The Parliamentary Under-Secretary of State, Department of Health (Earl Howe): My Lords, the Government are taking steps to improve the health of the population through reforms to the health and social care systems, and cross-government policies that support health and safety. These will contribute to reducing the costs to society of accidents, including those caused in the home and through leisure activities.
Lord Jordan: I thank the noble Earl for his reply. Will he acknowledge that in contrast to other priorities in public health, accident prevention is the only topic that still does not have a lead body? Does he accept that that is a massive gap, considering that accident prevention and home and leisure accidents cost the National Health Service £5 billion a year? Will he give an assurance that the Government will treat this as a matter of urgency by directing Public Health England to a programme of national strategic accident prevention as a mandatory feature in all local public health plans?
Earl Howe: My Lords, I pay tribute to the noble Lord's work as president of RoSPA and, indeed, to the work of RoSPA itself. He may recall that the public health White Paper that we issued some months ago-Healthy Lives, Healthy People-as well as the update that we issued, specifically lists accident prevention as one of the key areas of responsibility. That to my mind is par excellence an area where local authorities will be able to make a difference with their new public health responsibilities under the Health and Social Care Bill. They will be able to work with organisations like RoSPA and professional groups such as health visitors to improve safety in their areas. We look forward to working with them on those programmes, should they choose to prioritise them.
Lord Hunt of Wirral: My Lords, while declaring an interest as deputy president of the Royal Society for the Prevention of Accidents, I warmly applaud my noble friend's commitment to the way in which we have restored at long last accident prevention as one of
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Earl Howe: There is no question but that accidents in the home and in leisure contexts are a serious issue. It so happens that the UK has a very good record compared with some other European countries, but we can never be complacent on this. Some very tragic accidents occur, particularly to children, that we must bear down upon. Again I pay tribute to the work of RoSPA to prevent accidents with looped blind cords, which can often be a hazard to children. NICE has published accident guidelines relevant to home and leisure situations and also guides focusing on home safety and road design. It is that realm of public health that we hope NICE will focus on more and more as the years go by.
Baroness Finlay of Llandaff: My Lords, I declare an interest as the chair of the All-Party Parliamentary Group on Gas Safety inquiry into carbon monoxide poisoning, whose report is being published today. Do the Government recognise that carbon monoxide poisoning currently costs the country about £178 million in total; that the protection of putting up a carbon monoxide alarm in each home in Britain for a year would cost less per home than a cup of coffee at a motorway service station; and that lives would be saved if carbon monoxide alarms were readily available? If the Government considered removing VAT from them, it would give a very strong message that everybody must protect themselves.
Earl Howe: My Lords, the noble Baroness has highlighted a very serious and important problem. She will know that in the European Union context the Commission has focused very strongly on products that may prove unsafe if sold wrongly or if manufactured or fitted wrongly. The kinds of safety incidents that she refers to could well fall into that category and work is ongoing in that area. However, I take on board the figures that she has so graphically supplied and will feed them back to my department.
Lord German: My Lords, the 1968-71 experiment with moving the clocks around produced some evidence about accidents. In the current debate, since we all enjoyed an extra hour in bed yesterday, I wonder whether there is any concrete evidence about the reduction in accidents that moving the clocks around supplied, given that in 1968-71 we were also introducing the drink-driving laws that somehow compounded the evidence that was provided for us.
Earl Howe: My noble friend raises a point that we have often debated in this Chamber. He is, of course, right that single/double summer time would put clocks one hour ahead of Greenwich Mean Time in winter and two hours ahead in summer. Any change to the current system of British Summer Time would have wide-ranging implications, and those implications would have to be carefully considered in all parts of the UK, probably, in terms of the costs and benefits associated with them.
Baroness Thornton: My Lords, I welcome the fact that the revised blueprint of Healthy Lives, Healthy People now includes accidental injury prevention. Can the Minister confirm that that would therefore be a new responsibility added to those that public health authorities will be taking up? Has that been costed and will extra funding be available for local authorities and the new public health authorities to deliver on it given that, if they are successful, they will be saving a great deal of money?
Earl Howe:As the noble Baroness knows, much will depend on the priorities that individual local authorities set. This is subject to further engagement because it is early days, but accidental injury prevention is listed as one of the areas that local authorities could focus on. To my mind, they should be warmly encouraged to focus on accident prevention as there are so many levers at their disposal to make a difference in this area.
To ask Her Majesty's Government what discussions the Prime Minister has had with the First Minister of Scotland regarding a referendum on Scottish independence since the Scottish Parliamentary elections.
Lord McAvoy: My Lords, I thank the noble Lord the Leader of the House for his Answer-I think. Does he agree with me that one thing is now certain; there will be a referendum in Scotland on the issue of separation at some point in the future? The Government seem lost for a definitive policy on this issue. Does he agree that it is essential that such a referendum on separation be conducted in a fair and impartial manner, with everyone entitled to put their point of view without being attacked for holding a point of view? Finally, does he also agree that it was totally reprehensible for a First Minister of Scotland to use public resources to attempt to undermine an eminent professor who had expressed doubts about the principle of separation?
Lord Strathclyde: My Lords, I understand that the First Minister of Scotland had to apologise to the Scottish Parliament last week for making that error. More fully, I totally agree with the noble Lord that if there were to be a referendum it should be fair and impartial. To that I would add another word-clarity. There is no purpose in having a referendum in Scotland unless the question is very clearly understood by the people of Scotland so that the result can equally be interpreted with clarity.
Lord Forsyth of Drumlean: My Lords, could my noble friend confirm that privately the First Minister has been threatening government Ministers that if we constitute a legally conducted referendum campaign
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Lord Strathclyde: My Lords, I cannot confirm to my noble friend Lord Forsyth that the First Minister of Scotland has been threatening UK government Minsters. If it were true, however, that he would seek to frustrate a referendum in Scotland that had been legally and rightly established by the Westminster Parliament, it would be the most extraordinary event. Surely the first person who should whoop for joy if there were to be a referendum on the issue of separation in Scotland should be the First Minister.
Lord McConnell of Glenscorrodale: Can the Government confirm whether they have conducted any research into the year-on-year implications for jobs in Scotland of investment decisions that might be affected by the prospect of a referendum and the prospect of independence? The First Minister talks of an independence referendum perhaps in 2015, with no certain date or timescale. Will the Government consider making representations to ensure that the uncertainty that that creates is minimised by bringing forward the date to as soon as possible?
Lord Strathclyde: The noble Lord brings a lot of experience to this whole subject. I am glad to say that my right honourable friend the Secretary of State for Scotland himself has laid six-there could be many more-questions to the First Minister for Scotland on the whole issue of what independence means, so that we can have the clarity that I alluded to in the first Answer.
Lord Howarth of Newport: If a referendum on Scottish independence produced a yes vote, would it not then follow that the size of the House of Commons would be reduced and that the House of Commons would be weakened? What bearing does the noble Lord the Leader of the House think that that would have upon the relationship between these two Houses of Parliament, especially if there were to be an elected second Chamber?
Lord Strathclyde: My Lords, I admire the way the noble Lord gets the question of an elected second Chamber into virtually every question he poses, but even for me that is far too hypothetical for me to join him.
Lord Maclennan of Rogart: Does my noble friend accept that it is in the interests neither of Scotland nor of the United Kingdom for this issue to drift on unresolved throughout the rest of this Parliament? Is it not now time for the Government to take a decision not only on the future calling of a referendum-their proper role in this union-but on the proper information for the electors about what the consequences would be?
Lord Strathclyde: My Lords, I entirely agree with my noble friend on the question of information. As far as timing is concerned, it is true that doubts about Scotland's future within the United Kingdom create
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Lord Davidson of Glen Clova: My Lords, in the spirit of clarity, will the Leader of the House indicate whether the Government have a view on whether the Scottish Parliament can competently call a referendum on constitutional change in Scotland, and if so, what that view is?
Lord Nickson: My Lords, in the tragic event that there was a referendum and the people of Scotland voted for a separate state, what is the Government's view on what currency they should adopt? Is it a possibility that it might have to be the euro instead of sterling?
Lord Strathclyde: My Lords, certainly one of the questions that will be raised-and is continually raised-with the First Minister of Scotland, is what currency would exist within the British Isles if Scotland were no longer part of the United Kingdom. At this stage is it is very difficult to answer.
Lord Strathclyde: My Lords, I am not going to follow my noble friend down that route. However, these are important matters. Ultimately the people of Scotland will need to decide whether to remain part of the United Kingdom or to break up one of the most enduring partnerships and one that has suited the people of Scotland economically and culturally more than anything else I can think of.
The Minister of State, Ministry of Justice (Lord McNally): My Lords, our intention in bringing in individual electoral registration is that the implications will be entirely beneficial. The Government are funding research to understand the current level of accuracy of the electoral register that will help us to understand better the way in which to move to individual electoral registration and what impact it will have. The Government remain absolutely committed to ensuring that the maximum number of people remain on the
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Baroness McDonagh: I thank the Minister for that Answer. I am slightly concerned when I read all the academics and psephologists on the subject, who believe that we are going to fall from best in class, from 92 per cent accuracy to the low 60s. Would the Minister be even slightly concerned if that were the outcome? Would our society be becoming bigger or smaller?
Lord McNally: I would be extremely concerned if that was the outcome. Let us remember that the party opposite, when it was in government, started to raise the issue of individual registration-and even passed legislation-because, for the first time certainly in my lifetime, the integrity of the voting system was starting to be called into question. That is the origin of the exercise that we are undertaking, on which I hope we will have all-party support.
Lord Rennard: My Lords, does the Minister accept that it really is necessary to carry out a thorough, door-to-door, face-to-face canvass in order to ensure both the accuracy and the completeness of the electoral register? Does he accept that failure to do so not only threatens the integrity of the democratic process but could also cause problems for people trying to obtain credit? Credit agencies check that people are on the electoral register to ensure that they can have credit, and failure to maintain the register in this way could mean that people are denied credit and businesses are unable to supply goods and services. That would be damaging to the economy and to social mobility.
Lord McNally: That is an interesting point. If I may return to the central point of the question, yes, doorstep canvassing plays a vital role in ensuring that registers are complete and accurate. That is why in both 2014 and 2015 door-to-door canvassers will be used by electoral registration officers to ask people to register to vote.
Lord Campbell-Savours: My Lords, last Wednesday the Minister denied that there had been a collapse in electoral registration in Northern Ireland when this system was introduced. Can I change the word from "collapse" to "fall"? Was there a fall, and by what percentage?
Lord McNally: It is of no use for the noble Lord to say "Ah!" as if he has found out something wonderful and unknown. I admitted that there had been a fall-yes I did-and what I went on to say is that both we and the Northern Irish had learnt lessons from that exercise
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Lord Trimble: My Lords, does the Minister agree that bogus registrations are probably the largest avenue for fraudulent voting, that this has been a major problem in England for decades and that it is long past the time that it was cleared up and we got a more honest register-which I am happy to say we now have in Northern Ireland?
