§ The Secretary of State for Social Security (Mr. Peter Lilley)
With permission, Madam Speaker, I should like to make a statement about the White Paper that I am publishing today, which will, I believe, strengthen the whole pensions industry by providing the three basic essentials of security, equality and choice.
Pensions are one of the most important ways in which people and families hold a stake in this country. They are part of the fabric of a property-owning democracy—a fabric which we extended during the 1980s to cover large numbers left out before. I want to encourage more provision by more companies, by men and women, by young and old.
We need legislation to help that process. We have three factors to deal with. First, confidence in occupational pension schemes was hit by the Maxwell affair; we are going to restore it. Secondly, European Court rulings require schemes to give equal pension rights for men and women; we intend to assist schemes do just that. Thirdly, we are committed to making personal pensions more attractive to a wider age range by bringing in age-related rebates. Now is the time to honour that pledge. And we shall also give those who invest in personal pensions greater choice about when they convert their investments into annuities.
My top priority is to restore confidence in the security of pension funds. Following the Maxwell affair, I set up the pension law review committee under Professor Goode. Its report has been widely welcomed—and rightly so. I have since been consulting on its recommendations. As a result, I have decided to implement all the committee's main recommendations. We will reinforce trust law as the basis for pensions law; we will bring the management of all schemes up to the level of best practice; we will give members more influence in the running of their schemes; we will introduce a minimum solvency requirement to ensure the adequacy of pension fund assets; we will appoint a strong regulator; and we will set up a compensation scheme.
As the Goode committee and the Social Security Select Committee recognised, the great majority of schemes are secure and well run. We must not burden them with over-complex administration or unnecessary extra costs. The arrangements that I propose will achieve the security that the pension law review committee intended, while minimising burdens on pension schemes.
I do not believe that any single measure can provide a satisfactory defence against fraud. It is better to strengthen every possible line of defence. The first such line is the scheme members. They have the greatest interest in ensuring that their scheme is well run, so I will give members the right to clear and relevant information, the right to select at least a third of the trustees and access to a procedure to resolve disputes.
The second line of defence is the trustees. Pension funds will continue to operate under trust law, so the role of trustees is crucial. I will make it clear that their role is quite distinct from that of the employer and will set out clearer guidelines for their day-to-day management of schemes. I will give the pensions ombudsman new powers to resolve 360 disputes between employers and trustees. Trustees who are scheme members will be entitled to paid time off for training and trustees' meetings.
The third line of defence lies with the professionals—such as the auditors and actuaries. They will report to the trustees, not the employer, and will have a duty to whistleblow to the regulator.
The fourth line of defence is solvency. I agree with the pension law review committee that a minimum solvency requirement is needed to make sure that funds are available to provide the pensions promised to employees. The Institute and the Faculty of Actuaries have suggested modifications of the pension law review committee's proposal for valuing pension scheme liabilities. After consulting widely, I have taken the actuaries' approach on board. The vast majority of schemes already meet such a solvency requirement. I propose a transition period of five years to help other schemes adjust. From then on, any scheme that falls below the requirement will have three years to reach 100 per cent. solvency. I think that that is fair, prudent and right.
The fifth line of defence will be the new regulator. It would be neither feasible nor desirable for any regulator to police more than 150,000 schemes on a daily basis. A regulator should not have to dissipate energy on unnecessary bureaucracy among the vast majority of well-run schemes. Instead, a regulator should focus on schemes where there is some reason for unease, ready to take swift and decisive action. The regulator that I propose will have powers giving the full force of the pension law review committee's recommendations: the power to make schemes comply with their statutory obligations; the power to impose sanctions; the power to carry out spot checks; and the power to suspend and disqualify trustees. The regulator will be tough, incisive and able to act at the first sign of trouble.
If, despite all those measures, fraud occurs and the employer is insolvent and cannot meet the loss, members will none the less be protected by a compensation scheme. It will be administered by an independent compensation board, chaired by the pensions ombudsman. The regulator and the compensation board will be completely independent of each other. Both will be funded by a levy on pension schemes.
A more insidious threat to the value of pensions than fraud or theft is inflation. The best cure for that is low inflation. Inflation is now at its lowest for a generation and the Government are determined to keep it low. At present, there is no obligation to protect the whole pension against inflation. I propose that the whole of any occupational or appropriate personal pension rights built up after 1997 must be in line with inflation, up to 5 per cent. a year. As now, schemes may choose to go further. Early leavers from salary-related schemes will have the whole of their deferred pension revalued on a similar basis and we will require more consistent valuation and more efficient administration of transfer rights.
In salary-related schemes, the employer is responsible for making good any deficit that may emerge in a scheme, to enable it to fulfil the pension promise. So it is reasonable that employers should still be able to receive payments from any surplus that builds up. But the circumstances in which that is permitted will be strictly defined in legislation and members will have a right of appeal to the regulator.
