HC Deb 07 December 1992 vol 215 cc595-619 3.37 pm
Mrs. Llin Golding (Newcastle-under-Lyme)

I beg to move amendment No. 2, in page 1, line 14, at end insert '(aaa) notwithstanding the terms of subsection (aa) above, no account shall be taken in making the minimum calculation of one per cent. of earnings, referred to in the said subsection unless the earners' chosen scheme—

  1. (1) guarantees a minimum pension as defined by regulations;
  2. (2) fully discloses all commission and management charges to be paid in connection with the scheme; and
  3. (3) incorporates the terms of any statutory Code of Practice that may be in force.'.
This is a probing amendment. We are aware of existing regulations but we are not convinced that the Government are being sufficiently diligent. Our amendment provides that the only schemes covered by the legislation will be those which, first, guarantee a minimum pension as defined by regulation. That is to ensure that it provides a pension that is at least equal to SERPs. Secondly, the schemes must fully disclose all commission and management charges to be paid in connection with the scheme. That is a self-evident right for anyone entrusting his money to others. Thirdly, the schemes will incorporate the terms of any statutory code of practice that may be in force. That code would be all-embracing and would include all measures thought necessary to protect the individual investor.

As you will know from Second Reading, Mr. Lofthouse, we do not like the payment of these incentives. We think that it would be preferable not to spend so much money in an attempt to undermine SERPS. We believe that SERPS is safer and more reliable than personal pension schemes. It does not need the small-print warning that benefits can go down as well as up. It is not sold to individuals by salesmen whose standard of living depends upon their ability to talk people into signing up. The rules by which SERPS operates are subject to scrutiny in the public interest. However, if the Government are, however misguidedly, going to spend so much money on encouraging people to take out personal pensions, they have a responsibility to ensure that the schemes are of a high standard.

On Second Reading, the Under-Secretary of State conceded that viability, reliability and safeguards are necessary to protect people taking out personal pensions. She read out to us the usual official jargon about continual contact between the Department and the regulators, with the regulators constantly reviewing the monitoring process, but she had to admit that it was necessary 'or the Government to produce regulations to command the confidence of those who wished to take out personal pensions.

I hesitate to describe the Under-Secretary of State as timid, but, unfortunately, the reluctance with which she conceded the need to take action was matched by the timidity with which she is approaching the problem. As she said, she is consulting the regulators, but, rather than an entirely new system, all that she wants to see is a tightening up of the procedures, or possibly an enlargement of them, and more detailed monitoring than is currently possible.

It would be useful if the hon. Lady would share her thoughts with us. On Second Reading, she took issue with my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) over those selling personal insurance. She compared them to lawyers who sometimes give advice not to go to court. I am sure that my hon. Friend will forgive me when I say that I was more frightened than reassured by her comparison of lawyers with what we used to know as insurance agents. To most people, they are still agents and not financial advisers. 'Salesman" is the operative word. They are like shop assistants who try to sell us the dress that suits us best, but it is from their shops that they wish to sell, not from the shops next door.

The Minister was right to say that, provided that the profession is properly regulated and honourably conducted, there is nothing unique about insurance salesmen having to distinguish between best advice and their own financial interests. If there were strict regulations to enforce high standards, all would be well, but there are no such regulations, and she has acknowledged that. I should like her to expand on that statement. The Committee could do with hearing a little more of her thoughts than we heard on Second Reading.

What are the complaints being made to the Government? Apart from misleading information, they no doubt include high commission and other charges imposed in the first year. May we be told more about the steps that the Government are considering taking? We feel that the Government are being far too timid, and that they need to be far more positive. I am sure that the hon. Lady does not like being called timid, and I am certain that she will respond to my queries. We want the Government to ensure that this money is given only in respect of laid-down guaranteed minimum pensions, we want the full disclosure of commission and management charges, and we want the Government to institute a statutory code of practice that is constantly reviewed and updated.

Mr. Jeremy Corbyn (Islington, North)

Many members of the Select Committee are deeply alarmed about both the management of private pension schemes and the security of personal schemes. We are concerned about the amounts that are paid into them, and about the amounts that will eventually be paid out. Will the Minister give us some idea of the point at which she proposes to investigate the vast number of personal pension schemes that have been set up over the past five or six years, and also of the degree of investigation that she proposes?

The Bill seems designed, in effect, to assist such schemes in the future, and to provide them with more funds. Many of us are concerned about the methods that will be employed in the investment and control of those funds, and fear that in the future many people will be as disappointed by the pensions paid to them as are current victims of the Maxwell pension fund fraud—whose problems, as we speak, are still unresolved.

3.45 pm
The Parliamentary Under-Secretary of State for Social Security (Miss Ann Widdecombe)

I assure the hon. Member for Newcastle-under-Lyme (Mrs. Golding) that I have no intention of being provoked by allegations of timidity into adopting temerity. It would indeed be rash to rush into an entirely new regime without first establishing the extent of the problem—which I do not dismiss, and which the hon. Member for Islington, North (Mr. Corbyn) is right to identify—establishing its nature, and establishing whether existing regimes of control would result in a sufficient tightening of the rules. That applies to the fact-finding that must be carried out, the advice that must be given, training, the extent and frequency of monitoring and, perhaps, other issues.

To say that we are consulting the regulators is not merely to indulge in official jargon. I recently met the Life Assurance and Unit Trust Regulatory Organisation, the Investment Management Regulatory Organisation, the Securities and Investments Board and the Financial Intermediaries, Managers and Brokers Regulatory Organisation to discuss what may or may not be going wrong.

The hon. Lady asked me what complaints the Government had received. I certainly do not want to give the impression that we have been inundated by a vast number of such complaints, indicating either widespread malpractice or inefficiency; we have not. However, personal pensions have now had some time in which to take effect. There are now 5 million pension holders, and a sufficient history has been established for us not only to examine the undoubted success of the scheme, but to ask ourselves how we can improve it.

That was the reason for my rather cautious statements on Second Reading. It was not that I did not want to address problems if they were there; I did not want to rush into examining imaginary problems.

I do not think that the hon. Member for Newcastle-under-Lyme really addressed the amendment. I understand her embarrassment: the amendment is a bit of a muddle. She was right to describe it as a probing amendment, for there is no way in which it could be translated into law.

Let me remind the House of the purpose of the 1 per cent. additional rebate for personal pension holders over the age of 30. Personal pensions have been an enormous success. As I have said, there are now 5 million holders of them, and public demand for the choice and flexibility of provision that such pensions offer has been about 10 times greater than expected. That tremendous growth has not been at the expense of occupational schemes; the 5 million personal pension holders are largely in addition to the 11 million occupation scheme members.

The 1 per cent. additional rebate is designed to ensure that it is worth while in the short term for the majority of those people to maintain their pensions. It will apply to personal pension schemes set up for a group, as well as to individual arrangements, but it is a temporary measure. In the context of this and other amendments, that must not be overlooked.

We shall shortly be undertaking a review of the rebate structure for personal pensions and shall consider proposals for an age-related system. That review will also include occupational schemes—money purchase and salary related—and, if the hon. Lady will forgive the expression as she does not appear to like consultation, we intend to consult interested parties in the first half of next year.

I deal now with the detail of the amendment. Amendment No. 2 seeks to make payment of the 1 per cent. additional rebate conditional on the personal pension scheme satisfying very restrictive new conditions. These conditions are the guarantee of a minimum pension, full disclosure of all commission and management charges and incorporating the terms of any statutory code of practice.