Lord McNally: I am pleased to have that confirmation from my noble friend. Yes, I make the point again that that is exactly why the Labour Government raised this issue because, perhaps a little complacently, we got used to the idea that this kind of thing did not happen in England. We found out the hard way that that was not true. What we are trying to do-I emphasise this again-is to bring forward a process which is thorough and which will deal with some of the concerns that have been raised, and then move forward to a register that will have full public confidence.
Baroness Armstrong of Hill Top: Will the Minister agree that, if the further developments that the Government are considering-including voluntary registration rather than compulsory registration-are brought forward and passed, then all the exchanges about improving the register and getting a more accurate register will be for nothing, because we will get a much smaller register and a much less representative democracy?
Lord McNally: This is where I hope that we can call on the experts in all parties to stop those misleading statements. I made clear last Wednesday that we have always had voluntary registration in this country, and that we are not-whichever party is in power, I suspect-going to bring in compulsory registration. But we will bring in a system that will encourage people to complete their civic duties by registering to vote. Rather than throwing barriers in the way, I suggest that all parties, NGOs and others get down to making this system as foolproof as we can, and then get people to register to vote. We can prove by this exercise that some of those fears are groundless. My right honourable friend Nick Clegg and my honourable friend Mark Harper are open to suggestions and are engaged in discussions, and we will do the best that we can.
Baroness Royall of Blaisdon: My Lords, I am grateful to the noble Lord for his Answer about voluntary registration, but I do not entirely understand it. As I understand it, it is compulsory to register at present-if only it also were to vote-and if one does not register to vote, I think that one can be prosecuted. My main question concerns local authorities: I wholeheartedly agree with the position taken by the noble Lord, Lord Rennard, with which the noble Lord agreed. Can he assure me that local authorities will have the requisite amount of resources in order to ensure that they can undertake door-to-door registration?
Lord McNally: I suggest that noble Lords talk to some of the many experts on electoral registration. There is, always has been and always will be a difference. Voting is voluntary; the registration by households is compulsory. I suggest that noble Lords look it up.
To ask Her Majesty's Government what has been the increase in the population of the United Kingdom since 1945; and how many square miles of countryside have been used for (a) housing, and (b) industrial development, since that date.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham): My Lords, since 1985, the population of England has increased by an estimated 5.2 million people. In the same period, around 170 square miles of countryside has been used for residential development and around 30 square miles for industrial development.
Lord Sheldon: My Lords, I thank my noble friend for that reply. However, since 1945, the population has increased by about a third and the weekly wage has increased from £3.90 to about £400. In recent times, in each year, nearly four square miles of undeveloped land has been built on for housing and industrial development. Should we not use more of our brownfield land for housing and industrial use?
Baroness Hanham: My Lords, I am sure that the noble Lord will be aware that each Government have attempted to use brownfield sites and brownfield land before anywhere else. A great deal of brownfield land has already been developed. There is consideration as to whether that is better used for housing within central town areas or whether there is a better boost to growth if it is used for industry or commerce. By and large, brownfield land has for the past number of years been used primarily before anything else.
Lord Tope: My Lords, can the Minister say whether the figure she gave us just now includes land for which development consent has been given but never implemented? Does she agree that if priority is given to the implementation of such consent to the use of brownfield sites, as she has just said, and to the use of other land which none of us would think has any environmental value, there really is no need for the countryside to feel further threatened?
Baroness Hanham: My Lords, I cannot say whether what I have said includes such land. With regard to the development of land, we have always protected green belt and looked to see that greenfield land is not used before brownfield land is developed. I hope that that answers my noble friend's question.
Lord Elystan-Morgan: My Lords, does the noble Baroness agree that, as Huckleberry Finn might have put it, land is finite? Should not some council of wise men and women now determine exactly how much land should be set aside for non-cultivation, how much should be dedicated to biofuels and how much for the production of food? If such a body were to adjudicate, what would be the Solomonic principles on which it would allow the situation to be determined?
Baroness Hanham: I hope the noble Lord is not expecting a reply to that question in those terms. To some extent, land is divided up just as this country is. There is agricultural land; countryside land, which is not used for housing; and land in cities. It is interesting that at the moment 13 per cent of land-1.6 million hectares-is green belt; 25 per cent of England is in a national park or an area of outstanding national beauty; and the area of England-around 13 million square hectares, just over 50,000 square miles-is divided up into greenfield land, green belt, city development and other uses. Where Solomon comes into this or whether there should be an organisation or group to spread out the land and say what it is used for is not on the radar at the moment.
Lord McKenzie of Luton: My Lords, the introduction of a new planning system has not been without controversy. In particular there are concerns that, where local development plans are not up to date, the presumption in favour of sustainable development could lead to largely unfettered development. What assurance can the Minister give us about transitional provisions to cover and protect those situations where local plans are not fully up to date?
Baroness Hanham: My Lords, there has been quite a lot of misinformation in the media about the presumption in favour of sustainable development. That presumption originated in 1947. It was then turned into the plan-led approach in 1991, and the presumption has been there all along.
With regard to the presumption now coming through from the Localism Bill, where plans are not up to date, as the noble Lord knows-we have had plenty of discussions about this-the expectation is that local plans must be brought up to date as quickly as possible in order to make sure that development is carried out within the right parameters. Where those local plans
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Lord Eatwell: My Lords, I am afraid that this may take a little longer than expected, the order having been considered previously in Grand Committee. Unfortunately, at the time of the Grand Committee consideration, noble Lords did not have available to them the results of the consultation on the order and consequently were not then able to give the order the scrutiny it deserved.
I would be grateful if the Minister could answer a couple of points raised in the consultation that the Government have not addressed. First, given the peculiar importance of credit unions in Northern Ireland, are the Government intending to address the issue raised in the consultation of whether an office of the FSA or a successor organisation should be established in Northern Ireland? This is clearly a sensitive issue in the Province, and it ill behoves the Government simply to ignore it, as they do in this document.
Secondly, I am unclear about the Government's position on question 2(a) of the consultation on whether the Northern Ireland Assembly would retain legislative control of credit unions in Northern Ireland. As the Government acknowledge, considerable concern was expressed about the loss of Northern Ireland influence over an aspect of financial life that is very important in the Province but less so in the rest of the UK. Could the Minister please clarify the Government's position? Again, in the consultation document the question was simply ignored. As a corollary to this last point, what are the Government doing to ensure that no adverse effects are felt in Northern Ireland from the legislation on credit unions passed in this House on Thursday, 20 October? That legislation allowed businesses to assume up to 10 per cent of the share of the capital of a credit union and eliminated the role of the common bond as the basis of a credit union.
How will the Government ensure that credit unions in Northern Ireland do not, in some cases, become dominated by local business members, with the potentially unfortunate impact on investment decisions, particularly when the credit union considers investment in the local community? How do the Government intend to monitor the impact of the loss of the common bond in Northern Ireland credit unions, when it is evident that the common bond has played an important role in the unique character of the credit union movement in the Province?
Lord Sassoon: My Lords, for the benefit of noble Lords who did not take part in the discussion in Grand Committee on 17 October, it is perhaps worth explaining that this statutory instrument transfers responsibility for regulation of Northern Ireland credit unions to the Financial Services Authority. It implements a policy decision of the previous Government announced in March 2010-which has the support of all three main parties-the outline of which is the subject of this statutory instrument. There will be further instruments dealing with the detail of the transfer and a number of the consequentials arising from that.
It is unfortunate that the consultation issued by the previous Government in March 2010, having said that the decision had been taken that regulation would transfer to the Financial Services Authority, slipped into a consultation about how this is best achieved and what other associated action should take place. Those matters will be the subject of further statutory instruments in due course and it is unfortunate that there was one somewhat confusing question that could have been taken as touching on the statutory instrument before us today. I regret that. Had I known that that question was there, we could have had the consultation responses out earlier, even though it was not intended that the previous Government's consultation should have anything to do with the business before us today.
On the issues raised by the noble Lord, Lord Eatwell, the question of the FSA and the allocation of its resources to offices is a matter for it. The responses on this point were linked to concerns about what the regulatory regime was going to entail and the FSA has worked hard to address those concerns by carrying out visits to Northern Ireland and answering questions from the credit unions.
As to the common bond and possible domination of local businesses, as we discussed in Grand Committee, the credit unions do not feel that this issue will be a threat. Of course, along with seeing how the credit unions sector generally across the United Kingdom develops-it is prospering and the Government wish to see it do so-it is one of the many factors that the Government will continue to have in view. The matter does not touch directly on this instrument, but it is relevant to the whole of the credit unions sector across the United Kingdom.
The other points will be the subject of ongoing work by the FSA following another consultation that the FSA and the Treasury had issued, which closed last week and which will be the subject of further statutory instruments in due course.
Lord Sassoon: This instrument deals with the basic decision, announced jointly by the noble Lord's Government and the Department of Enterprise, Trade and Investment in Northern Ireland, that regulation, which is the subject of this instrument, should pass from the DETI to the FSA. That is what this does. It does not relate to any matters other than that. The decision had already been taken in advance of the consultation the noble Lord is questioning.
Lord Myners: My Lords, the Minister used the word "discussion" to describe Grand Committee on 17 October. That is rather stretching the definition of that word. It was a tetchy performance by the Minister, who was clearly deeply embarrassed that a consultation which had been initiated in March 2010 and completed several months ago-indeed, before the summer break-was actually published only on the morning of Grand Committee, and no efforts were made at all to ensure that those noble Lords who take an interest in Treasury Affairs were aware of the existence of this document before we discussed the order.
In those circumstances, the Minister assured the Grand Committee that when we looked at the consultation we would find that it was supportive. The Minister then said there was considerable risk that if we did not approve the instrument, these changes, which he rightly points out have widespread agreement across all political parties, could be delayed by as much as six months. I am seeking to establish through a freedom of information inquiry whether the FSA agrees with the statement. We approved this order in Grand Committee because of the urging of the Minister. He pointed out that if we did not do so, we would be delaying a number of other orders which would be forthcoming fairly soon. Those orders come under a negative resolution procedure. In view of the lamentable performance by the Treasury in not publishing the consultation response until the morning of the Grand Committee, will the Minister honour the House by ensuring that those subsequent changes go through an affirmative procedure, notwithstanding they could, at the Minister's discretion, go through a negative procedure? That is the least the Minister can do to address correctly a failure to treat the House with respect by holding back the publication of this report until the morning of discussion.
Lord Sassoon: My Lords, I really do not accept the construction of the noble Lord, Lord Myners, over this. If the previous Government had not published a rather confused consultation in March 2010, which slipped in a question that they said in the introduction to that consultation was already decided policy, none of this confusion and this opportunity to create some great mountain out of a procedural molehill would have arisen. We had a vigorous debate. We looked at all the key matters in Grand Committee in the proper way-all the matters I expected to be raised were properly covered in the discussion. A sequence of statutory instruments is due to come forward in the coming month. We needed this one out of the way. There is another consultation, as I have already explained, which closed last week that will inform the other
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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud): My Lords, I beg to move that this House do agree with the Commons in their Amendment 1. I shall speak also to Amendments 2, 1B, 1C and 1D.
