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Lord McKenzie of Luton: My Lords, I beg to move Motion D, That the House do not insist on its Amendment No. 22, to which the Commons have disagreed for their Reason 22A.

The other place disagreed with the amendment because, as drafted, it would have undesirable effects. The Government have great sympathy with the spirit behind the amendment, and we have decided to improve FAS benefits to members by matching the extra value produced as a result of funds remaining in schemes. We have written to trustees to urge them to consider carefully whether purchasing annuities, thereby depleting scheme funds, is in the best interests of all their members.

The Government accept that there are good reasons why, in order to ensure the greatest possible benefit for the greatest number of people, they may need to take powers to prevent annuitisation by FAS-qualifying schemes. However, the amendment would have made annuitisation unlawful from 18 April. Some trustees will be in the middle of negotiations, or already have proceeded to purchase annuities since then. For that reason, it would not be reasonable to halt annuity purchase without some notice.

Once the regulations introduced by Amendment No. 22 are made, the trustees who have purchased annuities believing that they are properly carrying out their fiduciary duty to members could be held to have acted unlawfully. That would not be a fair position to put trustees in.

I would like to take this opportunity to anticipate and welcome Amendment No. 22B tabled by the noble Lord, Lord Skelmersdale, which achieves the aims of Amendment No. 22 without the drawbacks I have already outlined. It strikes a pragmatic approach by putting a hold on annuitisation for the benefit of all members of qualifying pension schemes who hope to see the extra funds generated by the assets within their schemes matched by the Government, while allowing trustees to purchase annuities with the permission of the scheme manager where it would be appropriate for them to do so.

Clearly, the Government will need to consider carefully what those circumstances might be and how the scheme manager will exercise his discretion. I am grateful that the noble Lord’s amendment allows us a period of grace to think about this and consult trustees before we bring forward regulations. We will do that as soon as is reasonably practicable. I beg to move.

Moved, That the House do not insist on its Amendment No. 22, to which the Commons have disagreed for their Reason 22A.—(Lord McKenzie of Luton.)



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Lord Skelmersdale rose to move, as an amendment to Motion D, Motion D1, at end insert, “but do propose the following amendments in lieu thereof—

“Temporary restriction on purchase of annuities(a) before that date they have entered into a binding commitment to purchase the annuities, or(b) the purchase of the annuities is approved in pursuance of subsection (2).(a) for enabling the trustees of a relevant pension scheme to apply to the scheme manager for approval of the purchase of annuities on behalf of qualifying members;(b) for authorising the scheme manager to approve the purchase of any such annuities if the scheme manager thinks it appropriate to do so.(a) must be made as soon as is reasonably practicable after the passing of this Act;(b) may make such consequential, incidental, supplemental or transitional provision as the Secretary of State considers appropriate.

The noble Lord said: My Lords, I put down Amendment No. 75 in Committee as a means of keeping the Government to their promise of discovering whether better use could be made of the residual assets of pension schemes coming into the FAS. Ministers have already set up the Review of Scheme Assets led by Andrew Young, of which we have had some discussion over the past hour or so. That published its interim findings, very conveniently, late last week. The review gave strong indication that scheme by scheme annuitisation, the approach on which the current financial assistance scheme is predicated, does not offer the best use of assets and that there are a number of potential alternatives that should be able to secure better value for money and therefore increased assistance levels.

I know that the Government have written to scheme trustees—indeed, the Minister just said so—in the light of last week's announcement that they believe the Young review is on the right track, emphasising for them the key role that trustees have to play in helping to ensure that assistance levels can be increased beyond the current 80 per cent level of core pensions. The

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amendment makes explicit the sort of behaviour needed from responsible trustees to achieve that, giving the Government powers to enforce such behaviour in the best interests of the majority of those who have lost their pensions and who can now expect help from the financial assistance scheme.

The amendment requires the Secretary of State to make regulations suspending the purchase of annuities by trustees of pension schemes that have qualified for the FAS and which are still winding up for a period of nine months from the date the regulations come into force. That would give sufficient time for the Young review to complete its work and for the Government to make significant progress towards implementing its recommendations and securing better outcomes for scheme members, as long as the Government lay the regulations promptly. I hope that the Minister will be able to say how promptly he anticipates being able to lay them.

However, I recognise that there will be circumstances in which it might be appropriate for trustees to seek to annuitise. That is why the amendment gives the FAS scheme manager discretion to allow annuities to be purchased in some—I expect rare—instances. For example, that could be where a scheme is only lightly under-funded and therefore members are unlikely to benefit from the FAS overall.