361 The proposals that I have just described relate primarily to occupational pensions. There have also been concerns over the way in which personal pensions appear to have been sold. The Securities and Investments Board has been investigating the problem and will announce its findings in the next few weeks. The board has already made it clear that it will require those responsible for mis-selling to remedy the consequences. For some people who were badly advised to transfer to a personal pension, one possible remedy would be to transfer back into their former occupational scheme. However, even if the scheme is willing to accept them back, it cannot legally restore their protected rights. I will lay regulations shortly to enable those occupational pension schemes who wish to do so, to do just that.
In December, I announced plans to equalise the state pension ages for men and women by the year 2020. Many occupational pension schemes mirror the different state pension ages. It would be natural and easiest for them to equalise in parallel with the state scheme. Indeed, the 1986 European directive on equal treatment explicitly permits private occupational pension schemes to retain unequal ages as long as the state scheme does. However, in 1990, the European Court of Justice overruled that, and required occupational schemes to equalise pension rights immediately. It is very difficult for contracted-out schemes to equalise because they are also required to provide guaranteed minimum pensions mirroring the pensions payable in the state earnings-related pension scheme which, of course, will remain unequal until the year 2020.
I, therefore, propose to make it easier for contracted-out occupational schemes to achieve equality. I propose to replace the current requirement to provide a guaranteed minimum pension with a simpler test of overall quality. Schemes will have to provide benefits at least as good as SERPS. In the long run, that will also simplify and reduce the burden of regulation. SERPS will no longer provide top-up indexation for contracted-out schemes. To reflect that, the rebate will be set higher than it otherwise would have been. SERPS expenditure will be lower in the long term because of those changes and because I will also correct an anomaly in the way that SERPS is calculated. I am also protecting women's pension rights for paid maternity leave. Those steps will bring equal treatment to occupational schemes while minimising complexity for employers.
Our pension reforms in the 1980s did a great deal to extend choice. I intend to widen choice further in two areas. At present, someone with a personal pension who wants to take their tax-free lump sum from it must convert the whole of the rest of the fund to an annuity at the same time. As a result, they may be forced to take out an annuity when terms are unfavourable. I intend to allow people to defer taking an annuity up to the age of 75, even if they have taken their lump sum or drawn an income from the fund.
I can also announce today the fulfilment of our manifesto commitment to make personal pensions more attractive across a broader age range. I intend to introduce a system of age-related rebates, which will give people the opportunity to maintain personal pensions for the whole of their working life. I will also introduce age-related rebates for contracted-out occupational money-purchase schemes.
I intend to bring forward legislation at the first available opportunity, to allow schemes time to prepare for the new arrangements. My aim is that the changes should mostly 362 come into effect in April 1997. The views of the scheme members, employers and the pension industry will be vital in deciding the best way of implementing those policies. My Department will, therefore, continue to discuss the details with interested parties.
Funded private pensions are another field in which Britain is a world leader. Funds invested by British pension schemes on behalf of British people exceed those of all our European partners put together. As a result, we are far better placed to face the growth in the number of retired people next century without imposing a huge tax burden on this country. Our proposals pave the way to the next century. They implement the substance of the pension law review committee's recommendations. They allow occupational schemes to provide equal treatment between men and women in a way that minimises complexity. They extend choice and flexibility. They will encourage more people to invest in their own future and, in doing so, invest in the future of the nation. I commend them to the House.
§ Mr. Donald Dewar (Glasgow, Garscadden)
The White Paper undoubtedly deals with important and, self-evidently, complex issues. No one in the House will deny the need for urgent reform. It was, after all, public anxiety in the aftermath of the Maxwell tragedy which, rightly, demanded a tougher regulatory structure, especially for occupational pensions. Can the Minister confirm, subject to the inevitable caveats about the legislative programme, that he intends to introduce the necessary legislation later this year?
Will the right hon. Gentleman perhaps say a word or two of explanation about why implementation has to wait until the spring of 1997? Is it not possible to introduce at least some of the essential safeguards in 1996? There is a need to reassure the public who want to know that they can make provision for their retirement with confidence.
The Government claim to have taken the essence of the Goode report and, to use the White Paper's phrase, to have "distilled" it. It might be better to say that they have boiled it down. Does the Minister recognise that there will be concern, as Professor Goode and his colleagues saw their recommendations as a package? We have, to some extent, something that is akin to pick and mix—[HON. MEMBERS: "Where?"] The White Paper is full of generalisations designed to reassure, but it lacks specification. To take just one example, what are the strictly defined circumstances in which employers may withdraw a surplus from an occupational pension scheme? What new safeguards will there be to improve what is generally seen as an unsatisfactory position, particularly as trustees will no longer have to consult the regulator, as Goode recommended? Can the Minister understand our reservations when good practice is preferred as a principle to prescriptive legislation? Does he recall that Goode's aim was to put best practice into legislative form? That has simply not happened.