However, before I discuss the amendments, I wish to place on the record my appreciation for one of the department's officials, Evelyn Arnold, who is retiring after 36 years in the department. In fact today, by some coincidence, we are here on her final day. I am sure that with many an ex-DWP Minister present today noble Lords will share my thanks as we bid farewell to Evelyn and, I hope, to this Bill.
Today we have a further opportunity to discuss what has proved to be the most contentious aspect of this Bill. I hope on this occasion we may emerge with something like consensus. All sides of the House accept that projected average life expectancy has increased significantly since we agreed in 2007 to raise the pension age to 66 by 2026. The latest projections published only last week confirm that with no change to the 2007 timetable, men retiring at 66 in 2026 would receive their pension for an additional 18 months and women for an additional 19 months.
This demonstrates the very challenge we are facing, for we have been on quite a journey with this clause. That we have this opportunity further to debate the Government's transitional arrangements is to no small extent due to the considered and thoughtful arguments made during our debates on Clause 1. I thank the noble Lord, Lord McKenzie, and the noble Baroness, Lady Drake, for tabling the alternative timetable, which has continued to reappear both here and in another place. However, it is £11 billion-and this fact will
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I pay sincere tribute to the noble Baroness, Lady Greengross, who recognised that this sum of money is too great a burden for the system to bear and sought to propose an alternative timetable at a fraction of the cost. Her suggestion provided a more reasonable financial cost while assisting those most affected by the original Bill timetable. Our amendment takes her amendment as the starting point and provides the same notice for the first women affected by a one-year rise, five years and four months from Royal Assent. Our amendment smooths the rise from 65 to 66, taking six months longer than we originally proposed, and provides a revised pension age for men and women born between 6 January 1954 and 5 October 1954. It benefits a similar number of people-about half a million, under the noble Baroness's amendment, and around 485,000 under ours, although in the case of our amendment nearly half of those are men. That is because we equalised the pension ages first before starting the rise to 66. We have found that there was no alternative to equalising first that would not risk breaching the European equal treatment directive by delaying equalisation beyond the date that we set ourselves in 1995. That is why men will also benefit-but that is, of course, incidental to our primary goal, which is to mitigate the impact on those women who would otherwise face an increase of more than 18 months.
We have listened, we did reconsider, and we have done what is right for these women and the country-and it has not gone unnoticed. Michelle Mitchell, the director of Age UK, welcomed the Government's amendment, saying that Age UK appreciated that,
Although Age UK would have liked the changes to go further, it has none the less acknowledged that the Government have listened to concerns. In its briefing sent to noble Lords for this debate, it said:
The issue has never been whether the original timetable is to be brought forward. The issue is about the precise timing and whether it is appropriate to rewrite the timetable, set more than 15 years ago, for levelling the pension ages at 65, to bring about 66 in 2020. We have always been clear on the matter. My right honourable friend the Secretary of State said in another place that,
These amendments do not alter our timetable for pension age equalisation and maintain our original intention to implement the rise to 66 in 2020, but we have reduced the impact of our original plans by up to six months for those facing the biggest increase. This is what we call a compromise.
This transitional arrangement has a significant price tag attached. Net spending on pensions and benefits will increase by £1.1 billion compared to our original proposals over the two years 2019-20 and 2020-21. Under our amended proposals, we will therefore deliver £30.6 billion of savings. This is not small change that falls down the back of the sofa, but vital savings for the long-term fiscal sustainability of our economy. We must not forget the bigger picture. Savings are not just important but necessary. The independent Office for Budget Responsibility has some very helpful forecasts. They show that by 2060-50 years' time-age-related public expenditure is set to increase by more than 2.5 percentage points of GDP, with the largest proportion of spend on older people being on health and state pensions. This 2.5 per cent is the equivalent in today's economy of £40 billion.
The point I am making is that it is tough to save money and this country faces a significant near-term challenge to do so. It was suggested by some Members in another place that the public sector net debt of £1.4 trillion in 2015-16 forecast by the Office for Budget Responsibility is so monumental that £10 billion or so here or there will not make much difference. I would like to think that in this House we take a more realistic view. With figures like this, even £1 billion is an important sum of money to spend, and this is only one-tenth of the cost of the proposals advanced by noble Lords opposite.
The fact is that the fiscal impact of their amendment falls on six years not 10 and within that period-2016-17 to 2021-22-nearly £2 billion would need to be found in 2018-19 and nearly £3 billion in each of the years 2019-20 and 2020-2021. In the context of the Office for Budget Responsibility figures, ours is the fiscally responsible approach.
I accept that some will continue to argue that our amendment does not go far enough. However, I would urge noble Lords to reflect upon the process that has got us to this point. Noble Lords scrutinised the Bill many months ago and the Government listened to concerns. The elected House has had its turn, as is the process, and has responded with these amendments, which balance the concerns of those women most affected with longer-term fiscal responsibility. I beg to move.
As an amendment to the Motion that the House do agree with the Commons in their Amendment 1, leave out from "House" to the end and insert, "do disagree with the Commons in their Amendment 1 and do propose Amendment 1B as an amendment in lieu and Amendments 1C and 1D as consequential amendments".
Lord McKenzie of Luton: My Lords, I join the Minister and start by sending best wishes to Evelyn Arnold. We worked together, on and off, on pensions for at least a couple of years through some very interesting and challenging times. I thoroughly respect the expertise that she brought to that process and I wish her well in retirement.
The amendment gives us an opportunity, as the Minister identified, to revisit the changes to the state pension age, which we debated when considering the Bill. We can do this in the light of the Government's amendments, which made some modest changes to what they originally proposed. Modest they may be, but it would be churlish not to give them at least a modest welcome and in doing so to pay tribute to all those who campaigned to press for changes to the original measures.
The position is as follows. Prior to the Bill, the state pension age for women was due to rise from 60 to 65 over the decade to 2020, so that it equalised with the state pension age for men. This was provided for by legislation in 1995 under the previous Government. The Pensions Act 2007 increased the state pension age for both men and women to 66 between 2024-26, to 67 between 2034-36, and to 68 between 2044-2046. There was political consensus around these measures. The Bill changed all this by equalising the state pension age earlier, in November 2018, and by completing the increase to age 66 for men and women by March 2020. As we discussed previously, these changes will have caused some 500,000 women to have their state pension age increased by more than one year, with approximately 300,000 experiencing an increase of 18 months or over.
As the government fact-sheet provided to us shows, the government amendment reduces the increase in the state pension age for women to 18 months for all those for whom it was more than that. For men, it reduces the transition to the state pension age so that none has to wait as much as 12 months, with varying changes so that the maximum additional time is 11 months-although for some, it is reduced to four months. This still means that 500,000 women would have their state pension age increased by more than one year and for up to 18 months. We hold fast to the view that it would be wrong to disturb the timescale to equalisation of the state pension age, of which women have had some 15 years' notice and time to plan. However, we consider that accelerating the move to 66 for men and women by four years is justified, given
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Our proposals would affect 1.2 million fewer people and equal numbers of men and women, with no one having to wait more than 12 months extra for their state pension. There is of course a difference in the level of savings that the proposals reduce; we accept that. Our position generates just two-thirds of the £31 billion savings that the Government's proposals generate, although those savings would begin to accrue in 2016-17, after the end of the current spending review and the deficit reduction plan. The greater savings from the Government's announcements would accrue over a five-year period, and then align with our proposal. Of course we are not dealing with small sums of money, although there is a multiplicity of policy decisions that have yet to be made for that far out, well into the next Parliament. Bearing in mind that GDP at that time would be some £1.5-plus trillion, with total managed government expenditure heading for £800 billion and spending on pensions and benefits at £100 billion a year, these sums have to be seen in that context.
However, the other side of the issue is: why is it fair for those additional savings to be disproportionately visited on some 500,000 women, who will still have to wait for longer than a year-and 300,000 up to 18 months longer-to receive their state pension? Why should they shoulder the burden? It is of course right that we share the extra costs of rising longevity fairly, but this is not fair. A balance must be struck between dealing with rising longevity by having a plan to increase the state pension age over time, including revisiting the increases to age 67 and 68, and offering short-term security to women who need to be able to plan their personal finances. There must be due notice of changes.
We know that 40 per cent of women have no private pension savings. Those who do invariably have smaller pension pots, since many work part-time and were excluded from occupational pension schemes until the 1990s. A delay in reaching the state pension age also means missing out on pension credit and could mean missing out on passported benefits as well. This is not just a timing matter; it represents a real cash loss to those individuals. The responsibility for caring falls disproportionately on women. Some will have organised a move away from the labour market, perhaps taking part-time work with the prospect of receiving a state pension at a known date. Putting all this in reverse simply may not be possible. All the matters are made more difficult by rising unemployment and the growing scarcity of part-time jobs, with women again bearing the brunt. If individuals are to be able to respond to changes in their economic circumstances caused by a deferral of their pension, they need to know before they make irrevocable decisions about their employment.
Sadly, these measures sit alongside a raft of other policies that have particularly adverse effects on women. For example, we have seen the abolition of the health in pregnancy grant, a three-year freeze on child benefit, cuts in childcare costs supported through tax credits, caps on housing benefit-which are likely to act disproportionately adversely on women-and the closure
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Lord Boswell of Aynho: My Lords, I should like to speak briefly in support of the amendments offered to us by the House of Commons and against any further amendment thereto. In doing so, I speak as one of the instigators of the initial expressions of concern in this House, which were taken up so well by the noble Baroness, Lady Greengross, and others, and have led to the kind of compromise that the Minister has offered us today. It is a compromise; it is not perfect and certainly not what everyone wanted. However, the alternative would be unconscionable and unachievable.
The Minister has had to labour in devising this scheme with the aid of tremendous care and iteration. He has had to operate under two major constraints. The first, which he has set out more clearly than anyone else could have, is that of cost. I shall turn back to that in a moment. The second is the equal treatment directive. Although the measure of generosity or beneficence that he has been able to offer is welcomed by members of the male gender, the directive has attenuated some of the things that he would have done-if he had not been constrained by it-for persons of the female gender, who initiated the element of concern. He has had to live with that.
I say that as the author of an amendment that the Minister briskly dismissed in Grand Committee by pointing out that it would, somewhat beyond my intention, have been likely to incur an Exchequer cost of some £6 billion, which would have been out of court to the expenditure that he has been able to undertake on it. However, the Minister has done the right thing. In particular, I emphasise the importance of having a sound and viable medium-term strategy. It is quite easy for us, even those who are more expert in the public finances than I currently am, to look at issues in the deficit reduction programme without realising or acknowledging that it is equally important that we should have a credible medium-term financial stance; and that we should show that we are prepared to keep a rein on rising expenditure. The Minister has been able to soften that slightly but he has not been able to take away the constraints.
