Lords Sitting of 17 June 1986

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Truro.

British Rail: Status
Lord Beloff: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they have any plans for changing the status of British Rail.
Viscount Davidson: No, my Lords.
Lord Beloff: My Lords, while thanking my noble friend for that extraordinarily informative reply, may I ask him whether he is aware of the steady deterioration of services on Southern Region? Perhaps I may give him the example that a journey from Oxford to Brighton, which used to be by through-train taking two hours 20 minutes, now involves two changes of train and is timed to take four hours? May I further ask the noble Viscount whether he is aware of a continuous and expensive publicity campaign by British Rail to dress up deteriorating services as though they were improved services? Finally, does the noble Viscount agree with me that to call Southern Region Network South East only makes sense on the assumption that a net is something in which you catch helpless commuters?
Viscount Davidson: My Lords, I am sure that those concerned in British Rail read Hansard and they will take note of everything that my noble friend has said. I do not think I can comment further than that.
Lord Jacques: My Lords, is the noble Viscount aware that I use the southern network daily and I can say that the services, particularly between my station, Westminster and London, have improved immensely and are not likely to be further improved by any idea of privatisation?
Viscount Davidson: My Lords, I am not aware of the actual line on which the noble Lord travels; but I am delighted to hear that he thinks that services have improved. I should like to say that the Government are extremely keen on privatising certain areas of British Rail, particularly in the catering field. Since May, train catering has come under Inter-City management, and British Rail are spending £12 million in switching to high quality at-seat catering with food services supplied by the private sector. I think that noble Lords who use British Rail will agree with the noble Lord, Lord Jacques, that catering services have improved dramatically since they have been tendered out to the private sector.
Lord Campbell of Croy: My Lords, my noble friend Lord Beloff referred to a journey between Oxford and Brighton. I do not expect my noble friend on the Front Bench to have statistics with him, but could the answer perhaps be that nowadays there are fewer demands by dons and others for journeys to Brighton than there were in the past?
Viscount Davidson: My Lords, I think that my noble friend is probably quite right.
Baroness Seear: My Lords, may I ask the noble Viscount whether the privatisation of catering services that he mentioned has extended to the buffets? As a practically permanent traveller on British Rail I have not noticed the slightest difference in the food at the buffets. They have the same sandwiches.
Viscount Davidson: My Lords, I do not know where the noble Baroness finds the old British Rail sandwich, but I am told that it is fast disappearing and is being replaced by a very modern and very tasty one.
Lord Broxbourne: My Lords, whatever may be the view of my noble friend about the status of British Rail, will he use his formidable and not necessarily monosyllabic eloquence to persuade them to take a more positive view about improving the performance of their railway lines and consequently their image? Can he get them to realise that their present, somewhat narcissistic practice of congratulatory self-contemplation is not enough? Will he urge them to substitute action by way of improving the position for the travelling public, in particular at stations, by improving the cleanliness and conditions, by the use of an increased supply of porters and luggage trolleys, and even perhaps by having a few seats for the accommodation of patient and weary travellers to save them from despondency and despair?
Viscount Davidson: My Lords, to answer my noble friend's polysyllabic question, I take note of what he says.
Lord Underhill: My Lords, is it not the case that there is always room for improvement and are not British Rail one of the least publicly supported railway networks in Western Europe, particularly in contrast to those of Germany and France? If the purpose behind the question of the noble Lord, Lord Beloff, is privatisation, is it not also the case that the only undertakings that the Government dispose of are those which are a success, usually as a result of the work put in by public ownership?
Viscount Davidson: My Lords, noble Lords will remember that British Rail has already privatised Sealink Ferries, 29 hotels, the hovercraft business and over £400 million of surplus property. British Rail attracts a grant of £800 million a year and is doing its very best to attract more and more customers by using private methods and private contracts.
Lord Taylor of Gryfe: My Lords, does the Minister agree that the deterioration in the service of British Rail may be due to the old rolling stock that exists? Is it consistent with maintaining an efficient railway

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system when substantial redundancies are declared in the railway maintenance workshops?
Viscount Davidson: I seem to remember, my Lords, that when I last answered a Question on the subject I was able to tell your Lordships that British Rail was introducing a whole range of new railway stock over the next few years.
Lord Beloff: My Lords, may I hasten to assure the Minister and ask him whether he is aware that I certainly had no idea of privatisation in mind when I asked my original Question? I was cured of any interest in privatisation by his noble friend's defence of British Telecom. I should like to ask the Minister whether he will suggest to his right honourable friend that, as part of the Channel tunnel deal, the French railways which run very well take over the whole of Southern Region.
Viscount Davidson: My Lords, I shall tell my right honourable friend of my noble friend's suggestion.
Lord Strabolgi: My Lords, is it not true that the French railways run very well because they are subsidised by their government?
Viscount Davidson: I think, my Lords, that that is a matter of opinion.
Lord Elwyn-Jones: My Lords, in relation to the noble Lord's first supplementary question, who wants to go to Oxford anyway?
Viscount Davidson: My Lords, the noble and learned Lord and I both had the good fortune to go to another place, and so I would agree with him.
Baroness Faithfull: My Lords, does the Minister know that I wish to go to Oxford? I live there.
Viscount Davidson: Maybe, my Lords, but my noble friend does not want to go from Brighton.
Lord Somers: My Lords, is the noble Viscount aware that the Swiss railways, which are perhaps the most efficient in the world, run perfectly happily with a partly private but chiefly nationalised system?
Viscount Davidson: My Lords, I am grateful to the noble Lord.

Foodstuffs: Radioactive Contamination
2.45 p.m.
Lord Bruce of Donington: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they are aware of the widespread anxiety concerning the possibility of the radioactive contamination of foods, including liquids, and their sale to the public; and whether they will take steps to secure the effective monitoring of such foods, including those imported prior to their being offered for sale.
The Minister of State, Ministry of Agriculture, Fisheries and Food (Lord Belstead): My Lords, in order to ensure that there is no risk to the safety of food in the United Kingdom from radioactive contamination, we have set up an extensive monitoring programme of milk and other foodstuffs, including those imported from abroad. The purpose of the monitoring is to ensure that there is no risk to consumers from food on sale in the United Kingdom. Our monitoring programme will continue for some time yet.
Lord Bruce of Donington: My Lords, is the noble Lord aware that his reply will give some measure of reassurance to the public at large? But can he say how extensive is the monitoring? As equipment to monitor radioactive substances is comparatively cheap, might not an extension of the network to an extent which we cannot yet know of be desirable? Will he indicate whether the monitoring procedure covers fish taken from the Irish Sea?
Lord Belstead: My Lords, there has been monitoring of milk, vegetables and meat since the Chernobyl disaster. The monitoring of milk and meat is continuing. The results of the monitoring efforts have been published as frequently as has been possible, in particular on 6th, 10th and 15th May, with a publication recently on 30th May. With regard to the Irish Sea, as a matter of habit the Ministry of Agriculture has monitored the areas around nuclear power stations. The reason that the public hears nothing about that is that there has been nothing to report.
Lord Molloy: My Lords, is the noble Lord aware that what he said in reply to my noble friend's question about monitoring is very welcome? But what steps will be taken if it indicates serious contamination of foodstuffs? What warning will be given? How will foodstuffs be withdrawn from stores and how will other contaminated foodstuffs be prevented from finding their way on to the table of the ordinary family?
Lord Belstead: My Lords, we shall continue to monitor and to publish the results.
Lord Winstanley: My Lords, although I wish to underline the importance of the matters referred to in the Question, may I ask the Minister to seize this opportunity to tell the British public that the principal sources of radiation to which they are exposed come not from the sources referred to but from diagnostic X-rays, many of which are performed not for necessary clinical or medical reasons but for medico-legal and other extraneous purposes? Will he ensure that patients are told that they are not serving their best interests when they press their GP to send them for unnecessary X-rays and that GPs in their desire to be helpful are not serving the best interests of their patients if they accede to such requests?
Lord Belstead: My Lords, I am extremely interested to hear that, but it is a matter for the medical profession.

Sports Premises: Rating Anomalies
2.49 p.m.
The Earl of Dundee: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what are their immediate plans, prior to the proposed reform of the rating system, to remove or mitigate the existing anomalies between Scotland and England in rating valuations of sports club properties.
The Minister of State, Scottish Office (Lord Gray of Contin): My Lords, the Government are aware that there are some differences in valuation practice between Scotland and England, but harmonising the two independent systems will take time. However, statute already gives rating authorities discretion to remit part or all of the rates payable by non-profit organisations like sports clubs, and when my right honourable friend the Secretary of State for Scotland meets the Convention of Scottish Local Authorities next month, he intends to discuss with it its use of this discretion.
The Earl of Dundee: My Lords, I thank my noble friend for that reply. Does he accept that if the existing arrangements for the derating of Scottish amateur sports clubs are not soon improved, opportunities for sport and recreation in all Scottish communities will suffer a great deal? Does he further agree that the Scottish Office and CoSLA should try to persuade all local authorities to adopt the practice in which Fife Regional Council has recently indicated that it may take a lead, of a 50 per cent. derating for all sports clubs meeting a certain definition but regardless of whether they are licensed premises?
Lord Gray of Contin: My Lords, I am most grateful to my noble friend for what he has said. I shall certainly communicate it to my right honourable friend in view of the meeting that he is soon to have with the local authorities. We must always be careful to compare like with like. We must bear in mind that south of the Border rateable values of English clubs are still expressed in terms of the level of rents at the time of their 1973 revaluation. We must bear in mind that Scotland has had two revaluations since then and all types of property in Scotland have on average increased almost eightfold.
Lord Taylor of Gryfe: My Lords, may I press the noble Lord the Minister about his promise to iron out some of the anomalies in the respective rating systems in Scotland and England? Is he aware that the Exxon Company opened a £400 million ethylene plant in Fife last week and that the local authority has imposed on it a rates burden of £10 million per annum? The firm has said that that is four times the amount of rates it would have to pay if that factory had been situated south of the border? Can the noble Lord the Minister give me some assurance that those disincentives to investment will be taken care of in any new statutes?
Lord Gray of Contin: My Lords, the noble Lord, Lord Taylor of Gryfe, as he so often does, has hit on
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a very important point. It is for reasons such as those that he has described that the Government have produced a Green Paper Paying for Local Government. We are already well advanced with our proposals of how that might be achieved in Scotland.
Baroness Carnegy of Lour: My Lords, is the noble Lord the Minister aware that the extraordinary rate anomaly that exists, despite the fact that there has not been a revaluation in England since long before the revaluation took place in Scotland, results in the Perthshire Cricket Club, which is situated in a local authority-owned park, paying £18,500 per annum in rates whereas Lords Cricket Club in London pays only £22,000? Is he further aware that Lanark Bowling Association has a rateable value of £22,500 while a similar stadium erected at about the same time but in Carlisle is valued at only £2,000—one-eleventh of that amount?
Lord Gray of Contin: My Lords, yes I can confirm to my noble friend that I am aware of those and many other anomalies which are revealed in the different systems north and south of the Border. I reiterate what I said to the noble Lord, Lord Taylor of Gryfe—that that is one of the reasons why the Government are determined to press ahead with a complete review of the system.
Lord Carmichael of Kelvingrove: My Lords, is the noble Lord the Minister aware of the excellent adjournment debate that was held in the other place on 19th May last when all-party feeling was that there was something very wrong with the rating system? Many other examples were then given besides those which we have heard of today from the noble Baroness, Lady Carnegy. In my old constituency the Western Baths, a modest but good local baths club, pays £19,500 per year while the RAC Club in Pall Mall, which is at least 10 times as large, pays only £35,000. We could go on giving examples. Will the noble Lord the Minister tell the House whether he has any information about the appeals which have been lodged with the assessor? I know that the process is still going on, but some may have been decided by now. When the Government meet CoSLA will they be able to help the hard-pressed local authorities to assist sports clubs by giving the local authorities any new money?
Lord Gray of Contin: My Lords, there will be no new money at present for the local authorities. It is entirely up to each authority to determine whether it should invoke the powers of rebate that it has. With regard to the noble Lord's earlier remarks about the all-party interest in the situation, I hope that that all-party interest will be reflected by giving the legislation a speedy passage when it is presented.
Lord Harmar-Nicholls: My Lords, when my noble friend is talking to his right honourable friend about the imbalance in rates between Scotland and England, will he press upon him that what we desire is for the Scots to have their rates brought down and not for the English to have their rates put up?
Lord Gray of Contin: My Lords, I shall pass on that message to my right honourable friend.
Lord Underhill: My Lords, does the noble Lord appreciate that that might be a view expressed by an English Peer? He said that there will be no extra money. Will that not place local authority members in a terrible predicament in that they will have either to assist the sport and health facilities of their people or, shall we say, make a cut in social services?
Lord Gray of Contin: My Lords, I think that it can be achieved without any cut in social services. There will be cases which merit a rebate and there will be others which, in the view of the authorities, do not justify it.

Plutonium: Reprocessing Incident
2.56 p.m.
Lord Brockway: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what were the circumstances under which eight kilogrammes of plutonium were sent from Sellafield nuclear plant in Cumbria to the Dounreay plant in Scotland.
Lord Gray of Contin: My Lords, residues containing plutonium from the fabrication at Sellafield of fuel for the prototype fast reactor at Dounreay are sent from Sellafield to Dounreay for recovery of the plutonium. A discrepancy was identified between the estimated plutonium content of materials sent and the plutonium recovered. Some eight kilogrammes of plutonium were subsequently found to be still undissolved within the reprocessing plant. This was recovered. There was no possibility of an explosion and there was no danger to staff or to the public.
Lord Brockway: My Lords, I thank the noble Lord the Minister for that reply. Does he agree that we should not have known the facts of this case had it not been for the "World in Action" television programme and the detailed investigation by the Observer newspaper? Will he confirm the extraordinary and disturbing fact that 8,000 grammes of plutonium—enough to make two atom bombs—were officially listed as missing in 1984 and that it was not found until 11 months later at the bottom of the dissolver vat at Dounreay? Will he confirm that it was wrongly labelled when it was sent from Sellafield and that it should not have been sent at all because it had not been sintered and it would not dissolve in nitric acid? Will the Government take action to prevent a recurrence of that extraordinary event?
Lord Gray of Contin: My Lords, I fully appreciate the noble Lord's concern about this matter, but I cannot accept that we would not have heard about it had it not been for the "World in Action" programme or the Observer newpaper. In fact, mention was made of it to the Nuclear Installations Inspectorate. The local liaison committee was told of the incident in general terms, and the director of Dounreay has given a general account of what happened to the current inquiry into a European demonstration processing plant at Thurso.
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With regard to the suggestion that the noble Lord made about the manufacture of plutonium bombs, I cannot confirm that the quantity involved would have been sufficient to manufacture two bombs. What I can tell him is that there was no risk at any time of this material being so used.
Lord Molloy: My Lords, will the noble Lord say what was the basis of the error? Should he not respond to the last part of my noble friend's question and give the assurance that, whatever happened then, enough examination will take place to make sure that so far as is humanly possible such a thing never happens again?
Lord Gray of Contin: My Lords, what I can say to the noble Lord is that there was clearly some misunderstanding between British Nuclear Fuels Limited and the Atomic Energy Authority about the quantity of potentially insoluble material sent from Sellafield. Both BNFL and the AEA are taking steps to ensure that there is no recurrence.
Lord Jenkins of Putney: My Lords, as we are talking about the movement of plutonium, will the Minister say to what extent the American missile system is dependent on plutonium exported to that country from this country?
Lord Gray of Contin: My Lords, I am afraid that without notice I cannot answer that question. I shall take advice and communicate with the noble Lord.
Baroness Masham of Ilton: My Lords, is it a fact that there have been found to be more cases than usual of leukemia in the Dounreay area in the county of Caithness?
Lord Gray of Contin: My Lords, there is a Question on the Order Paper for, I think, 30th June relating directly to this matter. At that time, following the taking of advice, a full Answer will be given.
Lord Avebury: My Lords, when the Minister says that steps will be taken to see that this does not happen again, does he mean that the Government will initiate a review of the accounting procedures for dealing with quantities of plutonium at Sellafield and at Dounreay? Can he say whether the accounting procedures have to be approved by the International Atomic Energy Agency? If so, will a copy be placed in the Library of your Lordships' House so that any changes made as a result of the Government's review can be noted by your Lordships?
Lord Gray of Contin: My Lords, in answer to the noble Lord's first question, indeed, it was as a result of the present accounting procedures that the initial discrepancy was discovered. The safeguards office of the Department of Energy and EURATOM were aware of the discrepancy and were kept informed of the investigation into the reasons for it and of the eventual discovery of the undissolved residues containing the eight kilogrammes of plutonium. I cannot elaborate on what I said in answer to a previous question—that the Government are taking steps to ensure that all the procedures are being carried out correctly in order to avoid any repetition of this.
Lord Stoddart of Swindon: My Lords, would the noble Lord not agree that we really cannot be complacent about this and that eight kilogrammes of plutonium was an enormous amount of plutonium to lose bearing in mind that it is measured and accounted for in grammes? Has not the impression been given that there is slackness and bad management at Sellafield that really must be put right and furthermore a lack of confidence between Dounreay and Sellafield? I hope that the noble Lord and the Government will take steps to ensure that nothing of this sort happens again and that all operations other than military operations at Sellafield and indeed other nuclear establishments are open to scrutiny by the public, and that the public are given all possible information about leaks and what goes on at these establishments?
Lord Gray of Contin: My Lords, while recognising the noble Lord's concern and while I agree that the nuclear industry must always adopt the highest possible standards so far as safety in concerned, I would not accept the rest of what he says. I believe that a great deal of care has been taken throughout by the industry in order to ensure that there is no danger in the transportation of materials between Sellafield and Dounreay. Indeed, I have given an assurance that these procedures are being checked. A high standard has already been attained. The nuclear industry has a safety standard of which it can be justly proud. Indeed, it is more open about its dealings and about its mishaps, however minor they may be—not that I suggest that this was a minor one—than probably is any other industry in this country. I know that all that has been said in your Lordships' House today will be be carefully studied by the Government. I can give the assurance that all measures will be taken to maintain safety.
Lord Brockway: My Lords, does the Minister not appreciate that such failures could lead to a disastrous catastrophe? Does he remember that in the television programme, this was described as,
"one of the most potentially serious incidents in the history of the British nuclear programme".
Will the Government exert a tight discipline to prevent this danger?
Lord Gray of Contin: My Lords, the Government will certainly do everything they can, as will the industry, to ensure that there is no recurrence. I would not necessarily take as gospel everything that is said in a television programme.

