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Baroness Greengross: My Lords, I, too, welcome the Bill. I share many of the reservations outlined by noble Lords but the Bill is very welcome, especially the measures that should help, as the noble Baroness, Lady Dean, said, to restore confidence in our occupational pension schemes, of which for many years we in this country have been very proud, and which, as we all know, have suffered very much, particularly over the past few years.
 
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Indeed, some of the problems that are now faced by today's pensioners result from the practice on the part of some employers at the time of large pension fund surpluses to use those surpluses to get rid of older workers by paying them off. Now those workers are suffering because the money was not enough to ensure a decent level of income in retirement. Therefore, many of the problems that older people face today are the result of problems that arose in the past which were not adequately dealt with.

I welcome the pension protection fund and a more proactive regulator. Those measures are long overdue. Indeed, when I was still involved with Age Concern in 1995, when the Pensions Bill was before Parliament, the former chair of the all-party parliamentary group on pensioners, the Tory MP, Sir Andrew Bowden, lobbied his own party very hard indeed to strengthen pension fund boards to make them more independent and more representative. This is a matter about which all parties in the House feel strongly. I welcome the pension protection fund and I welcome very much the proposed compensation scheme for those affected by occupational scheme collapses although, as has rightly been said, much detail needs to be clarified.

I stated in a Written Question last March that we still have very little information on people affected by scheme collapses. I hope that we shall have more such information in future. I suggest that the available money should be skewed more towards people who are closest to retirement along the lines set out in my Written Question. Like others who have eloquently stated the position, I am very concerned by the moral hazard question; that is, badly run companies deliberately under funding their pension schemes knowing that the pension protection fund will step in. There is a risk that that could happen.

I believe that the noble Lord, Lord Fowler, hinted at the plight of those who work in a company that is taken over by another company which may replace a reasonably good scheme with one that is not of the same standard. Many such details will need to be examined carefully, particularly anything that could derail the pension protection fund and harm good schemes, whether direct contribution or direct benefit schemes. That forms part of the detailed analysis to which we shall need to subject the Bill in Committee.

Like others I, too, should have liked to see more provisions with regard to annuities. I share the view of the noble Baroness, Lady Dean, that that matter desperately needs to be addressed. I have felt for many years that some kind of compulsory saving is necessary and needs to be introduced in this country. I do not think there is any other way of ensuring that people save sufficient money for their retirement, particularly given people's greater longevity and the need to plan for a much longer period of life, perhaps not in full-time employment as we know it but with a totally new work pattern.
 
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I should have liked to see more provision with regard to reform of the state pension to make any contributions that are made count, for example, by abolishing the 25 per cent rule. I should have liked to see more proposals to help older women although the Government's commitment to look at that matter in more detail is very welcome. Despite the measures that have been outlined on more flexibility regarding the lump sum at retirement, which will be of help, I share many of the reservations expressed by the noble Baroness, Lady Dean, in that regard. We really do need to look seriously at certain issues regarding women.

I welcome the greater incentives to defer the state pension. In the future I should like to see much more radical measures with regard to state pensions so that any contributions that are made count. I have much sympathy with those who call for a really radical look at the way in which we organise state pensions and benefits.

Some of those points have been made today. We need an all-party consensus on the matter. As a long-term policy will need to be adopted, we shall probably need a Royal Commission, or something like it—although I am never very fond of advocating such a step—to consider pensions across the board. We need to consider the issue of pensions that are based on residency or citizenship and to see whether we cannot tackle once and for all the uprating issue for overseas pensioners—people who work here all their lives and then join their families overseas on retirement. Many of those pensioners feel very aggrieved by their situation. Perhaps it is only by considering pensions overall that we can meet the needs of so many of our citizens now and in the future.

Lord Freeman: My Lords, I declare an interest as chairman of the trustees of a large industrial defined benefit scheme.

I should like to begin by thanking the Minister's officials in the Department for Work and Pensions and in the Minister's own office for the very helpful way in which they have begun to brief noble Lords. It is very refreshing and much to be welcomed when that happens. I think that Sir Winston Churchill once said—or is thought to have said—that it was important for politicians not to let the facts get in the way of decisions. I think that it is important that we have the facts, and we look to the officials to maintain the excellent start that they have made.

I shall not repeat anything that has been said by my noble friends Lord Higgins and Lord Fowler, and I agree very much with what they said. However, I shall concentrate briefly on four points of principle that, so far, either have not been raised or need underlining further. First, there is the regulator. I think that your Lordships will agree that the regulator must be well informed, must make speedy decisions and be efficient. I agree with what the noble Baroness, Lady Dean of Thornton-le-Fylde, said about the work done by the Occupational Pensions Regulatory Authority.
 