The amendment would lead to an extraordinary muddle. It would apply only to schemes to which the 1 per cent. additional rebate was paid. No personal pension optant aged under 30 would benefit from the amendment.

To explain that more fully, it may help to remind hon. Members how payments are made to appropriate personal pension holders. The Department pays a minimum contribution based on the person's annual earnings between the lower and upper earnings limits. These annual earnings are known as band earnings. The minimum contribution is paid after the end of the tax year direct to the personal pension provider. At present the minimum contribution is made up of the contracted-out rebate amount which is 5.8 per cent. of band earnings; the 2 per cent. incentive; and basic rate tax relief calculated on the employee's share of the contracted-out rebate amount, which is currently 2 per cent.

From April the minimum contribution will consist of the new contracted-out rebate amount which is 4.8 per cent. of band earnings, basic rate tax relief calculated on the employee's share of the rebate, which will be 1.8 per cent., and, subject to the will of Parliament, the 1 per cent. addition that we are now discussing for personal pension holders aged 30 and over. The amendment does not propose that these restrictive criteria should apply to the 4.8 per cent. rebate. It therefore seems somewhat contradictory to propose them in respect of the 1 per cent. addition.

I should now like to take each of the restrictions specified in turn. The first is a guarantee of a minimum pension as defined in regulations. I think that we should be clear that, although personal pensions do not provide a guaranteed minimum pension, they do provide protected rights. Personal pensions are a form of money purchase arrangement. The level of pension that is payable depends on the investment that is made, the return on that investment, and the costs. Personal pension providers have to guarantee that the minimum contribution has been invested, and the return on that investment can be considerable—so much so that, over the lifetime, personal pension holders can be in the fortunate position of receiving more than simply guaranteed minimum pension rights. It is not clear from the amendment—or from the hon. Lady's support of it—what type or level of guaranteed pension the Secretary of State is being asked to specify in regulations. Would it be a fixed amount or would it be related to an individual's salary?

There would be a substantial cost in adopting the amendment. Just how great the cost would be is difficult to quantify because it would probably have to be borne through reduced pensions to the personal pension holder at the point of retirement. That is because some contributions would have to be diverted to cover the cost of insuring against the risk that the return on the investment would not fully cover the minimum pension.

Mr. Corbyn

I understand the Minister's point, but can she give some idea of the number of money purchase personal pension schemes where the companies involved have thus far been unable to pay the guarantee offered to the participants when they joined the scheme?

Miss Widdecombe

The hon. Gentleman will be aware that personal pensions have yet to come to fruition. When we say that we have millions of holders of personal pensions, we mean, not that there are 5 million drawers of those pensions, but that 5 million people have taken out personal pensions. Therefore, the data that the hon. Gentleman seeks would not help the course of the debate.

I said that the amendment would reduce choice. Some current personal pension providers would be prevented from continuing to provide personal pensions. Banks and building societies are prevented by legislation from accepting such a risk. Only life insurance companies and their salesmen would be able to do so. This would limit the market and reduce competition.

The issue of providing some kind of guaranteed minimum pension for money purchase and personal schemes was discussed at considerable length during the passage of the Social Security Act 1986. The Government's view was that the difference between the two methods of providing for retirement was at the heart of the new pension opportunities provided by that Act, making guaranteed minimum payments inappropriate for personal pensions and for contracted-out money purchase schemes.

I turn now to the second restriction that is proposed. The regulatory organisations lay down requirements for the disclosure of relevant information to investors—the hon. Member for Newcastle-under-Lyme acknowledged that there were already some regulations—including charges and commission. These are subject to review at present. In the circumstances, it would not be appropriate for the Government to introduce further disclosure requirements before the result of the review is known.

The Securities and Investments Board has proposed new rules which will require life insurance companies to disclose the effect of charges and expenses as a penny-in-the-pound deduction from the premium. The Director General of Fair Trading is considering this proposal at present, and a report to my right hon. Friend the Chancellor of the Exchequer is expected shortly.

I admit that I am unclear of the purpose of the third restriction that the Opposition seek to place. The Financial Services Act provides the statutory framework for investor protection, and the marketing of investment products is subject to rules made under the Act. The restriction therefore has no practical effect over and above existing law.

I cannot recommend the amendment to the Committee. The effect of accepting it would be to reduce the level of pension and the level of competition. I do not think that the Opposition intended such a muddle when they tabled the amendment.

Mr. Terry Rooney (Bradford, North)

I listened to the Minister's speech with interest. I wonder how much of the speech was her own words and how much was written for her. Does she recognise that the state earnings-related pension scheme and opting out apply largely to people at the lower end of the income scale and that people higher up the income scale are more likely to have some kind of occupational pension?

Is the Minister aware that Legal and General, which is the largest pensions insurer in Britain, recommends that men and women on an income of less than £9,000 a year should not opt out of SERPS? Much of the Minister's speech appears to contradict that. With the best will in the world, I would rather have the word of Legal and General when it comes to pension investment.

It must be recognised that certain fixed costs and charges always attach to life insurance policies. The lower the income and the lower the premium payment, the higher will be the percentage that goes on commission and management fees. The Minister may be interested to know—I will not name names, but I will send her details afterwards—that last year a member of the Financial Intermediaries, Managers and Brokers Regulatory Association who operated in my home town was gaoled for submitting fraudulent applications. He made applications for personal pensions for non-existent people for which the commission was such that, for more than 18 months, he was able to pay the premiums on the applications and to net himself £68,000 in commission. Such a commission structure may at least dilute the professional opinion of the person involved in selling a pension plan.

The beauty of SERPS is that it offers a guaranteed pension. In some ways, that may also be its drawback. People receive glossy brochures which promise fairly spectacular returns. I accept that they are based on statutorily limited projections. The difference between a 3.5 per cent. return and 10.5 per cent. return is substantial. Companies very rarely advise potential policyholders of the actual returns gained over the years and they very rarely seek to advertise their position in league tables. It is significant that Equity and Law, a company which consistently appears close to the top of the league of historical returns, pays no commission and has no interest in dealing with third parties or intermediaries. There may be a message there for us all.

In the same vein, many private schemes provide for a payment to a widow, but seldom provide for a payment to a widower if the premium payer is female. In this day and age, and in the light of legislation from the European Court, that point should be a matter for the Department of Social Security. In the private pension scheme world, one can have a named beneficiary. However, under SERPS, if a couple are not married, the widow receives no payment. That is a major deficiency in SERPS regulations and application in this day and age when, rightly or wrongly, so many couples live together for decades without marrying.

4 pm

As the Under-Secretary did last week, she again referred today to there being 5 million personal pension holders. I am sure that we all hope that that means that 5 million people will be very happy when they retire. Potentially, that is 5 million people who will know far too late that they have been ripped off.

In respect of regulations, it is interesting that there is one set of responses from the Department of Social Security and another set from the Treasury. The Department of Social Security would do well to slow things down a little until the Securities and Investments Board investigation of self-regulation has been published.

Miss Widdecombe

I wish that I had responded to that matter before I made my earlier general response. One Opposition Member is urging me to slow things down while another is urging me not to be so timid and to hurry things up. It is impossible to please both of them.

I rather prefer the approach of the hon. Member for Bradford, North (Mr. Rooney), who believes that it would be better to try to get things right and to proceed at the best pace. However, I believe that he was wrong in respect of Equity and Law. I am informed that Equity and Law pays commission. The hon. Gentleman must have the wrong company. I take the point about commission charges made by the hon. Member for Bradford, North and his point about the advice on actual returns. Both points could be addressed under the present regime; they do not require new legislation. My colleagues at the Treasury and I are consulting the regulators precisely to see whether those matters can be controlled. As the hon. Member for Bradford, North seems to believe that we are talking with two tongues, I must point out that one of my Treasury colleagues was at our last meeting with the regulators. It was not noticeable that we had a different approach to the issue. The hon. Member for Bradford, North has not done enough homework.

