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Lord Higgins: My Lords, this is clearly an important piece of legislation. It is as important as it is complicated, which makes it very important indeed. This is reflected in the list of distinguished and expert speakers today, many of whom have great experience not only in government and ministerial office but in the practical world of pensions operations. The practical application of the Bill is the most important aspect we will need to consider and there have been many representations from outside bodies on the proposals before us today.

In her opening remarks, the Minister referred to the provenance of the Bill in terms of White Papers, Green Papers, more White Papers, outside consultations and so on, which are all listed in the Explanatory Notes. But, despite that, when the Bill came to the House of Commons there were hundreds of amendments. The Engineering Employers Federation has pointed out what happened in the Commons. When the Bill was published it comprised 235 pages with 248 clauses and 12 schedules; when it completed its Committee stage it had grown to 280 pages with 282 clauses and 13 schedules; now the Bill comprises 316 pages, in two volumes, with 310 clauses and 13 schedules—all of this against a background of a programming Motion agreed at the beginning of the proceedings. Although it was later extended to some extent, against that background, the ability of the Opposition—or, indeed, the Commons as a whole—to give the Bill adequate scrutiny has clearly been diminished. It is an extraordinary situation.

I am afraid that yet again—as has been the case on previous pensions Bills—your Lordships' House will have the responsibility of clearing up what the Commons have, to a large extent, been prevented from doing on a Bill which was clearly inadequately presented and drafted in the first place. This gives one grave cause for concern; it has gone from an unfortunate lapse occasionally to become a very nasty habit. We shall need to pay very careful attention to these measures.

We on this side are clearly in favour of protecting the pension rights of individuals. However, we and outside bodies have very serious reservations about the proposals. In opening the debate, the noble Baroness made some general remarks about the present situation—but we are in a pensions crisis. It is, of course, to some extent, the result of the ageing population, the falling stock markets and the annuity rates, which are not divorced from general government or the Chancellor's policies. But, while saying that
 
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there had been destabilisation of the final salary pensions promise, the noble Baroness totally failed to mention the most important factor—that is, the effect of the Chancellor's action on advanced corporation tax.

The noble Baroness referred to the savings ratio, which has halved under the present Government. The ABI, for example, estimates that there is now a £27 billion a year saving gap. This will not be significantly affected by the Bill. The dreadful decline that we have seen in the number of defined benefit schemes and the conversion to defined contributions schemes will quite clearly be accelerated rather than retarded by the effects of the Bill.

I shall deal first with the question of the regulator. From my own experience, I feel that OPRA did a remarkably good job. But, at all events, we are going to have a new regulator. However, as has been pointed out by the National Association of Pension Funds, in addition to the regulator those operating pension schemes will have to contend, if that is the right word, with the FSA, three ombudsmen and three government departments.

The new regulator will have draconian powers and the extent to which that could complicate matters for those administering pension schemes may well offset any improvements in the simplification that is likely to result otherwise from the Bill. We are faced with a new regulator and the noble Baroness has suggested that there are yet further amendments to come in regard to some aspects of his work.

Certainly very considerable doubts have been expressed by the CBI and others about the effects of Clauses 35 and 39 and the operation of the anti-avoidance schemes and so on. Clearly we are in favour of effective anti-avoidance schemes but there are dangerous implications in the complex proposals in these clauses.

The regulator will not be able to prevent employers becoming insolvent. There was a great deal of confusion in the other place and, perhaps, to some extent, in the Minister's remarks. We are concerned about two separate risks: one is that the employer is insolvent; the other is that the pension scheme is underfunded. We need to be clear about this aspect and I shall deal with it in detail in a moment. Before doing so, however, I should like to deal very rapidly with some other aspects of the Bill.

The noble Baroness placed great stress on Part 4, which concerns financial planning for retirement. I am fairly sceptical about any forecasts given to individuals as to what they are likely to receive in retirement. Certainly those who very prudently, they thought, invested with Equitable Life will find that what they receive will not turn out to be in line with the forecasts they have been given.

Similarly, there will be a need, for example, to make assumptions about what is happening to the state pension. We on this side of the House have made our position very clear so far as that is concerned. Obviously a forecast would have to take into account
 
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the assumptions that one party as against another makes on state pension provision. I am sceptical about these clauses but no doubt we can debate them in detail.

