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Viscount Trenchard: My Lords, I am grateful to the Minister for introducing the debate. I greatly appreciated the briefing pack provided by her officials, as did my noble friend Lord Freeman.

As this is the first time that I have spoken since the passage of the House of Lords Act four and a half years ago, perhaps I may also say how delighted and honoured I am to have received a new Writ of Summons.

Baroness Hollis of Heigham: My Lords, I ask your Lordships a question: is one allowed to be a maiden twice over?

Viscount Trenchard: My Lords, I also inquired whether I would be required to make a second maiden speech, but happily was assured that I am the same person who was here before. Although the Writ of Summons that I have received is identical to the Writ of Summons that I was previously in receipt of, I am told that this one now empowers me to attend the House, while the power of my previous Writ was somehow terminated. Anyway, I am delighted and honoured to be back here. I hope to be able to use my experience in financial services to make a contribution to the business of the House.

Although I am currently retained as a consultant by Prudential Financial Incorporated of the United States, I must confess that I have not worked in the
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pensions area. My understanding of pension schemes and their regulation has developed somewhat from rather a low base over the past few days, but I still have a lot to learn.

I should also declare an interest as a member of two defined benefit pension schemes, both operated by companies that have since been taken over by foreign financial institutions. Although I do not believe that the frequency of communications I receive from the trustees or from the administrators of those pension funds is adequate or acceptable, I feel fortunate and happy that, as far as I am aware, neither has commenced a winding-up process—or at least neither has commenced a winding-up process prior to the cut-off date of 11 June 2003 announced in another place by Mr Andrew Smith as part of the long overdue regulation making it mandatory for solvent employers to make up any deficiency in or underfunding of their pension schemes.

I was surprised to learn that solvent employers had an option to honour their pension promises or not to do so. I had assumed that the risk of not receiving an expected pension from a defined benefit scheme depended on the solvency of the employer or its successor, not on the willingness of the employer to stand by its promises.

As has been explained, the Bill provides for a PPF to be set up, which is intended, inter alia, to provide compensation to members of underfunded defined benefit pension schemes maintained by insolvent companies. The Government have also acknowledged that, for some, the PPF has come too late and have therefore decided to make available £400 million of public money to provide assistance over 20 years to members of underfunded pension schemes being wound up.

The Government have, somewhat optimistically in my view, said that they will be talking to industry about what level of contribution companies may wish to make to the scheme. However, it is not at all clear which pension schemes may qualify for inclusion in the financial assistance scheme and to what extent members may benefit. Would it not also seem illogical that assistance under the scheme should be restricted to those operated by insolvent companies? That would surely be unfair and discriminatory unless the Government separately resolve to require solvent companies whose schemes are not yet wound up, but which were not caught by the 11 June 2003 cut-off date, to make good the deficit and buy out the accrued benefits for their members in full. That would not be retrospective legislation; it would simply be requiring companies to honour their obligations to their employees and not merely to the level required by the minimum funding requirement. I do not believe that companies would have any legitimate grievance should the Government make such a move.

The noble Baroness, Lady Dean, reminded the House that many companies took pensions holidays for many years. Some of those companies got it wrong and it is not unreasonable that they should now make good their mistakes.
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My honourable friend David Willetts rightly questioned in another place on 19 May whether £400 million would be enough. I feel rather in agreement with Frank Field who said that of course £400 million is not enough. Mr Field also questioned why the taxpayer should have to fund this when a levy could be applied to the £13 billion pool of unclaimed assets, some of which have been lying idle for 100 years or more. I also agree with him that it is unrealistic to expect companies, already robbed of £5 billion a year in extra taxation through the abolition of the advanced corporation tax credits, voluntarily to offer contributions to keep another company's scheme going.

Perhaps it would be wise to consider further how serious is the risk that the provision of public money, and money eventually made available through levies raised by the pension protection fund, will in effect encourage companies to pay less attention than they should to their obligations to ensure that their schemes are fully funded and capable of meeting their pension obligations in full. Further, the £25,000 cap will greatly reduce the relevance of the PPF to many senior managers who will have influence in determining whether or not to retain a company's scheme.

It appears that there is very little in the Bill to encourage increased savings and improved funding of pensions schemes. I would hope the Government will consider the introduction of a pension contribution tax credit, such as has been proposed by the Association of British Insurers. Such a measure would undoubtedly encourage employers to make pension contributions. That is the key to ensuring a higher level of contributions by employers themselves.