While I absolutely take on board the need to review the way in which personal pensions are working, I do not accept that there are 5 million potential disasters in the system. The amendment will not help to devise better regulations.

Mr. Donald Dewar (Glasgow, Garscadden)

We all accept that discussions are taking place, and we welcome that. However, presumably discussions take place within a time scale. When will we know the results of those efforts?

Miss Widdecombe

We shall bring our conclusions to fruition as soon as is practicable.

Mrs. Golding

I was deeply hurt and upset when the Minister said that I was not in favour of consultation—and I immediately consulted my colleagues. We have decided that I should beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mrs. Golding

I beg to move amendment No. 3, in page 1, line 16, at end insert '(OA) After subsection (3) of that section there shall be inserted— (4) In relation to money purchase contracted out schemes to which Schedule 2 to this Act applies, 1 per cent. of earnings as defined in subsection (aa) above shall be included in the calculation of the minimum contribution.".'.

The First Deputy Chairman of Ways and Means (Mr. Geoffrey Lofthouse)

With this we may take amendment No. I, in page 1, line 21, at beginning insert— '(3) In section 7(1) of the Act of 1986, the words in lines 8 and 9 "within the period beginning on 6th April 1988 and ending on 5th April 1993" shall be replaced by the words "beginning on or after 5th April 1988". (4) In section 7(4) of that Act, in line 2, after the words "in respect of a tax week" shalll be inserted the words "falling within the period beginning on 6th April 1988 and ending on 5th April 1993" and after paragraph (b) the words, The amount of payment in respect of a tax week beginning on or after 6th April 1993 is where

  1. (i) the tax year in which the tax week falls ends before such date as may be prescribed, and
  2. (ii) the earner was over the age of 30 on the 6th April with which the tax year began,
1 per cent. of any such earnings.".'.

Mrs. Golding

The amendment deals with the exclusion of occupational schemes. It attempts to prove further the reason the figure of 1 per cent. is confined to personal pension schemes. The members of the occupational pension schemes joint working group, which brings together the Association of British Insurers, the Association of Consulting Actuaries, the National Association of Pension Funds and the Society of Pension Consultants, put their case for the inclusion of all types of contracted-out pension schemes in a letter to the Secretary of State on 9 September 1992. Unlike us, they do not challenge the purpose of the additional 1 per cent. rebate, which is to dissuade individuals from leaving personal pensions and contracting back into the state earnings-related pension scheme. Indeed, they say that it is welcome because some degree of stability is needed, and it is in no party's interest for there to be frequent switching between different types of pension provision. That is not the pure doctrine of competition, but there we are and so be it. However, the group expressed two concerns. One was that giving the additional 1 per cent. of personal pensions alone might lead some individuals to leave contracted-out money purchase schemes, and, possibly, even final salary schemes, to take out personal pensions. The second concern was there could be a greater danger that employers would consider that contracted-out money purchase schemes were not worth their continued support. leading to COMPS members drifting back into SERPS. They emphasised the unfairness of that by pointing out that employers who responded in 1988 to the Government's desire for personal pensions by introducing group personal pension schemes would see their employees covered by the additional 1 per cent., whereas those who, with Government encouragement, introduced contracted-out money purchase schemes would not.

Let me emphasise that it was with Government encouragement that those employers introduced and committed themselves to COMPS, installing the necessary procedures. They believed that COMPS and GPPS should receive the same protection because they were so similar that it was unfair for contracted-out salary-related schemes to be treated less favourably, and they urged the Government to establish a level playing field. Why have the Government refused to provide them with their level playing field, or at least a playing ground on which they would play downhill alongside personal pensions against SERPS?

The Secretary of State, in his reply to the group's letter, pointed out that his predecessor had made it clear that the 1 per cent. additional rebate was a temporary measure pending a review, which is what the Minister said today. I am not sure whether the Secretary of State regards that as an argument against the extension of the 1 per cent. to COMPS—surely not. It cannot be that they are arguing against an extension of the 1 per cent. It is a bit like somebody standing on the river bank and telling a drowning man, or at least one who thinks he is drowning, that he will not throw in the lifebuoy that he is holding but that the drowning man need not worry because there will be a review of the availability of lifebuoys and the required standards.

The Secretary of State went on to point out the differences between personal pensions and contracted-out money purchase schemes which included the nature of the contract, the contributions for PPs, the ages at which the benefits may be taken and portability on changing jobs. He added that he would be surprised if some employers felt that they could no longer support COMPS. That would be an unnecessarily short-term view.

On Second Reading, the Under-Secretary of State expanded further on the reason for not including contracted-out money purchase schemes. First, she told us that there were economies of scale. I wonder what that argument actually means. What economies of scale justify such discrimination? Are we to believe that the man from the Pru is a small business man? I have no doubt that the Under-Secretary has a good explanation that will satisfy the occupational pensions schemes joint working group. We should like to hear it. We should like to know what the Under-Secretary has in mind.

Secondly, and reiterating the argument of the Secretary of State, there is inflexibility in the age at which benefits may be taken. This is a good point at which to ask a question which has bothered me ever since I listened to the Under-Secretary on Second Reading. Did not such schemes qualify for the initial 2 per cent? If such schemes did not qualify, I can see the logic, if not the justice, of the Government's position. If they did, why on earth were the present objections of the Government not barriers then? What has changed? What is different?

Thirdly, and most importantly, the Under-Secretary said that there was a difference in the method of payment. COMPS are generally paid monthly, but personal pension contributions are made after the end of the year. That reduces the burden on the employer and throws into question whether it is appropriate at this juncture to extend to COMPS the same arrangement as that which applies to personal pensions.

If the 1 per cent. were purely a subsidy to the personal pension providers, I could understand the argument and the reasons why a similar subsidy should not be paid to employers. However, I understand that the 1 per cent. is an incentive to the individual employee. Perhaps the Under-Secretary could clarify the matter. Is the 1 per cent. a subsidy to the body providing the pension, or is it an incentive to the individual? Considering the reference to expenses by the Secretary of State in his letter and the arguments of the Under-Secretary on Second Reading, it seems that the Government see it as a handout—as a way of offsetting the higher costs of the personal pension providers.

It is difficult to agree with the conclusion of the Under-Secretary on Second Reading that, because of the differences between the operation of corporate schemes and personal pensions, the same arrangement should not be extended to corporate schemes. Perhaps, even at this late stage, the Under-Secretary will think again.

Mr. Archy Kirkwood (Roxburgh and Berwickshire)

I shall say some words in support of the amendment moved by the hon. Member for Newcastle-under-Lyme (Mrs. Golding). I concede that her amendment is much more transparently obvious than mine. I drafted my amendment in a moment of haste after Second Reading when I was still quite roused, to use a Scots term, by the rather inadequate explanation given by the Under-Secretary.

I cannot for the life of me understand this. I have read the report of the Second Reading debate, and I have re-read it. I simply do not understand why the Government "set their face" against contracted-out money purchase schemes. It is obvious and blatant discrimination. It does not amount to an awfully big row of political beans—or pension beans, if it comes to that—in terms of making a change because the necessary administrative changes and the amounts of money would not be great.