Business
3.6 p.m.
Lord Denham: My Lords, it may be for the convenience of the House if I announce that the Committee stage of the Social Security Bill will be adjourned at approximately 7.30 p.m. for approximately one hour, and that during this adjournment the Committee stage of the Forestry Bill will be taken.

Safety at Sea Bill
The Earl of Lauderdale: My Lords, I understand that no amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Therefore, unless any noble Lord objects, I beg to move that the order of commitment be discharged.
Lord Boothby: My Lords, may I rise to give a warm welcome to the Bill?
The Lord Chancellor (Lord Hailsham of Saint Marylebone): My Lords, I must put the Question first, if noble Lords will be seated. The Question is, That the order of commitment be discharged.
Moved, That the order of commitment be discharged.—(The Earl of Lauderdale.)
Lord Boothby: My Lords, I understand that I can now speak. I beg your Lordships pardon for trying too soon, and I apologise to the noble and learned Lord the Lord Chancellor. I wanted only to say that this is a very good Bill. I am certainly not proposing to move any amendment. I am particularly proud that it should have been introduced and put through another place by my successor as Member of Parliament for Banff and Buchan, Mr. Albert McQuarrie. It has given him, I am sure, great satisfaction. The key to the Bill, of course, is the automatic rocket. I have no doubt that it will save a great many valuable lives. I believe that your Lordships would wish to join me in expressing the hope that the passage of the Bill will bring some comfort to Mr. McQuarrie in the grievous personal loss that he has suffered.
On Question, Motion agreed to.

Health Service Joint Consultative Committees (Access to Information) Bill
Baroness Carnegy of Lour: My Lords, I understand that no amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Therefore, unless any noble Lord objects, I beg to move that the order of commitment be discharged.
Moved, That the order of commitment be discharged.—(Baroness Carnegy of Lour.)
On Question, Motion agreed to.

Civil Protection in Peacetime Bill
Lord Renton: My Lords, I understand that no amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Therefore, unless any noble Lord objects, I beg to move that the order of commitment be discharged.
Moved, That the order of commitment be discharged.—(Lord Renton.)
On Question, Motion agreed to.

Social Security Bill
3.10 p.m.
Baroness Hooper: 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 Hooper).
On Question, Motion agreed to.
House in Committee accordingly.
[The EARL OF LISTOWEL in the Chair.]
Clause 1 [Minimum contributions to personal pension schemes]:
Lord Banks Lord Banks moved Amendment No. 1:
Page 1, line 10, after ("prescribed,") insert ("age-related").
The noble Lord said: I beg to move Amendment No. 1 and, with the leave of the Committee, I should like also to speak to Amendment No. 19A. The Bill provides that an employee may choose to switch from being contracted into the state earnings-related pension or from being a member of a contracted-out occupational scheme to a personal pension scheme. That personal pension scheme would itself be contracted out provided it complied with certain conditions. The employer and the employee would pay contracted-in rate national insurance contributions and the Department of Health and Social Security would return to the provider of the personal pension scheme an amount equivalent to the rebate given on national insurance contributions to employers and employees in a contracted-out defined benefit occupational scheme. This amendment would ensure that the amount returned by the Department of Health and Social Security in this way was related to the age of the employee and varied in accordance with it.
The Bill also provides for money purchase occupational schemes to be contracted out of the state earnings-related pension scheme. Hitherto this has been possible only for defined benefit occupational schemes. These are schemes where the ultimate benefits are stated in relation to final or average salaries. Under a money purchase scheme the ultimate benefit is not defined, but the contribution to be made by employer and employee is defined. The benefit is the product—whatever it may be—of such contributions. Where money purchase schemes are contracted out the employer and employee will enjoy the same rebate on national insurance contributions as is enjoyed by defined benefit schemes. Amendment No. 19A would ensure that the minimum contributions necessary to a money purchase scheme for contracting out were also age related. A flat-rate rebate is perfectly satisfactory in the case of defined benefit schemes since they are designed to fund for benefits taking into account average or final salaries and age.
With money purchase schemes, whether occupational or personal, the older an employed person is, the more expensive it is to provide pension. Therefore a different annual contribution is necessary at each age of entering the scheme to provide the same amount to pension. Furthermore, pension relating to
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increments of earnings due to inflation, wage negotiations or promotion become progressively more expensive to fund for a given amount of pension as the employee gets older. From the viewpoint of building up pension rights privately rather than through the state earnings-related pension scheme, contracting out of money purchase schemes, whether personal or occupational, must be more attractive to the younger rather than the older employee. Having contracted out at a young age the employee, if his pension is to keep up with his earnings, will find paying for his pension becoming more and more expensive. Either he meets the increasing expense under a personal pension scheme, or he and his employer meet the expense under occupational money purchase schemes, or his pension suffers. There will come a time when it will pay the employee in the case of personal pension schemes to contract into the state earnings-related pension scheme again. Under the Financial Services Bill he must be advised to do so.
Where younger employees have been induced to leave defined benefit schemes, those schemes will become progressively more expensive as the average age increases and employers may wish to contract in their schemes eventually, thus frustrating the Government's aim to increase contracting out and thus relieve the burden on the state earnings-related pension scheme. There might also be a substitution of money purchase occupational for defined benefit schemes which would not, in my view, be a desirable outcome.
In a contracted-out defined benefit scheme the varying value of the flat-rate rebate has its effect on the cost to the employer averaged between all his employees and not on the individual benefits. If many younger members leave the scheme for personal pension schemes, they deprive the scheme of their favourable rebates and so make the rebate inadequate for the remaining group of members.
This amendment would relate the rebate paid by the Department of Health and Social Security in the case of personal pension schemes to the age of the individual concerned. I beg to move.
3.15 p.m.
The Parliamentary Under-Secretary of State, Department of Health and Social Security (Baroness Trumpington): Perhaps I may ask the noble Lord to clarify this point. He referred to this amendment being taken with Amendment No. 27. In my list of provisional groupings I have it grouped together with Amendments Nos. 62 and 19A. I am not sure whether the noble Lord mentioned them all, but I should be grateful if this could be put in order. I think that it is perhaps agreed.
Lord Banks: I thought that I referred to Amendment No 19A; I think I mentioned it at first. It is not my intention to move Amendment No. 27.
Baroness Trumpington: Amendment No. 62—
Lord Mottistone: Amendment No. 62 is down in my name. If my noble friend is agreeable, perhaps I may speak to it now. Bowing to the wish of my noble friend on the Front Bench I have agreed to speak to

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Amendment No. 62 in this debate. I am advised on Amendment No. 62 by the CBI. They have the same view as the noble Lord, Lord Banks, about this issue. I should not wish to weary the Committee by again stating the reasons which have just been explained so very clearly by the noble Lord, Lord Banks.
My Amendment No. 62 is mainly a probing amendment—I do not know what the noble Lord, Lord Banks, cares to do about his amendment—because I wish to find out from the Government what is their reaction to it. Although the logic of the situation lends itself to such a provision—and the logic of the situation is what the CBI are concerned with—I have to tell the Committee that my elder son, who I hope one day will sit in this Chamber, is an insurance broker. He says that in the real world the logic of the situation will not be like that because people will not necessarily react in exactly the way that one hopes they will. He says that the Government, either through ignorance or deep understanding, evidently recognise that we do not live in a perfect world. I am therefore not full of enthusiasm for this, but I wait with great interest to hear what my noble friend on the Front Bench has to say about it.
Baroness Turner of Camden: I have little to add to what the noble Lord, Lord Banks, said in moving his amendment, except to say that we on our Benches support it. The main reason is that, in our view, not having the differential rate that he proposes would mean that the contracted-out approved personal pension schemes would be attractive to younger earners only. That would have a very destabilising effect in our view on occupational schemes and might leave them entirely with older people in and thus undermine them. For those reasons we should like to support the amendment.
I believe that when the initial blue booklet on personal pensions was first issued the Government at that time seemed to be in favour of age relation in this way, and I am rather sorry to see that they do not appear to have provided for it in the Bill. With those comments I wish to support the noble Lord, Lord Banks.
Baroness Trumpington: I must confess to some trepidation so early on at having to jostle with Members of the Committee who are expert in so technical and complicated an area as the subject of these amendments. Equally, though, I am glad that we have an opportunity to debate the issue of age-related rebates because it is one which is of considerable interest and concern to many people in the pensions world.
I have to say to the noble Lord, Lord Banks, that his amendment would not achieve the effects desired. The amendment that has been moved to Clause 1 would not create age-related minimum contributions for personal pensions without a number of other changes to this Bill and earlier legislation. And much the same point applies to the amendment to Schedule 2, which is intended to introduce age-related contributions to money purchase occupational schemes. Moreover, Clause 7 is about the 2 per cent. incentive payments
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for newly contracted-out occupational schemes, not the minimum payments to contracted-out money, purchase occupational schemes provided for in Schedule 2. Indeed, I must confess that we fail to see what the incentive payments have to do with the argument about age relation. However, I do not want to dwell on these objections.
As has been made clear in the other place, we thought long and hard before moving away from the age of sex-related structure for personal pensions which, as the noble Baroness said, was envisaged in our 1984 blue consultative document. The decision to move to flat-rate minimum contributions for personal pensions and to stick with a flat-rate contracted-out rebate for occupational schemes was made to keep things simple, comprehensible and workable. We are now convinced that the 1984 proposals would have turned out to be impossibly complicated in practice. The fact that we have changed our minds proves that we do listen to what people say to us in response to consultative proposals, and is all the more significant for that reason.
All kinds of dire things have been predicted as a consequence of flat-rate minimum contributions to personal pensions. We are told, for instance, that they will make personal pensions unattractive for the older employee. However, we have never claimed that, when they are introduced, personal pensions are likely to be a suitable option for the older person. Our decision to protect the rapid build-up of state earnings-related pension rights for the rest of this century, and into the beginning of the next, makes it impossible for money purchase pensions to compete on equal terms. We are also told that people who take out a personal pension when young will switch back into SERPS when they are older. But it is hardly credible that people would desert their personal pensions just at the time when these should be starting to consist of significant capital sums.
We fully accept that flat-rate minimum contributions will make personal pensions attractive for the younger person. We see nothing wrong in that, given our objective of expanding pension cover outside the state scheme. The Government do not accept—and this is a point to which we shall have to return on later clauses—that flat-rate minimum contributions will encourage significant numbers of young people to opt out of their occupational schemes to take a personal pension. Those who claim that this is a real threat tend to gloss over the fact that employers will be under no obligation to put more than the minimum, via the national insurance contribution rebate, into personal pensions. And there will be no statutory right of return to an occupational scheme for someone who opts out.
Age-related minimum contributions for personal pensions would have to be accompanied by age-related minimum payments to contracted-out money purchase schemes as the noble Lord, Lord Banks, has recognised, or people would otherwise switch between the two, depending on their age. But age-related contributions to occupational schemes would be a ghastly prospect. We simply could not seek to impose such complexities on employers and their schemes in good conscience. It would make an absolute nonsense of our commitment to reduce burdens on business.

735
As I hope I have made clear, the Government do not accept the view that flat-rate minimum contributions and rebates will have the detrimental effects that some people claim. Only time will tell of course whether we are right. But if we do prove to have been unduly optimistic, no great harm will be done. A future government will always be free to alter the terms for contracting-out from SERPS to get things on an even keel again.
Flat-rate minimum contributions and rebates are essential to get the new options in this Bill off to a good start and to achieve the expansion of occupational and personal pension coverage we all want to see. Pensions have been too complicated for too long. The flat-rate approach is a move to keep things simple and within people's grasp. For that and all the other reasons I have set out, I am afraid that we could not accept any of these amendments.
Lord Banks: I am grateful to the noble Baroness for the reply which she has given; but in my view it is not a very satisfactory one. Perhaps I may say at the outset that when the noble Lord, Lord Mottistone, mentioned insurance brokers he reminded me that I should have declared an interest in rising to speak earlier in that I am an insurance broker specialising in the pensions field.
The noble Baroness said that other changes would be required to the Bill—and she put that forward as if it were an obstacle—if this particular amendment were to be passed. I accept that that is so. However, we have plenty of time and opportunity to make any consequential amendments that may be required. If this amendment were to be passed, at least the principle would be established that where one is dealing with money purchase schemes, where benefits are not defined but contributions are defined, it is necessary that they should be on an age-related basis.
I should like to point out again, because the noble Baroness made reference to it, that I am not proposing to move Amendment No. 27 which, as she rightly said, relates to the 2 per cent. incentive and is not concerned with what we are discussing at present. The noble Baroness said that it would be very much simpler to keep matters as they are at present. However, it is of course the Government who have started down this path by introducing these particular arrangements, and having done so we must ensure that they work fairly. The noble Baroness says, "The objections that you raise will not occur. This will not happen". All I can say in answer to that is that that is not the view of a great deal of expert opinion both in the insurance world and in industry as well as in the actuarial field. That being so, it seems to me that this is quite an important principle.
The noble Baroness said that young people could hardly be expected to desert their personal pension plans when they are beginning to accumulate a certain amount of capital. However, they would not be deserting them, ditching them or leaving them for ever; they would merely be making them paid up. They would not be losing what they had already put into them. If it was made clear to them—and it would have to be explained to them—that it was better at that particular juncture to go back into SERPS, then I
736
think that many would do so. That is the danger that we have to face.
Therefore, in my view the objections to the amendment have not been strong enough to overcome the arguments in its favour, and I should like to test the opinion of the Committee.
3.29 p.m.
On Question, Whether the said amendment (No. 1) shall be agreed to?
Their Lordships divided: Contents, 103; Not-Contents, 123.

DIVISION NO. 1

CONTENTS

Airedale, L.

Listowel, E.

Allen of Abbeydale, L.

Llewelyn-Davies of Hastoe, B.

Amherst, E.

Lloyd of Hampstead, L.

Ardwick, L.

Lloyd of Kilgerran, L.

Attlee, E.

Lockwood, B.

Banks, L.

McCarthy, L.

Birk, B.

Mackie of Benshie, L.

Blease, L.

McNair, L.

Blyton, L.

Maybray-King, L.

Boston of Faversham, L.

Mayhew, L.

Bottomley, L.

Milford, L.

Bruce of Donington, L.

Mishcon, L.

Burton of Coventry, B.

Molloy, L.

Carmichael of Kelvingrove, L.

Murray of Epping Forest, L.

Chitnis, L.

Nicol, B.

Crawshaw of Aintree, L.

Northfield, L.

David, B. [Teller.]

Oram, L.

Davies of Penrhys, L.

Parry, L.

Dean of Beswick, L.

Ponsonby of Shulbrede, L.

Diamond, L.

Rathcreedan, L.

Donaldson Of Kingsbridge, L.

Rea, L.

Elwyn-Jones, L.

Roberthall, L.

Ennals, L.

Rochester, L.

Ewart-Biggs, B.

Ross of Marnock, L.

Ezra, L.

Sainsbury, L.

Fisher of Rednal, B.

Seear, B.

Fitt, L.

Seebohm, L.

Foot, L.

Serota, B.

Gallacher, L.

Shaughnessy, L.

Gladwyn, L.

Silkin of Dulwich, L.

Gormley, L.

Stallard, L.

Graham of Edmonton, L.

Stamp, L.

Grey, E.

Stewart of Fulham, L.

Hampton, L.

Stoddart of Swindon, L.

Hanworth, V.

Strabolgi, L.

Harris of Greenwich, L.

Swann, L.

Hatch of Lusby, L.

Taylor of Blackburn, L.

Heycock, L.

Taylor of Gryfe, L.

Hirshfield, L.

Taylor of Mansfield, L.

Hooson, L.

Turner of Camden, B.

Houghton of Sowerby, L.

Underhill, L.

Hughes, L.

Vernon, L.

Hunt, L.

Walston, L.

Irving of Dartford, L.

Wedderburn of Charlton, L.

Jacques, L.

Wells-Pestell, L.

Jeger, B.

Whaddon, L.

Jenkins of Putney, L.

Williams of Elvel, L.

John-Mackie, L.

Wilson of Langside, L.

Kilbracken, L.

Wilson of Rievaulx, L.

Kilmarnock, L. [Teller.]

Winchilsea and Nottingham, E.

Kinloss, Ly.

Leatherland, L.

Ypres, E.

NOT-CONTENTS

Aldington, L.

Bathurst, E.

Allenby of Megiddo, V.

Belhaven and Stenton, L.

Allerton, L.

Beloff, L.

Ampthill, L.

Belstead, L.

Annan, L.

Bessborough, E.

Auckland, L.

Blanch, L.

737

Boyd-Carpenter, L.

Kimball, L.

Brabazon of Tara, L.

Kinnaird, L.

Brougham and Vaux, L.

Kitchener, E.

Broxbourne, L.

Lansdowne, M.

Bruce-Gardyne, L.

Lauderdale, E.

Buckinghamshire, E.

Liverpool, E.

Caithness, E.

Long, V.

Cameron of Lochbroom, L.

Lovat, L.

Campbell of Alloway, L.

Macleod of Borve, B.

Campbell of Croy, L.

Maude of Stratford-upon-Avon, L.

Carnegy of Lour, B.

Cawley, L.

Merrivale, L.

Cayzer, L.

Milverton, L.

Chelmer, L.

Monk Bretton, L.

Cottesloe, L.

Mottistone, L.

Cowley, E.

Mowbray and Stourton, L.

Cox, B.

Moyne, L.

Cromartie, E.

Munster, E.

Cullen of Ashbourne, L.

Murton of Lindisfarne, L.

Davidson, V.

Nugent of Guildford, L.

Denham, L. [Teller.]

Orkney, E.

Denning, L.

Orr-Ewing, L.

Dormer, L.

Porritt, L.

Drumalbyn, L.