I welcome the decision that, in salary-related schemes, active members will be able to appoint a minimum of one third of trustees. But, given Goode's wish to build in best practice, should there not be a further debate about the right balance and whether the proposal represents a shift in control, implicit in the acceptance of pensions as a form of deferred pay? Can the Minister explain why the Goode recommendation that active members should appoint two thirds of trustees in money purchase schemes has been abandoned, given that the members bear the risk?
363 I welcome the provisions for time off with pay for the training of trustees. I recognise that a range of sensible suggestions from the Goode report have been accepted and I, too, congratulate the members of that committee on their work.
However, I express reservations about the White Paper's approach to the role of the regulator. In a recent speech, the Secretary of State made it clear that while the regulator will survive, his role will be much diminished; the office will be there, but not the powers that the Goode committee wanted. Why should the regulator not be directly involved in policing the minimum solvency requirement? Is it not a mistake to abandon the proposal that the regulator be funded by the Government? Does it buttress the independence of the post to leave the regulator dependent on a levy of the industry?
Is it not a comment on the way in which the regulator's powers have been emasculated that the Secretary of State can relegate the post, in a dismissive sporting metaphor from the White Paper, to the role of long stop? To swap metaphors, is not the regulator engaged in fire fighting, not fire prevention? He can act, in the Secretary of State's words,at the first sign of trouble.But he is not being invited to try to prevent trouble before it happens—that seems to be a key distinction.
Will the Minister note our firm view that a strong minimum solvency requirement is an essential safeguard to the pension promise? We will want to look carefully at the departure from the Goode formula. I recognise that the decision was, to some extent, based on the advice of professional organisations representing actuaries, but that is not necessarily the last word on the matter. The White Paper talks of "exceptional action" if the solvency requirement, the 90 per cent. mark, is breached, but it is remarkably vague on what that means.
As the new formula is clearly weaker than that currently in place in many schemes—the Secretary of State mentioned that in his statement—is there not a danger that the minimum will become the norm and standards may fall? Does the Minister share our concern that the new definition based on cash equivalents will mean, particularly for many younger people, significant reductions in transfer values?
Does the Minister accept that the timid paragraph dealing with pension rights and divorce is a disappointment? It is extraordinary that research into the extent of the problem is apparently only now being instigated. I may have got the wrong impression, but I thought that the Lord Chancellor's Department had been beavering away for some years on the problem. What has happened to the Pensions Management Institute report, which was published after the institute had studied the subject with great care? When does the Secretary of State expect a report to emerge from his research which will allow the issue to be further considered, with early action to follow? Difficulties and disputes over pension policies will become more and more difficult and common in the years ahead.
We all appreciate the need to simplify and to encourage equal treatment for men and women, but does the Secretary of State appreciate that we will want to look carefully at the implications of breaking the link between contracted-out, salary-related schemes and SERPS, and at the adequacy of the overall quality test that is to be introduced? It is, after 364 all, only a few years since requisite benefits were abandoned as a test of adequacy by the immediately retiring chairman of the Tory party, then in another office. Now it appears that they are reappearing in our midst.
We are also concerned about the ending of the guaranteed minimum pension—the GMP—which has been a safeguard of some significance. Without it, for example, Maxwell pensioners would have been in an even weaker position when the crash came. Will the right hon. Gentleman accept that the arrival of the compensation scheme, which I whole-heartedly welcome, can fill the gap left by the abolition of the GMP only in cases of fraud or misappropriation? If those factors are not present, pensioners will be left without that safeguard.
We also want to be sure that there is not a hidden agenda and that the Government's uncritical commitment to encouraging personal pensions does not mean that SERPS and the state's role in pension provision will again be under attack. The deregulation working party recommended the ending of SERPS. Can the right hon. Gentleman rule that out and confirm that there are no further plans to weaken or undermine it?
I strongly welcome the long-delayed implementation of indexing of up to 5 per cent. for rights accrued after 1997, although here again the small print will be important. Does the Minister recognise that for some, particularly those for whom a fully indexed GMP was an important element of their pension provision, this will be bad news? It may also be bad news for all, if inflation rises again above 5 per cent. I do not imagine that the Secretary of State will give a guarantee that it never will.
The move towards age-related rebates for personal pensions and contracted-out money purchase schemes may be inevitable, but the White Paper once again prompts many questions. Perhaps the Minister can help us here. Does it mean, as I assume it does, the end of the 1 per cent. incentive for those over 30, which is estimated to cost about £165 million a year? Have the Government any intention of increasing the contracting-out payments above the current 4.8 per cent?
