel sanctions at a meeting to be held on 22nd July, which is the week after next? Is she also aware that he stated there is a strong case for an extension of the measures? We agree with that. I urge the Minister to urge her colleagues, as vigorously as possible, to get on with an extension of the sanctions, which have not worked well. We must bear in mind that we are dealing with personnel led by Mr Mugabe, who are heading for the destitution of Zimbabwe, the undermining of the entire region's prosperity and the starvation of millions of people.
Baroness Amos: My Lords, I think that the noble Lord, Lord Howell, is referring to the GAC meeting on 22nd July. The sanctions are EU sanctions. There will be discussion at that GAC meeting. It is for that meeting to reach a decision on whether or not it wants to extend those sanctions.
I do not agree with the noble Lord that the sanctions have not worked well. I have been pressed in this House on the attendance of Robert Mugabe, for example, at the World Food Summit meeting in Rome. I hope that I have made it clear to the House that there is an exemption for attendance at international UN meetings. That applies across the board. It does not apply only to Robert Mugabe, but to other world leaders who face travel bans for other situations.
Parliamentary Questions
3.30 p.m.
Lord Greaves asked Her Majesty's Government:
- Whether they have any plans to submit evidence to the Committee on Standards in Public Life on the answering of parliamentary Questions.
The Minister for the Cabinet Office and Chancellor of the Duchy of Lancaster (Lord Macdonald of Tradeston): My Lords, the Government have already submitted evidence to the Committee on Standards in Public Life as part of their inquiry into defining the boundaries within the executive. They have no plans to submit any further written evidence.
Lord Greaves: My Lords, I thank the Minister for that reply. In the light of revelations this week that e-mail conversations between civil servants working on Answers to parliamentary Questions from various honourable friends of mine in another place, included gems such as,
- "Matthew Taylor is a tricky customer and he's not asking this just to help the government"—
- "I have got form on Willis",
Will he give us a guarantee that, particularly in this House, identical answers will be given to the same Questions for Written Answer, regardless of which noble Lords ask them?
Lord Macdonald of Tradeston: My Lords, my understanding, which I shall check, is that the Answers would be the same in both Houses and that they would be constructed under the same disciplines. Where there has been any attempt to frustrate, or to be disobliging to your Lordships or to any MP in another place, of course we shall insist that proprieties are observed. The Department for Education and Skills has reminded its staff of their responsibilities and of the need for impartiality.
Lord Dubs: My Lords, can my noble friend confirm that it is thanks to the Labour Government's Data Protection Act 1998 that individuals have a much greater right to know what personal data are held about them by government departments? That is a welcome development, the benefits of which should be offset against the opportunities for a bit of point scoring.
Lord Macdonald of Tradeston: My Lords, I agree with my noble friend in principle. However, it inevitably makes for uncomfortable moments. One must remember that we are dealing with an organisation of almost half a million civil servants. So there will occasionally be mistakes and errors of judgment.
Lord Campbell of Croy: My Lords, are there any plans to submit evidence on not answering parliamentary Questions, or on giving evasive replies—although, of course, I do not have in mind any Member of this House on the Government Front Bench?
Lord Macdonald of Tradeston: My Lords, departments will remind staff of their responsibilities. It is a matter that is taken seriously by the Government. As I said earlier, the Department for Education and Skills has already taken steps to remind its staff.
Lord Saatchi: My Lords, are civil servants encouraged or discouraged to keep the type of personal information on Members of Parliament that we have been hearing about?
Lord Macdonald of Tradeston: My Lords, from my experience at ministerial level they are neither discouraged nor encouraged. As I said earlier, there are proprieties which are long-standing that should be observed by the departments. As my noble friend has said, the public, Members of Parliament and others have far more access to data than was ever possible in the past.
Lord McNally: My Lords, if it has been the practice of departments in preparing for ministerial Questions
to pen portraits of Liberal Democrats, I wonder whether he could put the one on my noble friend Lord Russell in the Library of the House?
