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The Government have chosen to be generous, and I am glad that they have. I hope that my noble friend will remind those listening to this debate of how many billions of pounds the Government have set aside for the financial assistance scheme, to which the noble Lord, Lord Oakeshott, referred as a “miserable little scheme”. The noble Lord, Lord Skelmersdale, gave us some figures, referring to provision of £8 billion over 30 years with a net present value of £1.9 billion, but he clearly thought that that was not enough. How do we establish the appropriate limit for public expenditure, which is after all not an inexhaustible tap with which we can wash away all varieties of misfortune? Do the parties opposite consider that those who have lost their savings and pensions expectations through the collapse of Equitable Life should also be rescued? Who should be brought in? Where do we draw the line? How do we establish some principles in this regard?

Once upon a time, the Conservative Party understood that there had to be limits to public expenditure, but compassionate Cameronism gushes pound notes like an incontinent geyser. We are accustomed to the fact that the Liberal Democrats spend a penny on income tax and spend it again and again in their fairytale economics, and the Conservative Party used to deride them for that—but now they are “shoulder to shoulder”. That I think was the expression that we heard.

Lord Skelmersdale: I think that the noble Lord was here throughout the entirety of Monday, when I got some implied criticism for controverting amendments tabled by all sorts of people—not least the noble Baroness, Lady Hollis—exactly on the point of how much it would cost. Therefore, I do not think that that is a fair charge to level at myself.

Lord Howarth of Newport: The noble Lord seems to be a little selective in his application of these principles. He asked the Committee this afternoon to believe that the lifeboat that the opposition parties are proposing is a credible vessel, because it will be freighted with unclaimed or orphan assets from pension funds. He even said today that the Conservatives would lay their hands on people’s premium bonds. Once upon a time, the Conservative Party had some respect for private property.

The Government’s review will look realistically and I trust will report soon on what these orphan assets and unclaimed assets are and whether there is really scope to extract some more beneficial use from them. But in the mean time, I heard the noble Lord, Lord Skelmersdale, calling for immediate payments—so his contention that this lifeboat would not entail more public expenditure is simply incorrect.

We should recall that if the Conservative Government had not rejected Labour proposals for a central discontinuance fund—a predecessor fund, equivalent to the Pension Protection Fund, in the mid-90s—today there would be no need for the financial assistance scheme. The arguments that the noble Lord put forward about the so-called raid on pensions are also bogus. If he meant to be fair, he should have reminded us that the context of that policy change in 1997 was a restructuring of corporation tax to encourage long-term investment, improve productivity and competitiveness and therefore to improve profitability and the capacity to pay pensions. He might have reminded us that the shift from defined benefit schemes was already well under way by 1997. There were other very important factors that dwarfed the impact of the ACT change: the maturing of pension schemes, growing longevity, forecasting errors by the actuaries, declining interest rates, bad management of schemes, and, above all and on an altogether different scale, the stock market collapse of 2000 which wiped £250 billion from pension fund assets. Set that beside the £5 billion cost per annum of the change to ACT.

The case that the opposition parties have made on this is disingenuous. It is a politically motivated tactic against the Chancellor. It is posturing and opportunism. It exposes the difference between this Government, who have chosen to be generous within the limits of fiscal responsibility, and the recklessness of the Conservative and Liberal Democrat parties.

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Baroness Greengross: I support these amendments and do so simply on the grounds of fairness and justice. It is totally unacceptable arbitrarily to leave out one group of pensioners from the benefits of the Pension Protection Fund as it has now been established. These people had no choice. If they had had a choice, a real choice, that would be different; but they did not. Caveat emptor really does not apply in this case. These people were told that they should join the company pension scheme. They were told that the scheme was sound. They had virtually been guaranteed that it was sound and would look after them when they retired. Maybe that was wrong, but that is what they were told. These pension schemes have now failed them.