Portland, D.

Dulverton, L.

Rankeillour, L.

Dundee, E.

Reigate, L.

Eccles, V.

Renton, L.

Effingham, E.

Rochdale, V.

Elles, B.

Rodney, L.

Elton, L.

Rugby, L.

Enniskillen, E.

St. Davids, V.

Erne, E.

Saltoun of Abernethy, Ly.

Faithfull, B.

Sandford, L.

Ferrers, E.

Sandys, L.

Fortescue, E.

Sempill, Ly.

Fraser of Kilmorack, L.

Shannon, E.

Gainford, L.

Sharples, B.

Gardner of Parkes, B.

Skelmersdale, L.

Gisborough, L.

Somers, L.

Glanusk, L.

Stodart of Leaston, L.

Glenarthur, L.

Strathcarron, L.

Gray of Contin, L.

Swinton, E. [Teller.]

Gridley, L.

Thomas of Swynnerton, L.

Hailsham of Saint Marylebone, L.

Torrington, V.

Tranmire, L.

Halsbury, E.

Trefgarne, L.

Harmar-Nicholls, L.

Trenchard, V.

Harvington, L.

Trumpington, B.

Henley, L.

Vickers, B.

Hives, L.

Vinson, L.

Home of the Hirsel, L.

Vivian, L.

Hood, V.

Ward of Witley, V.

Hooper, B.

Westbury, L.

Hylton-Foster, B.

Whitelaw, V.

Inglewood, L.

Wise, L.

Ironside, L.

Young, B.

Kaberry of Adel, L.

Resolved in the negative, and amendment disagreed to accordingly.
3.38 p.m.
Baroness Turner of Camden Baroness Turner of Camden moved Amendment No. 2:
Page 3, line 1, at end insert ("with the consent of the earner").
The noble Baroness said: This is a small amendment. The intention of it, so far as I can see, is an attempt to tidy up subsection (9). Subsection (8) says:
"Where an earner and the trustees or managers of an appropriate personal pension scheme have jointly given notice to the Secretary of State, in such manner and form … as may be prescribed … that scheme is the earner's chosen scheme".
Subsection (9) says:
"Either an earner or the trustees or managers of a scheme may cancel a notice".
738
What I want to insert after the word "scheme' at the end of the first line is the wording,
"with the consent of the earner".
It seems to me that if there is to be a situation in which a notice is to be cancelled, it ought to be quite clear that this decision is actually with the consent of the earner. It is not a major amendment and it may not be as important as many before the Committee today; but I wanted to put it down in order to hear what the Government had to say and to see whether or not this wording could be included. I beg to move.
Baroness Trumpington: I have listened to what the noble Baroness has said, and I hope I can satisfy her that the Bill does not have the undesirable effects that she fears and that I can persuade her to withdraw this amendment.
Apart from giving employees the right to choose not to belong to a particular pension scheme, this Bill does not, and I think should not, interfere with people's freedom to devise and enter into lawful contracts with one another and to withdraw legally from those contracts. The question of the circumstances in which membership of a personal pension scheme can be terminated by either the member or the scheme is properly, I think, a matter for the membership agreement and not for social security legislation. This amendment may reflect a misunderstanding arising out of a debate on a similar amendment tabled in another place and I am very glad to have this new opportunity to clarify the position.
It was then suggested that Clause 1(9) confers a right on schemes to cancel a person's membership unilaterally. It does not. Its effect is far more limited, because it provides only for cancellation of the notice to the DHSS that minimum contributions should be paid to the scheme. It does not provide for cancellation of membership, which must be a matter for the scheme to sort out properly with its members under its rules.
We shall be consulting later in the year on proposals for regulations which will set out, among other things, the date from which any cancellation under Clause 1(9) could take effect. Normally we think this would not be until the beginning of the next tax year. There may occasionally be circumstances when cancellation notices would be received from a scheme rather than from the members—for example, where a scheme is intending to wind up. The regulations will make sure that proper arrangements are made for informing the earner and inviting him to make arrangements for his minimum contributions to go to another personal pension scheme. There are also of course powers to deal with existing protected rights in schemes which wind up. The noble Baroness will see them in Clause 5. I hope that this brief explanation of Clause 1(9) will have served to reassure the noble Baroness, and that she will agree to withdraw her amendment. If my explanation has not satisfied her, I shall very gladly write to her.
Baroness Turner of Camden: In the view of that reply, and in view of the noble Baroness's explanation, for which I thank her, I shall not press my amendment.
Amendment, by leave, withdrawn.
Clause 1, agreed to.
Clause 2 [Appropriate schemes]:
3.45 p.m.
Lord Banks Lord Banks moved Amendment No. 3:
Page 3, line 20, at end insert—
("( ) An appropriate scheme shall be subject to the provisions of the Policyholders Protection Act 1975.")
The noble Lord said: I beg to move Amendment No. 3. This amendment would ensure that appropriate personal pension schemes are brought within the provisions of the Policyholders Protection Act 1975. In 1975, in order to safeguard the position of the policyholder, the insurance companies were brought within a statutory scheme for ensuring at the industry's expense, that compensation in the region of 90 per cent. of claims would be available to policyholders in the event of the insolvency of any insurance company. This was achieved through the Policyholders Protection Act. This Act covers both general assurance and life assurance—and life assurance covers personal pension contracts. I presume that the Act will cover personal pension schemes offered by life offices as a consequence of the Bill now before us.
However, the Bill opens the gate to other providers besides life offices. Building societies and others are to enter the field. It seems only right that they too should come within the provisions of the Policyholders Protection Act, thus ensuring that those who take out personal pension schemes with them are protected, and that these new providers contribute to the costs of such protection. That is the aim of the amendment. I beg to move.
Baroness Turner of Camden: I rise to support the amendment moved by the noble Lord, Lord Banks. As he says, the Policyholders Protection Act was introduced in 1975 following the collapse of a life office. The insurance industry itself is involved in funding. It seems to us that the need now is even greater than it was perhaps in 1975, because later this year we shall be facing deregulation in the finance industries. That means that everybody in the industry will be able to do everything else. Building societies will be able to sell life insurance, insurance companies will be able to offer mortgages, and banks will be able to offer pension schemes, and so on.
The Government themselves have, incidentally, asked the Occupational Pensions Board to look at providing some cover for people who have personal private pensions. In the letter received by the Occupational Pensions Board, of which I happen to be a member, the Secretary of State referred specifically to the kind of protection offered by the Policyholders Protection Act. In the light of that, I hope that the Government will find it possible to accept this amendment which provides some sort of protection which I think is very necessary in this field.
Baroness Trumpington: Once again, the noble Lord, Lord Banks, has raised an issue which will be crucial to the success of the new pension arrangements; namely, compensation for personal pension holders in the event of things going wrong. Although we have some sympathy with the thinking that lies behind this amendment, we cannot accept it for reasons which I hope to make clear in a moment. The noble Lord may
740
recall that in paragraph 2.44 of the Social Security White Paper, the Government said:
"There will be further consultations about compensation requirements, but, in principle, everybody with a personal pension should be at least as well protected as someone with an insurance policy covered by the Policyholders Protection Act".
As a first step in these consultations, in February of this year, the Secretary of State asked the Occupational Pensions Board, which will be responsible for the approval and supervision of personal pension schemes, to take a look at compensation requirements. It is worth quoting the terms of this remit in full:
"To consider and advise on the requirements to be met by personal pension and money purchase occupational pension schemes for providing compensation in the event of fraud, theft or negligence, in the light of the Government's decision that, in principle, everybody with a personal pension should be at least as well protected as someone with an insurance policy covered by the Policyholders Protection Act, and in the light of the desirability that such requirements should be kept as simple as possible."
The board's remit amply demonstrates the Government's commitment to providing adequate protection for people with personal pensions. The board have not yet reported back to the Secretary of State and I cannot of course anticipate what they might say. As the noble Baroness certainly knows, the Policyholders Protection Act provides protection for policyholders who may be affected by the inability of authorised insurance companies to meet their liabilities; and the Act will therefore apply automatically to personal pensions which are provided by insurance companies. But the Act does not cover the new providers—banks, building societies and unit trusts—that the Government consider will have a major role in the new pension arrangements alongside the insurers who are already well established in pensions business. It would not be possible or appropriate to bring these new providers under the umbrella of the Policyholders Protection Act, since that legislation relates to insurance business only. Nor for that matter would it be right to legislate in such a way that only insurance companies could be personal pension providers.
Our objective must be to ensure that all of the personal pension providers are required to be party to fully adequate compensation arrangements, in order to protect everybody who takes a personal pension. And this is the purpose to which our Amendment No. 10 to paragraph 10 of Schedule 1 (which we shall also be debating today) is directed. That amendment will give the necessary powers to set requirements about adequate compensation to be met by all schemes.
Just what these requirements should be is something to which we need to give further thought. We cannot reach firm conclusions just at present, for there are two major uncertainties. The first, as I have explained, is the outcome of the Occupational Pensions Board's study of compensation arrangements. The second stems from the work being done by the shadow bodies set up with a view to assuming the regulatory responsibilities for investment business once the Financial Services Bill has been enacted. Noble Lords may have seen reports in the press of the possible forms of compensation schemes that would be arranged by the regulatory bodies, funded by levies on investment businesses whose customers would be liable for compensation. Unit trusts providing

741
personal pensions could be covered under these arrangements, though we have to await detailed proposals before forming a view on whether the scale of compensation envisaged is sufficient for pension scheme members. And other arrangements may be required for other providers.
We shall of course consult widely when we have developed proposals for compensation arrangements for holders of personal pensions. With this assurance, and in the light of the explanation that I have given, I hope the noble Lords, Lord Banks, and Lord Kilmarnock, will accept that there are other more flexible ways of achieving the aim of the amendment and that they will not pursue it further.
Lord Banks: I am glad to know from the noble Baroness that the Government have sympathy with the thinking behind this amendment. I was very interested in what she had to say about the consultations which are going on and the consultations particularly with the Occupational Pensions Board. In view of her statement that it is the intention of the Government to ensure that people who enter personal pension schemes provided by bodies other than those at present covered by the Policy Holders Protection Act shall not be in any worse position and that they shall enjoy the same protection, I do not wish to press this amendment at the moment.
I hope that the burden on providers will be the same-that is to say, there will not be a heavier burden on one set of providers than on another. I hope there will be equity between the different proposals which are proposed for the new providers and the proposals which exist for insurers at present. But in view of all that the noble Baroness has said, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 2 agreed to.
Schedule 1 [Appropriate personal pension schemes]:
Lord Kilmarnock Lord Kilmarnock moved Amendment No. 4:
Page 87, line 10, leave out ("may") and insert ("shall").
The noble Lord said: Schedule 1 is an extremely important schedule, but it appears to me to be defective as it stands, notwithstanding the recent remarks of the noble Baroness. It stems from Clause 2 which introduces the concept of appropriate personal pension schemes. Clause 2(2), which the Committee have just passed, states that a scheme can only be appropriate if the requirements of Schedule 1 are satisfied in its case. But many of these requirements are still wrapped in mystery and left to regulation.
I want to stress at the outset—and this is very important—that I am a supporter of money purchase personal pension schemes. I believe in them. I believe they are desirable for increased job mobility and freedom of choice. I do not believe that joining an occupational scheme should be a condition of service. Nor do I think that people should be bribed into personal pension schemes; but these schemes should be an available alternative. This means that complete clarity about their workings is essential for the protection of those who opt for them. This is not
742
adequately provided for in the Bill as written. The immediate objective of these two amendments is to ensure that regulations which are merely permissive become mandatory. I have only sought to amend paragraph 2 in this sense—it may be necessary to go further at a later stage of the Bill—but I believe that the present amendment is an adequate peg on which to hang a number of queries about the Government's intentions. In the first place, I find it difficult to understand why regulations describing the type of persons or bodies who could offer such schemes are merely permissive—that is to say, the Secretary of State does not have to make such regulations at all. Next the Notes on Clauses make it clear that paragraphs 3, 4 and 6 of the schedule are also merely enabling.
We are, as always, grateful for the Notes, but they are strewn with such phrases as, "the intention is to use the power" and, "regulations are likely to specify" and also with references to other legislation with which this legislation will presumably have to be construed. Among that other legislation is the Financial Services Bill which has not yet reached this Chamber so we are in the dark on rather a lot of things.
I have received, as no doubt other Members of the Committee have, a thorough submission on this part of the Bill, and on this schedule in particular, from the National Association of Pension Funds. I do not share all those worries, but the association raises some important points that need clarification. I shall, as briefly as I can, mention some of them. Paragraphs 2, 3, 4, 5 and 6 of the schedule all deal with aspects of investor protection. It is these paragraphs, together with Clause 12 on advertisements, that will provide the main protection for members under this Bill. But it is as yet impossible to see how any regulations that may be made under this legislation will interact with requirements imposed under the Financial Services Bill. I must therefore seriously ask the noble Baroness to let us know clearly where the main protection is intended to lie, under this Bill or under the Financial Services Bill?
The trouble about what is written down here is that there is not even a requirement to use the powers given in these paragraphs under this schedule; but a wait and see how it develops approach is not good enough, because it is in the early years when new personal pensions are being sold to a wide range of new clients that the protection is most necessary.
The detail missing from these paragraphs concerns the type of institution authorised to provide personal pensions, the conditions concerning investments, the limits on deductions for administration and commission expenses. I think the noble Baroness, Lady Turner, has an amendment seeking to address the latter point. A possible way out would be to cross-reference the Bill with the Financial Services Bill so that the Secretary of State for Trade and Industry will in consultation with the Secretary of State for Social Services give to the Securities and Investment Board other duties concerning personal schemes set up under this Bill.
The Occupational Pensions Board is written into this schedule, but the Occupational Pensions Board has insufficient powers and sanctions or even staff at its disposal to act as an effective watchdog; so there is a

743
great deal to be said for the investment board to be involved at the outset rather than having a complex OPB/SIB liaison. I should like to hear what the noble Baroness has to say about that.
However, we are in a difficulty with the Government's huge load of legislation. The Financial Services Bill is behind this Bill in the queue—or perhaps I should say in the log jam. So I repeat that the noble Baroness must tell us where the real onus of protection is supposed to lie.
Under paragraph 4 the scheme must only comply with such regulations "as may be prescribed". But, at the very least, potential investors in personal pension schemes must know how much of their first and subsequent contributions will be invested for pensions purposes and how much will be returned in the event of early termination. Paragraph 6 refers vaguely to,
"such other requirements as may be prescribed".
I suggest that this could be activated to prohibit cold calling for pension services. "Cold calling" is a term of art or jargon which means door-to-door, "sign on the dotted line", salesmanship which is subjected to a 14-day cooling-off period under the Financial Services Bill. It may be thought that a longer cooling-off period would be appropriate under this Bill where employees have been subjected to high-pressure salesmanship and might need, say, four to six weeks to compare the advantages of a new scheme with those provided by the one that they are contemplating leaving. They will need time to seek advice and perhaps to consult an independent intermediary.
There is also the problem that where an employee opts for an appropriate scheme, he will also be opting out of membership of his occupational pension scheme and the latter will need to take effect as soon as the decision is confirmed; otherwise he will be contributing to two pension schemes in relation to the same earnings. This dilemma would be lessened if, as suggested by my noble friend Lord Banks, Clause 14 were amended to require schemes to permit their members to pay additional voluntary contributions to personal pension contracts. Unless that amendment is made, no one would be able to be a member in relation to the same earnings of both an occupational and a personal pension scheme.
There are a number of other areas concerning protective rights, annuities, early death, widows and widowers and the tax regime to which the personal pensions will be subjected and other matters with which, at this stage, I shall not take up the time of the Committee. My objective at this stage, as I said at the outset of my remarks, is to draw the Government out on their intentions in a very important area of consumer protection. The noble Baroness seems to think that it is amusing. But it is a very important area of consumer protection on which the Bill, as drafted, is quite remarkably vague. The noble Baroness said in answer to the last amendment of my noble friend Lord Banks that new members under these new schemes will be at least as well protected as members of occupational schemes. But that is not in the Bill. The Government may have excellent intentions and these intentions are expressed in the Notes on Clauses but they are not written on the face of the Bill. We must get it clear where this protection is going to come; whether
744
it is going to come under this Bill, whether it is going to come under the Financial Services Bill or whether it is going to come under some system of cross-referencing between two Bills. I submit that this is not at all clear. On those grounds I beg to move the amendment.
Baroness Gardner of Parkes. I think that the wording in the present schedule is perfectly appropriate and leaves a degree of flexibility. Surely by inserting the word "shall" we are just pinning the Government down to making a detailed list which may not be appropriate and which may not leave the same degree of flexibility. I do not support the amendment.
Baroness Trumpington: I listened very carefully to the words of the noble Lord, Lord Kilmarnock. He suggested that I found them amusing. I rarely find the words of the noble Lord amusing. An amendment in another place reworded paragraph 2 of Schedule 1 so that the Secretary of State will not be obliged to exercise the power which the paragraph gives to prescribe who may "establish" a personal pension scheme. At the same time a new power was introduced which is now paragraph 6 of the schedule.
The intention is to use the power in paragraph 6 to make regulations about the form and nature of appropriate personal pension schemes. For example, the regulations are likely to specify that schemes which are "authorised unit trusts" under the financial services legislation, or which offer particular kinds of contract under insurance company legislation, may qualify under Schedule 1. This approach will enable us to make sure that the investor protection provisions which apply to existing forms of investment business will apply automatically to personal pension schemes receiving the minimum contribution.
Together with other legislation (for example, the Building Societies Bill) these regulations may be all that is needed to enable new providers—unit trusts, banks and building societies—to become involved in the provision of personal pensions, because they will be able to do so by setting-up or being associated with appropriate forms of investment business offering such pensions. It will therefore quite possibly not be necessary for the power in paragraph 2 to be used to enable them to enter this market. They will be able to do so by virtue of the fact that nothing in the law prevents them from establishing a personal pension scheme in the form of, say, an "authorised unit trust" and so meeting the requirements of regulations made under paragraph 6.
As things stand the Occupational Pension Board does not have sufficient powers, sanctions and staff. Clause 2 gives it full power to withdraw approval if it is not satisfied for any reason; and its staff is increased to deal with the new work. With regard to the National Association of Pension Funds, paragraphs 2, 3, 4, 5 and 6 deal with investor protection, as does Clause 12. The interaction with the Financial Services Bill is one reason why it is necessary to leave this to regulations. In many cases it may not be necessary to use the powers of the Financial Services Bill if it provides adequate protection; but we intend to use them to the extent that it does not.