Lord Macdonald of Tradeston: My Lords, as an admirer of the noble Earl I would do that with great enthusiasm. The noble Lord touches on a point which came up recently. I was looking at a submission which had rather personalised—I thought—profiles attached, which talked about an eccentric from that great cradle of eccentricity, and named a certain school. I protested about that, but was told that it came off the Internet and was pulled off one of the commercial suppliers. So I do not think that we can blame the Civil Service for information that is readily available on most of your Lordships' shelves.
Lord Corbett of Castle Vale: My Lords, from the answers that my noble friend has given is he on the point of delivering a reply to a Question I tabled to him on 19th of last month—an Answer to which was due yesterday—which concerned the safety of the wave screen at Brixham harbour?
Lord Macdonald of Tradeston: My Lords, I shall return to the department with some urgency and report back.
Pensions
3.30 p.m.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham): My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my right honourable friend the Minister for Work and Pensions. The Statement is as follows:
-
"I would like to make a Statement on the Pickering report that was published this morning.
"The report is the culmination of nine months of hard work by Alan Pickering and his team. I would like to thank him and also everyone who took the time and effort to submit their views—some of whom are here today.
"In his report Alan Pickering acknowledges the encouragement he received not only from my right honourable friends for Edinburgh Central and Makerfield, but also from the right honourable and honourable members opposite for Hitchin and Harpenden, Havant and Northavon.
"I believe pensions simplification has to be at the heart of any strategy to encourage greater pension provision. We need to deal with the complexities built up over the years by successive governments.
"Alan's report makes 52 recommendations. Among the key ones are: a new pensions Act to consolidate all existing private pensions legislation; a new, more proactive, regulator; a better, more targeted approach for communicating with pension scheme members; more flexibility to modify schemes; allowing employers to make membership
- of their occupational pension scheme a condition of employment; and the ending of compulsory indexation for defined benefit pensions and compulsory survivors' benefits.
"The report, together with Ron Sandler's proposals—announced by my honourable friend the Financial Secretary on Tuesday—represents the first stage of a comprehensive review of occupational and personal pension provision in the country.
"The Government will take a radical look at the issues, together with the results of the Inland Revenue review of tax simplification, when that is completed. In the autumn we will come forward with our proposals in a Green Paper.
"This will initiate a wide-ranging consultation. It will look at private pensions policy in the round, including the opportunities open to people around retirement, and will set out the Government's proposals to enable people to build up more pension savings.
"Alan Pickering's report covers some complex issues and includes some tough choices—the inevitable dilemmas faced by all simplifiers.
"The report presents challenges to us all—to employees and their unions, to employers and commercial pension providers, to government and opposition.
"I believe we need to be guided by the following principles and objectives, grounded in a long-term approach; fairness, security in retirement, informed choice for consumers, simple and proportionate regulation, ensuring incentives are effective and well understood, promoting employment among older workers and flexibility to give individuals more choice over the pace at which they retire from the labour market. I hope that we can secure all-party agreement to these.
"The Government believe that pension provision should be based on partnership, which can secure lasting buy-in from all key players.
"We must strike the right balances between sometimes competing goals. We want the simplicity that enables people to make informed choices, without stifling product innovation and competition. We want a proportionate regulatory framework that provides sufficient security for savers while making it worthwhile for employers and commercial providers to make available good pension products. We need to ensure that we remove unnecessary barriers to employer provision and employer contributions. We need to make it easier for people to save and easier to sell savings products, as Ron Sandler's report proposed on Tuesday. We need to achieve all of that and more against the remorseless arithmetic that tells us that because we are living longer and want to maintain a good standard of living in retirement, we need to save more, work longer, or achieve a combination of both.
"We wanted Alan Pickering to present a strong challenge to the degree of regulation of private pensions. He has done that; he has made some valuable proposals for simplifying pensions legislation and reducing administrative burdens on both schemes and employers—cutting costs and simplifying choices for individuals. His recommendations also present some tough choices.