The Minister also had a third area to think about: how we should deal with this. I am very glad that the Government have not come back with a compromise that was a kind of lash-up-another set of discretionary concessions for a limited number. That would have been better than nothing, I am sure. However, as I advocated in Committee, he has come back with what I call an architectural solution: delaying the full impact of these changes, rather than just a series of slightly unfortunate and perhaps awkward-in-precedent changes.
I have one final point for the Minister. In praising him for his measure of controlled beneficence, I also remind him that it will be equally important for long-term assurance-given the longevity factors that are not
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Baroness Greengross: My Lords, I thank the Minister, particularly for his amendment. However, I want to emphasise that the real winners here are the half million or so men and women who are going to get their pensions earlier than they would have done without this amendment. I was not the only Member of your Lordships' House who felt that this was very unjust, but I congratulate the noble Lord because he recognised this with great sensitivity. I agree with the noble Lord, Lord Boswell, that this is a compromise and that there were various constraints. It is not what we all wanted; it has not gone as far as we would have liked, but there were constraints that made that very difficult.
I tried in the amendment that I put forward to do something about what those of us who tried to change things we saw as a tremendous injustice to 300,000 older women-those who found they had to wait an extra 18 months or even more to get their pensions and 33,000 who had to wait an extra two years. Now, because of this amendment, 245,000 of those women, and a similar number of men, will see their pension age reduced between one and six months. It was not all that some of us, including Age UK, would have liked, but I am pleased to support the amendment as a victory for common sense and I thank the Minister for his sensitive approach.
With regard to going further, at this stage I just hope that no further changes will occur without due notice to everybody concerned and appropriate time for people to prepare for a huge change in their circumstances. That is very difficult to cope with at that stage in one's life-particularly for women, who find it hard to get into the job market at all at that age or even to remain in the job market. I very much support what the Government have done, and thank the Minister again.
Lord German: My Lords, I also add my congratulations to the Minister and the Government for recognising what was the most important part of this Bill-certainly the most controversial part. When it left this House it left it unamended but, if one had taken the temperature of your Lordships' House, it would have been quite clear that the Government had to do something to ameliorate the problem which was so well put in very many amendments. The Government have listened, and taken on board that message. They went away and came up with a compromise for which we have to be grateful. I pay tribute to the noble Baroness, Lady Greengross, who put down the amendment that paved a way, in a sense, for the sort of direction that the Government have adopted; it might have cost another £1 billion, but, as they say in musical terms, it was close enough for jazz.
The key issue here is that we have to recognise that, though the Government have taken this on board, it will mean a substantial improvement for women who might otherwise have been expected to work for an additional two years. As we have heard, these changes will cost £1.1 billion and affect 250,000 men and just under 250,000 women. I do not regard that as a sticking-plaster solution. It has not been put in place simply to hold the breach in the dam. Another part of the Age UK statement says that it is a big step forward. It states:
I want to say a few words about political consensus because it can often occur around facts, information, data and reports as they are at a particular point in time, when it is easy for people to come together. However, as your Lordships will know, this has in fact been a changing, not stationary, landscape as people get older. The source of the then political consensus, Adair Turner, in his work on pensions reform, accepted that this was not a static process. Since he wrote his report, he has stated in unequivocal terms that if he had known then what he now knows about life expectancy, he would have gone further and faster in his recommendations. He said:
The facts are straightforward, are they not? Someone who reached the age of 60 in 1970 could expect to live until they were 78. I am averaging out men and women just to provide the feel for change. However, someone who reached 60 last year can now expect to live to the age of 88. We have already moved on 10 years since 1970. In an ideal world, all noble Lords would have liked the Government to go further, but we cannot do that without regard to the fiscal constraints that are with us, and are likely to be with us for some considerable time to come. We have record debt and must do all we can to reduce the burden that that debt will put upon our children and our children's children. I do not know whether noble Lords have looked in the face of their children-as I have looked at mine, although my grandchildren are a little too young yet-and told them what the burden of older people would be upon them, and asked whether they thought it was right that we should pass it on to their children.
My reading of what happened in the other place was that the Labour Party accepted that longevity changes had occurred and that changes had to be made to the current legislation. Therefore, the opposition amendment is fundamentally about affordability. What we are faced with is an unfunded promise of £11 billion of expenditure, as if it were small change. I do not regard the Government's proposed £1.1 billion as small change; it is a very significant expenditure difference. I read the reports of the other place and was at first confused about what was being said-that it was a modest change representing only a thousandth of the national debt. I carried out two bits of investigation-the
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The group of women about whom we are most concerned will be precisely those who will benefit most from the state pension reform that the Government recently outlined. It will particularly benefit women who have taken career breaks to bring up children, and who did not have the protection of state second pension credits or any home responsibility protection. I hope that the Minister in his reply will say a little more on this, particularly on the Government's timetable for implementation.
Already we have seen the value of existing pensions maintained in a way that the previous Government were unable to achieve. The triple-locked state pension will rise in line with earnings, by 2.5 per cent, or by inflation. Over time, this move should guarantee a more generous annual increase for the 12.4 million people who are paid a basic state pension.
I urge your Lordships to resist the amendment because of its unaffordability and to recognise that we are making a very expensive change. We have taken forward the view of this House, and I urge noble Lords to resist the amendment from the Opposition and to support the Government's amendment.
The Lord Bishop of Bath and Wells: My Lords, I, too, express my appreciation to the Minister for the work that he has done in regard to this very complex matter. At the same time, I belong to the generation that has benefited extraordinarily from the provisions that have been made by the state and I have no worries about my pension. I am very conscious that this is an issue if not of gender justice then certainly of fairness. I recognise how difficult it is when that has to be balanced against finance, but many decisions that we make in government often demonstrate that money is spent on things that do not have quite the same moral imperative as this issue.
Noble Lords will be aware of the public pressure in respect of this matter-some will have seen the advertisements in Westminster Tube station. Perhaps we should remember that the Prime Minister himself has said that he is uncomfortable with these proposals. I recognise that there can be no universal panacea but I genuinely believe that, this being an issue of fairness, we must consider whether the amendment in the name of the noble Lord, Lord McKenzie of Luton, can be supported.
Baroness Howe of Idlicote: My Lords, I, too, thank the Minister for the efforts that he has clearly been making and I am grateful for the changes that have been brought forward in the other place. As the right reverend Prelate said, the Prime Minister was made
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I, too, am still very concerned about the age group which is most severely affected. The people in that group entered employment as far as they were able with their caring responsibilities. We should not forget the cost to the public purse of bringing up children-in an orphanage, say-if their parents do not look after them. We all know that it is mainly mothers who carry that responsibility, and that has definitely had an effect on the amount of time that they have been able to devote to whatever employment has been within their reach. Therefore, we still have a duty towards this group of women.
I accept that £11 billion is a lot of money, but there have been complications over equality and I would still like to see more done for this group. I would regard it as fair, just and proportionate if this group were given a full year. Although I should have liked to go along wholeheartedly with what the Government have achieved, I am sad to say that, with my background knowledge from many years of fighting for equality of opportunity and much greater equal treatment for women, I do not think that what the Government are proposing has gone far enough.
Baroness Drake: My Lords, I recognise that amendments have been made by the Government but I support the amendment tabled by my noble friend Lord McKenzie. This is not an argument against raising the state pension age. It is not even an argument against accelerating the increase in the state pension age in the face of rising life expectancy to achieve the long-term sustainability that was articulated by the noble Lord, Lord Boswell. I frequently heard the quote from the noble Lord, Lord Turner, but if one gives it in its totality, he went on to say that he would also have been more radical on state pension.
As for my own situation, in 2004 I travelled the country attending public events and platforms telling people at a time when it was most unpopular to do so that the state pension age would have to rise not once but consistently. I have no difficulty in articulating the case for the need to respond to rising longevity. However, this is an argument about the manner and timing of this particular increase, which fails to take account of the need to give people sufficient time to adjust their lives and their planning for the increase. It means that a particular group of older women will disproportionately bear the burden of achieving these savings. That will happen for five simple reasons.
First, they will have lower state pensions for legacy reasons on the treatment of carers. Secondly, they will have lower private pension savings because of their economic and social position and the past incidence of gender discrimination. Thirdly, they are more likely to be undertaking caring responsibilities and less likely to be in the workforce. Fourthly, they will have lower incomes. Fifthly, they are less able to mitigate the loss of the income in the limited time available. The debate is about this particular increase, its manner and its disproportionate impact. It is not a challenge to the intellectual analysis of what you need to do to respond to rising longevity over the long term.
Those five reasons provide the essence of why the policy on this increase upsets people. It is seen as unfair. Consistently surveys show that women believe that coalition policies are seen as particularly harmful or harsh to women. We hear organisations such as the Women's Institute articulating these concerns. At the weekend the Daily Mail highlighted the results of a Harris Poll survey showing that government support among women is slipping away. These proposals are an example of why that is so. They are very real in their impact on ordinary women. There are others, such as the change to the tax credit system, child benefit and childcare to name but a few. Yes, tough decisions have to be made. I do not disagree with that at all. But that mantra cannot be used to justify policies that consistently and disproportionately impact on women, particularly those who are carers and on low or moderate incomes. Until that is recognised there will be many more surveys revealing views of women similar to those reported by the Daily Mail at the weekend.
To get back to the point that I made in opening, the amendment of my noble friend Lord McKenzie-I know him well and we discuss these things frequently-is not a challenge to the need to respond to increasing longevity or the fact that accelerating the increase in the state pension age is part of that. In fact, the amendment does accelerate the increase in the state pension age compared with the existing proposals, and no doubt we will come on to look at ages 67 and 68. The amendment concerns the unfairness of the manner of this increase on a particular group of women for the reasons that I have laid out.
Baroness Hollis of Heigham: Like the noble Lord, Lord Freud, and my noble friend Lord McKenzie, I, too, pay a very warm and genuine tribute to Evelyn Arnold. When, back in 1997, I was trying to put women's pensions on the political agenda, I remember being told by one Minister in the then Government-we were preparing a Green Paper on pensions and I wanted a chapter on women's pensions-that they did not think there was anything to write about, so they did not want the chapter, but Evelyn was always a wise, staunch and fair support in ensuring that whenever we considered pensions, we ensured that the gender filter was put up in ways that were appropriate to the pension issues we faced. All of us who have been at the receiving end of her guidance are warmly appreciative of it.
We all appreciate the moves the Government have made so far. We all absolutely understand the dilemma that the Minister believes he faces: that he cannot go any further because in his view the equality directive, requiring equal treatment between men and women, takes precedence over the need to be fair to this group of women in particular. He is seeing the one against the other and believes that protecting women, as my noble friend Lord McKenzie argued in his eloquent opening speech, would mean that the rise in men's pension age would be delayed and therefore that the cost is unaffordable. Also, goes his legal advice, we should treat men and women
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One of the things that struck me going into government after being in local government was that whereas local government lawyers sought to enable you to deliver your policy objectives, central government lawyers were charming, but conservative and often unhelpful, and the more unhelpful they were, the more charming they were. Discussing the equal treatment directive over the weekend with a solicitor friend who specialises in the equality directive, his immediate response was that this is "gold-plated conservativism". The Minister said that if we tried to follow the principle in the original amendment tabled by my noble friend Lady Greengross-to separate the timetable for women from that for men, which would deliver an objective we could all share and produce most of the savings that the Government want-it would risk breaching the European directive. He did not say that it would do so, but that there would be a risk. My solicitor friend told me that, on the contrary, it is for member states, not the EU or any other body, to determine the timetable for equalisation. The advice I was given was that there is no good reason why we should not pursue this detachment of women's equalisation from men's in the way that my noble friend's amendment would allow as a fallback if we cannot defer men's pension age along with that of women.