We are told in the White Paper that changes in contracting out from 1997 will reduce Government revenue by £1 billion a year. Does the Minister intend to recoup that loss, or will it be met by a straight Treasury subvention to the national insurance fund? Does the £1 billion in lost revenue include any provision for a greater weighting of the arithmetic in favour of personal pensions?
The discussion paper sets out three options for operating aged-related rebates. Typically, the White Paper merely offers further details in due course. Why the long wait, when the decision was anticipated in March 1992, announced in April 1993 and the consultation exercise has been completed? Will the Minister say a word or two about the timetable?
The White Paper has a grand title and is full of buzz words: "security", "equality", "choice". The Labour party believes in choice and we recognise the contribution of private pensions, especially occupational pensions. Our concern must be about the fact that the Government are committed to weighting the system towards their favoured options—in the private sector. The mis-selling of pensions, the scandal of the many thousands tempted to abandon occupational schemes, the 2 million-plus people persuaded to leave SERPS against their better interests—all these underline the need for tougher and effective regulation.
365 If the Secretary of State is not prepared to act on these problems—he has signally failed to do so in the White Paper, in which there is only a brief reference to the Securities and Investments Board inquiry—confidence will continue to be a scarce commodity and much sadness for pensioners will lie ahead.
§ Mr. Lilley
I am grateful to the hon. Member for his welcome for many components of this package of measures and I will endeavour to respond to his questions, which were detailed and lengthy. I do not complain about that, as they are very important questions, but if I see that you, Madam Speaker, are hesitant about the length of my replies, I will certainly respond later more fully to the points that the hon. Gentleman has made.
The hon. Member asked whether I could confirm that there will be a Bill this year. Under the conventions, which mean that I cannot pre-empt what may be in the Queen's Speech, I certainly hope that a Bill will be introduced at the earliest possible opportunity. He asked why the changes will not, by and large, come into force until April 1997. That is because the Bill will not be completed until well into 1995. There will then need to be secondary legislation, once the primary powers exist in law, to deal with the detail. It is normal to give employers 12 months' notice of changes whenever we possibly can, so April 1997 is the optimum starting date.
In the meantime, I am certain that the whole industry remains aware and concerned in the wake of the Maxwell affair and is on its guard against fraud. We are trying to establish a system that will last in the longer term, when the immediate memory of the Maxwell affair has faded.
The hon. Gentleman suggested that we have indulged in a pick and mix of the Goode committee report. That simply is not the case. We have accepted every major proposal and most of the minor proposals that Professor Goode and his colleagues put forward in that excellent report. I listened for any suggestions of other measures that the Labour party wishes to undertake, which were not in the package that I announced, and I listened in vain. The proposal is to lay down in law a tightening up of what are, essentially, the existing criteria for surpluses to make them clear and rigorous, and to make it obvious that this cannot be abused.
The hon. Gentleman asked why we did not go further than a third of trustees being appointed by members. That was the broad recommendation of the Goode committee and, obviously, individual schemes will be able to go further. If they want some different system of representation of their members—some have successful schemes involving pension committees, their various subsidiaries, and so on—they would have to get that agreed by the members as a whole before the new scheme was introduced. Obviously, if people made their objections known to the regulator about a particular scheme, he could repudiate it.
We did not go for two thirds of member trustees in the case of contracted-out money purchase schemes, partly for reasons of simplicity, partly because of the complexity that that would cause to hybrid schemes, which were part one and part the other, and partly because we did not want to convey the impression that trustees, when appointed, are purely representatives of an interest. They may be appointed by the members, but once they act as trustees, they have to act on behalf of the whole fund.
The hon. Gentleman suggested that the role of the regulator was much diminished below that recommended 366 by the pension law review committee. That is not so. It will have all the powers in full, which were, in essence, recommended by the Goode committee. What the regulator will not be is encumbered by certain bureaucratic procedures, which could have flowed from some of the recommendations of the PLRC and he will, therefore, be more effective by being better focused on areas of concern, rather than spending all the time responding to forms coming in from 150,000 different pension schemes, the vast majority of which are well managed. It is right that that role should be funded by the industry, rather than by the general taxpayer, because the benefit of a well-regulated system is a benefit that accrues to members of pension schemes themselves.
I was grateful for the strong support that the hon. Gentleman offered for a minimum solvency requirement. I agree that it is essential and it is hard to see how we could operate a proper scheme of regulation without that basic measure, which means that assets necessary to meet the liabilities are available. He suggested that we should have reverted to the original formula suggested by the pension law review committee. I know that that would not be welcomed by the industry, which will look askance at the suggestion from the Opposition Benches that we should return to that. We consulted widely on that issue and the suggestion put forward by the Institute and the Faculty of Actuaries gained considerable support and I believe that it is the right way to proceed.