I do not have the same problem as the hon. Lady about the principle of an incentive. Back in the 1986 Committee, I said that we were relaxed about the matter. I think that the Government may, in retrospect, have overdone it in terms of the amount of money that was spent. However, I well understand the long-term aim, and I support it. The Government were right to examine the long-term implications for the SERPS expenditure, and they proposed the scheme. In the 1986 Committee, I was certainly prepared to go along with the scheme. However, when we have details such as those contained in the Bill, I cannot understand what the Government are trying to do and why there should be such discrimination. It has worrying long-term implications for the review. We are told that the problem is temporary and that we are all bothering about nothing. We are given to understand that if we are a wee bit more patient, everything will suddenly become clear. I am old enough and long enough in the tooth——

Miss Widdecombe

The hon. Gentleman does not look it.

Mr. Kirkwood

I am older than I look.

I have heard such assurances before. They do not inspire me with any great confidence. Indeed, if I had been tempted to be confident, the Minister's sweeping dismissal a moment ago when she said that the review would be concluded "as soon as possible"—or whatever ministerial cliche she used—would have removed the temptation. The Minister was responding to a perfectly pertinent and important question from the hon. Member for Glasgow, Garscadden (Mr. Dewar). The Government must know roughly how long the process will take. Will it take months or years? Will the matter be dealt with by the end of the parliamentary year? This is an important question because folk have to make plans. It is necessary to be careful and get the details right, otherwise people's long-term pensions could be prejudiced.

There is a great deal at stake. The amendments are important. My amendment was intended to be a probing amendment. I hope that the Minister will take the opportunity to allay some of our fears. As you can see, Mr. Lofthouse, the issues worry the whole Committee.

4.15 pm
Miss Widdecombe

I should like to respond to the issues which worry the whole Committee. I can see that the matter has at least united the Opposition—at least such hon. Members as are present. I am overwhelmed by the turnout on the Liberal Benches in support of amendment No.1.

The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) was slightly confused in his request to clarify the timetables. He confused the timetable for the review of the rebate structure and age-related rebates with the regulation of personal pensions. In reply to the hon. Member for Glasgow, Garscadden (Mr. Dewar) on Second Reading, I said that we were committed to having the rebate structure in place by 1996, that we would have to work to that timetable and that for the time being we saw no reason to depart from that. I cannot go further than to reiterate that for the moment. The hon. Member for Roxburgh and Berwickshire confused that reply with the reply that I gave to the hon. Member for Newcastle-under-Lyme (Mrs. Golding) about the regulation of personal pensions. Those are two entirely different issues.

I shall now speak to the two amendments. I am sorry if I repeat some of my remarks on Second Reading, but the arguments that I used then on why the 1 per cent. rebate is not extended to COMPS are the same as those which I shall use today. I hope to put them in a clearer form. The hon. Member for Roxburgh and Berwickshire will recall that in my reply on Second Reading I did not read out a prepared answer but responded to the extreme brevity of the hon. Member for Newcastle-under-Lyme with quite a marathon.

Amendment No. 1 seeks to extend the 1 per cent. additional rebate to all members aged 30 and over of occupational schemes who qualify for the current 2 per cent. incentive. This will include both contracted-out salary-related and money purchase schemes. Amendment No. 3 appears to seek to extend the 1 per cent. addition to members aged 30 and over of all contracted-out money purchase schemes, regardless of whether they are currently entitled to the 2 per cent. incentive.

I cannot accept either of the amendments for several reasons. That will be no surprise to hon. Members. Firstly, there is absolutely no purpose in extending the rebate to salary-related occupational schemes. The Government Actuary took full account of the cost to such schemes of providing the guaranteed minimum pension when recommending the new level of the contracted-out rebate appropriate from April 1993. He advised that 4.77 per cent. was the appropriate level. The then Secretary of State my right hon. Friend the Member for Braintree (Mr. Newton), who was in the Chamber a moment ago, accepted that advice, subject only to rounding it up to 4.8 per cent.

Secondly, although I accept that there are some similarities between contracted-out money purchase schemes and personal pensions, there are also many significant differences. Those have been detailed a number of times during debates on the Bill, but I shall restate them. Contracted-out money purchase schemes are set up voluntarily by an employer to meet the needs of his work force. Personal pensions are a private arrangement between an individual and a pension provider. The employer is liable for the payment of minimum contributions into a contracted-out money purchase scheme but has no such liability with a personal pension.

Contracted-out money purchase scheme members receive payments into their pension account on a regular monthly basis. Personal pension holders receive the minimum contribution from the Department after the end of the tax year, when their employer submits his annual return. That clearly affects the speed at which the investment builds up. The occupational scheme member has an advantage in that respect. The level of charges is generally lower for contracted-out money purchase schemes than for personal pensions—hence the economies of scale—and the employer will often help to meet them.

Lastly, the additional cost of £60 million and £25 million that would arise from accepting amendments Nos. 1 and 3 respectively cannot be justified in the current climate. I cannot commend the amendments to the Committee, but I hope that hon. Members will be able to accept my reassurances that the 1 per cent. addition is a temporary arrangement and that we will undertake a full review of the contracted-out rebate structure. The review will also consider proposals for an age-related system for personal schemes, occupational pension schemes and for contracted-out money purchase schemes and will involve full consultation with all the interested parties.

Mr. Dewar

Perhaps the Minister will turn her attention to the pertinent question put by my hon. Friend the Member for Newcastle-under-Lyme (Mrs. Golding). As I understand it, COMPS benefited from the 2 per cent. incentive which will end in 1993. If that is so, presumably all the Minister's present arguments for opting them out of the 1 per cent. would have applied when the 2 per cent. incentive was introduced. Is she saying that that was an error then; if not, why not?

Miss Widdecombe

I suspect that the hon. Gentleman is not confused but is deliberately trying to confuse the issue. The 2 per cent. was an incentive to set up personal pensions and its success has been immense. As I have said many time, there are 5 million holders. It was an incentive to individuals and to companies to consider personal pensions rather than final salary-related schemes which, as the hon. Gentleman pointed out, are not available to many modest wage earners whose employment patterns do not suit them.

The 1 per cent. additional rebate is age related and is designed to deal with a problem. We should not oblige people who have opted for personal pensions to come back into SERPS merely because there would be a financial incentive for them to do so, when they might prefer the choice and flexibility of remaining in a personal pension plan. That is an advanced measure against our review of age-related benefits. We had to do that immediately in the interim, and it is related not to the incentive but to our review.

Mr. Dewar

Am I to understand from what the hon. Lady has said that she is strongly opposed to people opting back into SERPS from private pension plans—hence the 1 per cent.—but she sees no danger of discouraging people in COMPS?

Miss Widdecombe

I am not opposed to people returning to SERPS if they want to do so, but I am opposed to creating the conditions which more or less oblige them to do so when they would prefer the choice and flexibility of something else. For the reasons that I explained—the build up, the differences and the economies of scale—I do not believe that employers would be subject to the same disincentive. On that note, I ask the hon. Member for Newcastle-under-Lyme to consider withdrawing her amendment.

Mrs. Golding

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Mr. Dewar

We have had some interesting exchanges, and it would be fair to say that the amendments and the exchanges on Second Reading largely dealt with the implications of the Government's intentions and how the system is working rather than demonstrating root-and-branch opposition to the Bill. It is very much in that spirit that we shall continue the proceedings today.

It may come as a relief to the Under-Secretary to hear that I shall never accuse her of being timid; that is not the word that sprung immediately to my mind as I contemplated her highly personal style. However, we have managed to reduce the number of Parliamentary Private Secretaries in attendance from three to one.

Miss Widdecombe

My hon. Friend the Member for Dorset, South (Mr. Bruce) is mine.

