§ 3.18 p.m.
§ The Parliamentary Under-Secretary of State, Department of Health and Social Security (Baroness Trumpington)
My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
§ Moved, That the House do now resolve itself into Committee.—(Baroness Trumpington.).
§ On Question, Motion agreed to.
§ House in Committee accordingly.
§ [The LORD ABERDARE in the Chair.]
§ Clause 1 [Short service benefit for members whose employment is terminated before age of 26]:
§ On Question, Whether Clause 1 shall stand part of the Bill?
§ Baroness Jeger
I rise only briefly to point out some difficulties. I understand from the Explanatory and Financial Memorandum that Clause 1 amends Schedule 16 to the Social Security Act 1973 so as to remove the age limit of 26 under which an occupational pension scheme need not preserve a member's accrued rights. This is something that we welcome, but it seems to us to mean that any early leaver with five years' qualifying service will be entitled to preserved benefits, while any young person with less than five years' accrued benefits will not be entitled.
I want to ask the Minister why the age of 26 has been chosen. Why should persons under the age of 26 not have any option of preserved benefits? Should people with less than five years' qualifying service not be entitled to some sort of benefit? Why not make it three years? It is a truth of the present situation that people may, sadly, be made redundant after only a few years; certainly, after less than five years. There cannot be many young people in this country who have a continuous employment record of five years. We want to encourage job mobility, we want to encourage promotion and we want to see people moving from job to job and from area to area. I can see one Minister nodding, but I am wondering whether in changing jobs these people will endanger their rights under Clause 1 of this Bill.
This is particularly important, because the Government's objective is to move the maximum number of people into private schemes. Are they going to recommend to private pension funds that these young people should not sustain rights if they have been employed under one fund for less than five years? This could be a trap for people changing jobs and it could be a very important element in the decision of young people whether to change their jobs and try to improve themselves by getting more interesting and more useful work. They may be just finding their feet.
It applies particularly to young women who may contribute for a year or two and then be away, perhaps 652 having a baby. I feel that the five-year rule might be a disadvantage for them. In fact, the contributions which workers make are really a part of deferred income. It is their money which goes into these funds. On Clause 1 I must ask the noble Baroness whether there is any chance of the five-year qualifying period being looked at again, because five years in the life of a young worker is quite a long time.
§ Baroness Trumpington
Following comments made in another place we consulted the main pensions interests about the effect of reducing the five-year qualifying period, but we decided that we should not make any change in the Bill. Any change would increase the administrative costs of schemes which would have to provide a greater number of comparatively small pensions. What it means is that when the provision comes into force schemes will have to preserve benefits for anyone with five years' service, irrespective of their age. This is a small but I believe a worthwhile change. If the qualifying period was reduced to three years the number of preserved pensions would increase by something like a quarter. Removing the qualifying period altogether could double the number of preserved pensions.
§ Clause 1 agreed to.
§ Clause 2 agreed to.
§ Clause 3 [Information about schemes]:
§ On Question, Whether Clause 3 shall stand part of the Bill?
§ Lord Mottistone
At Second Reading my noble friend the Minister declared both in her opening and in her closing speech that the Government were open-minded about the need for a register such as would be set up under Schedule 2, for which this is the paving clause. I am questioning whether, having heard what was said on Second Reading and any other points that may have been brought to their notice, the Government have considered whether there really is a need for this register and registrar. Having read the Social Security Pensions Act 1975, it seems to me that if there is a need for some sort of supervisory body of the nature of the registrar, the Occupational Pensions Board may have its activities slightly increased. But to go into the whole business of setting up what Schedule 2 proposes seems to me to be a rather cumbersome and unnecessary job. If the Government do not respond to this point I have tabled amendments which I hope we shall discuss separately later when we come to them, but not now. My real point is that we should get rid of this altogether and I hope that the Government, when they say they are open-minded, are open-minded enough to do just that.
§ Lord Kilmarnock
I recall the reference of the noble Lord, Lord Mottistone, to this clause on Second Reading—
§ Baroness Trumpington
Perhaps I may ask the noble Lord to speak up, because it is terribly hard to hear him.
§ Lord Kilmarnock
I am sorry. There are not many microphones around here in this gap.
653 I recall the speech of the noble Lord, Lord Mottistone, at Second Reading in which he opposed this clause and said that he would raise the matter again in Committee. I disagreed with him at that time. He has now put forward the suggestion that responsibilities of this kind might be undertaken by the Occupational Pensions Board. Whoever is responsible, it seems to me that it is desirable to have a register of this kind. The reasons are quite simple. The Government's acknowledged aim is to shift the balance of provision of income in retirement towards the private sector. If this comes about a great deal of personal wealth will be tied up in these schemes.