The hon. Gentleman asked me to confirm that there will be substantial reductions in transfer values as a result of the changes. That is not the case. He asked why we are not immediately proceeding with action on the proposal by the Pensions Management Institute on divorce. The pension law review committee suggested that it was a very complex issue, which needed looking into further.
We have already commissioned research, which is under way. It involves interviewing some 4,500 people and will be completed in October 1995. We hope that that will give us a clearer gauge of the size of the problems that result from the inability of the courts in England, but not in Scotland, to split the pension rights between a divorcing couple. It is far from certain that the problem is as large or the solution is as simple as some have suggested.
The hon. Gentleman is correct to say that the compensation scheme will provide compensation in respect of fraud and theft of assets, but not in respect of failure to provide the assets. The minimum solvency requirement ensures that companies provide the assets and that they are available to meet the liabilities.
I am grateful for the hon. Gentleman's welcome for indexation. No doubt the extension of indexation of pensions in payment to the whole of pensions and not just the guaranteed minimum pension will be widely welcomed. As he said, if inflation exceeds the cap that will not be good, and pensioners will no doubt take that into account at election time, when they consider the records of different parties. Everyone knows that the Labour party is the friend of inflation, and any friend of inflation is no friend of the pensioner.
With the introduction of age-related rebates, we will no longer have need for the specific 1 per cent. premium that was introduced as a temporary measure the April before last.
The hon. Gentleman ended his remarks by giving us the welcome and somewhat surprising news that the Labour 367 party believes in choice and supports occupational and personal pensions. For many of us, it was the first time that we had heard that.
§ Madam Speaker
Order. That initial exchange has taken longer than 30 minutes. We shall return to the issue again and I now insist on brisk, direct questions. I am sure that the Minister will oblige with brisk answers.
§ Mrs. Marion Roe (Broxbourne)
I congratulate my right hon. Friend on implementing all the Goode committee's major proposals. Will he confirm that that will provide a major boost of confidence to occupational pensions? Does he agree that all those who predicted that he would severely water down the Goode proposals must now be feeling very foolish?
§ Mr. Lilley
I am grateful for my hon. Friend's support. She is right to say that the package of measures that I have announced will be widely welcomed by all those with an interest in the pensions sector, especially the 20 million people who have an interest as present or future pensioners of occupational schemes. I cannot account for the speculation beforehand, but I am certain that those who indulged in it will have to revise their opinions, because we have provided a strong and powerful response to the Goode committee report.
§ Mr. Archy Kirkwood (Roxburgh and Berwickshire)
I am certainly prepared to give the White Paper our cautious welcome. It enshrines all the Goode recommendations and will provide a much more secure system of pension provision in a balanced way that will not prejudice the providers of pensions. That is very welcome.
Is there anything in the White Paper that will bring any sort of comfort to the victims of the Maxwell schemes? I want also to ask the right hon. Gentleman about unisex annuity rates. It is important, in terms of money purchase, that women receive equal treatment. What provisions are there in the White Paper to enable women to get guaranteed pensions for equal contributions?
§ Mr. Lilley
I am cautiously grateful for the hon. Gentleman's cautious welcome. There will be no retrospection in the measures introduced, so they cannot apply to the Maxwell pensioners. We have taken steps, including the establishment of the Maxwell pension unit and others of which the House is well aware, to ensure that all pensions are in payment for the pensioners of the Maxwell schemes. Progress is being made towards recouping the assets. We fully support the attempts to achieve a global settlement and all attempts to recover the assets. I believe and hope that that will result in pension liabilities being fully met by those schemes. As I said, there is nothing in the White Paper to deal with unisex annuity rates.
§ Mr. John Greenway (Ryedale)
Can my right hon. Friend tell the House whether his imaginative announcement on the deferred annuity aspect of personal pensions, which will revolutionise the personal pension market, will apply to existing personal pension contracts? Does he agree that it is yet another example of the Government introducing every sensible measure for the personal pensions industry—unlike the Labour party?
§ Mr. Lilley
Yes, I can confirm that when the regulations are introduced in 1997, they will apply to existing personal pensions. That considerable change will mean that individuals will no longer find themselves forced to take out an annuity at a moment when they may not need to do so, and when the terms may not be appropriate for them.
§ Mr. Frank Field (Birkenhead)
I thank the Goode committee, through the Secretary of State, for all the work that led to today's White Paper. Will it embarrass the Secretary of State if I draw attention to his considerable public relations success over the past few weeks, in informing the media that he had lost most of the battles to establish the Goode recommendations in the White Paper? That allowed him to stand up today and claim such a success.