Mr. Dewar

Well, that explains all. Loyalty beyond the call of duty has made the hon. Gentleman stay with us and, as the only Conservative Member here apart from those on the Government Front Bench, his presence should be recognised.

I should like to refer briefly to a passage of arms on Second Reading when the Under-Secretary accused Opposition Members of being "glum as owls". I must confess that owls have always seemed to me, at least in myth, wise birds and I have no great objection to being accused of being owl-like in that sense.

On Second Reading there was a dispute about whether the Opposition were cheerful during the course of the uprating statement. At one point we had the slightly comic spectacle of both the Secretary of State and the Under-Secretary standing shoulder to shoulder at the Dispatch Box trying to respond to a point of information from myself.

It is perhaps a minor matter, but it should be put on record that I had suggested that some of the briefing that had led to expectations of an unfortunate outcome from the uprating statement came from the Department. I referred to press reports of a speech that I understood had been made to the 1922 Committee. The Secretary of State jumped to the Dispatch Box and ultimately interrupted his own Under-Secretary to say that no such speech had been made and that he had never addressed the 1922 Committee. On the basis of that, some arguments were made on the validity of my arguments.

I shall not spend any more time on this issue except to say that I was in error and I therefore offer a qualified apology to the Secretary of State. On 10 November an article appeared on the front page of The Times under the byline of Nicholas Wood and Jill Sherman, which stated: Peter Lilley, the social security secretary, last night warned Conservative MPs of tight curbs on state benefits as he sought to lower expectations in advance of the Chancellor's Autumn Statement. … Last night's meeting with a group of senior backbenchers was the social security secretary's way of starting a damage limitation exercise. In a sign of the sensitivity of the package, he will meet 120 MPs over the three days before he unveils the outcome of months of hard bargaining with the Treasury. That all turned out to be nonsense and there was no formal speech to the 1922 Committee, but that suggestion was not nonsense in terms of what I said. Obviously, a lot of the disinformation came from the Secretary of State for his own purposes. Certainly there was a meeting with a group of Back Benchers on which the press had been briefed. I make that point because I rather object to the way in which the Secretary of State was anxious to deny a detail and to avoid dealing with the substance of the point raised. I do not think that that reflects great credit upon him.

I could cite other examples of similar press notices, but I hope that I have made my point. However, I am sure that the Under-Secretary will remember that, on Second Reading, during that same intervention I referred to Conservative plans to tax invalidity benefit. She replied: We may judge the accuracy of the second observation by the hon. Member for Garscadden by the accuracy of that one."—[Official Report, 30 November 1992; Vol. 215, c. 110.]—my observation about the meeting. All I can say to the Under-Secretary, again, is that unless she wishes to rise to deny that, my clear understanding from the Secretary of State is that the Government intend to tax invalidity benefit as soon as they can overcome the practical problems that made it impossible to do so this year, clearly to the regret of the Secretary of State. On Second Reading, the Under-Secretary seemed to shelter behind a barrack-room lawyer's point about where speeches had been made in order to avoid the point that she found embarrassing.

4.30 pm

My hon. Friend the Member for Newcastle-under-Lyme (Mrs. Golding) did us a service in moving the amendments to clause 1. Although the Under-Secretary may sail into battle and point out that the drafting is defective and that there would be unintended consequences—it would be extraordinary if there were not because Opposition Members must often deal with complicated subjects—the amendments make a point of principle. On those, the Under-Secretary was nowhere near as persuasive or effective as she wanted to be. There was some badinage about the fact that the concern was shared by an empty Committee, but the Under-Secretary will remember that it was expressed on Second Reading by the hon. Member for Havant (Mr. Willetts), who described the Government's decision as "odd". Although that is a mild term, it suggests a spirit of scepticism.

I have something in common with the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) because I, too, took the trouble to re-read the arguments. I confess that I found them extremely unconvincing. Moreover, having listened to the Under-Secretary for the past 20 minutes, none of my doubts has been resolved, nor have I been swept away by the warm solidarity of her argument. Her arguments are set out in Hansard at columns 111–12 of the Second Reading debate. One of those arguments was about economies of scale. I understand that management charges liable on an occupational pension scheme—a COMP scheme—are likely to be spread more thinly and perhaps less damagingly than management charges liable on a personal pension scheme tailored for an individual and managed for him or her. However, it is not a significant factor, given the fact that those schemes benefited from the earlier 2 per cent. arrangement.

I do not regard inflexibility about age as a major factor. Indeed, I do not see its significance at all. Clearly, someone on a COMP scheme will benefit at a set age, and that cannot be varied, but it does not impact on the financial argument which the Minister was advancing. The only argument that seemed to have any force concerned how the money came in. I understand that there is a difference because an approved private pension lump sum comes at the end of the year, whereas a COMP scheme makes payments throughout the year and that money can therefore be used as it builds up over a 12-month period.

I am therefore not totally indifferent to the arguments which the Under-Secretary advanced, but I find it odd that the Government have decided to exclude COMP schemes, a decision that has caused irritation and disappointment to many in the industry.

Another odd concept advanced by the Under-Secretary was that people should have a choice about whether they wish to opt back into SERPS but that it should not be a choice in which there is a clear balance of advantage in favour of SERPS. In a sense, choice is almost meaningless here because it will be entirely dictated by financial advantage. I doubt whether many people will say, "My adviser has told me that there is a clear advantage in returning to SERPS but, for reasons of principle and commitment, I shall carry the financial penalty of not taking that advice".

To some extent, the market is being rigged against SERPS but also against COMP schemes. That is an unfortunate game for the Minister to be playing. Although that is no justification for urging my hon. Friends to vote against the clause, it remains an unsatisfactory feature of this provision. I accept that it is only temporary, but it is important that we see as soon as possible the arrangements which the Government intend to introduce for age-related contracting-out principles in 1996.

The Minister said—I am sure that it is true—that if we are to have these arrangements in April 1996, there will be a timetable from which we must work back. As I am not sufficiently conversant with the mechanics, perhaps the Minister will say when it would have to be clear what the intentions were so that there could be legislation to introduce the new scheme. It would be helpful to work back from 1996 on the assumption that the Government will adopt these arrangements.

The Minister must recognise that there are genuine anxieties about the way in which personal pension plans are sold and the way in which they are managed. I do not assume that potentially there are 5 million tragedies in the sense that everyone will be dissatisfied at the end of the day. I do not think that my hon. Friend the Member for Bradford, North (Mr. Rooney) suggested that that would be the position. Undoubtedly, however, there will be some disappointments and some anxieties that perhaps could be avoided.

I was interested in an article that appeared yesterday in the Independent on Sunday under the byline of Maria Scott. It dealt with some figures that had been produced by the National Provident Institution, which is one of the well-known providers. I am told that it is responsible for 340,000 personal pension holders. Clearly the NPI has a significant holding in the market, if that is the right way of putting it. It is concerned—this is the journalist's gloss, but I am sure that it is accurate—that most people with personal pensions will be sorely disappointed by the income that they receive in retirement unless they increase their contributions, according to NPI, one of the country's largest pension providers. The company has found that the average contribution is £78 a month and that fewer than 20 per cent. of policyholders are increasing their contributions on a regular basis. The Minister may take the view that those policyholders are merely reaping the whirlwind—in other words, if they are improvident they cannot complain at the end of the day. It is interesting, however, that NPI is saying that something is going wrong—possibly with people's expectations and perhaps with people's awareness of how personal pension schemes operate, or possibly with the continuing advice that they receive from those who initially sell them the policies.