In fact, in Chapter 1.47 of the Green Paper the Government say themselves:For many people this will become the biggest single asset that they own—worth more even than their own home".It is therefore surely right that there should be some method of policing or overseeing these schemes, as indeed there is for the Stock Exchange, for banking, for insurance and for many other activities of this type. The Green Paper also says—we cannot debate this Bill without also looking at the Green Paper because they overlap at several points—at Chapter 1.45 that:Under the new arrangements, employers and employees will be required to contribute to an occupational or personal pension".There is also to be an option to prefer the personal pension to the employers' scheme. It therefore seems likely that many new schemes will flourish.
My belief is that the register should be brought into existence, though I agree we could discuss under whose control it should be. If the scheme is brought into existence, will it also become responsible for the registering of the personal pension schemes which the Government are advocating in the Green Paper? Will they have to declare themselves also in the register which is proposed under the Bill? It is also worth pointing out that in the Green Paper the Government suggest that a wide range of institutions should be allowed to offer pension savings schemes and so we shall have all kinds of new schemes coming into the arena. In Chapter 1.58 of the Green Paper the Government refer to the necessity for safeguards. On all those grounds, in principle it seems to me that there should be a register. I should like to hear from the noble Baroness what schemes the Government think should appear in it.
§ Lord Boyd-Carpenter
I should like briefly to support my noble friend Lord Mottistone in his suggestion that the idea of a register of private pension schemes should be dropped. I do so for two reasons. First, as I said on Second Reading, there is a danger from this Bill generally that the increased intervention by the state in connection with the operation of the private schemes may well have the effect of discouraging either their introduction or their expansion. All the machinery of a register, though it may not weigh very heavily in the decisions that have to be made, may add a little to that discouragement. If your Lordships look at Schedule 2, you will see the length and complexity of the provisions required for this register. I think your Lordships will feel that if we can avoid it, we ought to, because a system as complex as 654 this will need quite a substantial staff and will add to the expenses of my noble friend's department.
With my noble friend Lord Mottistone I hope that open-mindedness which my noble friend the Minister displayed on Second Reading will now blossom out into an acceptance of the idea of dropping this register altogether.
§ Lord Davies of Leek
Perhaps I may ask the noble Lord, whose opinions I respect because of a position he held previously in this department, where he was noted for the work he did, what protection there is in this "bucket shop approach", if I may use that loose phrase, if we do not have some kind of control of information.
§ Lord Boyd-Carpenter
Perhaps I may respond to the noble Lord's perfectly proper question. If he will study the clause and still more the schedule, he will see that there is no protection there against a "bucket shop" pension scheme. I share the noble Lord's apprehension about such schemes. They have been known to exist, and they do a lot of harm and cause much social misery. But I do not believe that there would he any protection in the registry such as would justify its coming into being to prevent such schemes.
§ 3.30 p.m.
§ Lord Swann
Unlike the noble Lord, Lord Mottistone, I do not want to oppose the Question that Clause 3 stand part, but I have one reservation about the clause. First, I welcome very much indeed the proposal that scheme members and their dependants can now find out all about their company schemes. Regrettably, there are still some companies loath to provide such information. As chairman of the Company Pensions Information Centre, again I warmly welcome the raising of the level of awareness about how pension schemes work, the benefits they provide, and their cost.
Although I welcome the aim of the register, I have two worries about it. One is its cost, and the other is the likely demand for it. We have been told that the cost will be that of up to 100 staff; I suppose this must mean more than £1 million a year. By the time there is added the cost of premises and all the rest of it, I suppose the figure will be nearer £2 million a year. That is to be shared between search fees and the trustees and managers.
What is likely to be the demand? Do the Government know, or have they tried to find out? Individuals will of course now be able to find out all they want to know about their own scheme from their own employer. A few individuals may want to know about other schemes if they are thinking of changing jobs, or for other reasons, and no doubt a few professionals will want to browse through the data. Also, a few keen-nosed journalists may want to study the information from time to time. But I wonder how many inquiries the registry will receive.
I should have thought that the number is unlikely to reach 100 per day, which would be 25,000 inquiries a year. A fee of £ 10 a search would represent income of about 10 per cent. of the total cost. If the number of inquiries is more like 10 per day, which is the figure I guess it will be, one will be talking about meeting 1 per 655 cent. of the cost. So the bulk of the financial burden will undoubtedly fall on the trustees and managers.
I may be wrong, but I have to say, as an ex-chairman of the BBC, that it does rather sound to me as though Jim Hacker and Sir Humphrey Appleby of "Yes, Minister" fame have been transferred to the DHSS and had a hand in drafting the schedule. So unless the Government have real reasons for supposing that the demand will be far greater than I expect, would they not be well advised to consider cheaper and simpler solutions, if they can be found? Let me say once again, however, that I am in full agreement with the aim of the registry.
