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Baroness Dean of Thornton-le-Fylde: My Lords, I very much welcome the Pensions Bill. It is a complex Bill that will take a lot of time in debate. There will probably be quite a number of amendments to it. At the heart of what it must achieve is to bring back some of the confidence in occupational pensions that has been lost over the past few years. It is a long Bill, but anyone involved in pensions knows that there is no such thing as a small, neat, few-clause Bill that deals with pensions. I notice that the noble Lord, Lord Oakeshott of Seagrove Bay, is agreeing with me. After chiding the Government for the 1.4, I think, kilos, it is interesting to listen to the noble Lord chide the Government about the length and complexity of the
 
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Bill—and then go on to complain that Part 6 has only one clause and ask for more. That is actually the heart of many of the debates that we will have; we would like simplicity but I do not think that it is possible to have it.

With the exception of fraud and Part 8, the Bill deals mainly with defined benefit schemes. It would be a shame if we lost sight of the fact that the number of people in the UK participating in occupational pension schemes and benefiting from them has grown over the past 20 years. They have been a huge success, with the exception of the past few years. Many people today are enjoying a quality of retirement that my father's generation never enjoyed. There is consensus in the country that we want to rebuild confidence in occupational and personal pension schemes so that people can look forward to retirement with confidence. When I was a union officer, members never queried how their money in their company pension scheme was being handled because they had confidence in it. It was probably misplaced, but they had confidence that the pension scheme would be okay in the end.

The 1995 Bill was brought about by the huge-scale fraud by Robert Maxwell. This Bill has been brought about for a different reason: to try to rebuild confidence. I noticed that the noble Lord, Lord Higgins, rightly received quite an accolade of approval from his own Back Benches when he appeared to lament the shift from defined benefit to defined contribution pension schemes, which cannot be retrieved. I see that the noble Lord is nodding in agreement. Let us cast our minds back to the previous administration. People were paid money to encourage them to take out personal pensions and to pull out of their occupational pensions.

Let us look at the matter in the round. Much of what we have today is a result of the decisions that we all supported in the past; for example, pension holidays for employers. Many of us know of employers who have not paid pension contributions for employees for a number of years. That cannot be right. Under the pension legislation, many employers take surpluses out of the pension scheme. So there are a number of reasons why we are in the state that we are in, among them the shortcomings of the Act.

I welcome the one-clause Part 6 of the Bill. Well, it is currently one clause, but it will probably be several clauses when it leaves this House. It deals with financial assistance for members of certain pension schemes; that is, those people who, today as we debate the Bill, do not know where their retirement income is coming from and are worried about it. I have seen people in the Maxwell scheme who were worried to death about how they were going to make ends meet when they retired.

But there is a bigger impact; they felt complete failures in the eyes of their families. They had promised them that they would be financially okay when they retired and they had to turn to their families for financial support, a situation which we hoped had gone out of the window. I thank the Government for
 
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introducing the clause. It may have been hurried and it may not be perfect, but let us hope that it will be near to perfect when it leaves this Chamber. I look forward to the debate on this clause.

I also welcome the creation of a pension regulator. It is a much more pragmatic, flexible and better approach. The noble Lord, Lord Oakeshott, or the noble Lord, Lord Higgins, said that OPRA was not the failure that many people said it was and I pay tribute to the work that OPRA has done. The problem is that the ballgame has changed. The whole environment has changed and OPRA has not kept up with it. So I welcome the new regulator. I also welcome the regulator's ability to take an incremental approach to sanctions on pension schemes.

I know that there is a lot of dissention about the flat payment in the pension protection fund. Like most people, I believe that a substantial part of it should be risk-assessed, but we must start where we start. We must build up a no claims bonus for a company within the scheme. The shorter the flat-rate period can be, the better. Having said that, it must be flat rate from the beginning. Many of us can name pension schemes that, a few years ago, we would have said were solid—I almost said "as the Bank of England"—which ran into serious trouble and have deficits today.

The provision for financial planning for retirement has long been needed. It is welcome. I must declare my bias on this. My noble friend the Minister referred to employers who do not provide pensions or who perhaps have a small take-up in the company. My view is that if we do not get this right, at the end of the day compulsion is the only answer. We must find a way of dealing with this, otherwise compulsion will be forced upon us by the instability of pension schemes.

Among the enormous amount of briefing I have had, the CBI wrote regarding Clauses 233 to 238. It considers that a legal requirement for training is unnecessary and would undermine the willingness of member-nominated trustees to serve. If that statement is true, I agree with it. But I have read the Bill and it does not mention legal qualifications. It refers to "knowledge and understanding". I agree with that requirement and with training. It is absolutely essential, but an insufficient number of trustees receive it. Indeed, trustees worth their salt would insist on having it. I would not be a trustee without it. But if someone is going to be told that he must have legally assessed qualifications, then employees will not be willing to come forward. Will the Minister clarify that?