The figures are not entirely clear to me, but NPI suggests that a 40-year-old man planning to retire at 60 and contributing £100 a month to a personal pension could expect to receive a monthly pension of £104 (after allowing for 5.5 per cent. inflation)". I presume that NPI anticipates that during the build-up of the pension plan there will be 5.5 per cent. inflation. It appears that the company assumes that the growth rate of the fund will be about 3 per cent., which seems to be a reasonably generous estimate. Many plans will fall short of that. The Committee will understand that with an expectation of £104 a month there will be a small increase in real terms at the end of the 20 years. I should say that there is a lump-sum calculation of £4,540 in addition—[HON. MEMBERS: "Ah".] I am not trying to mislead the Committee. I accept that it is important to make it clear that there is a lump sum.

The position remains, however, that one of the most significant pension providers is saying that there will be widespread disappointment. I am sure that it does not conduct its business irresponsibly, and I do not suggest otherwise. The company points to a general malaise, which is perhaps a useful counterbalance to the rather bullish statements that we sometimes hear. The hon. Member for Havant on Second Reading made an unashamedly ideological case for the virtues of private pension provision as against those of SERPS and about the need to weight the financial package in that direction.

The point is, how good will a private pension scheme be? The Minister will say that there is no answer to that and that it depends entirely on how successfully the funds are managed. But people do not realise that; for many it is a blind buy—they do not know what they are buying and they go ahead in a spirit of optimism but with little detailed knowledge of the likely outcome.

There are uncertainties in SERPS, too, as we saw in 1986 when the Government, for reasons that we challenge but can at least understand, concluded that the SERPS package had to be radically restructured, to the disadvantage of those who were to get their top-up pension from the SERPS scheme. There are also uncertainties in the private pension sector, and the Committee should not ignore them. In this respect, I agreed with my hon. Friend the Member for Bradford, North. I saw the same figure in an article in The Guardian on 28 November. It referred to the fact that no one earning less than £9,000 should be advised to opt out of SERPS or go into a personal pension plan. That point is made by Legal and General—I suspect, by Mr. Ron Spill, a respected figure.

Almost everyone in the industry to whom I have talked has expressed grave doubts about putting people into personal pension plans if their incomes are less than £10,000 a year. The Minister may remember her remarks on Second Reading, when she said that The average wage of a person taking out a personal pension is £9,750."—[Official Report, 30 November 1992; Vol. 215, c. Ill.] There may be occasions when it is sensible to take out a plan at that level of income, but many people would be worried about whether those on that income would find plans a good buy. I confess that I was surprised by how low the hon. Lady's figure was, and I was somewhat alarmed by what she had to say. It seemed to me to highlight the need for the sort of regulation which, perhaps clumsily and ineffectually, we were trying to achieve today in our amendment.

It is worth making these points, even though they may irritate the Minister. On Second Reading, she spoke of viability, reliability and safeguards, and the need for all three. Of course I agree. They are certainly important and no one would argue about them. I am, however, a little concerned about the pace of progress on what seems to me the Minister's approach to these matters.

On Second Reading there was some talk about occupational pensions and the release of the Goode committee's report in mid-1993. I do not intend to go into that here, but I shall mention what the Minister said so as to argue by analogy: The Government are fully seized of that issue —that is, the importance of not tying up occupational regulations too tightly. When the Goode Committee reports we shall take account of what it says and seek to achieve a balance between keeping the confidence of the pensions industries and the confidence in pensions, however provided, of people who take them out, and ensuring that employers do not find that they are so over-regulated that it proves a disincentive to them to set up schemes."—[Official Report, 30 November 1992; Vol. 215, c. 114.] Of course there must be a balance between all these considerations, but I am alarmed by the Minister's phraseology, given what has happened recently to occupational pensions—but that is a subject for another debate on another occasion. When we come to debate the balance that must be struck between the interests of those who sell pensions and the interests of those who buy them—with all their disadvantages of not knowing about the uncertainties involved—I hope that the Minister will then agree that there is a strong argument in favour of regulation and of building in as many effective safeguards as possible.

4.45 pm

This whole problem must be dealt with urgently. I recognise that the Investment Management Regulatory Organisation, the Life Assurance and Unit Trust Regulatory Organisation and the other regulatory bodies have a role to play—doubtless their recommendations and advice will be valuable—but I also hope that when the Government finally make up their mind following representations from the industry there will be a strong prejudice in favour of protecting those who pay their contributions and who will have to rely on the pensions that they are buying, which may turn out to be rather more modest than they had expected or hoped.

When the Under-Secretary finally emerges from the conference room and the consultation process, I hope that we will be satisfied. Her response—I thought it florid and had a touch of pomposity—when I asked about the timetable did not greatly encourage me. We shall be watching developments carefully, but for the moment I shall not recommend opposing the clause.

Mr. Corbyn

I am one of only three Members present who are veterans of the 1986 Social Security.Bill Committee—and a pretty miserable affair it was too, as I think that the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) will confirm. In that Committee the Government turned their back on a great deal of social security legislation going back 40 years; it marked the beginning of the end of many aspects of the welfare state. The hon. Member for Langbaurgh (M r. Bates) need not look too puzzled. This Prime Minister ended single payments and the death grant and introduced the social fund and a great many other horrific developments. [Interruption.] Yes, this does not have much to do with the Bill—except that there is a link in the form of pension provision. The 1986 Act was designed to encourage the promotion of personal private pension schemes at the expense of the state earnings-related pension scheme. The linking factor is the Government's general approach, which is to reduce the real value of the state old-age pension.

I am unhappy about clause 1 for several reasons. They have to do with the value and security of pensions, and our fears about them. My hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) mentioned the portrayal of the Secretary of State during the run-up to the annual uprating statement. I thought that the right hon. Gentleman played a blinder. He is not here for me to congratulate him today—he was in such a bad mood last week that I am glad about that—but I should be grateful if the Under-Secretary passed on my congratulations to him. He led everyone up the garden path and into believing that there would be a massive cut in benefits, knowing full well that there would not be. At the same time, he got away with yet another year of defrauding old-age pensioners, by refusing to restore the link with earnings which was broken in 1980.

Because the Secretary of State was in such a bad mood last week, he did not bother to listen to me when I said that the Labour Government's method of dealing with state old-age pensions was to link them either to the retail prices index increase or to the increase in average earnings, whichever was the higher. So, when the Minister sees the Secretary of State later to report to him on her performance today, I should be pleased if she would pass on my remarks. She should also ask him to come to the House in a better mood next time. We do not want him to bring his bad temper to the Select Committee on Social Security, where we will question him on Wednesday morning.

I note that you are fidgeting, Mr. Lofthouse, so I shall return to the Bill. I have some questions about portable pension schemes and private personal schemes because there is a serious question mark over their security. The Minister made a fair point when she said that at this stage it is impossible to judge how many schemes are unlikely to be able to pay out in full what they have guaranteed or contracted to pay to the contributor at retirement age. However, she should be able to tell us the extent of monitoring and sampling by her Department on the performance of the schemes.

A serious problem seems to be developing. In theory, many individual schemes have been developed, although there are patterns, and the system to monitor their performance or income from investments is totally inadequate. What sort of problems will arise in future? I ask that question because I sat through many months of investigations of company pension schemes on the Select Committee which is still examining the problems of such schemes. Those investigations revealed the inability of the public regulatory bodies and contributors to know what was happening. There was also evidence of insufficient training to enable people to understand the technicalities. That can be remedied to some extent in occupational or company schemes through a better system of election or the appointment of experts, but that does not necessarily apply to personal schemes and it is difficult to see how it could. Perhaps the Minister will deal with that in her winding-up speech.