I think the Minister still has time to be brave. I think he has gone some way, and we understand the pressures he is under and appreciate what he has done so far, but what is the risk? If the advice I have received does not hold up, then women will be no worse off than they are now, but the Government, this House and women out there will know that the Government have made their best endeavours to deliver a fairer deal for women. If it does hold up, and I think there is a reasonable case that it could, some of the poorest women will have been treated fairly and decently. We know that at the moment women are carrying the burden, as my noble friend so rightly said, of benefit cuts, job cuts and public service cuts and many will now face extra conditionality-which appals me, actually-under universal credit. We have to come back to that because too many women will not have the resilience or the capacity to cope with the new burdens that the Government are putting on them at the time that they face the cuts agenda that the Government are also introducing. That is unfair. It is about political choices. I need only remind the House of the up to £8 billion that goes on the additional cost of higher rate tax relief for pensions to realise that there are still plenty of choices if the Government choose to make them or seek them.
I support my noble friend's amendment warmly. I hope that, at the very least, the Government will consider the original purport of the compromise amendment of the noble Baroness, Lady Greengross. I understand where the Minister is coming from and am grateful for even that which he has done, but we should go further, and could go further, at reasonable cost, by deferring the equalisation issues until after we have protected women who are at the receiving end of most of this Government's most savage cuts.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud): My Lords, I thank noble Lords for speaking with the expertise and knowledge that we have grown accustomed to in this Chamber. I am particularly grateful for the mathematical expertise of my noble friend Lord German.
As I have already mentioned, the Government have acknowledged that the original timetable was too harsh on some women and have amended this. We have listened. We have amended. This is the very point of the legislative process. The elected Chamber brought forward and agreed Amendments 1 and 2 after significant and lengthy debate. Due consideration has been paid to the issue and I believe that we have reached an agreeable and responsible conclusion.
Indeed, I confess that I am slightly perplexed. We find ourselves considering a timetable that has already been proposed and defeated in a vote by both Houses. We appear to be back at square one. This should not be the case. The Government have reconsidered their original proposal and brought forward a reasonable amendment. Yet, the noble Lord opposite has still reinserted his familiar friend. I feel that we have offered a hand here and the noble Lord, like Beowulf, treats me like Grendel and tries to rip my arm off.
We have heard many of the issues today, but we have been here before and the facts have not changed. We are still talking about an £11 billion reduction in savings that the Opposition are proposing. In terms of fiscal sustainability, I hope that noble Lords can agree that this is simply not feasible.
Several issues have been raised and I want to touch on some of them. One that is of great concern was raised by the noble Lord, Lord McKenzie, and by the noble Baronesses, Lady Howe and Lady Drake, in respect of the burden on women who are carers. Only around 3 per cent of women in the 55 to 59 age group are currently entitled to carers' allowance.
Baroness Hollis of Heigham: There are 6 million carers and only about 500,000 of those qualify for carers' allowance because of the very high hurdles: you have to care for at least 30 hours per week for one person in order to receive the carers' allowance for somebody who is on middle or higher rate DLA. Those are very tough hurdles. Very many other women-hundreds of thousands-are, I know, actively caring in ways that do not permit them to be full time in the labour market or build a pension, but they do not meet those very high hurdles.
Lord Freud: My Lords, we do not have the figures on more informal care; we do not know how many are in this age group. That is not broken down-I certainly do not have the figures to hand. I am providing the figures for the women most affected with full-time caring responsibilities.
Baroness Howe of Idlicote: Could the Minister answer the point that I was trying to make concerning the earlier period in women's lives, when they were caring? That also will have had a huge effect on their capacity to find employment; certainly these days it is not an easy task.
Lord Freud: My Lords, I am plucking the figures slightly from my memory, but I am fairly confident that the number of women in this cohort who have already retired is 4 per cent. I know that there are arguments about how many are part time or full time and adjusting their lives, but that gives you a context for that particular issue. Of course, our concerns for the women that the noble Baroness has just described have driven us to make this amendment. That is our concern as a Government, to take away what we regarded as too harsh a provision and to offer up this amendment.
I would like to spend a little time on the point raised by the noble Baroness, Lady Hollis, about the charm of our lawyers, which she has obviously experienced rather more than I have. We have spent a lot of time with the lawyers on this issue and we have not just accepted the first or even the second proposition from them. As noble Lords will acknowledge and realise, we have spent a lot of time-many months-on this particular amendment and we are confident that there are significant levels of risk in doing it the way proposed by the original amendment tabled by the noble Baroness, Lady Greengross, which was to try to concentrate on the group of women alone. Trying to tough it out would expose us to the risk of the European Commission bringing infraction proceedings, which clearly would be unwise. If we were found in breach, we would at a minimum have to rectify the pension position for those already affected and leave the pension position for many people in limbo for several years as proceedings made their way through court. Clearly we could also be fined; the fine could be substantial and it is very difficult to put any kind of estimate on it.
My noble friend Lord German asked about future changes to the pension system. We are still considering responses to our consultation paper, which were in general very favourable to making a major reform along the lines of the single tier. We are aiming to bring forward our proposals in due course. A number of noble Lords raised the issue of the future. I am grateful for the questions asked by my noble friend Lord Boswell and the noble Baronesses, Lady Greengross and Lady Drake, about what is to happen in future. There was broad agreement in this House that increasing life expectancy needs to be reflected in the state pension age. I think this House acknowledges that the state pension age needs to rise so that we have a sustainable state pension system which fulfils its primary purpose-to provide a decent threshold income in retirement. Following our recent consultation, A State Pension for the 21st Century, we are currently considering how best to achieve this. Therefore, I urge noble Lords to agree with the Commons in their Amendments 1 and 2.
I agree that there is broad agreement on the need to have changes to the state pension age that reflect changes to longevity, and that they must be sustainable.
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The noble Lord responded to the noble Lord, Lord German, in respect of future changes to the pension system, and we still await that. The noble Lord, Lord German, tends to hide behind the prospects that come from that in defence of everything that the Government do. The noble Lord said that he was perplexed because this proposition has been defeated twice; he is absolutely right, it was defeated, and quite narrowly last time, but there is more joy in heaven and earth over a sinner who repents. Here is the Minister's opportunity to do that.
My noble friend Lady Hollis made a telling point about the equality directive, if one listens to what the Minister said. She also made a point, for example, about higher rate tax relief. The noble Lord, Lord Boswell, I think, said that we wanted a medium-term strategy as well as a short-term deficit reduction strategy. I absolutely agree with that. Our proposition is that these issues of whether it is £30 billion or £20 billion should be very much part of that consideration of the medium-term strategy, together with issues such as the costs of tax relief, rather than to isolate and look at a juxtaposition of two propositions, to see if one has greater savings than the other, and therefore to condemn the one with the lesser savings.
I very much agree with my noble friend Lady Drake; we are not against raising the state pension age, nor against accelerating the time when that happens, but there are issues around the manner and timing of any change. The noble Baroness, Lady Howe, said that there was more to be done for the group of women we are considering here, particularly in view of their caring responsibilities, and I very much agree with that. The right reverend Prelate the Bishop of Bath and Wells said that this was an issue of fairness and a moral imperative, and that is absolutely the issue here. The noble Lord, Lord German, has argued that this is an issue of affordability-and of course, affordability is part of it-but does affordability always have to trump fairness? I would contend not, by this amendment.
The noble Lord, Lord German, referred to intergenerational issues. If we look at the impact assessment and the difference of the intergenerational factors between our proposition and the Government's, there is very little difference between the two. The noble Lord referred to the noble Lord, Lord Turner, going "further and faster"; yes, but one of the propositions of the noble Lord, Lord Turner, was that proper notice should be given to people.
The noble Lord, Lord German, and the noble Baroness, Lady Greengross, acknowledged that the Government had moved-the term "compromise" was sprinkled around the debate. It does not seem an incredibly big compromise to remove just the period between 18 months and two years for those affected, and shift those people into the "up to 18 months" category. It is some movement, and I am sure that it will be welcomed by the beneficiaries, but it does not address the fundamental problem.
Today we enter the final stages of an ambitious programme of legislation to transform the saving habits of working people in this country. Before we begin the debate, I pay tribute to the noble Lord, Lord McKenzie, and the noble Baronesses, Lady Drake and Lady Hollis, who throughout this detailed process have brought such value, wisdom and breadth of experience of proceedings to get us this far. Governments have benefited from a significant degree of consensus during the passage of this legislation. Our consensus has sometimes been stretched, but I hope that during this debate we will retain that consensual approach and a common goal to reshape retirement provisions fit for the next decades.
Many of my contributions to our pension debates have started with the words "Automatic enrolment", and today is no exception. However, I stress one core feature. Automatic enrolment into a workplace pension scheme is an enduring duty: employers must put workers who satisfy age and earnings tests into a pension savings scheme and keep them in a scheme unless the individual chooses to leave. Employers may, of course, choose to close or change a scheme but, if they do, or the scheme ceases to qualify, there is a clear duty in the Bill to maintain scheme membership for all the jobholders affected by providing a replacement qualifying scheme if necessary. Employers may not induce someone to leave a scheme so that it can be closed unless they put them into another one. This is the core enduring duty.
Amendments 3 to 8 and Amendment 10 are technical amendments to make those continuity of membership provisions work as intended and make some minor technical corrections. They ensure that the automatic re-enrolment duty applies straightaway in situations where an employer, or any other third party, causes an individual to lose their membership. It also aligns this obligation to all active members irrespective of age. As a consequence we need to realign the key compliance provision in the Act that prescribes inducement with the automatic re-enrolment duty.
We also take the opportunity, with Amendments 5 and 6, to remove a redundant reference to the old style postponement provisions in the Pensions Act 2008 and amend a cross-reference in the uprating clauses which had inadvertently linked uprating to the jobholder age test rather than the automatic re-enrolment trigger. I remain grateful to the noble Baroness, Lady Drake, ably assisted by the noble Lord, Lord McKenzie, whose eagle eyes identified this mistake in Committee.
Noble Lords will recall that self-certification for defined contribution schemes was subjected to detailed consideration in this House. I am pleased that we were eventually able to reach agreement. Amendment 14 extends self-certification to employers using defined contribution schemes that have their main administration in another European Economic Area member state. EEA schemes are subject to the same European directives as UK schemes so members' benefits should be similarly protected. We believe that putting EEA schemes on a comparable footing with UK schemes complies with our European Union treaty obligations.