"Let us consider, for example, his recommendation that employers should have the choice to make joining a company pension a condition of employment. Some 16 per cent of people who could benefit from a company pension scheme presently choose not to do so. Compelling people to join would restrict those people's choice. But we must balance against that the beneficial effects for schemes and the overall effect of extending pension coverage.
"Alan has also made a number of specific recommendations for easements of legislation, especially to repeal Section 67 of the Pensions Act 1995. Again, that throws up a tough choice. That recommendation would mean that if employers faced funding constraints with their scheme, they could have an option to reduce future funding costs rather than to close the scheme. That would remove an absolute guarantee against the consequences of change but might well secure a better outcome for members and the future of the scheme, when set against the alternative of its closure. Alan also recommends an end to compulsory indexation of pensions and the removal of compulsory survivors' benefits as a condition of contracting out.
"On first reading, those proposals are not attractive. They go against the drive for the past 30 years to price-protect pensions and enhance survivors' benefits. But, in the light of Alan Pickering's report, we will need to consider all the consequences.
"As well as the big themes and recommendations to which I have referred, a number of more modest issues are addressed to my department and to others: for example, improving how contracting out is administered, streamlining procedures and reducing general administrative burdens; considering ways to provide better advice through the workplace; and improving information given to pension scheme members. Those recommendations have considerable merit and, subject to the response that we receive to the report, I intend to implement them.
"In conclusion, Alan Pickering's report offers clear options for simplification and makes a valuable contribution to the debate that we must have about the next stage of pension reform. We must face up to the tough choices that he sets out. In seeking to simplify in future, we must also face up to what is in many ways the harder challenge of simplifying the past, in the sense that we need to simplify the different regulations that have built up over the years. Otherwise, we will end up adding yet another layer to the existing layer cake of regulation and complexity.
"Alan Pickering's proposals are radical, ambitious and pragmatic. I urge the House, the public, employers, trade unions and pension providers—all those whose partnership is essential for effective pension reform—to give them full and constructive consideration. The Government will certainly do so. The acid tests for the Green Paper must be what will increase the level of savings for retirement and make a secure occupational pension accessible to as many people as possible."
My Lords, that concludes the Statement.
3.44 p.m.
Lord Higgins: My Lords, first, I thank the noble Baroness for repeating the Statement made in another place and declare an interest as the chairman of an occupational pension scheme. We certainly welcome the report and congratulate Mr Pickering—as I prefer to refer to him, rather than in the informal manner used by the Minister. Of course, Mr Pickering and his team benefited from widespread consultation, including that with my honourable friend Mr Willetts in another place.
Having said that, the terms of reference of the report were restrictive. For that reason, it does not convey the present sense of crisis in pension provision. Neither does it analyse the causes of that crisis, other than in a passing reference to the problems of FRS 17, which have, I hope, been at least deferred, and the minimum funding requirement.
About five years go, the Government rightly paid tribute to the tremendous contribution made by company schemes, calling them the jewel in the crown, and so on. But, since then, they have suffered one blow after another—most notoriously, of course, the Chancellor of the Exchequer's attack on them in his first Budget. How much worse off does the Minister think that pension schemes now are as a result of that? Does that not now amount to more than £35 billion?
Nor does the report refer to other specific examples, such as the deterrent effect that the minimum income guarantee related to earnings may have on people who may otherwise contribute to pensions. That is especially true of defined contribution schemes. The noble Baronesses shakes her head. What size of pension fund would be necessary to lift people above the level of benefit provided by the minimum income guarantee?
As the report makes clear, it must be considered against the Sandler report, which we discussed last Tuesday. Sandler was enthusiastic about stakeholder products, which we must consider against the background of the stakeholder pension. That has been disappointing in terms of reaching its target audience of about 5 million people. As a result of how it has operated, only a small proportion of those whom the Government hoped to help—some estimates are as low as 2 per cent—may have benefited.