We must examine the hidden costs. The Conservative party is obsessed with developing and increasing aspects of the private welfare state for those who contribute. There is a philosophical difference between us on that. We believe in community provision with guarantees and Conservatives believe in a market economy—which has many losers, because in a competition some people win but the majority lose. The Conservatives are into removing safety nets in a big way. The Government have not told us the hidden costs to the rest of the community of these private pension schemes. Those costs are in lost national insurance contributions and lost income tax.

Today's "Enterprise Money Mail" in the Daily Mail states that tax relief on pension schemes is currently running at £9 billion a year. I would not normally quote the Daily Mail either in the House or elsewhere, but I do so on this occasion partly because the newspaper was given to me by my hon. Friend the Member for Bradford, North (Mr. Rooney) and also because that was one of the few newspapers that was prepared to publish earlier than others what was going on in the Maxwell pension fund. That article shows that tax relief on pension schemes costs the rest of the community a great deal of money. That ranges wider than the tax relief on the schemes contained in the Bill, but it is a high cost.

I should like to ask about the running of the schemes and investment. A person who enters a pension scheme presumably signs a contract. One hopes that he will deal with a reputable person and the scheme will work out properly. There are insufficient guarantees about that and I understand that there is no requirement for the person to be told the contents of the investment portfolio and that information is difficult to obtain. In a company or occupational scheme, which would have an investment committee, it should be possible to find out where the money has gone; although in the case of the Maxwell and Mirror Group pension funds it was almost impossible to find out where the money had gone—much of it has probably gone for good. A person who has ethical concerns about investment in the past or present in South Africa or in the arms industry will find it difficult to determine where his money has gone if the money has been invested in some other financial institution or trust.

The state earnings-related pension scheme was introduced by a Labour Government as a way to improve the lot of people in retirement. It was a good step and a progressive idea. However, it was badly shortchanged by the Government in 1986 when they decided to accept actuarial advice. Instead of reflecting on how they could improve the scheme, they diminished it as part of their grand plan to increase the influence of the private pensions industry. I deeply regret that. I should like to see a pension regime that gave a much higher basic state old-age pension, real democracy in the running of occupational schemes and information for those who put their money into private personal schemes, which I do not think are necessarily secure in the long run.

Mr. Kirkwood

I should like to ask some detailed questions. The clause introduces new provisions to the 1986 Act, and some of them provide a regulation-making power to prescribe how an earner's age is to be verified. How can that be done other than by asking for a birth certificate? Why do we need a regulation-making power to stipulate that? Will the regulation-making procedure be affirmative or negative?

What are the financial effects of the clause? The rubric to the Bill says that clause I will cost the national insurance fund about £165 million annually from 1994–95. Past estimates have been slightly lower than the actual cost. Will the Minister tell us generally how that figure is arrived at? More puzzling is the fact that clause 5 (3) states: Section 1 (3) of this Act shall he deemed always to have had effect. That smells of retrospection and perhaps the Minister will tell us about it.

The administrative cost for the provision of clause 1 is £6 million, which seems to be a great deal. I do not know the percentage currently used to administer some of these benefits, but it must be about 3 per cent. My arithmetic is not up to it and I do not have a calculator, but £6 million sounds rather high for deploying an annual amount of £165 million. I may have that wrong but I ask the question innocently, as is my wont. If the answer cannot be given now, I should be quite happy——

Mr. Dewar

rose——

Mr. Kirkwood

It appears that I should not be happy to receive a letter about the matter; the hon. Member for Glasgow, Garscadden (Mr. Dewar) is about to tell me why I need answers to those questions now.

Mr. Dewar

I was speculating, and I thought that I might put my speculation to the hon. Gentleman. Is it not the case that the £6 million is a cumulative total, referring to previous years when the payments should have been made but were not, and that is why it is retrospective in effect? What we are seeing here is the Minister in debt and looking for authority to pay her debts.

Mr. Kirkwood

The hon. Gentleman is much more suspicious about such matters than I am. I would not dream of presuming any such thing until I was told differently by the Minister, so I await with eager anticipation the answer to the question, which I hope is arriving. The piece of paper that is arriving for the Minister looks more like a bus pass.

A time scale for the review would be helpful, so I make this third plea for one. I understand that, when we debated earlier amendments, I may have given the impression that I had confused the two reviews that are under way. The temporary nature of this clause should be known to the Government. Therefore, it should be vouchsafed to the Committee so that we can make proper and successful progress in the Committee stage.

5 pm

Mr. Rooney

I must correct an earlier remark. I meant to refer to the Equitable Life Assurance Society.

Does the Minister recognise that many personal pension schemes are unit linked and where persons are in employment with a fixed retirement date, they are in the hands of fate, because they are badly affected by how the unit market stands on that day? Thank goodness, black Monday does not arrive every week, but anybody who was unlucky enough to retire on that day with such a scheme would have found himself under a considerable disadvantage compared with what would have been the position if he had retired on the previous Friday.

Given the myriad of statistics that are produced on the performance of pensions, is it not incumbent on the Department to realise that it would make sense to have a standardised form of performance, to be produced by the Department on an annual basis? That would be better than people being subjected to empty promises, many from companies that have been in existence for less than five years.

I have another question in a similar vein. How much will what we are talking about today—particularly with this magic date of 1996—be held back until decisions on the equalisation of retirement ages are arrived at'' What advice is being given, particularly to women under the age of 30 today, on which options to go for and what sort of purchase schemes they should be looking at with a view to the retirement age in their company, which could be anything from 55 to 70?

Miss Widdecombe

Many points have been raised and I shall endeavour to address all of them, including those raised by the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood)—my brain had caught up with me by the time that he sat down.

The debate was opened by the hon. Member for Glasgow Garscadden (Mr. Dewar) who said that neither he nor his colleagues had any objection to being compared to owls because owls were wise creatures. The most significant characteristic of an owl, and one that is well attested, is that it does not see terribly well in daylight. Owls are renowned for spending their time whizzing around in the dark hooting mournfully. That sums up the activities of the Opposition in respect of this and other Government Bills. I note their willingness to be compared to owls and I shall make sure that this comparison is widely known.

The hon. Gentleman then attacked my right hon. Friend the Secretary of State. He conceded that my right hon. Friend had not addressed the 1922 Committee, but in support of his contention that my right hon. Friend had addressed a group of Tory Back Benchers, he quoted from The Times. The hon. Gentleman spoke about age earlier, and we know that he has been around this place for a long time. I cannot believe that he has not yet learnt that not everything that appears in the newspapers is 100 per cent. accurate. All those scare stories that came out before the autumn statement originated either from the Opposition or from the press, for their own ends, not from my right hon. Friend.

The hon. Gentleman also spoke about our intention to tax invalidity benefit, although I have no idea what the subject has to do with the Bill. On Second Reading, my right hon. Friend and I made it clear, as we and others have done on innumerable occasions, that the taxation of invalidity benefit is essentially a matter for the Chancellor of the Exchequer, as are all taxation matters. To quote direct from my right hon. Friend on another occasion, and we all speak with one voice, The hon. Gentleman knows that in the literature that recipients of this benefit receive there is a statement that it has been our long-standing intention to bring that benefit into tax, but only when the difficulties of doing so can be overcome."—[Official Report, 12 November 1992; Vol. 213, c. 1020.] There is nothing new about that. All that was new was that the Opposition and the press decided that it would be fun to start a rumour that we were to tax the benefit this year.