745
The change from one scheme to another will be dealt with adequately. Normally a personal pension scheme will begin to receive minimum contributions from the start of the next tax year, giving time to sort out the change of membership. Given our continuing commitment to widening the range of providers of personal pensions, as proposed in the White Paper, and in the light of the explanation that I have given as to how this will be achieved in the legislation, I hope that the noble Lord will feel able to agree to withdraw the amendment.
Lord Williams of Elvel: May I ask the noble Baroness for clarification of what she has just said? As I understand it, the Financial Services Bill is going to be the master Bill for the purposes of regulating who can or who cannot sell insurance or pension schemes under the present provisions. What she seems to be saying is that it is only when the Financial Services Bill—which has yet to come to your Lordships' House, and so we have not yet even started to discuss it—is through with the legislation in its present form and if that fails that this Bill, if passed into legislation in its present form, will bite. Is that what she is saying? If she is saying that, she will recognise that her honourable friend in another place has refused to make a list of those people—and I come back to what the noble Lord, Lord Kilmarnock, has said about cold calling—who could be authorised under the financial services legislation to do exactly what the noble Lord, Lord Kilmarnock, has so graphically described.
Baroness Trumpington: I can do no better than repeat that it may not be necessary to use the powers if the Financial Services Bill provides adequate protection. But we intend to use them to the extent that it does not. It is not a question of the Bill's failure; it is a question of how far the financial services controls go.
Lord Williams of Elvel: I am sorry to press the noble Baroness on this. The Financial Services Bill sets out to devise a scheme of investor protection, which I think is exactly the point which the noble Lord, Lord Kilmarnock, was making. If the Financial Services Bill can do that successfully, the powers in this schedule are not required at all. If the Financial Services Bill is not going to work successfully, it seems to me that the powers should be strengthened.
Lord Kilmarnock: I think we are in a rather unsatisfactory situation, as the noble Lord. Lord Williams of Elvel, has just underlined. The noble Baroness in her reply talked about the intention to use the powers in paragraphs 6 or 7, that regulations were likely to do this, that or the other and that unit trusts and other types of institutions might qualify. If they did qualify they would be subject to the existing protections which apply to their operations. The noble Baroness admitted that the Occupational Pensions Board does not have sufficient powers or staff at present and they would have to be increased: I do not know whether that is mentioned in the Explanatory and Financial Memorandum. She referred also to the Financial Services Bill and said one reason why it was necessary to leave all these regulations so vague is that
746
it is all going to be patched up in that Bill when it comes along. The noble Lord, Lord Williams of Elvel, referred to it as "the master Bill" and the Government appear to see it in the role of a long stop to remedy any deficiencies in this Bill.
But that Bill is still coming down the corridor. The regulations are supposed to fill in gaps in the Financial Services Bill; but we do not know until that Bill is passed what gaps there will be and so it seems to me that we must legislate in this Bill. This is the one that is before your Lordships and we must legislate in this Bill for adequate consumer and client protection. I support these schemes but I want them to be properly protected. Therefore it seems to me that we must come back at a later stage of this Bill and try to fill in such gaps. If the Financial Services Bill comes along later and does much the same thing, then there could be consolidation; but we must get what we want in this Bill.
Baroness Trumpington: Before the noble Lord sits down, the way the Bill is set at present, it is the long stop. It is not a question of patching anything up. It is because both that Bill and our present Bill are not yet passed that these matters are left to regulations for consultation later this year on the full details. The Financial Services Bill sets up a system of self-regulatory protection for all sorts of investments and not just pensions. There may be a need for extra measures because of the special position of pensions. In the very unlikely event of the Financial Services Bill not being passed, there are fully sufficient powers in this Bill to do all that is necessary to protect personal pension holders.
Lord Kilmarnock: I must say that I still find this situation deeply unsatisfactory. What the noble Baroness is asking us to accept is a long stop which is not in statute but in regulation and at the entire discretion of the Secretary of State. I think that is most unsatisfactory. For example, if the Financial Services Bill comes to us with a provision for a cooling-off period to be only 14 days and we think it would be more appropriate to have 30 or 45 days in this Bill, we cannot have that because it is not in the statute and we are dependent upon the Secretary of State's good nature for him to come along at some later stage and introduce this. I really think this a very unsatisfactory answer.
We have had an interesting debate and I am most grateful to noble Lords for their support and in particular the noble Lord, Lord Williams of Elvel, with his great knowledge of these matters. Obviously we shall come back to this at some later stage in the Bill. It is not only we who are concerned but also the industry, and I should like to say that I am speaking from the point of view of a supporter of these schemes. I am anxious to see that these are copper-bottomed schemes and that people are getting a square deal. That is the whole point. On that note, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 5 not moved.]
4.15 p.m.
Baroness Turner of Camden Baroness Turner of Camden moved Amendment No. 6:
Page 87, line 42, at end insert—
("which taken jointly shall not exceed five per cent. of total premium.").
The noble Baroness said: I rise to move this amendment motivated in some part, I think, by the kind of feelings that motivated the noble Lord, Lord Kilmarnock, because we are concerned on these Benches about the protection of the consumer. In particular we are concerned to ensure that people who opt for private personal pensions are not exploited.
The evidence that was given by the Occupational Pensions Board to the inquiry into provisions for retirement which they gave in 1984 examined the administrative costs of personal pensions and found that, taking the average experience, the administrative charges for personal pension schemes were 18.4 per cent. of premiums, compared with around 5 per cent. for occupational pension schemes and about 1½ per cent. for SERPS. What we are anxious to do in this amendment is to ensure that people who opt for personal private pensions are not exploited, because it occurs to us that this is the sort of business which may very well attract unscrupulous entrepreneurs. The Government themselves, in their blue consultative paper in 1984, accepted that this could well be the case. Indeed in that document it stated that care would have to be taken to ensure that the consumer was properly protected.
This is one of the ways of ensuring that people who go into the market and offer PPPs may do so only if they comply with certain requirements and if the amount they are able to charge by way of administrative expenses or commission is a reasonable amount. We have set 5 per cent. of the total premium as a reasonable figure but if by any chance it is felt that another figure would be more appropriate, perhaps that could be considered. Certainly I think some limit needs to be put on the amount that can be charged for administrative expenses of PPPs and on the amount that can be charged by way of commission. It is for that reason that I beg to move this amendment.
Lord Boyd-Carpenter: The difficulty about the proposition put forward by the noble Baroness is, I think, that if you set 5 per cent., or indeed any other arbitrary figure, in the Bill as a maximum there is a very considerable risk that it may become a minimum. If you contemplate (as you would if you put this amendment into the Bill) that 5 per cent. is a reasonable figure, it would be extremely difficult for the Secretary of State in his supervisory role to take action against people who were in fact charging 5 per cent., even though, on the merits, that was far too high. I think it is wiser to leave this to the general supervision of the Secretary of State and not to give people a figure which they would feel entitled to go for regardless of the merits. I think there are real dangers in that.
Lord Williams of Elvel: If I may respond to the noble Lord, Lord Boyd-Carpenter, the idea running through this whole legislation is, as I understood it, that there should be competition, and competition for the selling of personal pension plans, as I think there is
748
at the present time—the noble Lord, Lord Banks, will know this better than I do. There is a certain amount of competition. So in stating a maximum we are not behaving in the way some wage negotiators behaved in earlier years by saying, "This is the norm", and so everybody starts asking for the norm. Competition is meant to regulate the extent of the commission which insurance companies and others may charge. It does not seem to me that the amendment sets a maximum figure which will be the norm or, if it does set such a figure that is the norm, it seems that competition is not working in this particular market. One either has one or the other: one either has a figure which is set by statute or one leaves it to competition.
Lord Boyd-Carpenter: May I put this point to the noble Lord? If he is right—and I hope he is—in saying that competition will set the figure in this field, then there is absolutely no justification for putting this figure into the Bill.
Lord Williams of Elvel: But if competition is operating, as the noble Lord points out, then there is every justification for putting a maximum figure into the Bill in order to stop the cowboys.
Lord Vinson: Every one of us in this Chamber has a vested interest in retirement, and I must declare my personal interest in it. But it seems to me that we are making too excessive an issue of this. We have now nearly 1 million people self-employed who have personal pensions of a sort currently on the market. I am not aware that noble Lords opposite have highlighted any great scandal in the administration or the marketing of such schemes, so we are not talking about anything new: we are merely talking about broadening the market. We all have concern to see that people are not exploited or "cowboyed", but I do not think that is happening at the moment; and the more pension providers there are the less likelihood there is that this will happen, because of the greater interest in competition. So I think that this is a non-worry.
Lord Banks: At the present moment, in order to contract out a scheme has to undertake to provide a certain level of benefit. You cannot get away from that, and it is laid down. The change that this Bill makes is that for certain categories of contracting out it will be possible to do so by making a minimum contribution to a pension and not guaranteeing the benefits at all. In those circumstances, it seems to me—and this amendment refers only to minimum contributions—there is a very strong case for imposing a limit.
The noble Baroness said that the Government might suggest a different limit from this, but when we are dealing with minimum contributions we are not dealing with something which is a purely commercial project. It is something which depends on this legislation. Anything over and above the minimum contributions—and presumably people will be able to pay more, and presumably employers will be able to pay more, into a personal pension scheme if they are inclined to do so—would not be at all subject to this restriction. But here, where people are being allowed to contract out of the state earnings-related pension

749
scheme, which will give a specific benefit, in order to make contributions to a personal pension plan, it seems reasonable that these minimum contributions which allow them to do so should not be exploited by those who are providing the personal pensions. I think there is a strong a case for a limit.
Baroness Trumpington: The Government share the view of the noble Baroness that charges for personal pensions must be kept down. Some commentators have pointed out that charges can amount to as much as 20 per cent. of contributions in some "Section 226" retirement annuity contracts, the only type of personal pension currently available. This is far too high, and we believe that the great majority of people would find it unacceptable. However, we also believe this amendment is undesirable, and I shall return to our reason for believing so in a moment.
Paragraph 4 of Schedule 1 enables regulations to be made that would in practice control the level of charges, including commission. We hope that in the personal pensions market, where new providers will join insurance companies in offering pension schemes, competition between providers will lead to significant reductions in charges. Disclosure of charges will be required by law, to assist people to make informed choices between products. But if competition and disclosure do not bring charges down to an acceptable level, we stand ready to use the power to control charges; indeed, we have not ruled out using it from the outset.
Noble Lords will understand that there is a delicate balance to be struck here. If we were to control charges, it would be necessary to devise a formula, probably of the sort which set a maximum proportion of contributions or maximum proportion of the product of those contributions—that could be used to cover expenses. If we set that proportion too low, we would run the risk that the providers would find the whole business uneconomic and that no one would be willing to offer personal pensions on those terms. So we would want to consult interested parties before going down that road, and it would be most unhelpful indeed if such consultations were rendered meaningless because our hands were unduly tied by the primary legislation.
That brings me back to the acceptability of the amendment. As now drafted, paragraphs 4 and 5 leave the Government two sets of choices. First, we can choose whether or not to exercise the power to make regulations. Secondly, if we did choose to exercise it we would have considerable freedom to determine precisely how we would exercise it. The amendment would restrict us on both counts. First, it fixes at 5 per cent. a maximum proportion of contributions that can be used to cover charges and commissions. At this stage, it would be most unwise to fix an arbitrary and rigid limit, for the reasons I have already mentioned. Secondly, when taken with subparagraph (2) of paragraph 5 the amendment could be overridden by regulations made under paragraph 4. To put it another way, if the amendment were accepted and it was found to be discouraging providers from entering the market, it could only be negated by the Secretary of State making regulations under paragraph 4. I do not know
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whether this is what the noble Baroness intended, but we find it a most undesirable approach to legislation.
All existing types of personal pension insurance policies are well-known to carry higher administrative charges than other forms of investment. As my noble friends Lord Boyd-Carpenter and Lord Vinson said, bringing in the new providers, such as building societies, unit trusts, etc., will mean major new competition from providers which traditionally have much lower charges than the most expensive insurance policies.
I repeat my earlier assurance that we will not sit back and let charges settle at an unacceptably high level. All we ask is that the Government be left with the discretion to act with all interested parties in this sensitive area—including, of course, consumer interests. I hope that the noble Baroness will now feel able to withdraw the amendment.
Lord Vinson: I wonder whether I may be permitted, in support of the Government, to make a further point. We seem to visualise that the pension market and pension provision will remain much as it is now, but once personal portable pensions are more freely available on the market one can visualise many pension departments and pension managers adopting a very benign and helpful attitude to their employees.
One of the reasons why the apparent costs of existing pension arrangements are low is that they are heavily subsidised by existing companies. The cost of the pension administration of companies which contract out of the state scheme is written off as part of the overhead costs of the companies. But, in future, one visualises that companies will say to their employees in many instances, "We think that you, a short-term computer programmer, will be much better suited by having a personal and portable pension. We will supplement that pension over and above what we are required to give by the Government, and we will advise you to go into the most efficient least front-end loaded" (which I think is the technical expression in terms of expenses) "scheme". So there will be a wealth of advice within companies.
Companies have in the past, for very good reasons, set up pensions: first, for philanthropic reasons; and, secondly, as golden shackles on their employees to lock them in. Do not let us run away from that. That is one of the reasons why we have to introduce greater mobility. I think that has wide support across this Chamber. But the pension fund managers will change their approach and they will say, "Yes, in your case we will help you into this personal pension. In your case, we think you will be well advised to go into the company scheme. We will advise you where to go", and the providers will be offering schemes with the minimum of commission. So I think that the more widely the personal pension is spread the wider will be the competition available and the wider and better will be the advice. So I repeat my belief that the Government are ready to stick to their last in not accepting the amendment. I do not think we have the problem here that is anticipated.
Lord Williams of Elvel: May I comment on two points that the noble Lord, Lord Vinson, made? He is a great expert on portable pensions and I would

751
certainly agree with a number of points that he made, but there are two points where I would disagree. First, in this legislation we are talking about people who contract out of occupational pension schemes and into portable pension schemes. We are talking about people who contract out of SERPS, and that is quite a different order of people. There may be a lot of people in companies who will advise employees on how to get the best pension scheme and all the rest of it, but that will not happen in the case of the categories we are discussing.
Secondly, I assume the noble Lord, Lord Vinson, is not saying that companies themselves will charge a commission for this service of advising where is the best portable pension scheme for their employees to invest in. I assume that companies would probably give this advice free. Therefore I do not see the noble Lord's argument on that front being relevant to the amendment we are discussing.
Lord Vinson: Perhaps I may reply to that. Their advice will be free because it will be part of the service that they offer to their employees. As they will be able to recommend the cheapest and the lowest commission for personal pension schemes, those schemes will flourish and the worst schemes will be highlighted—no doubt there will be a league table—so that the market will sensibly and properly work and protect those who invest in this way just as it protects the self-employed currently.
Lord Williams of Elvel: I do not want to bore the Committee further. All I am saying is what I said to the noble Lord, Lord Boyd-Carpenter, earlier on. In that case, what is the problem with specifying the maximum?
Baroness Turner of Camden: Perhaps I may reply to the debate, which has been a most interesting one. I thank all noble Lords who have contributed. I do not find the arguments for not accepting the amendment extremely convincing. We are concerned here with the protection of people who are least able to protect themselves. Indeed, this point was made by my noble friend Lord Williams when he referred to the kind of people who would be going on to the personal portable pension market for the first time in their lives. For this reason it is necessary to have some kind of limit put upon what they can be charged by way of administrative expenses and by way of commission.
I do not find the argument very convincing that perhaps if this were applied, somehow or other it would become the maximum. What we have done in putting down this figure is to put what we think is a reasonable figure in all the circumstances. Since I do not find the answers convincing and since I think it is quite important, and since, as the noble Lord, Lord Banks, says, all we are talking about are the minimum contributions, I intend to test the feeling of the Committee on this amendment.
4.32 p.m.
On Question, Whether the said amendment (No. 6) shall be agreed to?
Their Lordships divided: Contents, 100; Not-Contents, 136.

DIVISION NO. 2

CONTENTS

Airedale, L.

Kilmarnock, L.

Amherst, E.

Kirkhill, L.

Ardwick, L.

Leatherland, L.

Attlee, E.

Listowel, E.

Banks, L.

Llewelyn-Davies of Hastoe, B.

Birk, B.

Lloyd of Hampstead, L.

Blease, L.

Lloyd of Kilgerran, L.

Blyton, L.

Lockwood, B.

Boston of Faversham, L.

McCarthy, L.

Bottomley, L.

Mackie of Benshie, L.

Brockway, L.

McNair, L.

Bruce of Donington, L.

Mayhew, L.

Caradon, L.

Milford, L.

Carmichael of Kelvingrove, L.

Molloy, L.

Chitnis, L.

Murray of Epping Forest, L.

Cledwyn of Penrhos, L.

Nicol, B.

Crawshaw of Aintree, L.

Northfield, L.

David, B. [Teller.]

Oram, L.

Davies of Penrhys, L.

Parry, L.

Dean of Beswick, L.

Phillips, B.

Diamond, L.

Pitt of Hampstead, L.

Donaldson of Kingsbridge, L.

Ponsonby of Shulbrede, L. [Teller.]

Elwyn-Jones, L.

Ennals, L.

Rathcreedan, L.

Ewart-Biggs, B.

Roberthall, L.

Ezra, L.

Rochester, L.

Falkland, V.

Ross of Marnock, L.

Fisher of Rednal, B.

Seear, B.

Fitt, L.

Serota, B.

Foot, L.

Silkin of Dulwich, L.

Gallacher, L.

Stallard, L.

Gladwyn, L.

Stewart of Fulham, L.

Glenamara, L.

Stoddart of Swindon, L.

Graham of Edmonton, L.