People were given that message when they were still at work. To treat them in this way now is unfair, undemocratic—as the noble Lord, Lord Oakeshott, said—and unjust, as well as being inhuman. It is totally unacceptable and the Government must rectify it. They have a duty to do so. Not that many people are involved. There will be a cost to the public purse but it is not a very high one. The Pension Protection Fund was a very welcome government initiative which rectified a social ill and many of us welcomed it with open arms. It was well done. It is an initiative that these people also must enjoy to the same level. I hope the Government will think again.

Baroness O'Cathain: Following the noble Baroness, Lady Greengross, I am moved, first, to ask for confirmation that the people who went into these schemes did so not on the basis of a recommendation but because it was a condition of employment. Therefore, they had absolutely no option.

Secondly, many of the problems that arose from this mis-selling of pensions—no, not mis-selling; from this situation—resulted from these companies being taken over by other companies and raids on these pension funds. But the Government have not gone after them. We said to people in employment, “You have to take an occupational pension”. However, successive Governments have managed to get away with paying—and I use the term advisedly—a state pension that is a pittance compared with those of other European countries while knowing that occupational pensions were there as a back-up. They probably genuinely thought that there would not be much hardship. However, when things went wrong and these companies were taken over by absolute pirates—another term which I use advisedly; I know some of them, and have discussed them previously with the noble Lord, Lord Oakeshott—nothing was done about it.

Now we rightly want a lifeboat. These people were forced into occupational pensions and expected a proper income in retirement. They have based all their life choices—where they live, saving for their children’s university education and so on—on these pensions, but all of that has vanished like snow in summer. So it is essential that there is a lifeboat. However, I take issue with the funding of the lifeboat. I believe that the Government are responsible for that because of the point that I made. I do not think that the so-called unclaimed assets should be used because there are different types of unclaimed assets. There are unclaimed assets in banking, although I leave those to one side because a case could be made for that. There are also unclaimed assets in insurance companies, which are used to fund people on very low occupational pensions who get the state pension plus a little bit. Why should the Government again use the excuse that those people will get a little bit through these unclaimed assets and say, “Not my problem”? It is their problem. I am not really equipped to give the ins and outs of insurance companies’ unclaimed assets, but as a question of social justice and fairness—this is the issue that we are dealing with—there is no excuse for the Government not to find the money. Goodness knows how many billions of pounds of public expenditure are wasted. The Government should take a proper look at public expenditure and fund the lifeboat from it, which would satisfy both situations.

Lord Turnbull: The Conservatives have joined forces with the Liberal Democrats in tabling Amendments Nos. 68 to 73, which propose a lifeboat fund to enable the financial assistance scheme to be made more generous. Under Amendment No. 74 this would be funded through the so-called unclaimed assets of insurance companies. At this stage I retain an open mind on whether the financial assistance scheme should be made more generous. Having notified the Committee of my interest as a director of Prudential plc, I should set out why I think that the proposal to finance this scheme through so-called unclaimed assets is seriously flawed.

The mental map underlying this is that unclaimed assets in insurance companies represent a windfall source of profits, as they do for banks. As insurance companies are seen as having a dubious legal claim, and even less of a moral claim in this matter, it is argued that as a matter of public policy it is acceptable to take these gains away and use them for more deserving social causes. This is analogous to the principle of bono vacantia arising from people dying intestate. There are several objections to this line of argument. First, it represents a flagrant departure from the principle of evidence-based policy making. The Government have set up a review under Mr Andrew Young to go over all the arguments about the way insolvent pension schemes could be funded, yet these amendments, particularly Amendment No. 74, seek to change the legislation before we have the outcome of that review. That is like introducing the Dangerous Dogs Act without finding out whether dangerous dogs exist.

