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Baroness Hollis of Heigham: My Lords, I reckon that about 150 queries have been raised in the course of the debate. By definition, I can reply to about 10 or 12 of them, so, as usual, I shall write to noble Lords about the queries that I am not able to address today due to the pressure of time.

I open by endorsing the comments of my noble friend Lady Dean about the importance of pensions and by picking up a point made by the noble Lord, Lord Hunt, that we can see pensions as being an expert gamble or an issue of trust. What we are trying to do in the Bill is to turn it from the first into the second. I agree with all noble Lords who said that the test of the adequacy of the Bill is the degree to which it addresses the issues present on the pensions scene.

I do not want to repeat what was said by many noble Lords about the dimensions of the current pension situation. The fall of the stock market—or I should say its volatility, as it has risen a little—and its concurrence with the fall in long-term interest rates has had a depressing effect. This is a rare event that has not happened since the inter-war years. There is also the rise in longevity. I also wish to endorse the points made
 
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by my noble friends Lady Turner and Lady Greengross about the long-term impact of the contributions holiday from 1987 onwards. It has accounted for something around 30 per cent of the current deficit in pension funding and actuaries now tell us that it was probably unnecessary in terms of the 105 per cent cap. It was used to prop up corporate returns.

I shall be very brief on the final issue before turning to the particulars of the Bill. The Benches opposite insisted that what the noble Lord, Lord MacGregor, called "the £5 billion ACT raid" contributed to the pension scenario that we now face. It was not £5 billion, it was probably £3.5 billion and it was not ACT, which is a form of payments on account, but was payable tax dividends. We all know that pension funds pay no tax. Until 1997, they were gaining a 25 per cent additional payment, or tax credit, to reflect the fact that companies already paid corporation tax.

That meant that there was pressure on companies to increase their dividends, which might not be prudent, to gain the "freebie" of a payable tax credit. It also meant that by reducing corporation tax by £3.5 billion, the lowest in Europe, which the Chancellor did, companies were in a much healthier position to pay dividends, which is more appropriate. But in any case, pension funds are not taxpayers and I do not see why there should be an additional notional tax paid refund on top when pensions are already heavily tax privileged on the way in and on the way out compared to all other forms of savings, which are not only taxed, but are also often double taxed, as with building society accounts.

Therefore, I simply do not accept the description of the role of ACT. I quite understand that pension funds would like a 25 per cent freebie on top of paying no tax at all. However, if one does not accept that that is legitimate, except in so far as it artificially enhances the value of funds, I hope noble Lords will agree that reducing corporation tax and strengthening companies is a much healthier way to grow dividends for the future.

I turn to today's debate. The contributions were made in three parts, rather like Gaul. The first were the sections of speeches that welcomed contributions in the Bill. I regret to say that that will comprise the shortest part of my speech this afternoon. The second included issues that aroused disquiet—for example, PPF, focus on business, trustees and some smaller points—which I shall mention if I have time for them. Finally, I shall comment in response to some of the wider issues raised by your Lordships about what is missing from the Bill. I shall deal with what was welcomed; then with what seems to have aroused particular disquiet to see whether I can address some of the concerns; and then make some broader comments on what is missing from the Bill.

Those elements that were welcomed included scheme-specific funding. I am pleased, as it has been widely welcomed across the industry. A pension regulator with teeth was pretty much welcomed. There were some questions about its structure, based on the
 
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Higgs report of last year, and whether it will have an advisory committee. It will certainly need professional advice and will expect to make use of the expert risk panels that currently exist. In the briefing pack, there is information about parliamentary control and annual reports to Parliament. Some questions were raised about investment strategy. We expect it to be in the public domain but I do not think that it is appropriate for Parliament to control investment strategy any more than we would now expect the Chancellor of the Exchequer to take back control of interest rate policy from the Bank of England. There are plenty of accounting devices from the determinations panel to the independent tribunal, which will bring the pension regulator into proper control. The regulator has been welcomed, particularly by my noble friends Lady Dean and Lord Borrie. OPRA did good work but it needs strengthening and it is the first to recognise that. The additional weapons that the pension regulator will have and its capacity to assess risk will secure the position of funds before they come to topple-over point of possibly going into PPF.

There was quite a lot of welcome for state pension deferrals and the alternative of the lump sum. The noble Baroness, Lady Barker, asked who would benefit from it. Our current information on deferrals is that most people who take deferrals are not the wealthy who can afford to carry on but tend to be women who, because of the discrepancy in retirement ages, tend to carry on working for a couple of years longer than basic state pension age in order to make their retirements coincide with those of their husbands, whose retirement age is later. These patterns of behaviour may change with lump sums and the like but, so far, it is certainly clear that deferral and the lump sums will be very largely appreciated by the lower paid and often by women.

In his comments, the noble Lord, Lord Hunt, welcomed our proposal to reduce indexation on DC schemes. He asked me to be brave and bold. My opening speech included the comment that we will remove indexation from money purchase arrangements back to 1997 by an amendment in Committee. We actually believe that by amendment or regulation we may be able to go further and remove all indexation of protected rights of money purchase schemes back to the beginning of personal pensions in 1988. I think that the equivalent of bouquets are being thrown in the direction if not of me, of the Box. I hope that that will be a significant simplification on the one hand and an increase in choice for those turning money purchase pots into annuities on the other. I hope that I can live up to the outline here. That is an important announcement and I am happy to make it today.

Pension forecasting and informed choice was also welcomed, as was CETV, about which the noble Lord, Lord Skelmersdale, was concerned. Clause 253 will show that people who have them can go for immediate vesting instead of having, as now, to wait for two years. This is of importance to mobile people and to women.
 
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Those were the matters that were welcomed. We now come to the much more substantial section about which there was disquiet in your Lordships' House today. The three matters that I want to address in particular are the PPF; the burdens on business issue, that is the costs issue which brings up LPI; and some of the issues on trustees raised, in particular, by my noble friends. Those are the big issues, although there were some smaller ones.

I was asked whether PPF was a pension scheme or an insurance scheme. It is a compensation scheme. In response to the question of the noble Baroness, Lady Barker, about what it will cover, it will, broadly speaking, produce up to 100 per cent for existing pensions and 90 per cent for deferred pensions of the benefits that have accrued in the schemes of which people were originally members. As the noble Lord, Lord Higgins, will recognise, that situation is no different from any other deferred pension when moving jobs and leaving behind rights.

There was a lot of concern about the risk-related levy. I entirely accept that it is important in order not to produce the problem of the last man standing. I accept that it will be technically complicated and that it will have to be built with consent. That is why there is the roll-out period. We are trying to get it right and get it fast and there is obviously tension between those two objectives.

However, we expect that, after year one, we will be able to go into the risk-related roll out. Companies will be able to bring themselves into the risk-related levy earlier than the usual revaluation, if they so wish. We will not be setting down the formula, but our expectation is that at the point of "maturity" of the roll-out process the PPF could be shaping its levy so that 80 per cent of it is risk related and 20 per cent is flat rate, which is almost opposite to the position in the United States.

That brings me to a point on the United States to which there are a couple of cross-references—

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