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Lord Hodgson of Astley Abbotts: My Lords, I begin by declaring two direct interests. I am a trustee of two final salary pension schemes and chairman of the trustees of one of them. They are both now closed to new entrants. The noble Baroness, Lady Turner, made a powerful plea for the importance of final salary pension schemes. My central concern relating to the Bill is that I can see no reason why I and my fellow trustees would seek to reopen either of those schemes or to provide ways for new people to join them.

As I read the Bill, I also came to realise that I have another potential interest to declare. It is not a relevant interest at present but one that will certainly become relevant if and when the Bill is enacted.

I am the non-executive chairman of a struggling listed UK engineering company. It is but a shadow of its former self, given the decline of the UK's manufacturing base over which this Government have so cheerfully presided. With a group of investors, we have been endeavouring to turn the company round and, to date, we have had some success. But, in relation to our current UK activities, we have a large pension fund which arises from our history. If what I understand is true about this Bill—in particular, Clauses 35 to 46—then I am concerned on two levels: first, what it means for the future of the company and its remaining staff; and, secondly, and perhaps more
 
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selfishly, what it means for directors who have, in good faith, invested and worked hard first to preserve and then, it is hoped, to make prosper a UK-based enterprise.

By happy chance, this debate is to be followed by the Second Reading of the Armed Forces (Pensions and Compensation) Bill. It updates the pension arrangements for our Armed Forces and, indeed, replaces some pieces of legislation that are more than 100 years old. That will give us a chance to look in a little more detail at how the Government think about their own employees.

Therefore, I must ask the Minister whether she and her officials are aware of the proposals in the Armed Forces (Pensions and Compensation) Bill. In short, they run contrary to nearly every provision which the Government proposed in the White Paper, Security, simplicity and choice, and which are enacted in the legislation before us today. There is no provision for independent trustees; there is no requirement to provide information about the scheme and the members of it; there is no requirement to consult members on proposed changes; and it is described as a non-contributory scheme when, by any fair measure of the word, it is not; and so on.

Therefore, when the noble Baroness comes to propose the measures in the Bill, which will weigh quite heavily on the private sector, I hope that she will forgive me if I ask whether she expects government departments to live by the same standards, or is this another case of "Do as we say; don't do as we do"?

Issues of pension policy are particularly challenging, for a number of special reasons: the language and terminology of pension provision is inevitably technical and, as such, is unlikely to commend itself to the casual reader; the outcome of any particular policy is hard to predict because of the length of time involved and the impact of unforeseen and unpredictable factors; and, finally, changes made, although perhaps only of marginal cost in the short run, can, because of the inexorable pressure of compound interest, be extremely expensive in the longer term.

All governments are sensitive about their image. This Government have shown themselves to be even more sensitive than most, particularly about their short-term image. That is a dangerous weakness when it comes to pension policy, which does not respond well to quick fixes. My noble friend Lord MacGregor referred to the Chancellor's raid on pension funds, which the Prime Minister, playing to the gallery, felt that the stock market was high enough to sustain. That has done untold damage to pension provision. And, of course, stock markets are now below the levels which existed when this Government took office in 1997 and the Prime Minister did his bit of grandstanding.

The noble Baroness, Lady Dean, and my noble friend Lord Fowler referred to the decision to leave unchanged the requirement to purchase annuities at fixed ages. In an era of low interest rates, that has imposed a high degree of inflexibility on individual pensioners and pensions.
 
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The recent announcement about a £400 million fund to compensate workers whose pension funds have failed represents another wrench on the wheel in an attempt to spin out of trouble. While £400 million is a not inconsiderable sum in itself, it must be pointed out that it is less than 10 per cent of the sum which the Chancellor is extracting from pension funds each year as a result of tax changes. More significantly, it is a minuscule sum when measured against the total assets or liabilities of UK pension funds. There must be a real danger that the Government will have aroused public expectations about what can be delivered or what is to be expected—expectations which may have to be disappointed when, as I believe will inevitably happen, the sum involved becomes vastly bigger. Therefore, if there has been a decline in public confidence about the value and role of pension funds, the Government are far from blameless.