Secondly, it is not the case that unclaimed policies with no clear ownership are a windfall gain to insurance companies. In most insurance companies the policies in question are funded through a with-profits fund. By a longstanding convention, perhaps even law, the fund is 90 per cent owned by policy holders collectively and 10 per cent owned by shareholders. The Pru’s practice is that if a policy is not claimed 15 years after it has lapsed following the maturity date, or when the policy holder would have reached 105, the amounts unclaimed are credited to an account within the with-profits fund. Then 90 per cent of that is added to the bonuses of the remaining policy holders. If someone subsequently turns up aged 106, they can get their money back. This has been the clear, legitimate expectation of policy holders for many years. Unlike with the banks, there is no vacuum around ownership.

The third objection concerns equity. The proposed new clause in Amendment No. 74 would remove from existing policy holders a longstanding part of their return and pay it to another group deemed to be suffering hardship. The ABI has described this as robbing Peter to pay Paul. As Robin Hood demonstrated, sometimes that is justified, but for this to have any morality, it should be established that those making the sacrifice, the “Peters”, are significantly better off than the “Pauls”, who would otherwise be putting up the money—in this case the generality of taxpayers. That test is dramatically failed. The average Pru ordinary branch policy amounts to some £20,000, which might, at current rates, buy an annuity of some £1,200 a year or £23 a week—no more than a quarter of the state pension. Some 3 million such investors are in the Pru’s with-profits fund. Even worse, some 1.3 million industrial branch policyholders, dating from the Pru’s door-to-door collections, have even smaller policies.

Let us consider the nub of the issue. The concept of unclaimed assets proposed by the noble Lord, Lord Skelmersdale, is a fiction. These are not bona vacantia where ownership is unknown. There is clear ownership of with-profits funds—90 per cent is owned by the policyholder and 10 per cent by the shareholder. When the state takes away someone’s property through legislation, we call it taxation. It is questionable whether it is proper for an amendment, as a proposal to impose such a tax, (a) to be tabled in this House and (b) to be tabled by the Opposition. The other place should seriously consider invoking financial privilege.

Setting aside the legality, let us look at the morality and the politics. As a way of raising money to pay for greater compensation for those let down by their pension funds, such a proposal is grotesquely inequitable. It would take money from millions of policyholders, many of whom have no occupational pension at all and whose investments would yield an average income of £23 a week—less than one-seventh of what I could claim for making a speech here for 10 minutes. If Parliament decides that it must do more for disappointed pensioners, it must place the burden on some broader backs: taxpayers at large.

It is a mystery that the opposition Benches, after complaining loudly about pension grabs and stealth taxes, should support a proposal that exposes them to exactly the same charges. It is not too late for them to escape from a proposal that would provide serious political embarrassment for them. The right course is to vote against this group of amendments and allow them to be resubmitted at a later stage, shorn of the offensive new clause in Amendment No. 74.

Baroness Hollis of Heigham: I hope that the Committee will resist these amendments. The present situation has been shaped by two pieces of legislation: the Pensions Acts of 1995 and 2004. In the debates in 1994, the Government of the day introduced the minimum funding requirement. I led for the Opposition on that Bill. All of us knew exactly what MFR meant. It was a funding level that would generate a 50 per cent probability of meeting the pension promise if the company folded. The professional organisations, the trades unions and all of those who lobbied us at the time—and certainly the politicians, led, I believe, by the then Pensions Minister, William Hague, in the other place—knew well what MFR entailed. Precisely because of our worries, which were shared at the time by the Liberal Democrat Benches, including the late Lord Russell and the noble Lord, Lord Goodhart, we tabled an opposition amendment to introduce, as my noble friend mentioned, a central discontinuance fund—a PPF—on the ground that risk pooled is risk reduced.

Although some of the finest economists in the country, including my noble friends Lord Eatwell, Lord Desai and Lord Peston, spoke to and supported that amendment, and argued for not only its social justice virtues but its economic virtues, we could not persuade the Government to support it. I have to say that in my reading of the ombudsman’s report on those debates, I did not fully recognise her account of them. I choose my words with care.