Is not the danger in so destabilising the media that they may miss the central weakness of the statement that the right hon. Gentleman just made? He failed to establish an independent regulator. Does the right hon. Gentleman accept that this country's financial services sector is at such a low ebb among voters that most people believe that they would get a better deal buying a second-hand car from the Government than entrusting their pensions to a regulator who is not independent of the industry?
§ Mr. Lilley
I will certainly transmit the hon. Gentleman's thanks, which I am sure are echoed throughout the House, to the committee. I thank in turn the Select Committee for its valuable report, of which we were able to take account in framing the proposals.
The hon. Gentleman is wrong to suppose that I set about a project of news management. I have no idea why speculation took the path that it did. It must now be acknowledged that we have, among other things, established an independent regulator. The proposed regulator will be independent. He will be funded by a levy on schemes, which will in no way prejudice his independence—any more than if the levy were imposed on taxpayers. It is more appropriate that it should be imposed on schemes because they will enjoy the benefits. There will be no discretion, and no one will be able to opt not to pay or to impose conditions in paying. I hope that that canard will not spread.
When the hon. Gentleman sees the legislation that comes before the House in due course, he will acknowledge that the regulator will be both independent and powerful.
§ Mrs. Elizabeth Peacock (Batley and Spen)
What action does my right hon. Friend propose in the White Paper to ensure that companies—many of which are well run—cannot take money from their pension funds, to make their end-of-year results and profits look good?
§ Mr. Lilley
They will be inhibited from doing so by the minimum solvency requirement, whereby they will be regularly checked to make sure that they have the assets, and by the rules against taking out surpluses, in the event that there are surpluses. The trustees will have a duty to ensure that the funds are there and that companies abide by the rules. The trustees will have the right to go to the regulator if they believe that any wrongful use is being made of a scheme's assets.
§ Mr. Tam Dalyell (Linlithgow)
On the issue of auditors or actuaries reporting to trustees and not to the employer, how will the "duty to whistleblow" to the regulator be 369 enforced? What protection will whistleblowers have? I can tell the Secretary of State frankly that a whistleblowing auditor would not have remained the late Bob Maxwell's auditor for many moons.
§ Mr. Lilley
There are precedents in legislation governing the rights and duties of auditors and other professionals to whistleblow. I seem to recall from my Treasury days that we introduced such an obligation in bank law in the wake of the Johnson Matthey debacle. That has worked quite well.
Concern had been expressed because professionals felt a professional obligation to those who employed them, which meant that they were professionally inhibited from going to the authorities, even if they saw something that filled them with concern and unease. Secondly, they might have felt that they stood to be subject to some legal disadvantage if they expressed their concerns. They will now have a clear statement of a duty and, as a result, they will run no legal risk if they go to the regulator in good faith and give information gained in confidence as a result of their professional duties. That will be a powerful defence—exactly as it might have been, as the hon. Member said, in the circumstances to which he referred.
§ Mr. David Shaw (Dover)
This is one of the best bits of news that pensions and occupational pensioners have had for many a year. It is an excellent statement. Can my right hon. Friend confirm that there will be increased provision of information for pensioners and that a compensation scheme will be introduced for the first time? Will he also confirm that trustees will be subject to better selection and training as a result?
In relation to whistleblowers, my right hon. Friend should consider that a number of directors and bankers connected with the Maxwell empire, who were in possession of information, were not technically professional advisers. We should consider enforcing and tightening the whistleblowing provisions in relation to such people.
§ Mr. Lilley
I am grateful to my hon. Friend for his support. He has been a powerful advocate of pensioners' interests, in the Select Committee and in the House. I can confirm that the measures will introduce for the first time a compensation mechanism in the event of fraud taking place. Trustees will be subject to better training because they will be able to take paid time off to be trained, which will enhance the position of funds generally. We will consider in the secondary legislation how widely the whistleblowing provisions should extend.
§ Mr. John Denham (Southampton, Itchen)
Personal pensions can be an appropriate choice for some individuals, but for about 2 million people who have opted out of SERPS into personal pensions their contributions are far too low to guarantee them a rate of return as good as it would have been in SERPS. The inquiry into that and about how those people should be compensated—if they are to be compensated at all—is still continuing.
Would it not have been more sensible for the Secretary of State not to make any more commitments about the extension of opting out until the position of individuals who had opted out had been resolved? It would have been better if people who were mis-sold policies by opting out of SERPS knew that they were to be compensated. Such compensation should apply to anyone who makes a similar mistake in the older age group in the future.
§ Mr. Lilley
I remind the hon. Member that the Securities and Investments Board is considering this matter and so far it has received no evidence of wrongful mis-selling to persuade people to opt out of SERPS into private pensions. It is looking to establish the extent of any possible problem. If it establishes that one exists, it will ensure that a remedy is available for those who were mis-sold pensions. There is no reason for concern by those people. There is, therefore, no reason for us to delay taking action that will ensure security in the different area of occupational pensions. There is not the slightest case for delay.
