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Baroness Hollis of Heigham: My Lords, it is a package. I have no hesitation in saying that. We seek to preserve the viability of occupational pensions, particularly DB schemes, where possible. We are doing that by going for a pension protection fund which is paid for by the industry. What we are told by the industry—the noble Lord, Lord Higgins mentioned this—is that one of the biggest concerns about the viability of schemes is the fact that the industry has to insure, almost speculatively, against future rates of inflation at 5 per cent whether they happen or not. Therefore, for us to seek to ask them to insure, while at the same time carrying a responsibility for the 5 per cent, was unreasonable. The truth is that we would not have had consent to what we believe is the greater good, which is actually an insurance fund without some offsetting arrangements with the industry.

My noble friend's amendment—I take it that this includes Amendments Nos. 255 and 256, as she said—would impose price indexation at 5 per cent on defined contribution schemes, which I very much hope she does not think now is sensible. Where people have a free choice, 75 per cent of them go for level annuities. We think it is now unreasonable—we debated this with the noble Lord, Lord Hunt—to continue to impose
 
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even limited price indexation on even a portion of a DC pension pot in order to meet the GMP rights. I hope that my noble friend will accept that.

I return to the main body of pension provision—namely, that comprising DB schemes—with which I believe my noble friend is most concerned and which forms part of our package. I appreciate that noble Lords may think that this will mean lower increases in pensions in payment, but against that one has to set the risk of not having a pension at all. We calculate that the total effect of this is about 2 per cent over a lifetime; possibly 2.2 per cent for women. There is a marginal additional disadvantage to women because of their greater longevity, but equally over a period of time they also take out more from a DB scheme, even though there are the same rates of accrual, because they live longer. The money has to come from somewhere.

I want to make a second point which I do not believe we made in Committee and which may help our consideration of this. LPI currently requires all occupational pensions built up from 6 April 1997 to be increased by RPI capped at 5 per cent. At the time that it was introduced—with the folk memory of the late 1980s and 1990s—it was only ever intended to provide a degree of protection against inflation. It was never unlimited price indexation.

However, over the years, our success in controlling prices has meant that inflation has been consistently low and has never risen above 4 per cent. That means that the existing cap is not so much a cap as full protection. That was never intended. It was meant to be a contribution towards it, rather than full protection. It imposes large and, on the whole, unnecessary liabilities on the schemes in respect of their forward funding requirements, given the need to plan for contingencies.

I mentioned DC schemes. I am sure that my noble friend does not intend the provision to affect DC schemes. On DB schemes, I accept that it is part of a package. We are trading off the desirability for insurance against the capacity of schemes to maintain their existing level of RPI indexation at 5 per cent for rights built up from 5 April, 1997. The advice from the industry is that that, more than almost anything else—along with longevity, I suspect—contributes to the destabilisation of their books for the future funding of DB schemes.

Lord Oakeshott of Seagrove Bay: My Lords, I see the force of the arguments that the noble Baroness makes and that the industry has made to us about the package deal and the great difficulty of getting the whole thing to hang together, if the reduction in the LPI were not made in this way. Despite the considerable reservations that I expressed in Grand Committee, I am persuaded by the combined charms of the noble Baroness and Mrs Farnish of the NAPF.

Baroness Hollis of Heigham: My Lords, all that I can say to my noble friend is that she will understand that,
 
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because of the package, we are not willing to go down that path. The 5 per cent indexation has played a greater part than we anticipated in 1997.

We will not be able to accept the amendment. I am sure that my noble friend would not wish us to revisit the issue of DC schemes. We do not propose to do so, as we have made an undertaking on that. I understand where my noble friend is coming from, but, I regret, she cannot keep the bits that she likes, such as the PPF, and get rid of the bits that she does not care for. We cannot do that. It is a construction that has been carefully negotiated and consulted on. I ask your Lordships not to unpick it at this stage and not to accept my noble friend's amendment.

Baroness Turner of Camden: My Lords, I thank my noble friend for that explanation, which did not surprise me in the least. She told us in Committee that it was all part of a package that could not be unpicked. That is unfortunate, as it will mean that, in the main, older pensioners will suffer if there is a rise in the rate of inflation. There are indications that that may happen in the next year or so. We cannot be certain that we will be lucky enough to have such low inflation indefinitely.

We have a package that, in the main, we all want. We all want the Bill to go through and to provide the security and insurance that it will provide for future members of pension schemes. However, it is unfortunate that one of the items in that deal involves some loss of security for future older pensioners. Having said that and having listened to the debate, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 277 [Annual increase in rate of certain personal pensions]:

[Amendment No. 255 not moved.]

Clause 278 [Power to increase pensions giving effect to pension credits etc]:

[Amendment No. 256 not moved.]

Clause 283 [Meaning of "stakeholder pension scheme"]:

Baroness Turner of Camden moved Amendment No. 257:

Page 235, line 7, leave out "(10)" and insert "(11)"

The noble Baroness said: My Lords, in moving Amendment No. 257, I shall speak also to Amendments Nos. 258 and 259. The amendments stand also in the names of my noble friends Lord Hoyle and Lady Dean of Thornton-le-Fylde. The amendments are drafted solely as a means of advocating a minimum level of compulsory contributions by employers and employees. They relate to a clause defining requirements for stakeholder pensions for employers and employees.

Stakeholder pensions were originally designed specifically by the Government to provide a pension framework for thousands of employees without pension provision via occupational schemes. While employers
 
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are obliged to facilitate access by their employees to a stakeholder pension, they are not obliged to make a contribution.

As everyone knows, and, I think, the Government accept, take-up has been disappointing. But the picture changes when the employer makes a contribution. There is a developing consensus that compulsion will eventually be required if the problems facing pension provision are to be resolved more effectively. The Bill still seems committed to the voluntary approach, but nobody now believes that it will resolve future problems.

We have returned to this argument because, although our amendment was not agreed in Committee, there seemed to be a general view that compulsion would need to be considered fairly urgently. It will be recalled that during a debate on pensions in the House of Lords, the noble Lord, Lord Fowler, indicated support for the notion of compulsion.

I do not deny that there could be problems. Getting people to agree to compulsory deductions from their salary to go into a pension scheme is likely to be acceptable only if there is a general view that the scheme to which they are contributing is likely to offer security. In that respect, it is perhaps a good idea to raise the issue within the context of this Bill, for this legislation is concerned, above all, with security. For the first time, we are to have legislation specifically designed to regulate, and to do so on the basis of the security of the investment made by the individual member. It is a wholly praiseworthy endeavour; I support what the Government are attempting.

However, if people believe that their pension will be secure, there is more reason to ensure that they will contribute to it. Our amendment, therefore, involves a contribution from employees as well as employers. There is mounting evidence that public opinion is increasingly supportive of compulsion. Moreover, as I said in Committee, a survey indicated that 72 per cent of the members of my union are in favour of compulsion, including employee compulsion. The time is ripe for a move on this issue. I therefore beg to move.

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