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The problems of MFR were concealed for a few years by rising stock markets, until severe falls from 2000 on, together with statistics about longevity, started a chain of events that led to the PPF in the 2004 legislation. With the genuinely constructive help of noble Lords opposite, to whom I am grateful—I pay tribute in particular to the noble Baroness, Lady Noakes, the noble Lords, Lord Oakeshott, Lord Fowler and Lord Skelmersdale, and, above all, the noble Lord, Lord Higgins—we in this House came up with a scheme, the PPF, which continues to win plaudits. We all recognised that the failure of vision in 1994-95 and the failure to set up a central discontinuance fund had to be made good. We did that co-operatively by a levy on future schemes. The question that we then faced was: what about the schemes that had failed before PPF? I refer in particular to the period since the coming into effect of MFR in the 1995 Act—to those schemes from, say, 1997 onwards.

No one, but no one, believed—this point was well made by my noble friend Lord Howarth—that because of MFR or a couple of leaflets from the DSS, the Government were now committed to underwriting £900 billion in the occupational pension industry. If people had believed that on the basis of MFR and DWP/DSS leaflets—they did not—no employer would have needed adequately to fund their schemes, no trustee would have worried about what might happen and no trade union would ever have needed to press for better funding. Why would they bother? Talk about moral hazard. Of course they did not believe that, of course they did not act on that as though they had believed it and of course all parties and all players sought in different ways to meet the obligations of their pensions promise. I do not accept, and I do not really believe that anyone in this Chamber accepts, that the Government have any legal responsibility for commercial failure—for companies that failed adequately to fund their schemes. This involved the playing out of a calculated risk that the Government of the day in the 1995 legislation embodied in the MFR by coming up against commercial failure and at the same time refusing to underpin it with our request for a central discontinuance fund.

If the Government have no legal responsibility, did—or do—they have a moral responsibility? Not really, but they should promote benevolent public policy because people at the time did what we as a society wanted them to do—build a pension. We cannot retrospectively introduce a levy on the industry as though in effect the 1994 central discontinuance fund was in existence and working. The only alternative was to turn to the taxpayer, which involved asking taxpayers, including many low-paid, part-time women who have no occupational pensions at all, to insure the occupational pensions of those who had them—occupational pensions, incidentally, that had already received a substantial taxpayers’ contribution through tax relief and a substantial employers’ contribution. The contribution of employees in many if not all final salary schemes would be, I guess, about one-third of its final worth.

Was it right to ask someone earning £10,000 a year without a penny of savings to cross-subsidise someone with earnings of, in some cases, four times that? Would we accept the same principle in the travel industry, so that it had a general levy on each person in the population rather than simply, as with PPF, holidaymakers taking out relevant insurance? It is because of that dilemma that, as a society, we wish to be seen to be supporting people who are doing what we wish them to do—that is, saving—but we must also recognise that in the funding of the scheme some people did not have the opportunities that those in the PPF now have to enjoy the benefit of a forward-looking levy.

In 2004 we devised FAS. I am the first to admit that we devised it in this House rather than the other place as the Bill went through various stages. Again, the Opposition played a genuinely valuable and constructive role, which I much appreciated, in what were admittedly daunting circumstances. We all shared the common objective—I believe that that is the phrase used by the noble Lord, Lord Oakeshott—but there was some concern about some of the structures involved. It was always intended that FAS would be paid for by some people who had no pensions at all. As a result, the claims should not be paid at the same rate as with the PPF, which was funded by the industry; in other words, at 80 per cent in FAS rather than 90 per cent in PPF. We understood that very clearly in 2004.

In 2004 it was also understood in our debates that additional money would be made available, but only as the scale of need became clear. What stopped us being able to assess that was dirty data. The bulk of potential claims on FAS came from deferred pensioners—people who had worked for companies for three or five years and had since moved on once, twice or three times. Employers and trustees may have weak or incomplete records of contributions, age profiles, length of stay and so on; some companies—for example, asbestos-related companies—may have changed hands several times. The dirty data problem means that it has taken longer than anyone would wish to get the flow of payments going. I was taken aback, when meeting some of the companies and trade unions involved at the time, by how little responsible individuals associated with their companies knew about their pensioner profiles and what the implications would be for FAS.

