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Lord Skelmersdale: My Lords, I begin by agreeing with the noble Baroness, Lady Barker, not about sex or the pensions gamble, but in congratulating all noble Lords who have spoken in this debate on what is, without doubt, the major Bill of the Session and, arguably, the decade. The expertise exhibited in this debate, usually technically based, goes to show why we will always need a House of Lords or some other appointed advisory body to the government of the day.
I referred to technically based expertise. Nothing was more technical than the comments of my noble friend Lord Hunt on his findings on the LPI; they were so technical that it will take me about three weeks—well into the Committee stage—to understand them, complete with a cold towel around my head.
I should like to single out my noble friend Lord Trenchard—whom I have come to think of as my noble friend Lord re-Trenchard—and his current working experience in the financial sector. It is sometimes a great relief to have people in this Chamber who have careers at which they are still actively working.
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Perhaps I should congratulate the noble Baroness, Lady Hollis, who did her best to summarise the Bill. Quite clearly, someone in her department must have at least a Masters degree in the art of précis.
The amount of money a person has to live on in retirement is probably the most fundamental worry of the population as a whole. It used to be something that exercised people's minds only in the last 10 to 15 years of their working life. Today, however, I find young people of my children's age beginning to worry, and they are keen, once they are settled into a job, to join the firm's—or, in some cases, the charity's—pension scheme. They now have a different worry. They read the newspapers and see stories of schemes not paying out as promised, with some of them going into gross deficit. That is what the Bill is all about.
I referred to people having settled down in a job, and I said this advisedly. Although the portability of pensions has been the law in this area for many years, introduced, if memory serves me right, by my noble friend Lord Fowler, employees cannot take less than two years' pension entitlement with them when they transfer to a new job. That is one subject not covered in this massive Bill, nor is the desperately needed reform of state pensions, barring a minor bit of fiddling with the age extension. You are currently able to get an enhanced state pension when you retire at least one year after normal retirement age. This is more generous than heretofore and of course we all welcome it. However, for the first time ever, if you extend your working life and continue to pay into the state pension scheme, you will be eligible for a lump sum instead.
I have to admit that I am agnostic about this proposal. A state pension has always been there to support you at a basic weekly level in your declining years. Today's workforce pays for today's pensioners. Surely the noble Baroness, Lady Dean, can see that people are living longer and that the birth rate is declining. From the Treasury's point of view, it is a good thing not to pay enhanced weekly pensions, as it no doubt is from the contributors' point of view, too. But for the pensioners, it is a temptation to spend on one last binge. It does not provide a more comfortable living to the end of your life. The thoughtful, or healthy, pensioner would be mad, I believe, to take it up.
The Bill does not tackle the state pensions crisis, which has been caused, to a great extent, by the Government. I was brought up in the days of Flanders and Swann. At one point in one of their shows they discuss the signs of the zodiac. Michael Flanders turns to Donald Swann and asks him his star sign: "Oh, Pisces are you? Two fish swimming in opposite directions". That is exactly how I would describe the Government's policy on state, personal and occupational pensions.
To put flesh on a remark made by my noble friend Lord Higgins with which the Minister indicated profound disagreement, on the one hand the Government, in the shape of the Treasury, are encouraging people to save for their retirement; on the other, they have come up with the minimum income
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guarantee or, in this case, the pensioner guarantee—a means-tested top-up for pensioners. Means-testing, by definition, is a disincentive to saving. If that is not Piscean, I do not know what is. Yet nothing in the Bill even attempts to sort out the problem.
Occupational and personal pensions policy is equally Piscean. In the heady days of the 1980s, the pensions industry, thanks to a bubbling stock exchange and, indeed, prior contributions by employers, was awash with money, so much so that many firms were able to take pensions holidays. The noble Baroness, Lady Turner, my old sparring partner, referred to that. Not so now, when many schemes are underfunded, and new final salary schemes are as rare as hens' teeth.