Amendment 13 is minor, purely technical and consequential. It amends the title of Section 28 of the Pensions Act 2008 to reflect changes to the certification requirements introduced by Amendment 14, which extends the facility to EEA schemes.
Amendment 12 is a technical amendment which provides for a new test scheme standard for defined benefit schemes. This has been wrongly categorised as hybrid in the original clause. The new test standard does not alter the quality requirements for schemes but provides for them through the legislation relating to defined benefit schemes.
Amendments 15 and 16 are technical amendments to clarify the duty for employers with an existing defined benefit scheme to protect individuals. They align the rules on back payment of contributions when an employer moves a jobholder from a defined benefit scheme to a money purchase or personal pension scheme. Employers who have an open defined benefit or hybrid scheme may defer the automatic enrolment date for up to four years provided that the scheme remains open and the jobholder is still entitled to join it. Where this changes, the employer must enrol the jobholder into an alternative scheme and pay up to four years of back contributions. As drafted, the Act does not allow the employer to use a workplace personal pension as an alternative. These amendments fix that omission and ensure that the jobholder is not charged for the back payments.
Amendment 11 extends the reserve power in the Pensions Act 2008 to regulate to cap charges for deferred members in qualifying schemes. The current power to cap charges, should the need arise, applies only to active members who are paying contributions into the scheme; it does not apply to deferred members who have a dormant pension pot administered by the pension provider. It would not be fair to deferred members to be charged inappropriately high charges simply because they have moved jobs. Evidence suggests that the vast majority of schemes currently have low fund charges. However, savers may not understand the full impact that charges can have on their retirement pot. The risk that high charges could erode pension
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It is critical to the success of the workplace pension reforms that possible barriers to employer compliance are addressed before automatic enrolment starts. There is a potential overlap between the cross-border regulations, which deal with the provision of services by a pension scheme based in the UK with respect to an employee who is subject to the social and labour laws of another EEA state, and the automatic enrolment duty. This overlap could compromise the employer's ability to comply with the duty. It can be complex and costly for schemes to accommodate pension rights acquired by individuals working in another EEA state and there is no obligation for schemes to do so. Amendment 17 provides for regulations that would exclude individuals who fall under the cross-border regulations from automatic enrolment. Without such a power we may find, when it is too late to address, that some employers will be unable to comply with the employer duties. Draft regulations would of course be subject to formal consultation and we would provide detail on the application of the exemption.
Additionally, the Pensions Regulator already provides guidance for employers and schemes covering the circumstances in which employees may be subject to the social and labour laws of other EEA member states and how this may make the employer a "European employer". Should the Government make regulations, in practice the employer would need to take a view as to whether or not he is a "European employer" in relation to the employment of an individual and accordingly as to whether he should enrol that individual. I beg to move.
Baroness Drake: My Lords, in the consensual approach that we are invited to take by the Minister, I rise to support government Amendment 11. I am absolutely delighted and welcome the opportunity to return the compliment to the Minister in acknowledging that the Government are extending the powers in Section 16 of the Pensions Act 2008 to allow the Secretary of State to set a cap on charges to deferred members. That is significant progress, to my mind. I see that the Minister, Steve Webb, is here today, and I take the opportunity to say, "Well done". I am taking this opportunity, too, to press him further.
As we know, with the advent of the new employer duty in October 2012, we will see millions of new savers being auto-enrolled into pension schemes. These workers will change their jobs on average 11 times over their lifetime and, in some occupations, that will be even higher. This means that, when workers leaves their job and their employer's pension scheme, they are likely to leave a pot of pension saving that is still being administered by the pension provider but is not under the employer's scheme. The pension pots of
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I urge the Government, when they take the power to cap charges to deferred members, which Amendment 11 will allow them to do, not to wait to see what happens, because this is already an area that needs to be addressed. The capping or controlling of charges on deferred members by the Secretary of State should be undertaken through the microscope of the saver. If a provider cannot look after a deferred member's pot of savings at low charges, it is for the Government to impose protection and, ideally, to facilitate the transfer of modest pension pots to NEST, where they will be looked after at a 0.3 per cent annual management charge, with very high standards of governance. Using the stakeholder cap on charges-the 1.5 to 1 per cent formula-is far too high a charge level for moderate to low income earners and should not be seen as an acceptable level for deferred members. That level of charges eats up far too much of the pension savings of low to moderate income earners. When millions of workers are automatically enrolled, the majority are unlikely actively to engage with their pension arrangements. Therefore, it is important that the Government have a very clear view of what a good pension scheme should look like and important that the Secretary of State uses the powers given under the Pensions Act 2008 to ensure that quality standards are set and met.
As to charges on pension savings, there are few barriers to entry to the market of private pension provision, and the Government need to make clear their expectations to monitor the situation to see whether those expectations are met and be prepared to respond quickly to address adverse developments. When a worker leaving a job leaves a pot of pension saving to be administered by the contract provider and is no longer in that employer's scheme, who will exercise a duty of care in managing the worker's investment? Who has the duty of care to ensure that the worker is not subject to high or excessive charges? This is territory within the framework of pensions reform that is much in need of further attention.
Another important area is the ability of workers who are deferred members to aggregate their different pension pots through a simple transfer process and that any charges for doing so are low or negligible. The administrative process of transfer must be made as simple as possible without significant charges being levied, and the ban on transfers to the National Employment Savings Trust should be lifted. I cannot see any gain for workers with moderate pots from that ban on transfers; I struggle to find any suggestion that it does-it can support only the industry, not the employee. I am not contradicted in that view by Paul Johnson, who was appointed by the Government to undertake the review of auto-enrolment policy. As for employers dealing with the issue of charges, transfers and the restrictions on NEST, it is not putting a burden on them. On the contrary, it will reduce the complexity they face when they are trying to do the best by their workers.
I would also encourage the Government to act to remove short-service refunds, which are designed for a defined benefit world but are now being used in a manner that undermines public policy outcomes. The rules on short-service refunds can result in up to two years of contributions being lost to long-term pension savings when employees leave their job or the employer's scheme. If that is repeated over several jobs, the impact can be exponential.
In setting quality standards, the Secretary of State should also indentify what considerations should influence the design of the default investment fund-a matter of importance to deferred members as well as active members. The Pensions Regulator has limited influence over contract provision. These are matters of some significance under the influence of the Secretary of State.
On the issues of charges, aggregation and transfer of small pots, and governance in the management of investment funds, the Secretary of State should utilise the powers under Section 16 of the 2008 Act to protect the interests of workers as pension savers. If unaddressed, these issues will detract from the whole of the reformed pensions system.
In conclusion, I repeat-in case it was lost first time around-that I am absolutely delighted that the Government are taking powers to cut charges to deferred members. I am equally delighted that the Bill means the Government are pressing ahead with auto-enrolment for millions of workers. As the Bill has returned to this House, would the Minister repeat the assurance that the new employer duty for all employers will start to be phased in from October 2012, according to the published timetable?
Baroness Hollis of Heigham: My Lords, I support my noble friend, particularly on the issue of orphan assets and the situation of deferred pensioners. As the noble Baroness explained, most men will have up to eight job changes and women will have something like 11 job changes in their lifetime, particularly when they are younger. For example, women in modest jobs, such as hairdressing or in the service industry, may at some points be self-employed and at other times be employed by different employers. They could very well end up with a pot in NEST, or its equivalent, of some £20,000 to £25,000, and several small pots of £2,000 or £2,500 from previous employments. Those little pots are too small to be annuitised, but there is no way to transfer them into the larger pot of NEST, and they cannot be trivially commuted because the NEST pot is over the £18,000 ceiling. Could the noble Lord share with the House his thinking about what women, particularly, on very modest earnings with very modest savings but with a possible multiplicity of small pots so that they can neither annuitise nor aggregate not trivially commute, are expected to do? Can the Minister assure us that he is making arrangements so that, at least at the point of retirement, they will be able to bring those miscellaneous small pots with orphan assets into the NEST pot to ensure that they get the best possible outcome in retirement?
Lord McKenzie of Luton: My Lords, I thank the Minister for his explanation of this group of amendments, the helpful background he has given us and his kind
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We remain unhappy with some of the changes to the scheme introduced by the Bill, particularly the hike in the earnings threshold, but now, frankly, is the time to make progress. Turning to the specific amendments, there are just a few points. Amendment 3 deals with continuity of scheme membership and achieves this by requiring automatic re-enrolment to take effect from the day after the day on which the jobholder ceases to be an active member of a qualifying scheme. However, the alternative of allowing a period of time for re-enrolment is preserved whereby the Secretary of State can allow for that period. Given the "day after" requirement, when is the alternative approach likely to be invoked? A similar point arises in connection with Amendment 7.
We support the extended protections dealt with by Amendments 4 and 8. My noble friend Lady Drake has given her welcome to Amendment 11, which has my welcome as well. She talked authoritatively about how important this issue is and about the changes happening in the marketplace. That is therefore a particularly important amendment.
We have no problems with Amendment 12, which deals with a test scheme for certain types of defined benefit schemes, or with Amendments 13 and 14, which deal with certification of schemes where the main administration is within the EEA.
A clarification on protections of back payments for jobholders enrolled into workplace personal pension schemes obviously has our support, but perhaps the Minister could provide us with a little more detail about the scope of Amendment 17, which provides a regulation-making power to exempt employers from auto-enrolment duties where a person is a European employer. What assurances do we have that employers would not be able to organise in such a way as to bring themselves within those "European employer" provisions and therefore be outwith auto-enrolment? An assurance on that point would be helpful but, subject to anything arising from these points, we are content and will support these amendments.
Lord Freud: First, I thank noble Lords for their stamina in listening to this debate on a very technical set of amendments indeed. They are about making sure that the legislation works, as the devil is in the detail. I repeat my thanks for all the help and support that I have had across the House on some of that detail. The important principle underpinning these refinements to automatic enrolment is that we ensure that individuals are preparing and saving for their retirement. Automatic enrolment will mean that 5 million to 8 million people will start newly saving, or saving more. This is a positive move, on which I know there is consensus across the House.
Turning to the specific questions, I will start with timing, which was raised by the noble Baroness, Lady Drake. She asked when the new duty for employers will come in. I am happy to confirm that automatic enrolment will begin, as planned, next year. On self-certification, which was raised by the noble Lord, Lord McKenzie, we recently finished a formal consultation on draft regulations, which are on track to be in place for next year.
On the issue raised by the noble Baroness, Lady Drake, of the deferred member charge cap, we are extending a reserve power which we have to set a charge cap for pension schemes used for automatic enrolment. This reserve power is intended to be a safety net and to allow the Government to step in and protect all members of automatic enrolment schemes from inappropriate high charges. I am sure noble Lords will agree that it is not right that members are charged higher fees just because they move jobs. We remain vigilant about charges in the pensions industry. We see the market as broadly competitive at the moment, with the majority of workplace pension schemes having annual management charges of less than 1 per cent. We expect NEST and competitive forces to keep the downward pressure on charges but this power will enable us to intervene if necessary and make sure that members are not charged excessive fees. The stakeholder group Which? has strongly supported this amendment. I thank the noble Baroness for her support on this important issue and am confident that it will gain support across the House.