Strabolgi, L.

Grey, E.

Taylor of Blackburn, L.

Grimond, L.

Taylor of Gryfe, L.

Hampton, L.

Taylor of Mansfield, L.

Hanworth, V.

Turner of Camden, B.

Harris of Greenwich, L.

Underhill, L.

Hatch of Lusby, L.

Walston, L.

Heycock, L.

Wedderburn of Charlton, L.

Hooson, L.

Wells-Pestell, L.

Houghton of Sowerby, L.

Whaddon, L.

Hughes, L.

White, B.

Irving of Dartford, L.

Wigoder, L.

Jacques, L.

Williams of Elvel, L.

Jeger, B.

Wilson of Langside, L.

John-Mackie, L.

Wilson of Rievaulx, L.

Kearton, L.

Winchilsea and Nottingham, E.

Kennet, L.

Kilbracken, L.

Ypres, E.

NOT-CONTENTS

Aldington, L.

Colville of Culross, V.

Allenby of Megiddo, V.

Cork and Orrery, E.

Allerton, L.

Cottesloe, L.

Alport, L.

Cowley, E.

Ampthill, L.

Cox, B.

Belhaven and Stenton, L.

Cromartie, E.

Beloff, L.

Cullen of Ashbourne, L.

Belstead, L.

Davidson, V.

Bessborough, E.

Denham, L. [Teller.]

Boyd-Carpenter, L.

Denning, L.

Brabazon of Tara, L.

Derwent, L.

Brougham and Vaux, L.

Dilhorne, V.

Broxbourne, L.

Dormer, L.

Bruce-Gardyne, L.

Drumalbyn, L.

Buckinghamshire, E.

Dulverton, L.

Caccia, L.

Duncan-Sandys, L.

Caithness, E.

Dundee, E.

Cameron of Lochbroom, L.

Eccles, V.

Campbell of Alloway, L.

Elles, B.

Campbell of Croy, L.

Elliott of Morpeth, L.

Carnegy of Lour, B.

Elton, L.

Cawley, L.

Enniskillen, E.

Chelmer, L.

Faithfull, B.

Coleraine, L.

Fanshawe of Richmond, L.

753

Ferrers, E.

Murton of Lindisfarne, L.

Fortescue, E.

Nugent of Guildford, L.

Fraser of Kilmorack, L.

Onslow, E.

Gainford, L.

Orkney, E.

Gardner of Parkes, B.

Orr-Ewing, L.

Gisborough, L.

Porritt, L.

Glanusk, L.

Portland, D.

Glenarthur, L.

Rankeillour, L.

Gray of Contin, L.

Reigate, L.

Gridley, L.

Renton, L.

Hailsham of Saint Marylebone, L.

Rochdale, V.

Rodney, L.

Halsbury, E.

Rugby, L.

Harmar-Nicholls, L.

St. Aldwyn, E.

Harvington, L.

St. Davids, V.

Henderson of Brompton, L.

Saltoun of Abernethy, Ly.

Henley, L.

Sandford, L.

Hives, L.

Sandys, L.

Holderness, L.

Seebohm, L.

Home of the Hirsel, L.

Sempill, Ly.

Hood, V.

Sharples, B.

Hooper, B.

Skelmersdale, L.

Hylton-Foster, B.

Soames, L.

Inglewood, L.

Somers, L.

Kaberry of Adel, L.

Stodart of Leaston, L.

Kimball, L.

Swann, L.

Kinloss, Ly.

Swansea, L.

Kinnaird, L.

Swinfen, L.

Lansdowne, M.

Swinton, E. [Teller.]

Layton, L.

Teviot, L.

Liverpool, E.

Thomas of Swynnerton, L.

Long, V.

Torrington, V.

Macleod of Borve, B.

Tranmire, L.

Malmesbury, E.

Trenchard, V.

Mancroft, L.

Trumpington, B.

Marley, L.

Tweedsmuir, L.

Masham of Ilton, B.

Vickers, B.

Maude of Stratford-upon- Avon, L.

Vinson, L.

Vivian, L.

Merrivale, L.

Ward of Witley, V.

Mersey, V.

Westbury, L.

Middleton, L.

Whitelaw, V.

Milverton, L.

Wolfson, L.

Mottistone, L.

Young, B.

Munster, E.

Zouche of Haryngworth, L.

Resolved in the negative, and amendment disagreed to accordingly.
4.41 p.m.
Baroness Turner of Camden Baroness Turner of Camden moved Amendment No. 7:
Page 88, line 5, leave out paragraph 6 and insert—
("6. A scheme must comply with such requirements as may be prescribed in a manner satisfactory to the Occupational Pensions Board, and with any directions of the Occupational Pensions Board, that a statement shall be provided to the member in a prescribed form before notice is jointly given to the Secretary of State, as regards—

(a) the amount of commission, fees or other payments that will be paid by the scheme to an intermediary, broker, agent or any other third party;

(b) the amount to be deducted to cover administrative expenses;

(c) the net amount that will be invested on his behalf;

(d) the amount payable in the event of the member wishing to transfer to another scheme, showing the amount available in each year from the date of commencement of the scheme until normal pension age;

(e) the value of rights under the scheme, in accordance with a statement by an actuary.").

The noble Baroness said: This amendment is again concerned with consumer protection, but it approaches it from a slightly different angle. As the Committee is aware, the Occupational Pensions Board is a body that was established under existing legislation and it has a range of responsibilities in looking after the interests of pension scheme members. At present, those areas of responsibility are fairly limited. I was
754
glad to hear from the noble Baroness, Lady Trumpington, earlier this afternoon that, anyhow, the intention is to increase the number of staff that the OPB will have, to deal with the extended work that it certainly will have under this legislation.
The idea of making this amendment to Schedule 1 is to set out the kind of requirements that will have to be met if a scheme is to be regarded as satisfactory. It is our belief that the body that should determine whether or not a scheme is satisfactory in the respects that are specified in our amendment to the schedule is the Occupational Pensions Board. We believe, as is set out in the amendment, that a statement should be given to the member in a form prescribed by the Occupational Pensions Board as to,
"the amount of commission, fee or"—
and not the word "of", as appears on the Marshalled List—
"other payments that will be paid by the scheme" …;
"the amount to be deducted to cover administrative expenses";
the amount that will be invested on behalf of the individual concerned;
"the amount payable in the event of the member wishing to transfer to another scheme";
and
"the value of rights under the scheme, in accordance with a statement by an actuary".
In other words, we are saying that the individual concerned should have disclosed to him, by virtue of those provisions, exactly what he is purchasing, exactly what is covered, and exactly what it is costing him. We believe that if there is to be an extension of private personal pension provision—and plainly the legislation envisages that—then there is an obligation to ensure that the people who opt for it are not exploited and left without adequate resources in their old age.
It is essential for all of us that our fellow citizens should not make unfortunate choices or be misled. If that happens, then ultimately the taxpayer will have to pick up the burden, because we simply cannot allow our fellow citizens to starve in old age. It becomes a matter of state benefit, for which we will all otherwise have to pay.
It would be helpful, for the right choices to be made, if such a statement were to be made available to the individual. The Occupational Pensions Board is the right kind of body to have the responsibility set out in the amendment, to ensure that the individual opting for such arrangements has the necessary information on which to make an appropriate decision. I beg to move.
Lord Kilmarnock: I revert to one or two of the anxieties that I expressed on Amendment No. 4. The noble Baroness has told the Committee that it is the intention of her amendment to "beef up" the Occupational Pensions Board for those new responsibilities, but some doubts must remain as to whether it is the only appropriate body to be active in that area, and whether the Securities and Investments Board is not a more appropriate watchdog. Even with the proposals of the noble Baroness, one wonders whether the OPB has sufficient muscle to do what is expected of it in the amendment.

755
We shall certainly have some kind of interaction or inter-relationship between the pensions board and the Securities and Investments Board, and it would be helpful if the noble Baroness could tell the Committee how she envisages that link taking place. There is a worry here. We are back in the difficulty of having this Bill before us before we consider the Financial Services Bill, which may clear up some of the problems but which may not. It will be interesting to hear the comments of the noble Baroness on that point.
Baroness Trumpington: Again, I must ask the noble Baroness to reconsider this amendment. I hope I shall be able to satisfy her that there are already sufficient powers in the Bill to meet her concerns, and that we fully intend to use those powers to provide adequate information to members of personal pensions.
The Bill does not itself include a specific provision about the information that schemes must provide to members; and the noble Baroness may very reasonably have supposed that the general power in paragraph 6 of Schedule 1 was intended to cover that. In fact, it is Clause 16(1)(a) that provides the necessary power to cover disclosure by personal pensions and a number of other vital matters. That clause enables regulations to be made bringing personal pensions within the scope of all the existing legislation that applies to occupational pension schemes—for example, the legislation about preservation, equal access for men and women, the right to a transfer value, revaluation of early leavers' benefits, etc. and disclosure. I can assure the noble Baroness that we intend to apply the power in Section 56A of the Pensions Act to personal pensions, and to use it to make regulations that ensure that full information is available to scheme members and beneficiaries.
I must ask the Committee not to support this amendment for two other reasons. First, its wording might in practice result in difficulty in making full and adequate regulations about disclosure by personal pension schemes. We want to build on those that apply to occupational pension schemes to ensure consistent application of the law as between the two types of scheme, and it is therefore appropriate to apply the existing powers in the Pensions Act. I can assure your Lordships that those powers are wide enough to deal with all the matters of concern to the noble Baroness, and that we shall be including the disclosure provisions in the consultative proposals that we shall be issuing later this year.
Secondly, the effect of this amendment would be to narrow the present general power in paragraph 6 of Schedule 1 to a specific one dealing only with some (and by no means all) aspects of disclosure. The power in paragraph 6 is couched in wide terms. First, it is intended to encompass regulations about the "nature" of personal pension schemes. Those will be by reference to forms of investment business that are defined or regulated by other legislation, and so it is necessary to use fairly wide wording to cover that. Secondly, the freedom to take a personal pension in place of SERPS or an occupational pension is a new departure for retirement provision in this country, and we need to be certain of having all the necessary powers to ensure that investors' interests are
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adequately safeguarded. We shall of course be subjecting our proposals for regulations to full consultation later this year.
With regard to the role of the OPB, all the matters covered in Schedule 1 are conditions which the scheme must satisfy under Clause 2, and it is for the Occupational Pensions Board to decide under that clause whether this scheme satisfies those conditions.
The noble Lord, Lord Kilmarnock, said that the OPB was not necessarily the only appropriate watchdog. There is no intention of making the OPB the only watchdog. All the other existing and proposed forms of statutory and non-statutory protection will apply to personal pensions. Again, for the reasons that I have given, I hope that the noble Baroness will feel able to withdraw this amendment.
Baroness Turner of Camden: I am grateful for the very full explanation that has been given by the noble Baroness. I am glad to learn that a great deal more work will be done on disclosure and I agree that disclosure could cover much more than is listed in the amendment that I have tabled. In the circumstances I shall not press the amendment this evening and I ask leave to withdraw it.
Amendment, by leave, withdrawn.
Baroness Hooper Baroness Hooper moved Amendment No. 8:
Page 88, line 15, leave out ("or") and insert ("pension scheme or protected rights (within the meaning of the Social Security Pensions Act 1975) under an").
The noble Baroness said: I beg to move Amendment No. 8, with which I propose to discuss Amendments Nos. 22 and 23. These are purely drafting amendments which are needed to ensure that protected rights are clearly defined and that Schedule 1 works correctly when modified by Schedule 2. I beg to move.
Baroness Jeger: We accept that these are largely textual amendments and subject to the reservation that we might want to come back to them again when we have read them twice, we shall not take any action this afternoon.
On Question, amendment agreed to.
Baroness Hooper Baroness Hooper moved Amendment No. 9:
Page 89, line 15, leave out sub-paragraph (3) and insert—
("(3) Effect may be given to protected rights by the provision of a lump sum if—

(a) the lump sum is payable on a date which is either the date on which the member attains pensionable age or such later date as has been agreed by him; and

(b) the annual rate of a pension under sub-paragraph (1) above or an annuity under sub-paragraph (2) above giving effect to the protected rights and commencing on the date on which the lump sum is payable would not exceed the prescribed amount; and

(c) the circumstances are such as may be prescribed; and

(d) the amount of the lump sum is calculated in a manner satisfactory to the Occupational Pensions Board by reference to the amount of the pension or annuity.").

The noble Baroness said: On behalf of my noble friend perhaps I may say that this, too, is a technical drafting amendment to make sure that paragraph 9(3) of Schedule 1 to the Bill works as intended. Paragraph 9(3) provides that where a protected rights pension (resulting from the minimum contributions to a personal pension or money purchase contracted-out scheme) is very small, it may be commuted for a lump

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sum payment. This lump sum should be payable at the time the pension would have started. The present wording of the paragraph would, however, have allowed the payment of the lump sum to be deferred—perhaps to a time when a pension would not be so small as to be commutable. The revised wording puts this right. I beg to move.
On Question, amendment agreed to.
Baroness Hooper Baroness Hooper moved Amendment No. 10:
Page 90, line 17, leave out from ("with") to end of line 46 and insert ("any such requirements as may be prescribed for meeting the whole or a prescribed part of any liability in respect of protected rights under the scheme which the scheme is unable to meet from its own resources—

(a) by reason of the commission by any person of a criminal offence;

(b) in such other circumstances as may be prescribed.").

The noble Baroness said: On behalf of my noble friend I should like to say that this amendment results from a number of representations that we have received, including representations from the National Association of Pension Funds and the Association of Pension Lawyers. My noble friend Lady Trumpington has already referred to this amendment when speaking to Amendment No. 3.
It appears that paragraph 10 of Schedule 1 to the Bill will not work in its present form for money purchase schemes and is largely irrelevant to them. Its wording follows existing provisions in Section 40 of the Pensions Act which apply to contracted-out salary-related schemes, and, on reflection, we agree that those provisions do not translate happily into the money purchase context.
The primary intention of paragraph 10 was to allow regulations to be made requiring personal pension schemes and money purchase contracted-out schemes to make arrangements to fulfil their obligations in respect of protected rights if they suffer loss of funds due to fraud, theft or negligence, as proposed in paragraph 2.44 of the White Paper. This amendment therefore replaces paragraph 10 with a specific provision.
I should further like to reassure the Committee inasmuch as there will of course be further consultations about compensation requirements, but in principle eveyone with a personal pension should be at least as well protected as someone with an insurance policy covered by the Policyholders Protection Act. I beg to move.
On Question, amendment agreed to.
Schedule 1, as amended, agreed to.
Clause 3 [Amount of minimum contributions]:
Viscount Hanworth Viscount Hanworth moved amendment No. 11:
Page 4, line 16, leave out ("the aggregate of").
The noble Viscount said: Amendments Nos. 11 and 12 are to be taken together, and I think it may be for the convenience of the Committee if I also speak on the question that Clause 7 should stand part of the Bill, as all these points are related.
The purpose of this amendment is to oppose the extra 2 per cent. of earnings contribution which the
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Government are proposing to pay until April 1993 in addition to the minimum contribution for those commencing a personal pension after April 1988 (that is in Clause 3) to an employer setting up occupational pension schemes after the 1st January 1986—and that is in Clause 7. The main aims of the Government are to encourage people to leave the state earnings-related pension scheme (SERPS) and to take out a personal pension, and to encourage employers to set up inferior occupational schemes instead, thereby further reducing the long-term liabilities of SERPS.
However, the proposal goes even further. The extra 2 per cent. will also be paid to anyone who is at present in a contracted-out occupational pension scheme, provided that he opts for a personal pension and leaves the occupational pension scheme. The likely effect of this proposal is that members of occupational pension schemes, particularly the young, the low paid and married women, will be attracted by the immediate advantage of the lower contribution rates for personal pensions enhanced for a period by the Government, and will opt out of the occupational pension scheme which will give them not only a larger pension on retirement but also security for themselves and their dependants should they die or become ill before retirement. Payment of the minimum contribution plus the 2 per cent. to a personal pension cannot match the benefits of a good occupational pension scheme. It is immoral in these circumstances for an incentive of this type to be offered to people who almost certainly with the passage of time will suffer from their decision.
However, there are also sound economic reasons against this particular proposal by the Government. If only one-tenth of the existing members of occupational pension schemes opted for a personal pension, the cost to the state could be £1 billion over five years. It really is iniquitous of the Government to introduce a Bill which on the one hand gives away £1 billion of taxpayers' money and on the other reduces the social security benefits of over 4 million people.
What is really worrying in all this is that the young do not look much to the future. I certainly did not; 45 years was as far as I looked. Young people are bringing up families and money is vital to them at the time. They simply do not have the knowledge to protect themselves against the many sharks in the insurance world, in an area that has always been recognised as one where schemes tend to be oversold.
There they are, children in the wilderness, who will not think for the future. The Government are encouraging them not only to get out of SERPS but to get out of occupational pension schemes. They are storing up trouble for future governments in the next century through people who will not make adequate provision for themselves or their dependants. I beg to move.
5 p.m.
Baroness Turner of Camden: I rise to support the noble Viscount in relation to this amendment and the other amendments to which he referred. I suppose that this is where we begin what could be called the battle of the bribe, because bribe it is. The Government are offering a positive inducement for people to contract out of SERPS and also occupational pension schemes and to participate in personal private schemes. As the