§ Mr. Michael Bates (Langbaurgh)
Will my right hon. Friend accept that the flexibility in taking annuities will be one of the most beneficial of all the proposals put forward? It will remove the burden that is artificially placed on people who want to take their pension, when they are asked to pick and choose on one day the annuity rate that will last for the rest of their lives. Is there any proposed limit on the amount of money that can be taken in that way from schemes in the future?
§ Mr. Lilley
I am sure that my hon. Friend is right that the greater flexibility offered will be welcomed. It will be possible to take out the tax-free lump sum and, on top of that, annual income—treating it as if it were an annuity—before the final conversion of the remaining sum into an annuity, if people wish to do so. The Inland Revenue will lay down the limits on the maximum amount that can be taken out in that form of income each year.
§ Mr. Clifford Forsythe (Antrim, South)
I welcome the Secretary of State's statement, but we will have to look at the details of the White Paper. Why did he not make it an obligation on pension funds to provide an annual statement by right rather than having to have it requested? That would have provided even greater protection to pensions funds.
§ Mr. Lilley
It was decided that every member should have the right to the information, but it would not necessarily be an obligation to send all the information to every member each year. I do not think that everybody reads all the bumph that comes through their doors, but they should have the right to the information if they are interested in it. It should be clear and relevant information and that is what the regulations will ensure. We did not want to impose the unnecessary burden of the cost of disseminating information, much of which would go straight into the wastepaper basket.
§ Mr. David Willetts (Havant)
I congratulate my right hon. Friend, particularly on abolishing the complicated guaranteed minimum pension which will make it a lot easier for employers to administer occupational pension schemes. Is not the overall test of quality a much better way of protecting the interests of scheme members?
§ Mr. Lilley
My hon. Friend has recognised an important aspect of the proposals. The abolition of guaranteed minimum pensions will benefit the industry and make it simpler in future to handle the opting out of people from SERPS. It will be simpler to operate a quality check that ensures that the pension rights that people acquire when they leave SERPS are better than they would have had, had they remained in SERPS, without the burdensome and cumbersome calculations involved in the GMPs.
§ Mr. Dennis Skinner (Bolsover)
Is the Secretary of State aware that it is nothing short of an outrage that, after all the fine words we have heard over the past half an hour or more, the Maxwell pensioners will not be a penny piece better off? Also, other victims such as the miners who have had £800 million stolen from their pension fund by the National Coal Board and British Coal successively will not have any money distributed to them.
What do we expect from a Government who have just told the railway workers that they will pinch half of their pension funds as a result of privatisation and steal half the miners' funds as a result of coal privatisation? We should have known better than to think that we would get anything.
§ Mr. Lilley
I am grateful to the hon. Gentleman for what, by his standards, constitutes warm support for my statement, although he had some objections to things that I did not include in it.
§ Mr. Skinner
The Secretary of State has done nothing.
§ Mr. Lilley
Considerable progress has been made as a result of changes that we have made. Some £84 million of assets have already been returned to the fund this year and progress is being made in securing funds that the trustees have said they hope will enable all the liabilities of the schemes to be met in due course. We must all hope that progress continues to that end.
§ Mr. Richard Page (Hertfordshire, South-West)
As my right hon. Friend knows, I have several hundred Maxwell pensioners in my constituency. May I say how much I welcome the White Paper, particularly the compensation scheme? However, as my right hon. Friend knows, the dividing line between fraud and mismanagement of funds is sometimes finely drawn. How are the terms and conditions of the compensation fund to be drawn and will it provide any cover for maladministration?
§ Mr. Lilley
We are establishing a compensation board which will handle this, and it will decide in particular cases whether there has been fraud or abuse. It will be up to the board to analyse the circumstances. It is right that that should be the approach rather than trying to specify to the umpteenth detail in legislation.
§ Mr. Paul Flynn (Newport, West)
Does not the Secretary of State agree that the only people who will benefit from the changes in the annuity rules are those who can postpone their pensions for 10 or 15 years—the very rich? The real problem with the annuity rules is that the value of a pension taken out in 1990 is a quarter less than a pension taken today. The annuity rule proves that personal pension schemes are a gamble. The amounts paid out depend on interest rates, the price of gilts and other things that will take place in 20, 30 or 40 years.
Is not the Secretary of State simply exposing millions more people to overselling and to exploitation by the personal pensions industry? He has today loaded more people into a lifeboat that is already sinking.