The noble Baronesses, Lady Drake and Lady Hollis, raised the issue of small pension pots, which perhaps goes slightly wider than this set of amendments and on which we spent a lot of time in Committee. On average, individuals will change employers 11 times during their working lives. DWP modelling suggests that after 2017 this will lead to in excess of 200,000 small pension pots of less than £2,000 being created each year. We want to ensure that people can get control of their pensions, build up a single substantive pot and be able to purchase a good annuity. In the interim government response to the call for evidence on regulatory differences that we have published, we have committed to setting out a decision on short-service refunds and addressing small pension pots. We know that this will be difficult, which is why need to work with employers, the pensions industry and consumer organisations on tackling this. For this reason, we intend to publish the full set of proposals in the autumn and to consult widely on possible options. These will include considering whether an individual's pension pot could follow them from job to job as they move employers. The action for this would be behind the scenes and would require little action from the individual. Perhaps it is too early to say whether this will be possible, but this is an important issue, as the noble Baronesses pointed out, and one that we need to get right.
I turn to some of the more technical issues on which the noble Lord, Lord McKenzie, sought assurances. Continuity in automatic enrolment is covered by Amendments 3 and 7 to Clause 4. They create the default position that, in continuity of scheme membership cases-where an individual ceases to be a member of a
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The noble Lord, Lord McKenzie, was also looking for an assurance on cross-border provision around Amendment 17. The amendment provides for a power to make regulations. It does not change our policy on automatic enrolment. If the power is exercised, the regulations will exclude a jobholder from automatic enrolment only if they are an individual in relation to whom their employer is a European employer, as set out in regulations under the 2004 Act. An employer is a European employer only if he has worker who, by virtue of his contract of employment, is sufficiently located in another EEA state for the social and labour laws relevant to the occupational pensions of that state to apply. The risk of a jobholder being in this position is relatively small. The definition does not cover workers who are posted to another EEA state for a limited period to work in that state for their UK-based employer.
Lord Freud: My Lords, in discussing Amendment 18, it is convenient also to discuss Amendments 19 to 28. These amendments are about the revaluation and indexation of pensions-that is, revaluing deferred pensions at the point at which they are put into payment and indexing pensions once they are in payment. The first five amendments relate to the change to using the consumer prices index as a measure of inflation and the others are about the indexation of cash balance schemes. The changes to Clause 15 are a positive response to the consultation on the change to using the CPI as the measure of inflation. The consultation ended in March and we published the Government's response on 16 June. There were more than 150 responses, many of which were technical and detailed.
The areas that attracted the most comments were the CPI underpin and revaluation. There were also concerns about the CPI underpin provision already
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We also made easier the application of the CPI underpin exception for pensions in payment. The test now targets whether RPI-based increases have actually been paid rather than whether the rules require RPI-based increases. The amendments also make sure that the application of the CPI underpin exception survives transfers. We do not want the possibility of a CPI underpin to become a barrier to scheme restructuring. The amendment ensures that the provision to address the underpin problem survives a transfer if the result is that the member has received RPI-based increases since the start of 2011 and will continue to do so.
I turn to Amendments 24 to 28 to Clause 17, which removes the requirements for cash balance scheme annuities to have a limited price index. Amendment 24 does not represent any change in policy; it simply makes a technical change to clarify that schemes that are or were contracted out on a defined benefit basis are still subject to indexation requirements. Amendments 25 to 28 remove the potential for confusion. They ensure that schemes that pay a pension commencement lump sum, or allow a survivor's benefit of a set percentage of the member's benefit, can be included in the definition of cash balance schemes and can benefit from this easement. They also ensure that the existing indexation requirements continue to apply to career average schemes or schemes that guarantee a member a pension calculated as a percentage of the lump sum. It was never the intention to exclude these types of scheme from the indexation requirement. I beg to move.
Baroness Drake: My Lords, I can see the purpose of Amendments 18 to 23, particularly the need to address the consequences of the Government's decision to use the CPI for the statutory revaluation of pension benefits, yet not proceeding to introduce a statutory override to pension schemes whose rules explicitly provide for the revaluation additions to be calculated by reference to the RPI. I recognise that where the statutory method uses the CPI, there is an inconsistency for schemes that apply the RPI in the very infrequent event that the CPI exceeds the RPI in a particular year. In such a situation, schemes paying the RPI would, without these amendments, be faced with a statutory underpin of CPI. In effect, the rules of schemes that apply RPI would be interpreted to mean that revaluation is calculated by reference to the CPI or the RPI, whichever is the greater.
This amendment would remove that underpin requirement and allow schemes to continue to revalue by reference to the RPI, which would seem sensible and reasonable. While the Government are to be congratulated on not imposing a statutory override on pension scheme rules to apply the CPI rather than the RPI, where the rules so explicitly provide, the need for these amendments occur in part because of the open-ended decision by the Government to substitute the CPI for the RPI in the uprating of most benefits. It is with some regret that the Government did not put a time limit on that switch from RPI to CPI. There is scope for a review because I am sure that over the long term, when the economy returns to strong growth and earnings outstrip prices, and the price of key items is excluded from the indexation, the Government will need to revisit this matter.
That is particularly so for pensions, although I doubt that the Government will revisit this now. The change to the CPI from the RPI for evaluation effects a switch of assets and benefits from scheme members to scheme sponsors and does not directly impact the public deficit. None the less, it is clear that these amendments are a necessary flow-through from the Government's decision, and I can see no reason to oppose them.
Baroness Turner of Camden: My Lords, during our discussions on the Bill, one of the issues that raised a lot of controversy was the report that the Government intended to tell occupational pension schemes that in future they must apply the CPI rather than the retail prices index. That certainly led to a lot of opposition from people in occupational schemes. It also led to a lot of opposition from people in public sector schemes, because I gather that the Government are applying the CPI to public sector schemes instead of the retail prices index, which of course produces-currently, anyway-much larger increases than the CPI. I should therefore be grateful for confirmation from the Government that if an occupational scheme desires to continue with the RPI it will not be forced to apply the CPI, and that if it wishes to apply the retail prices index it will be able to do so, even though that is likely to produce-and will continue to be likely to produce-larger increases than the CPI.
Lord Freud: My Lords, this group of amendments cover Part 3 of the Bill. I am most grateful to the noble Baroness, Lady Drake, for her remark that the amendments are technical in nature and that she has no problem with them.
Perhaps I may pick up the point made by the noble Baroness, Lady Turner, on private occupational pension schemes. I can confirm that these underpin arrangements are about the ability of such schemes to maintain their own arrangements. There is no legislative pressure on them in that way.
(1) In section 181 of the Pension Schemes Act 1993 (interpretation), in the definition of "money purchase benefits" in subsection (1), for "which are not average salary benefits" substitute "which fall within section 181B".
(1) This section applies for the purposes of the definition of "money purchase benefits" in section 181(1).
(2) A benefit other than a pension in payment falls within this section if its rate or amount is calculated solely by reference to assets which (because of the nature of the calculation) must necessarily suffice for the purposes of its provision to or in respect of the member.
(3) A benefit which is a pension in payment falls within this section if-
(a) its provision to or in respect of the member is secured by an annuity contract or insurance policy made or taken out with an insurer, and
(b) at all times before coming into payment the pension was a benefit falling within this section by virtue of subsection (2).
(4) For the purposes of subsection (2) it is immaterial if the calculation of the rate or amount of the benefit includes deductions for administrative expenses or commission.
(5) In this section references to a pension do not include income withdrawal or dependants' income withdrawal (within the meaning of paragraphs 7 and 21 of Schedule 28 to the Finance Act 2004)."
(1) This section applies for the purposes of the definition of "money purchase benefits" in section 99.
(2) A benefit other than a pension in payment falls within this section if its rate or amount is calculated solely by reference to assets which (because of the nature of the calculation) must necessarily suffice for the purposes of its provision to or in respect of the member.
(3) A benefit which is a pension in payment falls within this section if-
(a) its provision to or in respect of the member is secured by an annuity contract or insurance policy made or taken out with an insurer, and
(b) at all times before coming into payment the pension was a benefit falling within this section by virtue of subsection (2).
(4) For the purposes of subsection (2) it is immaterial if the calculation of the rate or amount of the benefit includes deductions for administrative expenses or commission.
(5) In this section references to a pension do not include income withdrawal or dependants' income withdrawal (within the meaning of paragraphs 7 and 21 of Schedule 28 to the Finance Act 2004)."
(5) In paragraph 1(2) of Schedule 10A to the Building Societies Act 1986 (disclosures about directors etc), in the definition of "money purchase benefits", for "which are not average salary benefits" substitute "which fall within paragraph 1A".
"1A (1) This paragraph applies for the purposes of the definition of "money purchase benefits" in paragraph 1(2).
(2) A benefit other than a pension in payment falls within this paragraph if its rate or amount is calculated solely by reference to assets which (because of the nature of the calculation) must necessarily suffice for the purposes of its provision to or in respect of the director.
(3) A benefit which is a pension in payment falls within this paragraph if-
(a) its provision to or in respect of the director is secured by an annuity contract or insurance policy made or taken out with an insurer, and
(b) at all times before coming into payment the pension was a benefit falling within this paragraph by virtue of sub-paragraph (2).
(4) For the purposes of sub-paragraph (2) it is immaterial if the calculation of the rate or amount of the benefit includes deductions for administrative expenses or commission.
(5) In this paragraph references to a pension do not include income withdrawal or dependants' income withdrawal (within the meaning of paragraphs 7 and 21 of Schedule 28 to the Finance Act 2004)."
Lord Freud: My Lords, on 27 July 2011, the Supreme Court handed down judgment in Bridge Trustees v Houldsworth and another. This was the first occupational pension scheme case considered at the Supreme Court and dealt with the meaning of "money purchase benefit" in pensions law. This definition is a fundamental concept underpinning the design of the regulatory framework for pensions, and it is vital that trustees, employers and members are all clear about the meaning of the term.
Despite accepting that Parliament and Ministers had legislated over a number of years on the assumption that a money purchase benefit could not develop a funding deficit or surplus, the Supreme Court decided that certain benefits that could develop funding deficits or surpluses could still fall within the definition of money purchase benefit. This means that the judgment will result in some schemes being regarded as money purchase benefits under the current legislation, even if it is possible for funding deficits to arise in respect of those benefits. For example, under the judgment, even when benefits are subject to a guarantee in the build-up phase, they should be considered to be money purchase benefits, or where schemes use money purchase rights to provide a pension from the scheme itself, rather than to purchase annuities from an insurer, the pensions should be considered to be money purchase.