I should like to ask the noble Baroness about some specific issues, first, on the powers of the regulator in relation to a UK-based company whose parent is based overseas. I have had correspondence, particularly from a pensioner who worked for Joseph Lucas, a Birmingham-based, long-established engineering company, supplying the automobile and aerospace industries. The company has been taken over by a US company, which the pensioner believes is hard-nosed—one might say predatory—in its reputation. He has concerns about the drawing of assets out of the United Kingdom. I would be interested to hear from the noble Baroness the powers of the regulator in respect of controlling the departure of assets from the United Kingdom, or the powers to require restitution if assets are so removed.

Secondly, I return to the provisions of Clauses 35 to 46 and ask for some preliminary thoughts about how the Minister believes they will work in practice. In particular, what is the relative weight to be placed on the financial weakness of the employing company, as against the financial weakness of the scheme? What limits does she expect there to be on the regulator's powers to make levies on the employer and how do the Government expect the regulator to define "fully funded" in relation to a pension scheme?

Thirdly, can the Minister explain whether the regulator will be under any pressure to give answers on the adequacy of pension funding in due time? It is interesting that Mr Philip Green's bid for Marks & Spencer has as one of its prime pre-conditions satisfaction on the adequacy of funding of the Marks & Spencer's pension scheme. Without some pressure on the regulator to give answers to those kinds of questions, corporate acquisition and/or investment activity will be severely curtailed. Equally importantly, when a company is in financial difficulty, speed is of the essence. The regulator needs to be prepared to answer quickly if rescues are to be achieved.

My final question relates to trustees. The Minister referred to the streamlining of the process for trustees. Does she really believe that with these new responsibilities, sufficient numbers of men and women will be prepared to come forward to serve as trustees
 
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of pension funds, or are we moving inexorably towards the emergence of professional trustees? If so, is that a good idea in the view of the Minister?

To conclude, there is general agreement that we need to encourage individuals to save for their old age and to encourage employers to help people in that by providing good pension schemes. As I have already said, I see nothing in the Bill that will encourage employers to do that. I see it more as another, and maybe the final, nail in the coffin of final salary pension schemes.

During the briefing on the Bill, which the noble Baroness so kindly arranged for us and for which I and other noble Lords were extremely grateful, she discussed the Bill in terms of carts and horses. It may be that the Government have designed a shiny new cart. No doubt we can discuss and explore that in Committee, but unfortunately, in my view, they have shot the horse that was to pull it.

Lord Lea of Crondall: My Lords, it is a pleasure to follow the characteristically expert contribution from the noble Lord, Lord Hodgson of Astley Abbotts. The courteous way in which he made his points was characteristic of the debate. I hope that that augurs well for the Committee stage. It is even more courteous and informal in Grand Committee than in the Chamber, but where the Committee stage takes place will be decided later.

I begin by echoing the remarks of my noble friend Lady Dean of Thornton-le-Fylde. In the Bill we are guaranteeing people's quality of life in retirement. It is rather striking that whichever way one looks at the crystal ball, the prospects 10 or 20 years ahead do not appear to be as rosy as the retirement experience of our colleagues in this generation. That is not a matter for this Bill, although I believe it will be for another Bill after the general election. At that stage the point picked up by the noble Lords, Lord Fowler and Lord Freeman, about compulsion—we may disagree about what we mean by that—is the way that matters will go.

Before I turn to the Bill, I want to make a point about why that is the way that we should go. Increasingly, the buy-now pay-later culture in which we live makes the idea of looking ahead 20, 30, 40 years more difficult than it was, even if it had not been for the classic phrase of John Maynard Keynes that in the long run we are all dead. That may be so, but the fact is that we want a guaranteed living standard in our retirement. A noble Lord opposite—it may have been the noble Lord, Lord Higgins, and he will correct me if I am wrong—said that of course one cannot have totally reliable forecasts, but with a final salary pension scheme one can forecast what a pension will be. It is important to point out that people want a quality of life in retirement that comes from that type of guarantee; and if they want to know that they will receive 62.1 per cent, or whatever, of their final salary, they need to be in one of those schemes.
 