Although Ministers in the other place did not like our original amendment as drafted, I detect from the Minister's words that they have seen the force of my argument that while the review completes its work there should indeed be a temporary bar on trustees annuitising their assets in most cases. I beg to move.

Moved, as an amendment to Motion D, Motion D1, at end insert, “but do propose Amendments Nos. 22B to 22D in lieu thereof”.—(Lord Skelmersdale.)

4.15 pm

Lord Oakeshott of Seagrove Bay: My Lords, we on these Benches welcome and support Motion D1. I have said a few harsh words to the Minister already and I shall chide him a little on the last Motion but, on this one, we welcome the spirit of compromise. I particularly welcome the pragmatic way in which the Minister has discussed this issue with the noble Lord, Lord Skelmersdale and me. This is the House of Lords at its best, if I may say so. We have ended up with a sensible and realistic solution, though obviously backed up to some extent—to use the words of the noble Baroness, Lady Hollis—by a certain amount of menace. We welcome this outcome.

It is clear from being repeated at various places in the Young review that instant annuitisation, or the rush to annuitise, is not on balance likely to be in the interests of most schemes or most scheme members. Halting the current annuitisation process will or should offer greater value for money. Indeed, it must make a lot of sense to think about having annuities purchased at the level of the entire FAS population. That makes the case even more strongly that we should probably roll the whole thing into a PPF-type arrangement. But that is for another discussion.



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Reading the Young review, I am concerned at how many schemes have annuitised already or are in the process of doing so. The Association of British Insurers has written to me and no doubt to others, making the point—with which I have much sympathy—that there is probably not much in the unclaimed assets argument. On the ABI’s positive ideas on improving the use of the FAS existing assets to improve better value for money, one thing that leading insurers could do is not rush to enforce provisional arrangements when people are in the process of buying annuities. It is wise to stand back and take this window of review, and I hope that the ABI, whose two main members provide these annuities, will look at this very carefully. Even if people are well down the track of buying annuities, if they could put them on hold, that would be likely to be in the interests of members of those schemes.

Having said all that, I welcome the Government’s movement on this and the amendment moved by the noble Lord, Lord Skelmersdale, and look forward to seeing it passed.

Lord McKenzie of Luton: My Lords, a question was posed about the speed of regulations. I assure the noble Lord that we would obviously seek to do it as quickly as we possibly could. I reiterate our support for the amendment.

Lord Skelmersdale: My Lords, I am very pleased that the Government have seen the logic of my argument—that a little delay in annuitising individual scheme members’ pots is the right thing to do in the wake of the Young report’s interim findings. I must say that it is a pleasure to do business with a Minister who fights for the feelings of the overwhelming majority of your Lordships.

On Question, Motion D1 agreed to.

On Question, Motion D, as amended, agreed to.

“Post-legislative scrutiny“Review of operation of Act

Lord McKenzie of Luton: My Lords, I beg to move Motion E, That the House do not insist on its Amendment No. 28, to which the Commons have disagreed for their Reason 28A, but do propose Amendments Nos. 28B and 28C in lieu thereof.



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Before getting into the detail of the argument, I emphasise to the House that this is the one remaining issue that we have left unresolved, and it would be really good if we could reach consensus on it this afternoon rather than have to send it back to another place and expect its return. In that spirit, I reassure the House that the Government strongly agree with the principle of post-legislative scrutiny. However, the other place has decided that imposing an obligation on the Secretary of State to arrange for post-legislative scrutiny, as the amendment proposed by the noble Lord, Lord Fowler, would do, is unnecessary. I shall now set out what the Government propose in its place.

We made clear in earlier debate the very extensive programme of post-legislative activity that the Department for Work and Pensions will undertake to keep pension reform issues under review, and of course departmental Select Committees, independent think tanks, ad hoc commissions and external organisations all have their part to play in the scrutiny and review of how the law is working. But, quite separately, we are considering across government the case for a more formal process of post-legislative scrutiny.

I can assure the House that the Government, led by the leaders of the two Houses, are giving close and continuing attention to this issue and will certainly be responding to the Law Commission report. I hope, from the tone of the remarks of the noble Lord, Lord Fowler, when winding up the debate last time, that I had not inadvertently given the impression in some way that the commission's report was being left to gather dust. That is absolutely not the case, although I accept that it has taken longer than we had hoped. It is important, however, that the response to the commission is properly considered. The noble Lord's amendment places a duty on the Secretary of State to undertake post-legislative scrutiny, and since we as yet have no shared understanding or legal definition of what formal post-legislative scrutiny might entail, neither the Secretary of State nor anyone else could be absolutely certain whether what has been done would comply with that duty.