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It was limited by the original legislation but has helped measurably to keep trustees and pension schemes on their toes. However, the new regulator is to be welcomed. It will be proactive and will be involved not in the day-to-day minutiae of schemes but in considering risk and protecting pensioners.

Under the Bill, the regulator will have important powers. For example, the regulator will, presumably, have prime responsibility for drawing up codes of practice for the training of trustees; for the investment management of the funds, or at least the policy for investment; and for the assessment of employer/company risk and employer solvency. I am not convinced that, in this complex field, sufficient thought has been given to the advice that would be available to the regulator. I hope that the Minister will comment briefly on that; I shall certainly table amendments in Committee. The regulator should have a small advisory committee that is unpaid but has the specific job, based on advice from the actuarial profession, employers, trade unions and, certainly, the trustees, of keeping in regular contact with the regulator and advise on some of the complexities that the regulator will face. I also hope that cross-reference will be made to the Financial Reporting Council and to the new powers under the Companies (Audit, Investigations and Community Enterprise) Bill, which is proceeding slowly through your Lordships' House, so that proper advice on the solvency of employers can be given.

I am disappointed that the Better Regulation Task Force was consulted only informally in the preparation of the Bill. In future, it should be asked to give a formal opinion at the draft stage of a Bill, as it is sometimes too late to make amendments, once the Bill begins its progress through Parliament.

The second point that I wish to raise concerns the Government's belief—I think that it is wrong—that the proposals are cost-neutral. The recommendations and observations of the regulatory impact assessment, to which I am sure we will return in Committee, are wrong. The Minister has said that the costs, which are certain for schemes and, therefore, for the sponsoring employers who underwrite defined benefit schemes, are of the order of £300 million per annum. The Government have said that there are two off-setting savings, but they are based on false or misleading assumptions. I shall not go into detail, as there is not time, but there are two key components of those savings.

First, the Government say that the reduction of the inflation indexation limit—the cap—from 5 per cent to 2.5 per cent will yield savings of £370 million per annum. I cannot find the basis of that calculation in the impact assessment, but there is an inherent contradiction in it. The Chancellor of the Exchequer has set his inflation target at about 2.5 per cent, and I wonder whether the Minister has spoken to the Chancellor. If the cap is reduced from 5 per cent to the point at which the Government believe that inflation will be, there is no saving. At 2.5 per cent, the cap will be at the assumed inflation rate.
 
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I also believe that the other assumption is wrong. The argument is that the abolition of the minimum funding requirement will yield savings of £100 million per annum. Again, the argument is a little obscure, but it is based on the assumption that trustees will move assets from gilts and fixed-income securities into equities. Asset allocation has not been based on the impact of the minimum funding requirement; it is based on a number of actuarial assumptions, but not the MFR.

I am sure that we will come back to those issues in Committee. It is not a cost-neutral initiative. I agree with my noble friend Lord Fowler that, because there will be an extra burden of £300 million per annum, it will mean a further shift away from defined benefit schemes or, at least, the truncation of the benefits of being in a defined benefit scheme—for example, accrual rates and so on.

Thirdly, there is the issue of the information and advice given to employees. I rather liked the draft retirement planner that the Minister's office provided. I am sure that we will examine it in Committee. It is a new web-based mechanism by which individuals can check what their anticipated retirement pension will be 10, 20 or 30 years ahead. However, I agree with the noble Baronesses, Lady Dean of Thornton-le-Fylde and Lady Greengross, and my noble friend Lord Fowler that some form of compulsion will be required sooner or later. It is one thing to provide help and advice; it is another to ensure that people in their 30s and 40s provide enough for an expected comfortable retirement such as that of their father or even their grandfathers. If we do not do something soon, we will look back in 10 years' time and regret not introducing legislation. To use the phrase used by the noble Lord, Lord Oakeshott of Seagrove Bay, Rome is burning now: total provision by employers and employees is falling fairly significantly. That will have a dramatic effect on the pensions of our children and of the younger generation in 20 or 30 years' time.

My final point concerns the funding of the pension protection fund. So far, the Government have worked on the assumption that it is the responsibility of the schemes and, therefore, of the employer to fund the schemes. My noble friend Lord Higgins raised an important issue when he said that that was inconsistent with the position for the pre-PPF assistance scheme, with £400 million being provided by the Government over a number of years. If the Government have accepted that some social responsibility to do something about those who have lost their pension rests on their shoulders, why should not that also imply some form of contribution to the PPF by the Chancellor, either as a lender or provider of last resort or by sharing in some proportion in the total cost?

I look forward to Committee. I hope that the Committee stage will be taken on the Floor of the House, not consigned elsewhere. It is an important issue—one of the most important facing Parliament—and the arguments should be exposed on the Floor of the House.
 
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1.9 p.m.

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