Part 8 deals with state pensions. There are changes that must be welcomed in view of the changing world of work; for example, people having to defer retirement. The ability to defer pension and be encouraged to do so by a small bonus is most welcome. People can then convert a lump sum of their pension.

However, I am disappointed that the Bill does not recognise the role of part-timers. They form a growing proportion of the labour market, yet the Bill does not take that into account. More significantly, a number of people hold several jobs and their cumulative income
 
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would be above the lower limit, yet they still cannot be part of a pension scheme. I want us to examine that issue in Committee. It particularly affects women but, with the changing nature of work, it will affect an increasing number of men, too.

The Bill does not mention annuities. Noble Lords who have heard me speak in other debates about pensions will know that I do not accept the Government's current policy. If we do not address the issue of annuities, it will revisit us. It is already an issue. It is an insufficient argument to say that it does not affect many people and that the only people it affects are those with big pots of money in their personal pension schemes. That is changing because of the change from defined benefit pension schemes. The annuities issue could have had a place in the Bill. It does not have one, which is a great disappointment and I think that the Government will live to regret it.

I was a sorry case as I was always interested in pensions even when I was a young woman. Years ago, a glazed look would come over the eyes of members I was proud to represent, but not today. Today, people know that their pension is, perhaps after their home, the biggest investment in their life. More importantly, if one cannot afford one's home, one can downgrade. If something goes wrong with one's pension, it affects the rest of one's life after retirement. As my noble friend the Minister said, we are living longer and are therefore more dependent on the assuredness that our pension will be there when we need it.

I therefore welcome the Bill and the forthcoming debate. I rather suspect that the Minister is in for a hard time on some aspects of it. I just hope that the House is able to give it a good passage and sign off on a measure that we can all ultimately accept.

Lord Fowler: My Lords, it is a great pleasure to follow the noble Baroness, who made an important speech. It will come as no surprise to her to hear that I strongly agreed with her final comments on annuities.

On a day when there are European elections and important local elections—and we very probably stand on the brink of a major electoral scandal—I suppose that it is fanciful to think that our deliberations on pensions are going to get many column inches in the press tomorrow. That is a pity because more and more people are understanding the scale of the pensions problems that we face in this country. I think that that is how the Bill should be judged. The Minister touched on that point but then moved away from it rather rapidly. We will come to the Committee stage, but the question now—at Second Reading, on the issue of principle—is how the Bill faces up to the problems that we unquestionably face.

No one can complain that the Bill is too short. It has more than 300 pages of closely printed script and we are still counting. Judging from what the Minister said, we are going to be counting quite substantially. It would be unworthy of me to say that I can find nothing in the Bill with which to agree. In Clause 283, on
 
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page 213, I found a set of proposals that I welcome. As it happens, they deal not with paying the state pension but with deferring it.

Many of us have long argued for flexibility in retirement—I advocated that in my Green Paper on pensions back in 1985—and a decade of retirement between 60 and 70. However, making that a reality involves creating some incentive to work on. I think we can agree that the present incentive is not great. The figures which I have indicate that currently only 2 per cent of pensioners defer their pension and the average length of deferral is two years. Some research suggests that many of those who defer do so by accident, not as a deliberate policy.

I therefore welcome the increase in increments and the concept of the lump sum that one can get in occupational pension schemes. In Committee, I think that we will have to examine whether that incentive is enough and whether it could not be a tax-free lump sum. Even now one calculation suggests that a retired man will have to live to 81 to find that beneficial. However, that point is for Committee. Nevertheless, I welcome the direction of policy. I also welcome the movement on the ASW type of situation where pension holders were deprived of their rightful expectations. That was the theme of the debate we had on 24 March which I led and where I think there were calls from round the Chamber for a change in that policy.

I can therefore certainly welcome parts of the Bill. However, that is not actually the acid test. The acid test is basically this. When the Government introduced the Bill, they said it was designed to restore confidence, to encourage employers to increase their occupational provision and to encourage individuals to increase their private pension saving. What we need to do at Second Reading is to measure whether they have succeeded in doing that. My concern, basically, is that they have not.