In moving the amendment at Third Reading, the noble Lord, Lord Fowler, called for post-legislative scrutiny to be undertaken by a parliamentary committee. It is for Parliament to decide to constitute such a committee and it is not within the Secretary of State's power or remit to do so. However, Parliament has already constituted the Work and Pensions Select Committee which is appointed to scrutinise the policy, legislation, expenditure and operations of the DWP. In addition, the Social Security Advisory Committee has a statutory remit to advise the Secretary of State on matters related to social security and to consider draft regulations. So any further scrutiny by another parliamentary committee would need to give careful consideration to ensure that efforts were not duplicated.

Our second concern relates to the timing proposed in the noble Lord's amendment. There is a package of reform measures which will come into effect over the next five years or so. In our view, it would be premature to carry out post-legislative scrutiny before the reform measures had been implemented or had

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time to bed in. For example, the reforms to the basic state pension take effect for people reaching state pension age in April 2010. Reviewing the Act in four years, in 2011, would provide very little time to gauge whether the reforms have been properly implemented.

At Third Reading, the noble Lord offered us a cautionary tale in the form of the 1986 Act and the subsequent failure to ensure that the measures on inherited SERPS, which did not come into effect for a further 14 years, were properly implemented. I assure the House that a great deal of activity is already under way to prepare for the implementation of the measures in this Bill from 2010. However, I accept that there might be concern about the implementation, for example, of the changes to the state pension age which do not come into effect until 2024 because of the time delay.

Notwithstanding the assurances that we have already given about our intention to keep the reforms under review, we accept that it would provide greater reassurance if this commitment were placed on a statutory footing. The amendment that I propose in lieu of the noble Lord's amendment would require the Secretary of State to review the operation of the Act and present a report to Parliament. That will provide Parliament with the opportunity to consider and debate any such report and, to all intents and purposes, effectively provides post-legislative scrutiny. The timetable I propose, for a review to have taken place by the end of 2017, would allow such a review to take place after most of the provisions have had sufficient time to bed in. It will also enable us to review the state of readiness for implementing the state pension age changes from 2024 and take any remedial action that may appear necessary.

As I said, the measures in this Bill take effect in stages. For example, the changes to the contribution conditions which will be of significant benefit to women come into effect for those reaching state pension age in or after 2010. But the flat rating of the state second pension will not take effect until 2012. We have also made clear our aim to restore the link between the basic state pension and earnings in 2012, subject to affordability and the fiscal position. The state pension age changes, on the other hand, do not come into effect until 2024. We therefore think it sensible to conduct a review at the mid-point when the first of these changes have had a chance to bed down and we can at the same time ensure that we have a robust delivery plan in place for the later stages.

I should point out that the amendment includes the flexibility to carry out the review earlier than 2017 if it seems appropriate. The House will recall that 2012 is also when personal accounts go live. We have already said in our response to the Select Committee that we will undertake a review of aspects of the personal accounts arrangements in 2017, so although the scope of the review of the operation of this Act will be limited to the setting up of the delivery authority, the timetable will allow for these issues to be looked at in parallel. This amendment does not, of course, mean that we should not examine the effectiveness of our policies before 2017. For example, the data on the number of women who have benefited

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from the reforms to the basic state pension will be available by mid-2011 and the personal accounts delivery authority will be required to publish annual reports on its activities throughout its lifetime. However, I suggest with great respect that the requirement to review at the four-year point is surely too early given that some of these provisions simply would not have come into effect by that time.

For completeness I should add that the amendment to Clause 28, Amendment No. 28C, is purely consequential. Clause 28 defines the extent of measures in this Bill; this amendment would ensure that any review of the operation of this Act takes account of those provisions in so far as they relate to Northern Ireland.

As I have said, we have no objections to the noble Lord’s amendment in principle. Indeed, it is eminently sensible and consistent with the principle of good administration that we ensure that the measures enshrined in the Bill are followed through. I hope that he will accept that the amendments I propose in lieu of his own substantially address this concern. I urge the House not to allow this legislation to linger longer. There is much in it that we need to get under way as quickly as possible. I beg to move.

Moved, That the House do not insist on its Amendment No. 28 to which the Commons have disagreed for their reason numbered 28A, but do propose Amendments Nos. 28B and 28C in lieu thereof.—(Lord McKenzie of Luton.)

Lord Fowler: My Lords, I beg to move, as an amendment to Motion E, Motion E1, leave out from “House” to end and insert “do insist on its Amendment No. 28.—(Lord Fowler.)

I welcome the tone of some of the Minister’s remarks this evening, which are substantially different from what we have heard at previous stages of the Bill, particularly what he said about the principle of post-legislative scrutiny and seeking to put a duty in the Bill. Step by step we are getting to the position that we would like to get to but we have not yet arrived there.

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