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Lord Oakeshott of Seagrove Bay: Like the actuarial profession, we also support the policy intention behind Clause 251. Indeed, the restrictions have been too tight on minor amendments to pension fund entitlements over the years, so the principle of the clause is absolutely right.
Having said that, it is extraordinary that the Government have put themselves in a position where they receive a letter such as that which we have received from actuaries. Actuaries, by their nature are cautious and measured people. I have been watching them closely in my professional life for about 30 years and I never thought that I would live to see the day where the actuarial profession, as a body, accuses the Government of not being entirely open and honest with the public. That is unfortunate. The effect of this issue has been over-spun and over-hyped. It is important for the legislative process that the record is set straight. The points that the actuaries make seem clear. Inevitably mistakes can be made and things can be put in a long Bill which Ministers in the Commons can get wrong. But in that situation it is important to clarify the matter and it is clear that there will be some losers. I am concerned and this is an obvious opportunity for the Minister to set the record straight. I look forward to her doing so.
Baroness Hollis of Heigham: I shall do my best. I am mindful of the time. I just wish to say a couple of things about what we are doing in general before dealing with the particular issue of actuarial equivalents, upon which noble Lords have focused.
The noble Lord, Lord Higgins, is right in his explanation of the context of this—the Pickering report—particularly where several schemes are amalgamated, but where those similar broad-brush pension schemes have differences in rules which are trying to be aligned for administrative simplicity and to save administrative costs without undermining the level of benefits going to members. If there is an amalgamation of half a dozen schemes which are all fractionally different, then the implications for administration are cumbersome. So there has been widespread acceptance that we need to address the issue.
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As the Committee will know, there are only two big issues: going from a DB to a DC scheme and any sums of money currently in payment to pensioners that are prohibited and for which they have to have individual consent. If 90 per cent of members of a scheme agree to it, then 90 per cent will get it. In the past, two deferred pensioners who were untraceable, out of a scheme of 5,000, could effectively block an entirely sensible and modest change.
Members of the Committee have concentrated on the issue of actuarial equivalence. I think that the understanding placed on the words of my honourable friend the Pensions Minister has been inappropriate. Reading the debate as a whole, one cannot take what he has said to imply what the press headlines have suggested.
At the point at which the change is agreed, there has to be, for the individual member, actuarial equivalence. By definition, that may mean that the individual member is willing to see the benefits for survivors or unmarried partners beefed up at the expense of benefits, possibly even accrual rates, being reduced. But although at that point in time, it is a benefit of actuarial equivalence, it is clear that, over time, that person may lose their partner or spouse. In the longer term, that may not turn out to be the optimum package for the individual member, but when it was decided, it was expected that the actuarial value of each member's accrued rights would be maintained.
All pension schemes, are, to some degree, a lottery with regard to longevity, age at retirement, age at death, and the age at retirement or death of spouses or partners. Obviously, with hindsight, this will affect whether someone gained or lost. The point was clearly established by my honourable friend in another place: at the point when it was taken up, this was a benefit of actuarial equivalence, which should be acceptable to members.
I do not want to say that this has been blown out of all proportion, because clearly it is right that there should be no misunderstanding. That was the context in which that debate took place. I am slightly surprised that there should be any ambiguity about it because how much you get from your pension ultimately depends on how long you live, whether you have a survivor and how long that survivor lives. That cannot be determined at the point at which any of these changes are made.
The way in which we are dealing with issues of consultation and actuarial equivalence has been broadly welcomed. I am sure that this is the right way to proceed, and am glad that these changes have been welcomed across the Committee today.
Lord Oakeshott of Seagrove Bay: We are not here to discuss newspaper headlines but I have here a letter, which I am sure the noble Baroness has read, from the actuarial profession, expressing considerable concern
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about what was said in the other place and the Government's statement that it was designed to rationalise such rules in ways that produce no losers.
"In particular we wish to ensure that the Parliamentary debate is fully informed of the important point that individual 'losers' amongst members are bound to arise at times under these proposals".
Can the noble Baroness confirm that for us? That would then make it quite clear.
Baroness Hollis of Heigham: I thought that that was what I was saying. Although, at the point of accepting this, the individual member should be assured, as best as can be termed, actuarial equivalence, whether he turns out to be a loser or a gainer will often depend on life circumstances, which none of us has any capacity to forecast. By definition, if some of the changes relate to that, such as my example of survivors' benefits being increased or reduced, then it will depend on whether the individual has a survivor at the point of retirement and how long the survivor lasts after his death.
By definition, one cannot apply hindsight, but in good faith there is meant to be actuarial equivalence when the decision is made. It may advantage some people and not others, but pension schemes as a whole do that, because people cannot predict their own longevity or whether their survivor will enjoy their survivor's benefits. In that sense, I am surprised that the interpretation was given to my honourable friend's remarks, as it is clearly at odds with everything that everyone knows about pensions. But I am happy to give the assurance that the noble Lord seeks. There clearly can be losers, but they are losers that we will know about only at the end of their lives, for the most part—not always, but for the most part—because they are associated with life events.
Lord Higgins: This has been a helpful debate. I welcome the fact that actuaries, together with any other such organisation, prefer to adopt the more open approach. Rather than do deals with the Government behind closed doors—with the government of whatever party, I stress—it is much better that they make representations to the Opposition and the Liberal Democrats, as well as to the Government. That is very much to be welcomed. The other important point is that, when there are specific issues, those people may suggest what amendments could be made—again, not simply dealing with the government of whatever party behind closed doors.
What the Government are trying to do here, which we support, is to bring about a measure of simplification that will mean that the schemes as a whole work better but that the rights of the individuals are protected. It is important that members must be informed beforehand what the proposals are. The trustees will still have to get a certificate from an actuary, but not in precisely the same way as previously, when he had to say that no one lost. That effectively put a stopper on the whole thing. The
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actuary will sign one that does not say that there are no adverse effects but which contains actuarial equivalents.
Communication is at the heart of that process. We should consider, given the furore, as it might be described, that has arisen about the clause, whether the exact form in which the clause stands is as good as we can produce. If the actuarial profession or any other body has suggestions for improvement between now and Report stage, it would be appropriate to pursue it
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then. I am sure that the Government would equally wish to take into account any such views. It is important that they are put forward in public—that is very much to be welcomed, and we must see what we can do between now and Report stage.
Clause 251, as amended, agreed to.
The Chairman of Committees: The Committee stands adjourned until Wednesday 13 October at 3.30 p.m.
The Committee adjourned at twenty-two minutes before eight o'clock.
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