Mr. Dewar

rose——

Miss Widdecombe

The hon. Gentleman is dying to intervene, but I hope that his intervention will show some of the wisdom of the bird with which he does not object to being compared.

Mr. Dewar

I am not dying—I hope that that news is not too disappointing for the hon. Lady. She and I should perhaps call a truce on animal parallels because we are wandering into dangerous territory.

Miss Widdecombe

What kind of animal am I?

Mr. Dewar

That is exactly what the hon. Lady should not tempt me to say.

Does the hon. Lady recognise that an interesting point about the exchange on invalidity benefit in the Second Reading debate was that she refused to deal with the point, and avoided it, using the technicality of the 1922 Committee as a reason for doing so? I know that the hon. Lady will tell me that she does not discuss leaked documents, but she must be aware of the fact that there is substantial evidence about detailed preparation for the taxation of invalidity benefit. Within what time scale is this manifesto promise of the Conservative party likely to be implemented?

The Second Deputy Chairman of Ways and Means (Dame Janet Fookes)

Order. Before the Minister replies, let me point out that I cannot see what that issue has to do with the Committee stage of the Bill. I suggest that it is not further pursued by hon. Members.

Miss Widdecombe

In deference to your ruling, Dame Janet, I shall not refer to any leaked documents, or indeed to any other form of stolen property. I shall, as you rightly urge us, move on to the detailed points raised in the debate.

The hon. Member for Islington, North (Mr. Corbyn) and, as the hon. Member for Garscadden rightly reminded us, Conservative Members have expressed concern, both on Second Reading and today, that personal pensions should be properly regulated. I made it clear on Second Reading that I recognised that that concern was shared and that I did not underestimate the importance of getting the regulations right. Nor do I underestimate the importance of addressing all the points that were raised by Labour Members about the validity of personal pension schemes, about the amount of information that is given at the time of sale of such schemes, and its accuracy. However, like occupational schemes, personal pension schemes depend on investment.

In response to the point made by the hon. Member for Islington, North, I can say that the Occupational Pensions Board has not had to revoke a certificate from a personal pension scheme because the scheme could not give it an assurance that it could cover the guaranteed minimum that it stated that it would produce and that it was obliged to produce; there is that monitoring.

I also fully understand the point that if one starts calculations on various bases, one can produce a scenario that might show that a pension will not be worth what it was originally thought that it would be worth. All pensions, however, are dependent on investment. It is impossible to judge what will be the case in 20 years' time on the basis of a short-term trend or on information immediately available. We are certainly not going to go into the business of trying to guarantee or underwrite given levels of investment, but that is not unique to personal pensions. I do not want our 5 million personal pension holders to assume from today's debate that all is not well.

Mr. Corbyn

As the Minister presumably knows, examination of occupational pension schemes by the Occupational Pensions Board normally relates to 20 per cent. of the capital. The board verifies whether that is in order, which is not the same as verifying the whole scheme. To what extent does verification go into personal schemes?

Does the Minister agree that one way of enhancing the security of both company and personal pension schemes would be to introduce a guaranteed level of gilt-edged investments within them?

Miss Widdecombe

Certain minima operate for both occupational and personal pension schemes. In neither case is there a maximum or a guarantee at the end: there cannot be, simply because of the way in which investment works. I take the hon. Gentleman's point that it might be possible to produce a better sort of investment by insisting that it contained a gilt element of X per cent., and I hope that investments would be prudentially handled in that way. Nevertheless, I do not yet see a case for insisting that any investment organisation follow a particular path that could be laid down and curtailed.

Having said that, I shall consider what the hon. Gentleman has said. As I stated earlier, we are reviewing the whole position. I shall find out whether there is any practical way of implementing the hon. Gentleman's suggestion and let him know the outcome of my deliberations. I hope that that is acceptable to him.

The hon. Member for Garscadden raised the question of income levels. He said that it probably did not pay people to take out personal pensions if they were earning less than £9,000 a year; he then upped the figure to £10,000, on the basis of discussions in which he had engaged. The essence of his argument, and that of the hon. Member for Islington, North, was that there was an income level below which it did not pay people to opt into personal pensions, and it was implied that people on incomes below that level were doing so because they had been badly advised.

The technical annex to the 1986 White Paper made it clear that people with very low earnings might not be better off with personal pensions. However, the level of income is crucially dependent on the level of the return on their investments. As all pensions are a long-term investment, decisions should not be made on the basis of an isolated year or other short period. The warning is there; on the other hand, if there seems to be an investment pattern that will produce returns——

Mr. Dewar

I am sorry to interrupt, but I am genuinely interested in this point. I entirely accept that there are many individual exceptions, and that people must examine their personal circumstances and take advice. Let me remind the Minister, however, of the quotation from Legal and General which I gave earlier. I think that it is a fairly broad rule of thumb that those in the £9,000 or £10,000 income category should consider the balance of advantage carefully before opting into a private pension scheme. In the light of that, is the Minister not surprised by the figure of £9,750, which is given as the average earnings of people with private pension plans?

5.15 pm
Miss Widdecombe

As the hon. Gentleman has himself pointed out, individual circumstances will vary from the norm. I am not wholly surprised, given that it was always clear that, in introducing personal pensions, we were endeavouring to benefit people on fairly modest wages. The technical annex makes clear the need to be more careful at that point, but being more careful is not the same as assuming that in no circumstances should a personal pension be taken on.

I am sure that it will not please the hon. Member for Roxburgh and Berwickshire very much to learn that the regulations are negative procedures.

As the hon. Member for Garscadden said—I almost used the word "rumbled"—the £6 million is spread over six years, from 1988–89 to 1993–94, providing an average of £1 million a year. It is just above 0.5 per cent., not just above 3 per cent.

It is right that the administrative expenses associated with payments from the fund should be met from the fund; the clause simply writes in a perfectly normal provision for the meeting of such expenses. The annual cost of £165 million was based on the payment of an additional 1 per cent. to 2 million personal pension holders.

The hon. Member for Roxburgh and Berwickshire also mentioned the need for a regulation-making power to verify dates of birth. In the vast majority of cases, inquiries about dates of birth should produce no difficulties; the information will already be held by the Department. It is possible that, in a few cases, the Department will not hold those details and the individual will be unable to provide a birth certificate or other verification. In those few cases, the adjudication officer will have to make a determination on the basis of the best evidence available.

Mr. Corbyn

I asked the Minister earlier about the disclosure of information to the holders of personal schemes: I asked her how they could find out what was happening to their investments and where the money was invested. The money is often put into other trusts, which makes it very difficult for the individual to follow the normal rules governing disclosure, which are implicit in all the regulations concerning occupational and company pension schemes.

Miss Widdecombe

The Government—and, I am sure, the regulators—certainly want people to have access to regular information about what is happening to their schemes, as and when they require it. That already applies to those who invest in occupational pensions. There should be no difficulty about providing information about the state of their particular pot of gold—[Interruption.] Let me tell hon. Members who have poured scorn on personal pensions—at one point, they almost seemed to pour scorn on occupational pensions as well—that, following the measures that we have introduced, nearly 70 per cent. of people retire with occupational pensions. Moreover, the average value of their pensions is now nearly as great as that of the state pension. We are vastly increasing pensioner incomes. A certain number of people have always been excluded because occupational pensions were not suitable for them. The Bill is designed to ensure that they have exactly the same advantages as people with occupational pensions.

I am amazed at the scorn that is continually poured on the provision of greater choice, greater flexibility and greater incomes in retirement for ever more people.

Question put and agreed to.

Clause I ordered to stand part of the Bill.

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