In that context, I am concerned by the expression used by the Financial Secretary to the Treasury when she referred to such products as "a safe haven". Would the noble Baroness refer to the stakeholder pension as
a safe haven? In my view, such a statement is akin to mis-selling. If someone invested, say, £1,000 in a stakeholder pension, is that likely to be worth more or less now?I warmly welcome some parts of the report. In a paragraph to which the Statement did not refer, but which is none the less important, it considers whether trustees should have more flexibility in giving advice to their beneficiaries. That is a real problem. Pickering envisages that most in the context of whether they could recommend a particular pension. But trustees are also inhibited by the current legislation from expressing a view on, for example, what someone who has had an additional voluntary contribution policy with Equitable Life for the past couple of years or so should do about that. Trustees may well know more about that than the independent financial advisers to whom they otherwise necessarily must refer their beneficiaries.
That brings us to the question of compulsory membership. It is estimated that about 16 per cent of employees do not join company schemes. That is a question of communication, but it is extraordinary that not everyone who is entitled to join even the best scheme does so. That is a cause for concern, although whether compulsion is the right answer is debatable.
The report also rightly draws especial attention to the problems of regulation. Basically, it distinguishes between the administrative burden placed on company schemes—which is great and has steadily increased in recent years—and what Pickering refers to as prescription on design, that is to say, on what should be the terms of the pension scheme. He draws particular attention to the effect on defined benefit schemes and questions whether they should be required to be indexed and to include survivor benefits. Those are difficult areas and will require careful consideration.
There is a slight counsel of despair in Pickering's observation that such provisions may have to be abandoned because of the difficulties that companies are facing in the present climate. The report refers also to the reduction in the different types of pension, where a balance must be struck. There are advantages in simplification but if the number of schemes is reduced too much, consumer choice will be limited.
In recent months we have seen something almost approaching panic, with companies closing defined benefit schemes and moving towards defined contribution schemes—the effect of the factors that I have mentioned and of a decline in the stock market. If that trend continues unabated, there may be little left of the company pension scheme that has been admired for such a long time.
I urge the Government to react quickly to the report. The Statement promises a Green Paper in the autumn, but one was published shortly after the Government came to office. It aimed at reversing the proportion of private to public schemes to 60 per cent and 40 per cent. Since then, the proportion has moved steadily in the wrong direction. It is important that the Government's response should not be unduly delayed.
The consultation with Mr. Pickering has been extremely helpful, but if the present situation is not to deteriorate further, it will be necessary to set a tight timetable for assessing the proposals made in the report—which I say again is extremely helpful.3.52 p.m.
Baroness Barker: My Lords, I thank the noble Baroness the Minister for repeating the Statement and welcome this extremely interesting and thought-provoking report.
It is easy to view the report in a particular way against the current crisis, when many of its proposals are for the longer term. It is incumbent upon the House to look at the design and intention behind some of Mr. Pickering's proposals.
There is much in the report for careful and thorough consideration, such as the proposals for survivor benefits. The report describes the changing nature of relationships and employment. From earlier debates on pension policy, it is clear that a crisis exists in relation to pensions for women. For the foreseeable future, women will earn much less than their male counterparts—so their pension purchasing power will inevitably be lower. What efforts will be made in the consultations to focus on women's pension problems?
The report's second most important proposal concerns indexation. Mr. Pickering observes that a pension is a pension is a pension. However, in many cases a pension scheme promise is not worth the paper that it is written on. The settlement as between private and state pension provision is falling apart. It is difficult to see how some of the indexation proposals can be taken on board to achieve the report's stated objective of increasing confidence in occupational pensions and savings.
Some aspects that are not part of the report, such as an analysis of the healthcare costs of retirement, must be part of the Green Paper. I hope that that paper will not make the mistake of confusing mortality with morbidity. The prospect of a large number of older people living much longer at considerably higher healthcare costs must be taken into consideration when devising a long-term pensions policy.
My one strong criticism of the report is that it greatly overestimates the power of employees individually or collectively to challenge pensions provision decisions made by their employers. In recent months, we have seen what it takes for even informed bodies of workers to mount a legal challenge. The report's proposals rest on extremely well-equipped and powerful employees. I am not sure that that situation will exist in future.