The context of the Bill is, as my noble friend Lord Higgins said, the current pensions crisis. However one measures the position, no one can be satisfied with what has happened over the past six or seven years to occupational pensions; it has been a dire period. We have seen public confidence in pensions fall. We have seen the number of people in private pension schemes reduce. We have seen an increase in the number of pension schemes wound up and a steep rise in the number of final salary schemes closed to new entrants. According to the Association of British Insurers, 36 per cent of the total working population are not saving enough for their retirement, and of that 36 per cent, four-fifths are not saving anything at all.

So the real challenge is to face the prospect that under present policies hundreds and thousands of people will face a bleak and money-pinching retirement. Surely that is something that on all sides of the House we wish to avoid.

I am not suggesting to the Minister that everything that has gone wrong can be blamed on the Government. That would be absurd. They cannot be blamed for the fall in the world stock market. But I
 
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think it disingenuous of the Minister to miss out the fact that the £5 billion a year pension tax has had an impact on pension provision in this country; it clearly has. It was introduced at exactly the wrong time. The public have understood it, but when encouragement and practical incentives were needed they were given precisely the wrong thing.

Probably the most important measure the Government are introducing in the Bill is the pension protection fund. Although I say that they are introducing it, it is being paid for by the pension schemes. So although I see the force of what is being proposed, there seems to be a range of practical issues and practical questions about how it will work. The noble Lord, Lord Oakeshott, referred to a range of those.

There is a difficult balance. We all want to protect the pension holder, but we do not want to add to the cost of the schemes to such an extent that it acts as a deterrent for new schemes being formed and a further encouragement for the closure of existing schemes. We do not want unfairly to penalise good, well funded schemes, and we have to be clear what kind of guarantee we are giving to pension holders. At the moment, I think that the public understand—because this is the way that it has been spun—that there is an absolute guarantee here. But it is not an absolute guarantee. The only way that the scheme could be that is for the Government to stand behind it.

I say in parenthesis—and in a sense I echo the remarks of the noble Lord, Lord Oakeshott—that I really do wonder whether, in the real world, any government would be able to maintain a position in which they were not standing behind a scheme of this kind. So we will need to examine that carefully in Committee.

Basically, I am saying that irrespective of any examination in Committee, this measure is not going to have a great impact on persuading men and women to save more for their retirement. It is going to have little if any impact on persuading those without any pension to start saving. Yet those are the urgent issues, and those are the issues that have been ignored in the Bill. My own belief is that at least two measures could be taken.

The first—mentioned by the noble Baroness, Lady Dean—is to end the rule that anyone with a personal pension must take an annuity at the age of 75. I think annuity rates have halved since 1990. The position has changed. The public know and understand that the position has changed. This age rule, in my view, acts as a great disincentive to saving when we should be about providing incentives. I will not delay the House with all the arguments on this, but I should like to give notice that I certainly wish to return to the issue in Committee.

My second proposal is more controversial, although I was encouraged in our last debate by the support I received from two of my noble friends. I am coming firmly to the view that the only way that we can increase pension saving is if we have some form of compulsory private scheme to which employers and
 
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employees are required to contribute. When I mentioned that in our March debate, the Minister suggested, rather unkindly I thought, that we never thought anything along those lines in government. As it happens that is not true. My 1985 Green Paper, approved by the whole of the Cabinet, proposed just that, along with the abolition of the state earnings related pension scheme—which the Government have now done.

In other words, my proposition was that the state should be responsible for paying as good a basic state pension as possible, and the private sector should provide the second pension. I regret that that was considered too radical at the time on the part of most members of my party and certainly on the part of the party opposite. However, in my view it is the way forward because the sad fact is that even when companies provide defined contribution schemes, often employees do not take them up, even when there is a matching contribution from the employer on offer.

I know that arguments will be put against compulsory pension contributions, but we should consider the alternative. The alternative is that not only will many, many people remain uncovered, but state provision will go up, not down. I remind the House that the aim of both parties is that that should not happen. Back in 1998 the Government set out their first pensions Green Paper. They said then:

"State spending will increase but income from private pensions will increase even more as stakeholder pension schemes become established and occupational pension schemes are strengthened and supported".

They went on to say that the state share, therefore, would go down and private pension provision would go up. I say to the Government that there is absolutely no sign whatever of that happening; in fact, quite the opposite is taking place. Stakeholder pensions have not been a success and occupational pension schemes have not been strengthened. On the present policies of this Government I do not believe that they will achieve 60 per cent of pension income from private schemes.

Finally, there is basically a pensions double whammy. On one side there is inadequate income for retired people; on the other side there is a diminution in personal saving and an increase in state spending. It is an unhappy picture but that is the pensions crisis that we face in this country. Although this Bill does one or two useful things, frankly I do not believe that it remotely matches up to the size of the challenge that this country faces.

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