The judgment will place some benefits outside the scope of a wide range of legislation that was put in place to safeguard members' benefits. Money purchase benefits are not covered by scheme funding or employer debt requirements; nor do they have access to the Pension Protection Fund or the financial assistance scheme. If the judgment stands, the members will not be protected for certain sorts of benefits in the event of the scheme not being able to pay out; yet these workers thought that their rights were protected. For example,
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Following the judgment, the Government announced the intention to legislate as soon as possible to provide clarity for trustees, employers and members. I appreciate that noble Lords may consider it unusual for the Government to bring forward such amendments at this stage in the Bill, but we consider it necessary that we legislate to protect members immediately. The pensions industry expected this amendment, and it wants certainty so as to be able to operate and advise schemes. Indeed, the Society of Pension Consultants urged us to make an amendment to this Bill. It said:
"We can understand the government's decision to legislate in the way it intends. However, we would ask that the government passes the necessary legislation as soon as practicable, perhaps as an addition to the Pensions Bill".
These amendments clarify the definition of "money purchase benefit". They also take associated regulation-making powers. I take this opportunity to assure noble Lords that these powers will be subject to public consultation and the affirmative procedure-both stakeholders and Parliament will have the opportunity to scrutinise the regulations.
Law is based on words, and having a common understanding of what the law means is essential not just for law-makers but for society as a whole. If trustees, employers and members are unclear about what sort of benefits their scheme is providing, that simply produces uncertainty and confusion.
Section 181 of the Pension Schemes Act 1993 defines money purchase for the purpose of that Act. This is the core definition of money purchase benefit on which subsequent law builds. Amendment 29 amends Section 181 to restore the definition of money purchase benefit to the meaning that it was widely believed to bear before the Bridge litigation. The revised definition makes it clear that only a benefit that is calculated solely by reference to the relevant assets-or, where the benefit is a pension in payment, that is backed by a matching annuity contract or insurance policy-is a money purchase benefit.
If there is any additional form of "promise" in relation to a benefit, it cannot be a money purchase benefit. For example, if there is a guaranteed investment return in the build-up phase, that is not a money purchase benefit; or if a scheme has promised to pay a set rate of annuity that is not backed by a matching asset such as an insurance policy, that is not a money purchase benefit. It is simple; if there is a promise, there needs to be something to back it up.
A money purchase benefit is one derived solely from the relevant assets. In other words, the member gets the value of the contributions, plus the real investment return, less any administrative expenses. The previous definition stated that average salary benefits were not a money purchase benefit. This reference has been removed because, following these amendments, it is not necessary explicitly to exclude one type of non-money purchase benefit from the definition.
The proposed new clause also amends similar definitions of money purchase benefit at Section 99 of the Pensions Act 2008 and in Schedule 10A to the Building Societies Act 1986. Amendment 30 enables the Secretary of State to make transitional arrangements for specified types of schemes.
It is an established principle that people who go to court and win should see the benefit of that judgment. Therefore, we need to consider how members of the pension scheme in the judgment see the benefit of that judgment. This is a complex exercise. We will need to work through the various classes of members of the pension scheme and consider whether and how to modify the definition of money purchase benefit in respect of each class. Transitional protection may also be needed where trustees have taken decisions in the past that are inconsistent with the clarified definition and those decisions cannot practically be reopened. Our starting point is that trustees should not have to unpick decisions that have already been made in good faith. It would not be practical for trustees to have to unpick decisions that could have been made up to 14 years ago and which could have involved purchasing annuity contracts.
Furthermore, some schemes might have been wound up on the understanding of the wider definition of money purchase. It would be impractical to unpick those decisions and we propose to take powers to make transitional provisions for that group. However, we do not want to leave an opportunity for an employer to wind up a scheme today that would fall within the wider definition of money purchase benefit reached by the Supreme Court and avoid paying an employer debt in respect of that scheme. That would mean that members of the scheme would lose out. So it is important that we carefully consider the need to have transitional protection and do not have a blanket approval. The Government will consult before exercising these powers, and any instrument made using the powers would be subject to affirmative resolution.
Amendment 31 allows consequential amendments to other legislation to be made by regulations. There are numerous references to money purchase benefit within existing pensions legislation and it is important that the new definition accurately flows through to all of them. We do not think that substantial changes will be needed to other legislation but want to ensure that there are not any unintended consequences as a result of the clarified definition of money purchase benefit. I can assure noble Lords that the Government will consult on any regulations under this power and that they will be subject to the affirmative procedure.
Amendment 32 allows the Secretary of State to exclude other benefits from the definition of money purchase benefits. This is an enabling power to ensure that if new benefit structures are designed that could result in there being a deficit they can be excluded from the definition of money purchase benefit. This provides future flexibility to respond to the ever-evolving pensions market. However, to be clear, the core principle remains. If a benefit can develop a deficit, it is not a money purchase benefit.
Amendment 33 is a procedural provision which sets out that regulations under Amendments 30, 31 and 32 will be subject to affirmative procedure. The regulations may apply to specific groups or may amend primary legislation. Therefore, it is appropriate that Parliament considers these regulations. Amendment 34 allows for Amendments 30 to 33-for the purpose of making regulations-to come into effect on Royal Assent of the Bill. Amendment 29 will be brought into force by order and we intend to bring regulations made under Amendments 30 to 33 into force at the same time.
These amendments are all retrospective to 1 January 1997. However, the amendment to the definition in Section 99 of the Pensions Act 2008 will come into force at the same time as that section. Otherwise, in this particular case the amendment would be in force before the original provision. The department announced the intention to legislate to correct the effects of the judgment with retrospective effect on the day of the Supreme Court's judgment. This was done to prevent some trustees or employers triggering a winding-up of schemes in the window of opportunity between the date of the judgment and legislation being brought into force, thereby avoiding scheme funding and employer debt obligations at the expense of members and the PPF or the financial assistance scheme.
The clarified definition of money purchase benefit restores the law to the long-standing government understanding of the term. If the amendment were not retrospective, employers and trustees who had made sensible decisions based on an understanding that a money purchase scheme could not develop a deficit would potentially be in breach of the law as it stands now as a result of the judgment. The definition of money purchase benefit is a fundamental building block of pensions law. It is important that members, employers and trustees understand what the definitions mean and have clarity about how their schemes should operate. This clarified definition and the power to allow transitional protection aim to provide that clarity. I beg to move.
Baroness Drake: My Lords, I shall speak also to Amendment 32. The purpose of Amendment 29A is to give absolute clarity to the legal meaning of a money purchase benefit in so far as it relates to pensions in payment. As the Minister said, the Government's Amendment 29 is addressing the consequences of the Supreme Court's decision in Bridge and restoring the legal meaning of money purchase benefits to that narrower meaning it was understood by most observers to have before the litigation. In doing this, it is restoring what was understood to be the extent of protection to scheme members and beneficiaries when their pension benefits could face funding deficits and preserving their potential access to the Pension Protection Fund. It is the Government's
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My concern is that the legislation should make it absolutely clear that any annuity purchase for a pension in payment must explicitly be in the name of that member and ring-fenced for them. I am not confident that the wording of subsection 3(a) of the new Section 181B inserted by the Government's Amendment 29, which is before us, does that. My amendment simply adds the words,
to make crystal clear that the annuity must be ring-fenced for that member. The Government's view, with which I have no disagreement, is that normally pensions in payment within a scheme are not money purchase benefits as the amount of the liability of that pension is unlikely to be matched exactly by assets held by the scheme. That being the case, there will always be scope for a deficit or a surplus in the funding of those pensions in payment. The exception, which the Government's amendment allows for and which they propose to include within the definition of money purchase benefit is pensions in payment secured by annuity. Again, I have no disagreement with that proposal.
I repeat that my concern is that, in purchasing those annuities and insurance policies, schemes might not necessarily have ring-fenced such policies for the members concerned. They may have been secured as assets of the scheme as a whole and not for the named pensioner in receipt of a pension, which would not be unusual. Should that be the case, it would mean that those with a pension in payment would not have an automatic right to those assets in the event that there was an employer default on an underfunded scheme. Members could lose out if the scheme was wound up or underfunded.
I know that the Government's intention is that the definition of money purchase is such that members should have the benefits of these annuities ring-fenced to them, but I am concerned that the Government's amendment still leaves room for ambiguity because it does not, to use layman's words, nail the point that the annuity must be held in the name of the member. My amendment simply seeks to provide that nail and so adds the phrase,
Current legislation has allowed the Supreme Court decision to arise notwithstanding the intention of policymakers, so if we are to avoid Lady Bracknell's descriptive distinction between two comparable events, I believe it is appropriate to tighten the wording of the definition of money purchase benefits to reduce the likelihood of a similar problem in the future.
My amendment does not question the intention of the Government's Amendment 29. I agree with them. All I am trying to do by the deployment of a few words is to make absolutely clear that a pension in payment is a money purchase benefit only if it is secured by an annuity or insurance policy in the name of that member.
Amendment 32 confers upon the Government the power to change the definition of money purchase benefit in the future, and one can see the common
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What I am concerned about is the breadth of the power conferred on the Government or the Secretary of State by Amendment 32. I am particularly concerned that it could be used retrospectively to remove access to Pension Protection Fund protection from scheme members and beneficiaries by broadening the definition of money purchase benefit. I have similar concerns in respect of people having access to the financial assistance scheme.
The Pension Protection Fund exists to offer a level of protection to members of occupational pension schemes, unless they are excluded for certain reasons, the main ones being the existence of a crown guarantee; the trustees having compromised a fund debt; and that it is a money purchase scheme.
I am sure that the Government have no intention to use the power conferred by their Amendment 32 to remove Pension Protection Fund protection from schemes or members as currently defined. None the less, it would appear that the powers extended to the Government in Amendment 32 would allow such a possibility in the future. It is not clear to me what other existing statutory provisions, if any, would overlay the Government's ability to use these powers. Put simply: what would limit a Government's freedom to use the power conferred by Amendment 32 in a way that meant pension scheme members and beneficiaries would lose out?
I ask the Minister, if this amendment is made to the Bill, what, if any, limits would there be on the Government's power retrospectively to remove protections from members and beneficiaries of funded pension schemes facing deficit and/or default. In respect of the other amendments in this group, they are largely technical in nature and I see no reason to disagree or query them. I beg to move.
Lord Freud: My Lords, I pay tribute to the noble Baroness, Lady Drake, for her precision analysis in this area, which-I say this as a compliment-has had the team seriously thinking about the issues involved. I also pay tribute to the noble Baroness, Lady Thomas, and the Delegated Powers and Regulatory Reform Committee, for applying such scrutiny to the powers contained within the Bill. I trust that noble Lords are as content with the Government's amendments, even though they have some broad powers within them, as the committee was after its consideration.
Let me turn now to Amendment 29A. The noble Baroness, Lady Drake, highlights a key question. How do we ensure that those people whose benefits are classified as money purchase benefits in payment, because their scheme has bought an annuity to match the liability, actually benefit from that annuity? The
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Lord Freud: My Lords, when I look down at my notes, which perhaps I should do more frequently, I do notice that the word is "undesirable" and not "desirable". I am most grateful that we have the record absolutely correct on this.
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