As my noble friend Lord Higgins rightly explained, a great deal is still unclear as to how the PPF will operate. Will it contract out its assets under management to fund managers, or will it recruit experienced individuals? How will it select appropriate fund managers? The funding arrangements for the PPF also clearly need scrutiny. There is no clear timetable for the switch from a scheme-based levy to a risk-based levy. Especially in the initial period, companies with well funded schemes will greatly resent being forced to subsidise companies with poorly funded schemes. That will surely encourage more companies to wind up their defined benefit schemes. The Minister said that at least 50 per cent of schemes will eventually be risk-based, but if a substantial number remains scheme-based this problem will surely still remain.

There are many other matters covered by the Bill which need improvement and clarification. Other noble Lords have mentioned many of those. I hope that the noble Baroness and her colleagues in government will have an open mind and that your Lordships' House will ensure that a much better and more effective Bill returns to another place than the Bill which has arrived here.
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1.29 p.m.

Lord MacGregor of Pulham Market: My Lords, I declare two interests, one as a non-executive director of a life and pension company, and the other as a trustee of a pension fund. Like my noble friends Lord Higgins and Lord Fowler, I would like to start briefly with what is not in the Bill. I must reinforce that it does not deal with the biggest issues facing us on pensions. We know from earlier debates that there has been a huge decline since 1997 in Britain's present, and especially prospective, pension position, stretching out for years to come. We have to accept that the stampede away from direct benefit schemes will continue. Indeed, some of the measures in the Bill, however well intentioned, will accelerate that.

There is nothing on the two key issues. There are no proposals at all to encourage more people to save and to encourage employers to provide better funded DC schemes more widely; I think that the noble Lord, Lord Fowler, had me in mind as one of those in the previous debate who was moving to the position of compulsion for occupational pension schemes. Nor is there anything about the black hole of underfunding in so many current occupational pension fund schemes. The Minister does not like the fact of the £5 billion ACT to be constantly reiterated, and she does not think that it has anything to do with where we are now. However, the plain fact is that, every year, £5 billion that previously went into pension funds is not now doing so. That is a major contribution to the underfunding. I hope that we will keep coming back to that.

I do not want to make too much of the point about the massive size of the Bill. If one of the Government's key objectives for pensions is simplification, they have a very funny way of going about it. Many outside who have to deal with the Bill will feel that, given its length, a huge number of regulations will follow. It will be very important to give sufficient time for consultation with all the outside interests. I also hope that there will be sufficient time for this House to look at those regulations in due course.

Outside consultation on the Bill has been made more difficult by the many late additions in the other place, and I want to reiterate the point made by the noble Lord, Lord Oakeshott, about Clauses 35 to 46. They have wide implications with which many employers outside the pension industry, and probably within it, simply have not caught up yet. We will have to spend a good deal of time looking at that in Committee. Even given that many of the main provisions are welcomed and supported in principle, there is a responsibility on this House to try to improve the Bill and probe on many points of concern. I too express my thanks especially to the Minister, but also to her officials, for the way in which she has been so open about the details so far. That will greatly help in our discussions in Committee.

I welcome the pensions regulator in principle, and I also welcome very strongly the independent pensions regulator tribunal. The Select Committee of which I have been a member stressed the need for a tribunal in
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its recent report, and I am delighted to see it in the Bill. Will the appeal to the tribunal be only on fact or law? Will it also be on the substance of the case and the decision of the determination panel, as our Select Committee certainly thought that it ought to be?

There are a number of issues that we will obviously want to explore in Committee, many of which have been raised already in relation to the regulator. However, I shall mention one or two. I am very conscious that, increasingly on mergers or acquisitions, pensions are a major issue in a merger itself—not only as protection for the employees, but for much wider reasons. Will the regulator be able to examine or intervene on pension issues while such negotiations are going through?

I come back to Clauses 35 to 46, and especially Clause 39. As I read them at the moment—I have not had time to study them fully—I have several concerns. One is the danger that, as often in things that we do, we will discourage good people from taking on the role of directors or senior managers if the responsibilities, liabilities and penalties become too great. I echo the point made by the noble Baroness, Lady Turner. There is a similar problem in relation to trustees of pension funds. The pressures, requirements and potential liabilities are increasing greatly, as is the need for knowledge and training. I think that we have to be very conscious of that. One conclusion is that trustees will have to be paid, or we will not attract them in exactly the way in which an earlier Mynor's report recommended.