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noble Viscount said, the incentive will represent 2 per cent. of earnings for a five-year period and on the Government Actuary's estimate will cost £60 million if half a million contributors contract out.
Contracted-out occupational pension schemes already have to meet defined benefit requirements. They offer a guaranteed income in retirement, whereas personal pensions cannot offer such a guarantee. Indeed, as the Under-Secretary of State said at the Committee stage in another place:
"The nature and meaning of money purchase is that the value of the benefits which those contributions buy must depend upon investment returns experienced by the scheme".
There has been considerable opposition to the idea of a 2 per cent. bribe to get people to leave occupational schemes. As the noble Viscount said, it may well prove attractive to younger people. As he also said, it is difficult to persuade younger people to take an interest in pensions. People frequently do not do so until they are over the age of 40. If young people find PPPs attractive and opt out for the bribe, that will have a destabilising effect on good occupational pension schemes.
Those are the views not only of the TUC and these Benches; they have been strongly expressed by the CBI and the National Association of Pension Funds as well. They have been expressed not only by people who might be thought to have a vested interest in things as they are; in other words, people who are already involved in strong, collective occupational schemes. A large number of organisations concerned with help for the poor, such as Age Concern, the Disability Alliance, the Family Service Unit and indeed the organisations that make up the Social Security Consortium have been busy lobbying against the idea of a 2 per cent. bribe paid by everybody but of only limited benefit to a small number of people.
We on these Benches are against the bribe altogether, whether it is intended to encourage people to come out of occupational schemes or whether it is intended to encourage people to leave SERPS. We do not think that that subsidy should be made available to those who seek to make a profit out of the sale of personal private pensions. It will give them an unfair advantage that they should not have. If they can do so much better than either occupational pension schemes or SERPS, they should demonstrate that by standing on their own commercial feet without the help of a subsidy from the rest of us.
The noble Baroness, Lady Trumpington, said at Second Reading that the Government had not made up their mind about this. I hope that since that time they have had second thoughts and that we shall learn what those are this evening.
Baroness Trumpington: I thought that the Committee might appreciate it if I spoke at an early stage in the discussion of the amendments in order to clarify the Government's position. I hope that what I shall say will allay the fears of those Members of the Committee who have spoken to the amendments. First, I should like to put it on the record again that we have never seen the 2 per cent. for personal pensions as a threat to occupational schemes. Its essential purpose is to increase the attractions of personal pensions for people who have no pension of their own now outside
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the state scheme. We are not convinced that a modest 2 per cent. premium available for a maximum of five years will tempt people out of good occupational schemes. But we are concerned that some people have interpreted the 2 per cent. as a sign that we do not mean what we say when we stress our commitment to occupational pension schemes. We want occupational schemes to prosper and expand, and we are very conscious of the major achievement made by existing schemes in maintaining and improving the living standards of so many people in retirement.
I know that there are some people in the pensions world who argue that the Government have been doing altogether too much in relation to occupational schemes, but I believe that we have a track record to be proud of. Everything we did in the Social Security Act 1985, with its improvements for early leavers and new rights to information for scheme members, should strengthen schemes and not weaken them. The simplification of contracting out for salary-related schemes, the introduction of money purchase contracting out and the new occupational scheme incentives in this Bill should all result in many more people being covered by occupational schemes.
I now turn to the substance of the amendments. When the Secretary of State said in the other place that we wanted to reconsider all that had been said about the 2 per cent. and personal pensions, he certainly did not have in mind any thought that we might do away with it altogether. I have to tell the noble Baroness and the noble Viscount, Lord Hanworth, that we are not at all persuaded by their amendments or their arguments.
We firmly believe that there is a strong case for an incentive to get the new scheme going. The idea of an introductory incentive is neither new nor particularly original. But all the evidence is that it works. You have only to look at how many magazines are now promoting their subscriptions with special deals for new readers to see what I mean. I am not, of course, equating personal pensions with magazines; they are far too important for that. But their importance and the promise that they can hold out for so many people provides all the more reason for giving them a little something extra at the outset.
The inescapable truth about pensions is that they generally do not excite or interest people until they are nearing retirement. There is an awful lot of inertia to overcome before we shall get younger people to take as much interest in pensions as they ought to for their own sake. The noble Lord, Lord Banks, pointed out at Second Reading that employed people not in occupational schemes already have access to a sort of personal pension—the so-called Section 226 retirement annuity—yet less than 5 per cent. of those eligible among employees take up this option. There are drawbacks to Section 226 contracts; they cannot be contracted out from SERPS and employers cannot contribute to them. Both drawbacks will disappear with the personal pensions to follow this Bill. But we doubt whether that alone will be sufficient to encourage enough interest. We need to set the ball rolling in a way which catches the imagination. I am convinced that the 2 per cent. will do just that and it must remain as an essential, albeit small, part of our strategy for reducing dependence on the state.

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Having said all that, I am glad to be able to make very much more encouraging noises in the direction of noble Lords who are not seeking total removal of the 2 per cent. but who do not want it to go to people who have been in occupational schemes, and whose amendments we shall be considering after these. I made clear at the beginning of my remarks that the Government remain sceptical about the dire effects some—most notably the National Association of Pension Funds—have predicted for occupational schemes if the incentive stays. But what we do not doubt is the sincerity of those who make these claims.
We also recognise that their concern is as much about what they see as an issue of principle as the possible effects of the 2 per cent. on occupational schemes. After very full and careful consideration, we have therefore decided to modify the proposal to pay the 2 per cent. incentive so that it does not go to personal pensions held by people who have been in occupational schemes for a reasonable period of time. I undertake that we shall propose an amendment on Report to enable that to be done. Proposals for the content of the regulations will be subject to full consultation with the pensions industry and other interested parties, including the Occupational Pensions Board. The principle we are accepting is already clear. The 2 per cent. incentive will not be available for personal pensions held by someone who had been in a contracted-out occupational scheme for a reasonable period and who was still eligible for membership of that scheme after leaving it.
In view of that undertaking, which I thought it would be helpful to give at the earliest opportunity during the consideration of this clause, I hope that the noble Viscount, Lord Hanworth, and the noble Baroness, Lady Turner, will feel able to withdraw the amendment.
Lord Banks: I regret one thing that the noble Baroness said, and I welcome what she said about another. I regret that she is committed to the maintenance of the 2 per cent., but I welcome what she said about the position of those who are already in occupational schemes and whether, if they transfer, the 2 per cent. should be paid. When we come to Amendment No. 13 we can perhaps go into that matter a little further.
I shall summarise what seem to be the four principal arguments against the 2 per cent. The first is that it does not seem right that contributors' and taxpayers' money from the national insurance fund should be used to induce people to leave the state earnings-related pension scheme for private provision. There should be a free and fair choice for employers and employees without any subsidisation of private as opposed to state schemes. Secondly, if such a reward is to be paid, it does not seem right that it should not be paid to those who are already contracted out. We read in the Bible of those who came late on the scene receiving the same reward as those who bore the heat and burden of the day, but we do not read of them receiving a greater reward.
Thirdly, it does not seem right that those who are in an already contracted-out final salary scheme should be induced to leave that scheme for a personal pension
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scheme. The noble Baroness has agreed to that point. Fourthly, we have already seen that the flat-rate rebate may well involve younger members contracting out of good defined benefit occupational schemes for a personal pension scheme. The 2 per cent. incentive will of course accentuate that inducement with the consequences which we have already discussed.
5.15 p.m.
Lord Vinson: Much heat has been generated in the pensions industry over the 2 per cent. inducement. I hope that the amendment suggested by the Government will reduce that heat and will be regarded, when it is fully worked out, as a satisfactory compromise by which the Government still stick to their principle of encouraging people to go into personal portable pensions but recognise the understandable worries that pension fund managers have about the withdrawal of some of their membership.
At the same time, we should recognise that a campaign, which has been nothing short of vilification, has been mounted to try to effect a change. Once one starts throwing mud one rather invites it to be thrown back. For example, after the original SERPS exercise was introduced many of us on both sides of the House may have felt with the wisdom of hindsight that the whole exercise was misplaced and misjudged, but it is with us. To encourage companies to contract out and not in, the national insurance rebate was set at such a level that most companies benefit to the extent of about 1 per cent. on payroll by contracting out. If anything were an inducement—dare I say bribe?—that was.
If those who object to inducements do not like that, the Government would be right to withdraw the 1 per cent. bonus to contracted-out companies. We should then be "even Stevens" in terms of the debate. We must try to get these matters in proportion.
The noble Viscount, Lord Hanworth, started by saying that personal portable pensions were likely to be inferior to company pension schemes. It is lovely to join the bleeding heart brigade, if I may put it that way, and we all care deeply about the welfare of young people and young women in particular. Under existing schemes, the early leaver, which is a euphemism for those who change jobs frequently, has been subsidising the long stayer. Early leavers are practically always young women going off to have babies and people changing jobs. We have penalised the young and those who through no fault of their own put their family obligations first. Those in occupational schemes have ridden on the backs of such people. There is no gainsaying that.
By enabling people to start early in life with a personal portable pension, with or without a rebate—I think that it is wise and proper that they should have a rebate—they will finish with a pension far better than they would have done under existing schemes. We always hear how good existing schemes are. They are, for those who last to the end of the road, and do not change jobs. They are a pretty poor deal for a highly mobile workforce. It is wrong to talk about inferior schemes. The Government are right to say that they want to encourage choice. There will be complete freedom of choice as to which schemes and which

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route one takes. No doubt those active agencies which advise companies and individuals will continue to do their best to make certain that people make the right choice.
I hope that the suggestion that the Government have made to modify the 2 per cent. inducement will meet the understandable fears of the pension profession and will draw the heat out of the argument so that we can look at the point rationally and try to obtain the pension provision which is best suited for all our workforce, not just the lucky ones who happen to be in long-term employment with major companies.
Lord Houghton of Sowerby: The Committee will be aware that there is a tax bias in favour of occupational pension schemes. Tax relief is given on all contributions. Other reliefs are given to the pensions institutions. Taking them all together, about £3.25 billion a year in revenue is forgone in tax concessions for occupational pension schemes.
Contributions to the state scheme are not allowable for tax relief. Those going over in part to occupational schemes will increase the amount of revenue forgone. As I understand it, the clause is a booster for occupational schemes. The minimum contribution is what I should call "pushing the boat out." We find a contributor who only has the benefits of the state scheme and say to him, "Be a bit more adventurous, go outside, get something better and get something of your own. This is a very strong attraction. This is a personal pension. It is worth going for. Off you go. To send you on your way happy and smiling, we shall pay a minimum contribution on your behalf."
I do not know what is the tax position of the minimum contribution being paid by the state to outside pension interests. I point out only that all the time, not only in this regard but in the matter with which we shall be dealing on Friday when we come to the mortgage boom, an enormous sum of revenue is going out in tax reliefs. In my opinion that aggravates the whole problem of public expenditure and the use of taxation for social policies. I am not pressing for any particular reply. I should just like to know whether Ministers on the Bench opposite understand what they are doing.
Lord Boyd-Carpenter: As my noble friend the Minister consciously anticipated the debate on later amendments, and, if I may say so, did so very wisely by making her announcement as to the Government's intentions in respect of an amendment to deal with the question of occupational schemes and the so-called bribe at the Report Stage, perhaps I may be allowed briefly to say how much I welcome her announcement. It is perfectly true, as my noble friend Lord Vinson said, that there has been some exaggeration in the pensions world about the possible effect of this. But when all was said and done, it appeared that as the Bill originated there was a provision that would go against what has been the considered policy in similar legislation for many years of giving direct encouragement to the development of good occupational schemes. As I understand my noble friend's announcement, that threat of possible damage will be removed. I should like warmly to express a welcome to it.
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As a matter of curiosity, I referred a moment ago to the consistent policy of Governments over many years. I happen to have in my hand a report of a speech of the then Minister to the autumn conference of the Association of Superannuation and Pension Funds in 1961 in which he spelt out in clear terms that one of the major objectives of the Act of 1959 was to preserve and encourage the best development of occupational pension schemes. I am very glad that my noble friend is continuing with that sensible policy.
Lord Swann: One of the disadvantages of being a Cross-Bencher is that one finds oneself sympathising in considerable measure with powerfully held views on both sides of the Committee. Anticipating that this would be the case, I put down Amendment No. 14. It would be helpful, I believe, if I say that I am delighted to hear what the noble Baroness the Minister has said and to say that I shall not be moving Amendment No. 14.
Viscount Hanworth: I agree with what was said about the non-portable pension. I left the army in 1958. I suppose that I worked outside for eight or 10 years. My pension for those times is precisely £25 a year. I thank the noble Baroness and the Government for being flexible on this issue which worries many of us. I did not expect for one moment that she would agree to scrap the 2 per cent. incentive. I now call it an incentive and not a bribe—
Baroness Trumpington: Hear, hear!
Viscount Hanworth: We are more concerned about keeping occupational pensions as they ought to be, keeping them at the same level of provision as they are at the moment. I am extremely happy therefore to withdraw the amendment.
Baroness Turner of Camden: I, too, welcome the noble Baroness's statement. I am glad to learn that occupational schemes in future will be protected against people opting for PPPs on the basis of the 2 per cent. incentive. What bothers me is that it seems to me that this still leaves the state earnings-related pension exposed. So far as I can see, the incentive still exists for people to opt against SERPS in favour of PPPs. I do not believe that this is very fair either. It provides an incentive for which all of us pay through the national insurance fund. Yet, in order to do so, we are encouraging people to opt against SERPS and into the PPP arena, and in so doing subsidising commercial operators who will be offering PPPs to a whole range of new people who otherwise might not have considered this as a possibility.
While very much welcoming—I really do welcome —what the noble Baroness has said about occupational schemes, because it was of considerable concern to this side of the Committee, I regret that it has not been found possible to extend the same consideration in respect of people who are covered by SERPS. Those covered by SERPS, in the main, are even worse off in many instances—a great deal worse off—than those covered by occupational pension schemes. It is for that reason that I am not able to offer an unqualified welcome to what the noble Baroness has said.

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As to statements made about early leavers, I am glad to say that there has been some legislation that covers the situation of early leavers in a way that the Occupational Pensions Board recommended a number of years ago. As for the comments made by my noble friend Lord Houghton on tax concessions, I would remind him that the Chancellor has already said that he will introduce regulations in relation to pension fund surpluses that become operative from next year and that will force pension fund surpluses to be reduced. If not reduced, the regulations will compel them to be returned to employers and, if returned to employers, they will attract 40 per cent. taxation. It seems to me, in respect of tax concessions, that if the Chancellor cannot get it one way, he is proceeding to get it another way through taxation of pension fund surpluses.
To return to the main point, I regret very much that SERPS is still at the mercy of the 2 per cent. incentive or bribe—whichever way you care to look at it. This is not a happy situation. It will be a problem, I am sure, for people who are not normally involved in personal private pensions. They may find themselves tempted to leave SERPS and to do so via the 2 per cent. incentive. However, when they are in personal private pensions instead of SERPS, they may find that they have a very poor bargain indeed.
Baroness Trumpington: It would be most ungracious of me if I did not say how much I appreciate the very pleasing words of the noble Viscount in welcoming the Government's future amendment, and even the guarded welcome expressed by the noble Baroness. I am particularly glad that the noble Viscount should have withdrawn the word "bribe". It is a pity that the word ever existed. The purpose of the incentive is clear in its name. It is to get the new arrangements off the ground and to ensure that pensions coverage, for many years stuck at half the workforce, will expand and grow.
The noble Lord, Lord Banks, was concerned that the 2 per cent. would be paid for from the national insurance fund. The noble Lord will recognise, I am sure, that the cost of SERPS falls on the fund. So it must be sensible to use the fund now to help reduce the long-term burden that has lain on it. I thought that I would like to express my thanks.
Lord Williams of Elvel: Before the noble Baroness sits down, I wonder whether she will respond to the specific point of my noble friend Lord Houghton relating to tax treatment of the 2 per cent?
Baroness Trumpington: Yes. The answer is that the employee's share of the minimum contribution will be subject to relief just like any other sort of pension contribution. This point was made in the White Paper. Employers of course get relief on national insurance contributions from which their share of the minimum contribution is derived.
Amendment, by leave, withdrawn.
[Amendment No. 12 not moved.]
5.30 p.m.
Lord Banks Lord Banks moved Amendment No. 13:
Page 4, line 22, at beginning insert ("Subject to subsection (4A) below").
The noble Lord said: With the leave of the Committee, I should like also to speak to Amendment No. 15. I understand that the Government agree completely with the aim of the amendments. I welcome very much what the noble Baroness Lady Trumpington had to say about it. I join with all others who have welcomed what she said. I move these amendments in order to try to discover how much the Government agree with the substance of them as the method of putting into practice the principle which they have now agreed. The amendments are very similar to those moved by my honourable friend Mr. Archy Kirkwood in another place at Report stage although there is one important difference.
The purpose of the amendment is to ensure that when somebody switches from an already contracted out scheme to a personal pension scheme the 2 per cent. is not paid. The amendment seeks to achieve that by creating a new category of non-qualifying earner in respect of whom the 2 per cent. incentive will not be paid. Non-qualifying earners are those already members for more than a period of time to be specified in an occupational pension scheme contracted out under Part III of the Social Security Pensions Act 1975. The specified period of time is known as the "cooling-off" period and this brings me to the difference between this amendment and that proposed in another place by my honourable friend.
In another place the Secretary of State criticised my honourable friend's amendment for lack of flexibility. He pointed out that someone who had been in an occupational scheme for, say, a week would find himself caught, perhaps before he had begun to assess his situation, and would be unable to receive the 2 per cent. on opting for a personal pension scheme. He would be free to switch but not to receive the 2 per cent. In order to meet that objection the cooling-off period has been introduced. This would allow the 2 per cent. to be paid in respect of a switch within that time.
I would have much preferred that the 2 per cent, incentive were got rid of altogether but if it is to remain I should certainly be much happier if it were restricted in the way that these amendments propose. What the noble Baroness said earlier led me to hope that perhaps she was contemplating that they would be restricted in that way. I beg to move.
Baroness Trumpington: With these amendments the noble Lord, Lord Banks, is seeking to withhold the 2 per cent. incentive from members of occupational schemes who opt for a personal pension. I have already made clear that the Government have decided to modify the proposal for the 2 per cent. incentive so that it does not go to people who have been in occupational schemes for a reasonable period to time; and as I have spoken at some length about the incentive, and why we think it is necessary, I do not propose to weary members of the Committee by repeating the arguments.