The report offers the potential for a wholly new contract for occupational pensions. Equally, because the proposals are tentative, there is the potential for a complete disaster or dog's dinner. What will the consultation document contain about the timing of implementation—on which many of the proposals and transitional arrangements rest?
3.58 p.m.
Baroness Hollis of Heigham: My Lords, I too find it difficult to talk about Alan. I thank the noble Lord, Lord Higgins, and the noble Baroness, Lady Barker, for their constructive approach. If we are to find ways through difficult situations with staying power, there must be consent. Informed criticism is a different aspect. I much welcome the consensual tone evident so far and hope that it will be perpetuated.
The noble Lord asked about the cost of ACT to pension schemes. About £5 billion a year came back to the Exchequer as a result of no longer having the tax defamation that was ACT—of which about £3.5 billion fell directly on pension schemes. British companies, unlike American companies, were paying as a result of a tax distortion too much in dividends while not making enough of the investment on which long-term jobs and the pensions of future generations depend. We are delighted to see that, since that change in the tax structure, investment in companies has increased, which means that it is having the effect that we hoped for.
Secondly, the noble Lord asked about pension credit. He asked what size of fund would be needed to raise somebody above MIG. In fact, it will not work like that. Pension credit has addressed that issue, and the noble Lord's question is a pre-pension credit question. For example, for someone who has a full state retirement pension and an occupational pension of £100 a week, that occupational pension would not raise them above MIG. We can work out what the pension pot would have to be for that £100. Under pension credit, that pensioner would keep £60 of the £100, and the figure would go up to something like £113 a week, as opposed to the current figure of £100 a week. Therefore, the question will not be relevant once the pension credit system is in place next year.
The third point that the noble Lord raised was about stakeholders. I simply disagree with him about the success or otherwise of stakeholders. So far, something like 815,000 people have joined a stakeholder scheme. The vast majority of those people are the people of working age whom we hoped to help. Because those products are low cost, transparent trackers of the index, they are safer, cheaper and more readily available than the products on the market hitherto.
The noble Lord also raised a query about the Government's response to the move from defined benefit to defined contribution schemes. As I said, they are safer, they are low-cost, and they are transparent trackers. The safest product of all is one that does not relate to any volatility on the market and is simply guaranteed by the taxpayer—the retirement pension and similar savings vehicles. Among funded occupational schemes, the stakeholder product, given its low cost, its transparency and the fact that it tracks the index, is likely to be safer and more reliable than others currently available to people of modest income.
The noble Lord's last major point was about the DB-to-DC schemes. He will know that, with the move from DB to DC schemes, there is a transfer of risk. The noble Baroness, Lady Barker, said that a pension
promise was not a pension promise when it was not delivered. For many years, employers have enjoyed a pension contributions holiday and have not had to meet the pension promise behind the defined benefit scheme. Even last year, half of all companies had either suspended or reduced pension contributions. The moment that employers are required to pay the full sum implied in the pension promise, some of them, encouraged by financial directors, vote with their feet and move into defined contribution schemes and use that as an opportunity to reduce their pension commitment from an average of 12 to 15 per cent to 5 to 7 per cent.The key thing is whether not only employees but employers pay at the levels that we need to establish decent retirement incomes in old age. We will consider whether Pickering has the right solution. But there is no dispute about the fact that what matters is that, over time, if the same level of contribution is kept up and if we make the same assumptions about the stock market, a DC scheme and a DB scheme should not produce strikingly different outcomes. The trouble is that employers are using the opportunity to cut contributions, which means that outcomes will be very different.
The noble Baroness, Lady Barker, pressed me on two major points, the first of which was timing. We will have a consultation document, and it will probably—it is a matter for others, not for me—lead to legislation. Were that to be the case and should there be consensus, we would be talking about the year after for consultation with the industry, and we would have to give two years' notice and so on. The noble Baroness is right about that. Changing pensions structures takes time because people invest in them for 40 years or so. It is right that we should get a consensus for change and, as far as possible, consider all the aspects properly, rather than going for a hasty solution.