§ Lord Banks
I should like to enter a plea that the registry should be a tracing registry and not a registry of documents, or that, if there is to be a registry of documents, it should be at the joint office of the Inland Revenue Superannuation Fund and the Occupational Pensions Board. I suggest that they should become the registrar, if a registry of documents is felt to be essential.
A pensions consultant of my acquaintance, in order to obtain approval of a United Kingdom scheme in the Republic of Ireland, had to send 24 copy documents to Dublin. The same consultant recently acquired a new client with an existing scheme established in 1971. When the consultant received the documents involved, he found that there were 32 of them. There are many schemes established in the 1950s and before the war which have even more documents. Even when the deed and the rules are completely replaced, all the earlier documents must be kept in order to ascertain whether the power was there to make the alterations contained in the replacement document.
Collating, copying and posting documents to the registrar, to establish the registry, would be an administrative burden, particularly on smaller employers. But the joint office of the Inland Revenue Superannuation Fund and the Occupational Pensions Board already has copies of all approved pension scheme trust documents. That is why I suggest that if a registry is considered necessary, the joint office can accommodate such a registry. That body is of course carrying out the supervisory work which my noble friend Lord Kilmarnock very rightly says is essential now and will be even more essential in the future.
A simple tracing registry would be very useful. It would help a person who left a company pension scheme 30 years ago, and who is now approaching retirement, to trace his scheme despite changes in company names, company takeovers and mergers, changes in scheme names, and amalgamations.
§ Baroness Trumpington
I believe that the noble Lord, Lord Swann, is just old enough to know what I mean when I say that I feel, in his "Yes, Minister" syndrome, just like Mrs. Mopp: can I do you now? As my noble friend Lord Mottistone said, Clause 3 introduces Schedule 2. It deals with disclosure of information and the pension scheme registry. Scheme members will be given basic rights to receive information about their scheme and the Secretary of State will have the power to set up a registry of occupational pension schemes. This is the second area covered by our occupational pension scheme reforms.
656 I hope that there is no argument between us about the desirability of giving members access to information about their schemes. After all, a pension can be the biggest single asset they will ever have. We believe it is essential that people should have sufficient information available to be able to safeguard their assets.
To dispense with the clause would, if I may say so, be to throw out the baby with the bath water. The principles of greater disclosure of information to pension scheme members have, as the noble Lord, Lord Swann, indicated, received widespread support in both this House and another place. For some time there has existed broad agreement that members of pension schemes should have the right to basic information about the schemes to which they belong. Indeed, our proposals go no further than formalising what is already good practice in many well-run schemes. In general, any reservations expressed have been about the need for and purpose of a public registry of information. As I have already indicated the Government have undertaken to look further at this issue.
It would indeed be unfortunate if concern about a registry were to undermine the general principle of disclosure of information which has been so widely accepted. The provisions as set out would permit the Occupational Pensions Board to run any registry in whatever form, if the Secretary of State so decides.
Returning to the question of cost, and in answer to the noble Lord, Lord Swann, we are evaluating costs at this moment. The noble Lord, Lord Kilmarnock, will remember that the proposals in the Green Paper are for consultation only at this time. I hope that I have answered the fears expressed by my noble friends Lord Mottistone and Lord Boyd-Carpenter.
§ Lord Mottistone
I am not sure that my noble friend has fully satisfied me; I do not know about my noble friend Lord Boyd-Carpenter. I hope that when my noble friend considers this little debate she will pay particular care to what was said by my noble friend Lord Boyd-Carpenter when he warned the Government, particularly this Government, not to have yet another bureaucratic system which, basically, they are against having, not to set up an expensive new outfit which is not perhaps wholly necessary.
My noble friend the Minister made it clear, I believe, that there is no need for a separate registry and a separate registrar, and that this function could be given as a duty to, for example, the Occupational Pensions Board. If that were so, it may be that we do not need Schedule 2 with, as my noble friend Lord Boyd-Carpenter observed, all its highly complicated bureaucratic nonsense, but we could have instead some simple instructions to the Occupational Pensions Board to meet the need to ensure that the right people have access to the right pension funds. That is all that is necessary. Nobody would quarrel with the fact that the people who are subject to pensions should have full access to any pensions funds which are going to affect them; but Schedule 2 is not needed to make that happen.
Perhaps the Government could be more true to their last in their basic principles if they were to have a big movement towards sweeping away Schedule 2 and 657 putting in a few phrases to give an extra job to the Occupational Pensions Board. However, I shall not pursue this matter any further now.
§ Clause 3 agreed to.
The Earl of Caithness
My Lords, I think this is an opportune moment to take the Statement. I beg to move that the House do now resume.
§ Moved accordingly, and, on Question, Motion agreed to.
§ House resumed.