§ Mr. Lilley
That is a bit of a change of heart from the hon. Gentleman who, in an Adjournment debate, called for more flexibility. Why did he want us to entice people into this sinking lifeboat then but not now? I believe that everyone else will think that he was right the first time and wrong the second.
§ Mr. Alan Duncan (Rutland and Melton)
Will my right hon. Friend commend the foresight and hard work put into the preparation of the pensions document by the Government's youngest Minister, my hon. Friend the Member for Richmond, Yorks (Mr. Hague)? Will he admit that he has accepted not only the main recommendations of the Goode committee but those of the Social Security Select Committee and that the regime introduced in the White Paper is strict and simple and will not run the risk of deterring employers from wanting to start an occupational pension fund?
§ Mr. Lilley
I can certainly confirm that a great deal—indeed, the vast bulk—of the credit for the effort that has gone into preparing the statement and the White Paper lies with my hon. Friend the Minister responsible for pensions, who has done much of the work.
I can also confirm what my hon. Friend says about the effectiveness of the arrangements that my colleague has ensured will be put in place. They will be simple and effective and will incorporate the main recommendations of the pension law review committee.
§ Mr. George Foulkes (Carrick, Cumnock and Doon Valley)
I do not welcome the statement at all. Is not it simply another bonanza for con merchants? What is wrong with expanding a good Government scheme which has some stability and security, instead of siphoning off more money in commission, profit and the proliferation of administration in which these arrangements will result—or am I the one old-fashioned sentimentalist left?
§ Mr. Lilley
I shall not comment on the hon. Gentleman's self-description. Of course, far from providing a field day for con merchants, these arrangements are designed to prevent fraud and abuse. I believe that they will be effective in doing so and, as such, they will be welcomed by the 20 million people who have interests in pension schemes and who can now rest assured that those schemes will be properly regulated and protected.
§ Mr. Anthony Coombs (Wyre Forest)
In the light of the difficulties with the Coloroll pension scheme experienced by many of my constituents, is my right hon. Friend aware of how welcome these proposals will be, especially those relating to the minimum solvency requirements? Given that many of my constituents delayed transfer values on their pensions when they wished to transfer out of the Coloroll scheme, will he do all that he possibly can to ensure that the European Court makes a judgment soon, as we have already been waiting more than a year?
§ Mr. Lilley
Yes, I think that the experience of my hon. Friend's constituents bears out the importance of the changes that we are introducing. I certainly hope that the long-awaited judgment on Coloroll comes soon, although I am not sure that I can bring pressure to bear on the court. As my hon. Friend says, we have been waiting more than a year.
§ Dr. Lynne Jones (Birmingham, Selly Oak)
Will the regulator have the powers retrospectively to disqualify trustees for past misdemeanours? I have in mind Messrs Michael Spiers and Kenneth Shaw who made themselves sole trustees of Teampace Holdings pension fund and then committed clear breaches of trust—if not fraud—which 373 have deprived many of my constituents who paid into Burmans pension fund, which was subsequently taken over by Teampace Holdings, of their full pensions?
§ Mr. Lilley
I cannot comment on that specific case, although if, by one means or another, the hon. Lady can give me more information, I will, naturally, study it. There cannot be retrospective disqualification, but disqualification arrangements can take into account whether someone is a fit and proper person to be a trustee in future. That will be a feature of the new regime.
§ Mr. Richard Burden (Birmingham, Northfield)
Does the Secretary of State accept that any lack of public confidence in the Government's commitment to carry through some of the recommendations of the Goode report is coloured by their failure to do anything about outstanding cases?
The issue raised by my hon. Friend the Member for Birmingham, Selly Oak (Dr. Jones)is not unknown to the Government. The Department of Trade and Industry has had a full dossier on that case for some considerable time and there is still no sign that anything is being done about it. Is it not time the Government cleared up the issues that they know about and that need action, rather than just making promises for the future that few of us are confident they will carry through?
§ Mr. Lilley
I understand that there is to be an Adjournment debate next week to which my hon. Friends in the Department of Trade and Industry will respond. I am sure that their response will be satisfactory to the hon. Members who are raising it.
§ Mr. Mike O'Brien (Warwickshire, North)
Will the Secretary of State clarify his comments to the hon. Member for Hertfordshire, South-West (Mr. Page), on the workings of the compensation board in circumstances such as those facing my constituents who used to work for Burlingtons at Atherstone and whose pension fund had become depleted as a result of the behaviour of those running it, which perhaps fell short of fraud, but represented serious mismanagement? There was insufficient evidence to prosecute, but questionable activities were certainly taking place.
§ Mr. Lilley
I should make it clear that the compensation arrangements that we are proposing will not be retrospective. They will not apply to fraudulent activities or thefts in the past. We shall try to learn from the experience of the past in framing the legislation to make sure that it catches the cases we want to catch.