Nor does the Bill encourage schemes to be reopened, as my noble friend Lord Hodgson pointed out, due mainly to a period of declining stock market values. The FTSE 100 has gone from the high 6,000s to the low to mid-4,000s. Of course, the Minister will say that this is a cyclical phenomenon, and so, to an extent, it is. But the Government have done their part to keep the Stock Exchange depressed. Probably the worst and most damaging of their stealth taxes is the Chancellor's decision to milk the pensions industry of between £4 billion to £5 billion a year for the past six years. That is at least £25 million that the industry no longer has to invest, which would have been done mainly on the Stock Exchange. So over and above cyclical factors, there is the extra depression of the Stock Exchange. On the one hand, there is extra money for public services and, on the other, there is a limitation to the portfolios of the pension funds. This is their members' money—members who have votes at national and local elections, and who will, thanks to medical science, be needing the funds more and more, as the noble Lord, Lord Borrie, reminded us, as they will be living longer and longer. Again, I find this Piscean.
Then there is the much mentioned anomaly of 75 year-olds having to take out an annuity by law. Contrast that with the new state pension lump sum. Like my noble friend Lord Freeman, I am extremely grateful to the Minister for providing not only the copious notes on clauses, about which I was so rude when she introduced her first Government Bill, but the additional briefing for Peers, which I assume many of your Lordships have seen. I am afraid that I have not yet assimilated volume 2, which appeared on my desk only this morning. However, Section 2 of volume 1 is a rundown of the current situation for holders of pensions. I zeroed in immediately on the first sentence, which says that,
That, to me, is a rather meaningless statistic. It means, first, that 43 per cent are not so contributing and, secondly, there is no indication of what it really means. How many actual employees are we talking about? It goes on to say that,
"98 per cent of private sector employers with 20 or more employees provide some form of pension provision".
That sounds marvellous until one realises that some form of pension provision incorporates the good, the bad and the ugly. Not only that, but it quietly ignores the many thousands of small companies that make up the vast bulk of the economy. Some, like my own, with four permanent employees, have indeed got pension schemes; but how many of them have not? After all, they are not compulsory—and many of the comments made by noble Lords have been about compulsion.
Even before my noble friend Lord Fowler first referred to the matter, I had in my notes the question pondering whether the time had come whether we should be thinking about the matter very hard indeed. I accept that it is much more radical than the ABI's suggestion for encouraging employer contributions. I wonder, too, in the light of the concluding remarks of my noble friend Lord Hunt, whether it is rather hard for him to stomach. Certainly it would take a lot of working out.
The noble Lord, Lord Lea of Crondall, believes that after the next election there will be just such a Bill. However, I believe that any government who introduced it would have difficulty rebutting the charge that it was yet another stealth tax. The only way in which to avoid that would be to have a reduction in state contributions to the state scheme. In the current scenario that is not very likely.
The first 100 clauses and four schedules and Part 2 are really there just because of the bad and the ugly. The brief for Peers explains the differences between IT and OPRA, which the noble Baroness, Lady Greengross, described as a proactive regulator. I certainly accept the need for that, but we shall need to investigate in Committee its modus operandi. On the face of it, the regulator has powers that are so draconian as to put them somewhere between those of the Inland Revenue and Customs and Excise. No wonder we need a tribunal!
I would add that it is essential for all public bodies involved in pensions to sing from the same hymn sheet. I refer in particular to the Inland Revenue, the FSA, the new regulator, the PPF and the multitude of ombudsmen in this area. We do not want a repeat of the horrific story in a recent copy of the Financial Times, which started:
"Hundreds of wealthy investors are set to lose millions of pounds after misleading advice from government institutions led them to breach investment rules".
I accept that some of that is journalistic hype; none the less, the fact remains that the rules are not always known by all the official bodies involved.