I welcome the scheme's specific proposals and the elimination of MFR, which has not worked effectively, but we need to be very careful as to exactly what method is used to calculate the scheme's specific proposals. Again, we can deal with that.

Thirdly, as to the proposals on LPI and the cap at 2.5 per cent rather than 5 per cent, I doubt whether there is a case for it at all. The reduction in the cap has somehow been presented as a benefit. It is certainly not a benefit as far as pensioners are concerned, but somehow that is the way it has been spun. I find that a very strange situation.

I turn now to the central part of the Bill—the pension protection fund. Many bodies in this House and elsewhere have stressed the moral hazard of this aspect and the danger that perfectly sound schemes may have to pay for the effects of unsound schemes going bust. As I said earlier, it is important to stress that there are two separate risks—the insolvency of the company as against the underfunding of the scheme.

What is proposed is not a guarantee. Indeed, the possible benefits are capped. I shall not go into the details, as the noble Baroness spelt them out. There are varying opinions on whether the level of proposed payout from the fund is too high or too low. The Association of Consulting Actuaries believes it to be too high. This will depend on the level of the levy. At all events, what are being protected are the accrued benefits only, not the pension which employees in a company expected to receive when they retired, before the employer went bust.

I understand that the fund will set the levy. But there is a great concern that this should be risk-based rather than flat-rate. I believe that to be extremely important, because otherwise perfectly sound schemes would pay a premium for something from which they are not at risk. Again, the moral hazard argument arises. The CBI has rightly stressed that this will be an addition to business costs. The National Association of Pension Funds says that this will be a non-democratic body to raise a tax from a constituency which has yet to be defined. This gives us considerable cause for concern.

The noble Baroness was a little confused on this point, but as I understand it, the principles of the levy, apart from the administration costs, are that the risk will need to take into account the risk of the employer going bust and the extent to which particular schemes are underfunded. That will not be a very easy thing to do. I am not clear what the implications would be if the fund suddenly announced that such and such a company was at a high risk of going bust. These are not simple matters.

There are further concerns that the fund will run out of money before it starts. It is significant that the amount that the Government apparently envisage it costing—about £300 million a year—is less than the
 
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amount they are proposing to pay out to schemes which have already failed, at a cost of £400 million a year.

As the United States has found out, there are real dangers. The Pension Benefit Guaranty Corporation is at present something like 11 billion dollars in deficit. The Government, having underwritten the position of those, alas, who have found that their pension schemes have already failed recently, are not proposing to underwrite the fund itself. There seems to be a slight inconsistency in those two positions. We are clearly heading for a very difficult transitional period as we switch from the present proposal the Government have suddenly come up with to the longer-term proposals in the Bill.

It seems probable that the fund will become a massive conglomerate of funds which have failed and have become, in the rather euphemistic words of the Bill, eligible funds. If various funds and companies fail, the fund's managers will have the enormous task of dealing with administering a very complex fund particularly with regard to payouts. As I understand it, the payouts with regard to survivor benefits, and so on, will depend on the rules of the scheme which has been taken over. The fund may end up with dozens or even hundreds of these over a period of time, so it will be paying out benefits in a multitude of different ways. Perhaps the noble Baroness will confirm whether that is the case.

As the fund will have to administer the assets it takes over, it surely ought to have the same degree of transparency as exists with an ordinary scheme. That is, it should be obliged to set out its investment principles and the allocation of assets. The latter will need to change with time, but I should have thought that there was a case for putting on the face of the Bill the fund's investment principles—obviously amendable by regulation if necessary. This will be a very complicated matter.

There are many other issues I have not dealt with, such as the position of trustees, in which, having served as chairman of a board of trustees of a fairly large fund for some years, I am extremely interested. Furthermore, the anti-avoidance provisions may be excessively onerous. The Bill does not deal as well as it could with solvent companies which renege on their pension promises, and we will need to consider that as well.

To a large extent, the Bill has become necessary as a result of what has happened to the pensions industry since 1997. I do not think that it would have been necessary to introduce such a Bill in 1997. It clearly is necessary now and I believe that we will have to work very hard to make sure that it is practical and workable. We on this side of the House will do our best to achieve that.

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