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We recognise that the amendment has been written in a way which seeks to meet our concern—voiced by the Secretary of State in another place—that the incentive should not be denied to someone who joins an occupational scheme for a short time, feels he has made a mistake and wants to take a personal pension.
However, despite all his considerable effort I am sorry to have to tell the noble Lord that the amendments are not acceptable. We have to provide properly for the various exceptional circumstances that will arise and we are not persuaded that the main amendment would enable us to do so. For example, there will be people with more than one job, only one of which may be contracted out. There is no reason for them to be denied the incentive if their personal pension relates to earnings from a job which does not carry a pension scheme membership.
I hope that the firm undertaking that I have given previously to bring forward a Government amendment at Report stage will persuade the noble Lord, Lord Banks, not to press this.
Lord Banks: I am sorry that the noble Baroness does not think that my amendment would achieve the purpose which she has in mind. I am sorry that she does not think it satisfactory. We shall look forward to her amendment and shall judge whether we consider that it will achieve the purpose that she says she has in mind. I beg leave to withdraw.
Amendment, by leave, withdrawn.
[Amendments Nos. 14 and 15 not moved.]
Clause 3 agreed to.
Clause 4 [Effect of payment of minimum contributions on rate of certain benefits]:
Baroness Hooper Baroness Hooper moved Amendment No. 16:
Page 5, line 20, after ("earner") insert ("sections 16(2B), 28(7A) and 59(1A) of the Social Security Act 1975 and").
The noble Baroness said: On behalf of my noble friend, I beg to move Amendment No. 16, and for the convenience of Members of the Committee, to refer also to Amendment No. 20. These are very technical amendments, the effect being to ensure that the provisions of Clause 4 and new Section 29(2A) of the Pensions Act (inserted by Schedule 2) apply for the purposes of Section 16(2B), 28(7A) and 59(1A) of the Social Security Act 1975. I beg to move.
On Question, amendment agreed to.
Clause 4, as amended, agreed to.
Clause 5 [Personal pension protected rights premium]:
Baroness Hooper Baroness Hooper moved Amendment No. 17:
Page 6, line 22, at end insert ("section 52C of or paragraph 16 of").
The noble Baroness said: On behalf of my noble friend, may I say that this again is a technical amendment. Clause 5(6) provides for consequential words to be added to Clause 5(4)(a) if and when Section 52C of, or paragraph 16 of Schedule 1A to, the Pensions Act apply to personal pension schemes.
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(There is power to apply these provisions, with modifications, to personal pension schemes in Clause 16(1)(a) of the Bill). A reference to Section 52C is therefore needed in the opening words of Clause 5(6). This was omitted as an oversight and the amendment puts this right. I beg to move.
On Question, amendment agreed to.
Baroness Hooper Baroness Hooper moved Amendment No. 18:
Page 6, line 41, after ("29") insert ("(2) and").
The noble Baroness said: I beg to move Amendment No. 18, with which I propose to discuss Amendments Nos. 25, 127, 128, 129 and 130. One of the central tenets of the new pension arrangements and opportunities introduced by this Bill is that contracted-out rights should be capable of maximum transferability between occupational and personal pension schemes. We do not want to build new rigidities and unnecessary barriers to transfer into the new arrangements.
We have made it clear that in the interests of protecting the finances of existing occupational schemes we shall not be requiring them to provide transfer values of rights built up before the new arrangements begin, in a case where a person decides to leave the scheme while continuing in the job. However, having said that, where the right to a transfer value is available, we do not want to put unnecessary restrictions on what can be done with any "guaranteed minimum pension" which may be included in that transfer value. Where the individual wants to (but not of course otherwise), it seems reasonable that he should be allowed to apply the value of the GMP to purchasing "protected rights" in a personal pension or money purchase contracted-out scheme.
These amendments do not provide for that in detail. They extend the powers in Section 38(1) of the Pensions Act to allow regulations to be made setting out the conditions for such transfers; and they make consequential amendments to Section 29 of the Pensions Act and to this Bill. Details of the regulations about transfers of GMPs and protected rights under the new arrangements will be included in the consultative proposals which will be issued later this year. The amendment has two other effects which I should mention in commending it to Members of the Committee.
First, it enables GMPs to be transferred to and from schemes which have ceased to be contracted out but are still supervised by the Occupational Pensions Board. This is a useful and practical easement, proposed to us by the board themselves, to assist their task of ensuring that proper arrangements are made for GMPs which are still the responsibility of such schemes.
Secondly, it enables GMPs which have been "bought out" as insurance policies or annuity contracts later to be transferred again to a pension scheme. This again is an easement which allows more flexibility to meet individuals' wishes as to the source of their income in retirement. I beg to move.
Lord Kilmarnock: I should like to ask the noble Baroness a question. The noble Baroness referred to the consultative proposals that will be issued later on,

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particularly in relation to the possibility of transferring GMP rights into personal schemes. Is the noble Baroness able to tell me about the status of those proposals? How and when are they coming out and where do they bear upon the legislation?
Baroness Hooper: I regret that at this moment I cannot give the noble Lord an answer, but I shall let him know. I believe that they may come out at the end of the year.
On Question, amendment agreed to.
[Amendment No. 19 not moved.]
Clause 5, as amended, agreed to.
Clause 6 agreed to.
Schedule 2 [Money purchase contracted-out schemes]:
[Amendment No. 19A not moved.]
Baroness Hooper Baroness Hooper moved Amendment No. 20:
Page 91, line 18, after ("section") insert ("and sections 16(2B), 28(7A) and 59(1A) of the principal Act").
On Question, amendment agreed to.
Baroness Hooper Baroness Hooper moved Amendment No. 21:
Page 93, line 35, leave out from ("to") to end of line 39 and insert ("minimum contributions there shall be substituted references to minimum payments and any payments by the Secretary of State under section 7 of the Social Security Act 1986;").
The noble Baroness said: This again is purely a drafting amendment to make the provision work properly. I beg to move.
On Question, amendment agreed to.
Baroness Hooper Baroness Hooper moved Amendment No. 22:
Page 93, line 49, leave out from ("rights") to ("pension") in page 94 line 1 and insert ("(within the meaning of the Social Security Pensions Act 1975) under another occupational pension scheme or protected rights under a personal").
On Question, amendment agreed to.
Baroness Hooper Baroness Hooper moved Amendment No. 23:
Page 94, line 4, leave out ("for the reference in paragraph 9") and insert ("in paragraph 9—

(i) for the reference to an occupational pension scheme there shall be substituted a reference to a personal pension scheme; and

(ii) for the reference").

On Question, amendment agreed to.
Baroness Hooper Baroness Hooper moved Amendment No. 24:
Page 95, line 19, leave out ("improve") and insert ("approve").
The noble Baroness said: The gremlins found their way into the Bill on its way here from another place, substituting the word "improve" where the word "approve" was before. While I can assure the Committee that we are always ready and willing to improve the Bill in every way we can, I feel that in this case the gremlins have been overzealous and that the substitution of "improve" here is not an improvement. The amendment puts the text back as it was. I beg to move.
On Question, amendment agreed to.
Baroness Hooper Baroness Hooper moved Amendment No. 25:
Page 96, line 1, after ("29") insert ("(2) and").
On Question, amendment agreed to.
Baroness Hooper Baroness Hooper moved Amendment No. 26:
Page 98, line 11, leave out ("after the definition of "accrued rights" ") and insert ("before the definition of "guaranteed minimum pension" ").
The noble Baroness said: This again is purely a drafting amendment. The definition of "average salary benefits" cannot go after that for "accrued rights" in the Pensions Act, because the definition of "accrued rights" was repealed by the 1985 Social Security Act. The correct placing of the new definition is before that for "guaranteed minimum pension"; and the amendment provides this. I beg to move.
On Question, amendment agreed to.
Schedule 2, as amended, agreed to.
Clause 7 [Schemes becoming contracted-out between 1986 and 1993]:
The Deputy Chairman of Committees (Lord Nugent of Guildford): We now come to Amendment No. 27 which stands in the name of the noble Baroness, Lady Trumpington.
Lord Banks: This amendment appeared in the first Marshalled List under my name and I did, in fact, submit it. However, I do not intend to move it.
[Amendment No. 27 not moved.]
On Question, Whether Clause 7 shall stand part of the Bill?
5.45 p.m.
Baroness Turner of Camden: It had been my intention to move that this clause should not stand part of the Bill because my understanding of Clause 7 is that it provides for incentive payments to be made in respect of occupational pension schemes either salary-related or money purchase. The noble Baroness has already dealt with that matter and so there does not seem to be any point in opposing the clause. However, I still feel concerned about SERPS, and I may come back to the matter on Report. At present, I shall not oppose the clause.
Clause 7 agreed to.
Clause 8 [Abolition of requirement relating to requisite benefits]:
On Question, Whether Clause 8 shall stand part of the Bill?
Baroness Turner of Camden: I beg to move that Clause 8 should not stand part of the Bill. As I understand it, and as set out in the very helpful documentation that we have received, Clause 8 removes the requirement in the Pensions Act that to qualify for contracting-out a salary-related occupational pension scheme must provide so-called requisite benefits.
As I understand it, "requisite benefits" mean that, broadly, pension rights must build up at one-eightieth

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of average or final pensionable salary for each year a person is a member of the scheme. I believe it is claimed—indeed a number of pensions interests claim this as well as the Government—that the requisite benefits test is unduly complicated, and this clause is seen as a necessary simplification to do away with it. That may very well be so. However, on the other hand there is the possibility that removal of this requirement could result in lesser pension benefit for people than they have at present, because although it is true that it is not necessarily the case that requisite benefits are higher than GMPs, they frequently are higher.
We are anxious to ensure that occupational pension schemes, if they offer very reasonable terms and conditions, should continue to do so. While there is no indication that schemes would necessarily change their rules to provide for lesser benefits if the requirement were removed, the possibility exists that they may feel tempted to do so if they no longer had to meet the requisite benefits requirement. For those reasons, it seems to us that, despite the fact that this clause is intended to reduce complication and to provide greater simplification, it is a clause which should not stand part of the Bill, and I therefore beg to oppose it.
Lord Kilmarnock: I should like to seek some clarification from the noble Baroness on this matter. The suggestion put forward, certainly by the National Association of Pension Funds and other interests, is that this clause is a welcome simplification. However, I am informed that the intended simplification will not be achieved unless the clause applies retrospectively to 6th April 1978, and that is because the conditions are most arduous where early leavers exercise options to take a transfer or a buy-out, or where schemes are required to notify rule amendments in accordance with Section 50 of the Pensions Act.
If the requirements continue to apply from 6th April 1978 until the effective date, they will continue to cause complications for some time to come. It may be that the intention is that the clause should apply retrospectively, but if that be the case there is no indication of that either in Clause 8 or in Clause 84. In one or other of those clauses wording comparable to that in paragraph 27(b) of Schedule 10 would seem to be necessary to achieve retrospection—if that is the intention. Perhaps the noble Baroness could shed a little light on the matter.
Baroness Trumpington: In our earlier debates I have stressed how committed the Government are to the expansion of occupational pension schemes. So far in my remarks I have tended to emphasise the benefits of money purchase schemes for small employers, industry-wide schemes and so on. I hope that nothing I have said has caused people to think that I, or my fellow Ministers, have some kind of prejudice against salary-related schemes. Nothing could be further from the truth.
We are very happy for them to continue and to thrive where employers and employees agree they are the right answer for them. We do not forget that, of the half of the workforce already in occupational schemes, about 90 per cent. are in salary-related schemes. We doubt if many existing schemes will switch to the money purchase basis. And as new employers set up
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schemes, no doubt a fair proportion of them will be of the salary-related variety. With Clause 8 we are doing our bit to help them by simplifying the conditions they have to satisfy in order to contract out from SERPS. We believe that employers will have been put off setting up contracted-out schemes for their employee, not just because of the need to underwrite the salary-related benefits but also because of the many elaborate and hard to understand conditions that schemes have to satisfy under present rules.
One condition which has proved to be both unnecessary and an onerous complication is the so-called requisite benefits test. Broadly speaking this test requires final salary schemes, as well as providing minimum guaranteed pensions broadly equivalent to SERPS pensions, to give people a pension worth one-eightieth of final pensionable salary for every year of service up to a maximum of 40. So someone with 40 years in a scheme gets a pension worth half his final salary.
But this rule is even more involved than it might appear at first glance. Among the complications are that the pensionable salary to which it relates may be lower than actual earnings (for example, overtime payments may not be pensionable) or the rate of accrual might be lower, and last but not least lump sum payments can be taken into account in working out whether the fraction test is satisfied.
The basic test that will continue will be the provision of a guaranteed minimum pension for members and surviving spouses. We think this is entirely satisfactory as a minimum requirement. It is comforting that the honourable gentleman leading for the Opposition in the other place should have said on 18th February:
"Our view is that contracting out of the state scheme is fine so long as there is a guarantee of at least equivalent pension".
For once we are only too happy to agree with his view.
The noble Lord, Lord Kilmarnock, said that the clause needs an amendment to make it retrospective. The NAPF, who have welcomed the clause, say it needs amendment to make it retrospective, or all the existing complex conditions will continue to apply. Our legal advisers say that this is not so. After an appointed day a scheme will not have to have requisite benefit rules in order to be contracted out. A scheme that removed its requisite benefit rules would not have to provide requisite benefits for members or their dependants from the date of the rule change, I hope that the noble Lord, Lord Kilmarnock, heard what I was saying.
I of course understand the fear that removing the requisite benefit test could lead to a reduction in the level of benefits that existing schemes offer their members. But I am glad to give the Commmittee our assurance that we believe this fear to be without foundation. The guaranteed minimum pension will be the basic contracting-out test for a salary-related scheme, but the majority of schemes will provide something very considerably better on a voluntary basis.
There is no evidence at all that schemes which existed prior to the present scheme's introduction in 1978, and which provided better than requisite benefits, then reduced them to the minimum. Indeed, surveys conducted by the Government Actuary's

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Department show that whereas some 88 per cent. of contracted-out schemes were providing better than eightieths in 1979, by 1983 this had risen to 95 per cent. And in the remaining 5 per cent. it is known that some pay a guaranteed minimum pension worth more than requisite benefits would be. This is because the GMP is based on total earnings—up to the national insurance upper earnings limit—whereas, as I have explained earlier, requisite benefits may exclude some earnings.
The removal of the requisite benefits test will reduce bureaucracy, it will encourage new, and the retention of existing, salary-related schemes, and we are confident that it will not be detrimental to scheme members. I trust that these arguments are sufficiently persuasive for noble Lords not to press their objections to the clause. I am conscious that this is all disagreeably complicated. I hope I have explained what is at issue here with sufficient clarity to persuade the Committee that what we are about with Clause 8 is an improvement on the status quo which has been widely applauded by pensions experts.
Viscount Hanworth: As the noble Baroness has herself said, this is rather complicated. I should like to study what she has said and consider further action, if any, at Report stage.
Baroness Turner of Camden: I listened with great interest to what the noble Baroness had to say. I still have some fears that the clause, as it stands, could result in lesser benefits in certain schemes. It certainly gives an opportunity for occupational schemes to offer less good benefits than they do at the moment, and that would be a great pity. Nevertheless, in view of what has been said and in view of the hour, I shall not press this.
Clause 8 agreed to.
Clause 9 [Guaranteed minimum pensions]:
Baroness Turner of Camden Baroness Turner of Camden moved Amendment No. 28:
Page 11, line 19, leave out ("1989") and insert ("1988").
The noble Baroness said: Amendments Nos. 28 and 29 run together. Their purpose is to deal with the matter of widowers' benefits under Clause 9. At present the clause provides that the scheme need not provide for widowers of earners who died before 6th April 1989 to be entitled to guaranteed minimum pensions. The question we raise is, why 1989? Why not 1988 when the rest of the legislation becomes operative?
The subsequent amendment, Amendment No. 29, is really consequential on moving the date back. If it is changed to 1988 instead of 1989, the clause has to be amended accordingly. I hope that it will be seen that this is a reasonable suggestion. As it now stands, the widowers in an occupational scheme would benefit only for 1988–89. The amendment backdates this to the beginning of the scheme; that is to 1978. I see no reason why this should not be done, as over a long period of time there has been agitation on behalf of the equal rights lobby—of which I am proud to be a
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member—that there should be provisions under which widowers are treated equally with widows in pension provision, and this provides an opportunity to do that. I am glad that the opportunity has been taken in the legislation. I simply want to date it differently, and for those reasons I put forward these two amendments. I beg to move.
6 p.m.
Baroness Gardner of Parkes: While I am not able to support this amendment, because I do not know the exact financial or actuarial implications of the change of date, I should like to take this opportunity to say how pleased I am to welcome the pension provision regarding widowers. I have myself for many years, as a national health practitioner, paid an equal pension and thought it wrong that if my husband died, I would get a pension but that if I died, he would get nothing. That seemed wrong. So many women I know who have worked for pensions for years have really felt this. Very often in this Chamber I am busy fighting for women's rights, but in this instance I welcome an improvement in the situation of the men who can find themselves left in a very difficult position if perhaps they have small children. I think it can be even more difficult for a man to be left to bring up a family on his own. So I am delighted to see this provision in the Bill and I believe that it is something we have long wanted.
Baroness Trumpington: I am all for equal opportunities for men. It may at first sight appear odd that whereas the majority of the changes proposed in this Bill begin in April 1988, the provisions for widowers' GMPs do not take effect until April 1989. But there are very good reasons for this.
Under the provisions of the Pensions Act 1975 both SERPS additional pensions and guaranteed minimum pensions under contracted-out schemes are calculated on the basis of earnings-related contributions paid between April 1978 and the end of the tax year immediately before the one in which the pension becomes payable. So, for example, in the case of a widow's GMP the calculation is based on the contributions paid up to the end of the tax year before the husband's death.
Employees who are members of contracted-out occupational pension schemes, and their employers, receive a rebate on their national insurance contributions in recognition of the estimated cost to the scheme of providing guaranteed minimum pensions. Contracted-out schemes will be required to provide a widower's GMP in respect of contracted-out employment from and including April 1988, when the majority of the changes come into effect, and the rebate will be recalculated from the 1988–89 tax year to include an allowance for the estimated cost of providing such cover for widowers. As the rebate will not include an allowance for widowers' GMP's until 1988–89, that is the earliest year in which contracted-out employment can be taken into account for widowers' benefits, and it therefore follows that the earliest a widower's GMP can become payable will be in respect of deaths occurring on or after 6th April 1989.
If we were to require a widower's GMP to be paid for deaths from 6th April 1988, it would be necessary