The noble Baroness also asked about survivors' benefits and whether we were considering the situation properly. I am happy to repeat the undertaking that the Secretary of State gave earlier today. The consultative document will consider all implications for the gender balance properly and thoroughly. Obviously, Pickering considers the three balances: that between employers and employees; that between pension providers and consumers; and that between employees with a pension and those without. However, the Government must take two other balances into consideration. One is the gender balance and the other is the intergenerational contract between current pensioners, who may be open to Section 67 changes, and those who are deferred pensioners or current employees. That is part of the wider context, wider than the issues that Pickering addressed.
The noble Baroness will know that, according to the Association of British Insurers statistics, something like 80 per cent of those buying a money purchase pot go for flat-rate single life products because they prefer to have the money up front. That is a consideration because, if one is not careful, one simply pushes the problem of poverty further into old age. That is particularly the case for women. That is why we must
consider whether we can encourage women not only to come into the labour market, as we do, but to build up a proper, independent pension provision, including pension sharing on divorce for those whose relationship ends, something of which the noble Baroness, Lady Seear, was a prominent advocate. There is also the question of the roles of the state second pension and the stakeholder scheme.The Government have produced ways to help women to compensate for the fact that they have lower earnings and earn for a shorter time, although they live longer. That produces a complex of pension issues that are sharper than those experienced by men.
The noble Lord, Lord Higgins, teased us about the previous Green Paper on pension reform, published, I think, in December 1998. He asked what we had done. In the foreword, the Prime Minister said that we needed an assurance of a decent income through the new minimum income guarantee and that that income should rise in line with earnings. We have done that; it will become the pension credit. The Prime Minister also called for dramatically better pension provision for those on low incomes and those unable to work because they are carers or are disabled. We have delivered that; it is called the state second pension. The third thing that he called for was a better deal for middle and higher income earners through low-cost and flexible personal stakeholder pensions. We have delivered that; it is called the stakeholder system.
The previous Green Paper led to three pieces of legislation. I hope that the consultative document, which may lead to legislation, will not lead to quite so much.
4.7 p.m.
Baroness Turner of Camden: My Lords, I thank my noble friend for making the Statement. I welcome the Pickering report. It is interesting, and it floats many ideas that need serious consideration. I declare my interest. For many years, I was a member of the Occupational Pensions Board, the precursor to the Occupational Pensions Regulatory Authority. I am a current member of the council of OPAS, the Pensions Advisory Service.
The report, I am glad to say, refers to member-nominated trustees. Trustees play an important role in representing members' interests in schemes. It is important that trustees should have proper training and support to carry out those functions. I was also interested by—and I support—the report's recommendation that it should be possible for firms to make it a condition of employment that people belong to the occupational scheme. On previous occasions on which we discussed pensions, I put down amendments to that effect but never managed to get them carried. It is an important matter. A situation in which employees are bound by contract to contribute to a scheme gives us further reason for having a good regulatory mechanism to ensure that the schemes in which they invest their earnings and in which the employer also invests should be safe.
One of the problems is that recent scandals have caused the public to lose faith, to some extent, in pension provision. That is a great pity. Occupational pensions are one of the great successes of the past century. Because of occupational pension provision, many pensioners now retire on higher incomes than they would have had had pension provision not existed.
I disagree with Alan Pickering on the issue of indexation. In my experience, schemes index, if at all, to a maximum of five per cent per annum anyway. It is a fairly moderate system of indexation, which does not take account of the possibility of a higher rate of inflation. If people are to have faith in their pension provision, they need to have faith in the fact that it will keep pace with rising costs in the future.
Another interesting recommendation made by Pickering is that there should be multi-employer schemes. It is worth considering the case for small employers to group together, perhaps on a geographical basis, to provide schemes for employees in their areas. It is important that we have an opportunity for full discussion of those issues.
The noble Baroness, Lady Barker, raised two very important issues; namely, provision for women and interaction with the state scheme. I welcome the Minister's assurance that there will be a Green Paper and an opportunity for full consultation and further discussion.
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