In its current form, the action permitted by the regulator will be the nail in the coffin of final salary schemes—a point made by many noble Lords. Of course, I welcome the PPF and the last minute addition of the financial assistance scheme. Cynics such as me believe that we would not be discussing the Bill now had it not incorporated the latter. Details are as yet very vague, and I look forward to investigating it and establishing how the PPF will cope with having to run what appears to be a myriad of expired pension
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schemes, all of which will probably have different scheme rules and members' rights. How will the regulator's colleagues cope, and how will we know that they are to be competent?
My copy of the Bill is littered with comments such as those. I anticipate that those three subjects alone will take more than three days in Committee. As the noble Baroness, Lady Dean, said, it will be days and days more before we are finished with the Bill.
For example, like my noble friend Lord MacGregor, we have serious reservations about the financial assistance or compensation scheme, which the Government introduced on Report. It is fine in theory, but what about the practice? Since the Government introduced the scheme, innumerable questions have surfaced, such as that asked by the noble Lord, Lord Oakeshott. How was the figure of £400 million reached? Is there scope for the extension of that sum, should it be needed? How will it be divided between 60,000 pensioners over a 20-year period? My noble friend Lord Trenchard is right: what basis is there for the mention of "contributions from industry", and how will that by encouraged and structured? Why are solvent wind-ups excluded? Clause 274 is open-ended and dangerously undetailed; we shall certainly table amendments to probe those issues.
Our second concern is with the PPF itself. We welcome the fact that there will be some form of protection and compensation for those who lose their pensions through no fault of their own. The Government have been aware of the problem of the lack of security to people in the private sector to find benefit pension schemes for a very long time. But the PPF that they have proposed have several areas that are a cause of concern for employers and employees. It is not by any stretch of the imagination an assurance that an employee will be guaranteed a full pension.
To start with, there is the cap on non-pensioners of 90 per cent, as well as caps on other amounts; there is a lack of detail about how money will actually be distributed; there are concerns about fiddling with indexation with the reduction from 5 per cent to 2.5 per cent; and, lastly, there is the reserve power for the Secretary of State to cut benefits anyway. There is likely to be less money available under the PPF than the Government imply, and the Government are not prepared to underwrite the scheme if it proves under-funded or in crisis. As my noble friend Lord MacGregor said, that is inconsistent when the primary duty of government is to provide the basic floor of insurance for the citizen. In Committee, we shall certainly press the Government to justify some of those important areas.
Thirdly, and in conjunction with the previous point, there is serious concern about the flat-rate levy and the transition to risk-based payments. We have all had considerable representations from organisations which insist that the levy must be risk-based from day one, irrespective of the demands of the triennial cycle which has been used to justify a delay until perhaps 2009 for all contributors to be on a risk-based levy.
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My fourth point deals with the anti-avoidance provisions introduced during proceedings in another place. Clearly there is merit in have provisions for anti-avoidance, but there have been frantic representations from the CBI, NAPF and the venture capital industry about the potentially disastrous effects of Clause 35 and the dumping of liability. This is something which has not yet been scrutinised and I am sure that we shall consider the matter very carefully.
Time is getting on, and I have covered just a few of our principal concerns. There are many more which have cropped up during today's debate and which I do not have time now to mention in detail but which include the new requirements for trustees. I agree with those noble Lords who fear that the provisions will seriously deter individuals from becoming trustees.
I finish by reiterating that our primary concern with the Bill is that it does nothing to encourage employers to set up or continue their occupational pensions schemes. In a recent survey of their members, the Association of Consulting Actuaries reported that a majority of firms feel the measures in the Bill will decrease occupational pension scheme coverage; fewer than one in 10 firms feels that the measures will improve pension coverage; close to nine out of 10 firms say the Bill's measures will either add to costs or make no difference. Those who have to work with the new provisions in the Bill for pensions have no confidence in the fact that the new proposals for pensions will be workable.
All that I can say is that the Government have delivered a less than watertight Bill on the sensitive issue of pensions. We owe it to everyone to do all that we can in Committee and on Report to rectify that situation and work to improve the Bill as much as possible.
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