Another area in Clauses 35 to 46 is the risk of the discouragement of merger and acquisition activity, venture capital operations, rescue and restructuring companies, and inward investment. We will have to look very carefully at whether Clauses 35 to 46 inadvertently have much bigger and widespread implications for industry as a whole. I am delighted and welcome the fact that the emphasis of the regulator is on key risks, with light touches on everything else. As with all regulators, a light touch converts in time to much heavier and more frequent touching. I hope that we will look at how we can avoid that in Committee.

On the pension protection fund and the moral hazard issue, which is clearly a major topic for us, I recognise that the Government have tried to take into account the potential burden on sound companies and schemes. The question that we have to ask is whether that is enough. I was pleased to hear the Minister say that that was one of the questions on balances and costs that she wanted the Committee to examine. Clearly there are two areas to it. So far as companies are concerned, we have to ask whether we have to fix the timetable to the move to risk-based schemes so that companies know where they stand, and to ensure that the timetable does not slip. There is very clearly a temptation for that to happen. The other question raised by the noble Lord, Lord Oakeshott, is clearly important. Is 50 per cent for risk-based schemes
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sufficient? I go much closer to between an 80 per cent and 100 per cent move to risk-based schemes. That is another area that we will have to examine.

There are issues that I think that the Minister was inviting us to explore on beneficiaries, too. Will the benefits be too substantial? Is it right that there be 100 per cent compensation for some, given that the compensation schemes in existence now have a limit of 90 per cent? Is there a case for saying that there should be not only benefit limits of 90 per cent for all, but a cap on all benefits as there is going to be a cap on some? Other issues arise from that.

It is interesting and noticeable that, as the Bill stands, the Government are more generous on benefits when they are asking others to fund them than they are when they are funding them themselves. The classic example is the financial assistance scheme, where the Government will offer very meagre benefits because they are funding them. That raises the question voiced by others of the Government being the guarantor of last resort in some way on the PPF. Given the American experience, I am tempted to think that that would be necessary.

There are many other questions on the PPF, but there is not time to explore them now. In Part 3 on scheme funding, I have one major problem, which is about what the term "technical provisions" means. The whole actuarial profession, the funding of pension schemes and everything surrounding such issues are a moving quicksand, if one can have such a thing. We have FRS 17, realistic balance sheets and all sorts of changes taking place in that profession. We need to hear a lot more from the Government in Committee on how such change is intended to be carried through.

It is a very interesting idea to have a retirement financial planning tool. I am grateful to the Minister for saying that we can look at it, and I look forward to doing so. If it is to cover all the objectives as I understand them, I cannot for the life of me see how it can be done for £10 million in set-up costs; it will be much more complex than that. There is a more important issue. Will the Government be held liable for any gross miscalculations? I make that point because, in endowment mis-selling, a lot of complaints have been made about the original projections, which followed rules set down by the predecessor of the FSA. The interesting question is this: if it is thought to be mis-selling and if the Government make mistakes in their calculations for people's projections for retirement, will they be held liable for them?

Let us be frank: we all know exactly what happened on the financial assistance scheme. I have a number of quotations from the Committee in the other place that I do not have time to read out, which indicate why the Government could not possibly go down the route which they have now taken. The reference to assistance is plainly a euphemism for compensation. We know that well and we know exactly why, because there is a read-across to Equitable Life and all sorts of other cases.

We need to ask about some serious issues on that, in relation not only to how much money is coming through, but also to industry contributing. I do not
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think that any industry will contribute. Why should it? The decision is for the Government; it is nothing to do with industry and it is retrospective. I suspect that the Government will get nothing from that. If they try to compel employers to contribute, that would be monstrous.

I very much support the objectives about state pensions, because they reflect the economy's need and the lifestyles that we all have now in that they encourage many more people to go on working. However, I am not sure whether a great incentive is being provided; we will have to explore that in Committee. I could say other things about that, but, given the time, I want to conclude on a different point. One matter that will be very tricky is whether the lump sum is taken into account in relation to pension credit and other issues of that sort. My suspicion is that the only answer for the Government will be to go to something like £21,000 overall so that we do not have to consider all sorts of problems about precedents, ring fencing, and so on.

In my final point I return to the fact that the Bill does not face up to the real issues. On many arguments, there is now a clear case for saying that the state pension age needs to be raised. There will have to be a long movement ahead before the final decision is implemented; there will have to be a transitional stage. The sooner we face up to that and have the courage to do so, the better.

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