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The real question is how we can get back to that system. Far from allowing them to decline—it is not yet a stampede—we should reverse the trend. That is a fairly unfashionable thing to say today. I do not criticise the statistical projection of the noble Lord, Lord Freeman, that in 20 or 30 years' time there will be no such schemes open to new members and that they will all be finished. I believe that is what he said in a debate in March. On the logic of wanting quality of life in retirement, we should reverse that trend. That is the challenge.

Against that background, some noble Lords opposite have suggested that the Bill will make the matter worse. We shall have to look at that for a moment. I do not believe that the Bill can be seen in isolation from the other points that I have just made. However, one point is obvious: the move from DB to DC schemes. They are normally associated with a halving of the contributions by employers—it is a wage cut. There is also a cut in the worker's contribution when he moves from DB to DC—I am talking in averages—but the bigger cut is in the contribution from the employer.

We are all fiddling while Rome burns, if that is the right metaphor. We must not cry crocodile tears about that and say it is all the fault of Gordon Brown when this is a trend that has been going on for some time.

I want to mention the work of the commission chaired by Adair Turner, which I believe will bring out an extremely important interim report in September—even on present forecasts. I think we can make one other forecast today—the noble Lord, Lord Higgins, may be able to help us with it—that the Bill will probably still be under consideration in September. I suggest that that is a forecast on which one can put money.

These days, people do not expect to have multiple choice decisions about retirement planning, which has been highlighted and epitomised by the argument about the pension protection fund and the extra scheme for Allied Steel and Wire and such like.

It would be a helpful step forward if the Opposition, having willed the end, willed the means. From Michael Howard downwards—if that is the right expression—it has supported the pension protection fund in principle and the "why did we not get on with it quicker?" idea. If the Opposition is in favour of the fund and the levy, it should decide what sort of improving amendments—if that is the name of the game—it can put forward. Otherwise, it is hard to see how that is consistent with support for the principle.

The trade unions are very satisfied with the success of the campaign, with which many of us were associated, to get the retrospective funding. There may be some misunderstandings about the £400 million, given that there can be money and funds in some of those companies. If the £400 million is divided by 60,000—which I think has been mentioned—and 20 years, you get a sum that is clearly not very satisfactory. All the related financial arithmetic will have to be brought out into the open. But I do not think that we will be able to dot every "i", cross every
 
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"t" and name every number in this Bill. That is just a bit of rhetoric if some noble Lords are seriously suggesting that we can. However, before we reach Clause 274 we have time to look at the financial assistance scheme.

In helping people to look at their responsibilities for making better provision for retirement, which the noble Lord, Lord Freeman, among others, has advocated, the philosophy in the Bill is assisted considerably by some of the later parts. As a former trade union official, together with my noble friends Lady Dean of Thornton-le-Fylde and Lady Turner of Camden, I believe that if it is difficult for people to find agents to trust in this matter, if we did not have trade unions already we would have to invent them.

Trade unions—surprise, surprise—are trusted by their members regarding pensions. They may not always be able to deliver, but I do not think that I would be contradicted by anyone in this Chamber when I say that the trade unions are trusted a damned sight more than any independent financial adviser. I shall not give a generic word about the current reputation of independent financial advisers. I hope that I have made the case for trade union involvement in the protection fund and so forth.

Finally, an important development is the initiative of the Citizens Advice Bureau, which I think was announced in May. It is to conduct some pilots around the country in which it will co-operate with independent financial advisers to see how they can walk this difficult tightrope—the words "moral hazard" spring to mind—of giving independent financial advice through the Citizens Advice Bureau. We are desperately short of people who are trusted in the community. That initiative must also be welcomed. I look forward to the Bill progressing through Committee stage and on to the statute book as soon as possible.

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