It was always understood that the precise structural links between FAS and PPF would be revisited at a later date; at one stage I even suggested that that might be seven or 10 years down the line. That additional money has been forthcoming from the Treasury, which I am delighted about. I firmly believe that the Government’s approach is the right and decent one. Of course it would be nice if FAS could be made financially more generous still, but only if we are willing to ask those without pensions to finance that generosity. Of course we want the Government to move faster on pension payouts but, believe me, it is not the professional Civil Service that is being incompetent; the problem is due to the unbelievably amateur record-keeping of some of the companies and trustees involved.

Finally, as DB schemes close, DC schemes will cover more pension arrangements, including personal accounts. Is anyone today suggesting that if the Government encouraged people into personal accounts, as we will, with an opt-out arrangement rather than opt in, as we will, they will have some legal or moral obligation to guarantee those investments—investments in and disinvestments out—to insure against the risks of inflation, annuity rates or projected longevity rates? I think not. What security, as my noble friends said, are we willing to offer Equitable Life policyholders? Pensions are volatile. Final salary schemes carry a risk associated with the viability of the company and the PPF now will pool the risk on that. DC schemes—money-purchase schemes—carry a much greater risk of full exposure to the markets, and we are doing nothing at all about that. I am not persuaded—I feel even more strongly, having listened to the noble Lord, Lord Turnbull—that there were genuinely freebie assets out there; I refer to assets that are corralled to improve the conditions of FAS. The ABI, the noble Lord, Lord Turnbull, and pension professionals have poured cold water on that. Those assets are already built into the cash flow of major companies. For those in DC schemes, an 80 per cent guarantee of core pension, which is what FAS offers, must look pretty enviable.

I understand that there is a review of unclaimed assets in lieu, which should report in July. If there are any such unclaimed assets, or if the industry voluntarily wishes to contribute to FAS, as the 2004 legislation made clear it should be encouraged to do, that would be fine. But, in practice, a lifeboat scheme would turn out to be a government loan, interest free, without, I suspect, much possibility of repayment—in other words, a covert taxpayers’ additional contribution to FAS. That is what is being proposed here, and we should face up to that. I am not persuaded, in all the circumstances that I have outlined, that it would be right, fair or proper for all the parties concerned to go down that path. I shall therefore oppose the amendments.

Lord James of Blackheath: Provided that I am in order, I wish to speak to Amendment No. 69 in this group. It performs the essential and important function of removing the necessity for an employing company to be in a state of bankruptcy before it can transfer into the lifeboat fund. I declare an interest in that I speak from practical experience of this situation, having been chairman of a company that passed through this process, but that is all resolved and there are no outstanding issues relating to this matter.

There was once a British company listed on the London Stock Exchange that had traded successfully for a great many years until it was tempted to make a very large investment in purchasing a series of parallel manufacturing businesses in the US, for which purpose it borrowed $1 billion. That venture did not prosper and, very rapidly, the group’s consolidated position was one of borderline insolvency. The American bankers were consulted separately from the British ones and agreed to write off $400 million and inject an additional $200 million to sustain the American business, provided that they were allowed to have unencumbered ownership of those assets. Separate pension schemes had applied to both the US and British arms, and at that time the British pension scheme was in deficit by £96 million.

Members of the Committee will rapidly have understood the problem. If the Americans were to put in $200 million of new capital, it would have to pass through the parent company in London and that money might have been attacked by the pension trustees in Britain with a view to filling the £96 million hole. The Americans did not think that that was very funny, so they decided that they should make certain conditions. They offered the British pension scheme a £10 million contribution to their deficit and 10 per cent of the equity of the new company which they would create in America.

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