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to recalculate the national insurance rebate from the 1987–88 tax year, and we are not prepared to do that.
I hope that that has satisfactorily explained the arrangements to the noble Baroness and that she will withdraw the amendment.
Turning to Amendment No. 29, as I explained on Amendment No. 28, the national insurance contribution rebate will include an element for widowers' GMPs from 1988–89. This amendment would require contracted-out schemes to base the widower's GMP on the deceased's contracted-out employment right back to April 1978 when the scheme began. That would place an unreasonable burden on schemes, since their funding will have been based on the assumption that they were not required to provide GMPs for widowers, and the compensation they will receive by way of the contribution rebate will be related only to rights built up fromApril 1988. In effect we would be requiring them to increase the scale of cover provided by the scheme for periods when the premiums did not include provision for such cover.
Actually, it is plain to me. For those reasons I cannot support this amendment. So I am afraid neither amendment can be supported by the Government and I hope the noble Baroness will understand that although it sounds complicated, it is quite a simple point.
Baroness Turner of Camden: I thank the noble Baroness very much for that explanation. I shall look at the record and try to understand the position a little better. Of course, I understand that there is always the difficulty of making legislative provision for pensioners in retrospect, so to speak; it is quite hard. In view of what the noble Baroness has said I shall withdraw the amendment and look at the record to see where we go from there. I thank the noble Baroness and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 29 not moved.]
Baroness Trumpington Baroness Trumpington moved Amendment No. 30:
Page 12, line 10, at end insert—
("(h) section 52D,").
The noble Baroness said: This amendment simply adds to the list of amendments in Clause 9(4) which provides for certain provisions in the Pensions Act which refer to widows to refer also to widowers following the introduction of widowers' GMPs. Section 52D is concerned with GMPs secured by means of insurance policies or annuity contracts, and I am afraid that this particular consequential amendment was overlooked. I beg to move.
On Question, amendment agreed to.
Baroness Trumpington Baroness Trumpington moved Amendment No. 31:
Page 12, line 15, after ("earner") insert ("in any case where he is entitled to a widower's invalidity pension, but that reference shall be so construed where he is entitled to any other benefit").
The noble Baroness said: The purpose of this amendment is to provide that where a widower is entitled to an invalidity pension based on his late wife's national insurance contributions under Section 16(4) of the Pensions Act and also to a widower's GMP from her occupational pension scheme, the
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GMP is to be deducted from any SERPS additional pension paid as part of the invalidity pension. This accords with the general arrangements in the Pensions Act whereby any SERPS entitlement is reduced by the amount of any GMP. I beg to move.
On Question, amendment agreed to.
Baroness Trumpington Baroness Trumpington moved Amendment No. 32:
Page 14, line 42, at end insert—
("(14A) Where in any tax year subsequent to 1989–90 the trustees or managers of a scheme make an increase which is partly made otherwise than in pursuance of this section, they may deduct the part of the increase made otherwise than in pursuance of this section from any increase which, but for this subsection, they would be required to make under this section in the next following year.").
The noble Baroness said: I beg to move amendment No. 32 with which I shall take Amendments Nos. 33, 34 and 35. We are back to very highly complex but necessary technical amendments. Put as simply as possible, their purpose is to ensure that where an occupational pension scheme increases the rate of a pension and part of that increase is used to increase the rate of the GMP, under the new Section 37A that same part of the pension increase does not count towards the GMP increase due at the beginning of the next tax year. In other words, these amendments make sure that they receive their full entitlement.
On Question, amendment agreed to.
Baroness Trumpington Baroness Trumpington moved Amendment Nos. 33 to 35:
Page 14, line 43, leave out ("or (14)") and insert (", (14) or (14A)").
Page 15, line 2, at end insert—
("(16) Where by virtue of any of those subsections guaranteed minimum pensions are required to be increased in pursuance of this section by an amount less than they otherwise would be, their amount shall be calculated for any purpose as if they had been increased by that full amount.".").
Page 15, line 5, leave out ("or (14)") and insert (", (14) or (14A)").
On Question, amendments agreed to.
Clause 9, as amended, agreed to.
Clause 10 agreed to.
Baroness Trumpington Baroness Trumpington moved Amendment No. 36:
After Clause 10, insert the following new clause:
("Auditors.
The following shall be inserted after section 56N of the Social Security Pensions Act 1975—
"Auditors

Regulations as to auditors.

56P. The Secretary of State may by regulations make provision as to—

(a) the appointment, resignation and removal of auditors of occupational pension schemes;

(b) the duty of employers and auditors of employers to disclose
information to the trustees or managers of occupational pension schemes and the auditors of such schemes;

(c) the duty of trustees or managers of an occupational pension scheme to disclose information and to make available documents to the auditors of the scheme.").

The noble Baroness said: I beg to move this new clause. We have received representations from the accounting profession that auditors of occupational pension schemes might encounter difficulties in carrying out an audit of a pension scheme if they were refused access to essential information by an employer

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or by the scheme trustees. This clause enables my right honourable friend the Secretary of State to make regulations which will ensure free access for auditors to the necessary information and which will prescribe the conditions for the appointment and termination of auditors of occupational pension schemes. We propose to consult fully the accounting profession and other interested parties before making the regulations.
On Question, amendment agreed to.
Clause 11 [Contributions to schemes]:
Baroness Trumpington Baroness Trumpington moved Amendment No. 37:
Page 16, line 44, after ("(4)") insert ("or (6)").
The noble Baroness said: With this amendment I propose to speak also to Amendment No. 38. These are technical amendments. I beg to move Amendment No. 37.
On Question, amendment agreed to.
Baroness Trumpington Baroness Trumpington moved Amendment No. 38:
Page 17, line 24, after ("(4)") insert ("or (6)").
On Question, amendment agreed to.
Clause 11, as amended, agreed to.
Clause 12 [Regulations as to form and content of advertisements]:
Baroness Turner of Camden Baroness Turner of Camden moved Amendment No. 39:
Page 18, line 9, leave out ("may") and insert ("shall").
The noble Baroness said: I should like also to speak to Amendments Nos. 40 and 41 at the same time, because they all have to do with the same concept. The intention of these amendments is to strengthen Clause 12 in regard to the form and content of advertisements. It has been demonstrated in the debate earlier this evening that a number of noble Lords have great concern about consumer interests when it comes to the purchase of a pension provision, whether it is a private personal pension, an occupational pension or whatever. The reason for these amendments is that they provide for the Occupational Pensions Board to have a role in setting standards, because Amendment No. 41 specifies that they shall conform to standards set by the Occupational Pensions Board. Amendment No. 40 provides a time and a date not less than six months before the commencement of the preceding parts of the Act. In other words, all this has to be attended to not less than six months before the Bill, as an Act, becomes operative.
The first amendment also makes it obligatory because "may" is altered by my amendment to "shall". I hope that the Government may find it possible to accept these three amendments. They are intended to be helpful. They are intended to strengthen the arm of the Government in ensuring that the advertising which is indulged in should meet certain requisite standards and that people who opt for pensions, whether private, personal or any other kind of pension provision, should not be misled by the advertisements that the entrepreneur may indulge in to sell his wares. I beg to move.
Lord Kilmarnock: Before the noble Baroness replies, I should like to support this amendment because it brings us back to the area of consumer protection to which I was referring when earlier we discussed Schedule 1. As written, this clause is purely permissive:
"Regulations may be made relating to the form and content of advertisements".
The noble Baroness, Lady Turner, seeks to make that mandatory. We must support her on that.
There is also the question—perhaps the noble Baroness the Minister may like to refer to this—of the interaction with the Financial Services Bill when it comes to us. The noble Baroness has told us before that the Financial Services Bill will do all sorts of things for us in this area. But theoretically we do not know that until we read it. We need to know in advance how the regulations that the Secretary of State may make under this Bill and which the noble Baroness will have him make will tighten the requirements proposed by the Securities and Investments Board; what the penalties for failure or noncompliance will be; and who will be responsible for enforcing such requirements. These are all serious lacunae in the Bill and I do not think it is adequate for the noble Baroness to say that it will all be filled in later. It seem to us that tighter requirements will be necessary under this Bill. It is unsatisfactory that they should be left entirely to permissive regulations. As a minimum it seems to be reasonable to require the Secretary of State to make regulations on these matters as the noble Baroness has proposed.
6.15 p.m.
Baroness Trumpington: Let me say at the outset that the Government fully agrees that advertising in relation to pensions must be controlled. Notes on Clauses set out our views on the type of control we believe is needed. We want to prevent advertisements—and any other material—from containing misleading, exaggerated and unhelpful projections of the eventual benefits promised by a pension scheme.
To achieve this, it is very possible that we shall have to make regulations under Clause 12 of the Bill. If that is the only way, then we shall do so. But we think it important to retain the discretion not to make regulations under Clause 12 if our objectives can be secured by another route. This alternative route—here, perhaps, I am answering the noble Lord, Lord Kilmarnock—is through the Financial Services Bill, which also includes a provision to make rules governing advertising in relation to investment business. I understand that draft rules will shortly be published for comment by the shadow bodies which expect to have delegated to them the relevant regulatory functions of the Secretary of State for Trade and Industry once that Bill has reached the statute book. If the financial services rules will achieve what we believe to be necessary for pension schemes, then we would simply be introducing an unnecessary complication if parallel regulations had to be made under social security legislation. If, on the other hand, the financial services controls are not wide enough, then we shall certainly exercise the discretionary power at Clause 12 of the Bill.

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The second amendment to Clause 12 is consequential on the first amendment. In the light of the assurance I have given I hope the noble Baroness will feel able to withdraw both.
The third amendment places a duty on the Occupational Pensions Board to set "standards". Were this amendment accepted, I believe there would be a serious blurring of responsibilities for making rules between regulations—which, if they are made under Clause 12, will be made by the Secretary of State—and standards which would be set by the board. In an already administratively complex area, I cannot think this would be helpful. Nor do we consider it to be necessary. Under the Bill the board is given important major new opportunities in supervising personal pensions and contracted-out money purchase occupational schemes.
In exercising this duty the board would be bound to take into account significant breaches of any relevant rules, including advertising rules, irrespective of whether the rules were made under social security or financial services legislation. This will be an important safeguard for scheme members and prospective members. We will of course consult the board about the content of any regulations to be made under Clause 12, and we will ensure that it is able to offer views on rules proposed by the financial services regulators. So the upshot is that the board will have a significant role in formulating and applying advertising rules, without the need for this amendment. I hope, accordingly, once more, that the noble Baroness will feel able to withdraw it.
I must not complete my remarks without paying tribute to the very distinguished contribution the noble Baroness, Lady Turner, has made as a member of the Occupational Pensions Board. I hope what I have said will reassure her that the board's role will be of vital importance in this as in many other aspects of personal pensions.
Lord Kilmarnock: Before the noble Baroness decides what to do with her amendments, I am rather inclined to stiffen her resolve.
Baroness Trumpington: I wonder whether the noble Lord, Lord Kilmarnock, could possibly stand back when he is under that microphone, because, as usual, I cannot hear him.
Lord Kilmarnock: I shall move along to the end of the Bench and perhaps the noble Baroness can hear me better. I will remember that in future and move to the end of the Bench.
I should like to stiffen the resolve of the noble Baroness. I believe we need something in this Bill. We are back in this area of doubt as to what may be on the way in another statute. We are discussing a Bill which presumably will become statute law before the other one does. Obviously the OPB has certain sanctions at its disposal such as the withdrawal of the appropriate or contracted-out certificate; but the fine that it can impose may be inadequate in an area of high-pressure salesmanship. Similarly, the withdrawal of an appropriate or contracted-out certificate may merely ensure that the employees concerned are thrown back into the state scheme by the payment of the state
780
scheme premium with the possibility that any losses that are incurred as a result of unfair advertising could not be recouped.
The difficulty is that this Social Security Bill is concerned primarily with the terms of personal pension contracts and will not impose requirements or penalties on the responsible institutions, as such. Those regulations are not yet even pencilled in as far as I can see. It is true that a threat to report the institution to the Securities and Investments Board or any other responsible body might be as effective as the threat of a penalty, but it is unsatisfactory that requirements imposed under this Bill should rely for their enforcement on threats and on effective liaison with authorities appointed under another Bill. They are not referred to in this Bill, which is the Bill before the Committee this evening.
The answer in this area may lie in requiring the Securites and Investments Board and other bodies appointed under the Financial Services Bill to assume responsibility for enforcing any tighter requirements concerning personal pension schemes that may be imposed under this Bill. But my contention is that we simply have not got enough to go on in the Bill as written. We simply have this permissive Clause 12 which the noble Baroness seeks to amend and to make mandatory. I think that at least we should have this safeguard in the Bill. The Secretary of State must make regulations which will cover these points. I think we want them here in this Bill this evening. I hope she will not withdraw her amendment.
Baroness Trumpington: Perhaps I may reply to the noble Lord, Lord Kilmarnock, on one or two points. If the OPB withdraws the certificate—is the noble Lord, Lord Kilmarnock, interested in my answering his questions? If the OPB withdraws the certificate, that will kill a personal pension. He asked about penalties for breaches of any regulations under Clause 12. There is no power in the Bill to provide that these are offences and subject to a penalty of a fine. If we look at Clause 52, we see that the maximum fine is £400 plus £40 a day for a continued offence.
Baroness Turner of Camden: I do not think that the noble Lord, Lord Kilmarnock needed to stiffen my resolve, because it is my intention to test the feeling of the Committee on Amendment No. 39. I do so despite the explanation given by the noble Baroness, Lady Trumpington, whom I thank for her kind remarks about my services to the Occupational Pensions Board. I feel that Clause 12 as it now stands is really far too vague. As I understand the noble Baroness, what she was saying was, "Well, it's there and we will make regulations if we think we ought to make regulations". What I am saying is that there ought to be regulations made relating to the form and content of advertisements and that this should be a mandatory provision so far as the Government are concerned under Clause 12. I intend to press Amendment No. 39 because it is my view that the provision is not strong enough, that it has to be strengthened, and that it ought to be mandatory.
Baroness Trumpington: Perhaps I may intervene before the noble Baroness proceeds so that I may

781
correct myself. I understand that I said that there is no power in the Bill to provide for penalties. There is power. I must correct that before it goes into Hansard. I am sorry.
Lord Kilmarnock: Did the noble Baroness say that £400 was the maximum penalty?
Baroness Trumpington: Yes, plus £40 a day.
6.24 p.m.
On Question. Whether the said amendment (No. 39) shall be agreed to?
Their Lordships divided: Contents, 71; Not-Contents, 109.

DIVISION NO. 3

CONTENTS

Airedale, L.

John-Mackie, L.

Alport, L.

Kilbracken, L.

Amherst, E.

Kilmarnock, L.

Ardwick, L.

Kirkhill, L.

Attlee, E.

Llewelyn-Davies of Hastoe, B.

Banks, L.

Lockwood, B.

Blease, L.

Longford, E.

Blyton, L.

McIntosh of Haringey, L.

Boston of Faversham, L.

Mackie of Benshie, L.

Briginshaw, L.

Mulley, L.

Brockway, L.

Nicol, B.

Brooks of Tremorfa, L.

Parry, L.

Bruce of Donington, L.

Pitt of Hampstead, L.

Carmichael of Kelvingrove, L.

Ponsonby of Shulbrede, L. [Teller.]

Cledwyn of Penrhos, L.

David, B. [Teller.]

Rochester, L.

Davies of Penrhys, L.

Ross of Marnock, L.

Dean of Beswick, L.

Seear, B.

Diamond, L.

Serota, B.

Ennals, L.

Stallard, L.

Ewart-Biggs, B.

Stewart of Fulham, L.

Fisher of Rednal, B.

Stoddart of Swindon, L.

Fitt, L.

Taylor of Blackburn, L.

Foot, L.

Taylor of Gryfe, L.

Gallacher, L.

Taylor of Mansfield, L.

Glenamara, L.

Truro, Bp.

Graham of Edmonton, L.

Turner of Camden, B.

Gregson, L.

Underhill, L.

Grey, E.

Walston, L.

Hampton, L.

Wedderburn of Charlton, L.

Hanworth, V.

Wells-Pestell, L.

Heycock, L.

Whaddon, L.

Houghton of Sowerby, L.

White, B.

Hunt, L.

Williams of Elvel, L.

Irving of Dartford, L.

Wilson of Rievaulx, L.

Jeger, B.

Ypres, E.

NOT-CONTENTS

Airey of Abingdon, B.

Campbell of Alloway, L.

Allerton, L.

Carnegy of Lour, B.

Ampthill, L.

Carnock, L.

Ashbourne, L.

Coleraine, L.

Bathurst, E.

Colville of Culross, V.

Belhaven and Stenton, L.

Colwyn, L.

Beloff, L.

Cork and Orrery, E.

Belstead, L.

Craigavon, V.

Bessborough, E.

Craigmyle, L.

Brabazon of Tara, L.

Croham, L.

Brougham and Vaux, L.

Cromartie, E.

Bruce-Gardyne, L.

Cullen of Ashbourne, L.

Buckinghamshire, E.

Davidson, V.

Buckmaster, V.

Denham, L.

Caccia, L.

Dilhorne, V.

Caithness, E.

Donegall, M.

Cameron of Lochbroom, L.

Dormer, L.

782

Dulverton, L.

Mountevans, L.

Elliott of Morpeth, L.

Moyne, L.

Elton, L.

Munster, E.

Enniskillen, E.

Murton of Lindisfarne, L.

Faithfull, B.

Onslow, E.

Ferrers, E.

Portland, D.

Fortescue, E.

Rankeillour, L.

Fraser of Kilmorack, L.

Reigate, L.

Gardner of Parkes, B.

Renton, L.

Geddes, L.

Rochdale, V.

Glanusk, L.

Rodney, L.

Glenarthur, L.

St. Aldwyn, E.

Greenway, L.

Sandford, L.

Gridley, L.

Seebohm, L.

Hailsham of Saint Marylebone, L.

Shannon, E.

Skelmersdale, L.

Henley, L.

Somers, L.

Hives, L.

Stodart of Leaston, L.

Holderness, L.

Strathcona and Mount Royal, L.

Hooper, B.

Hylton-Foster, B.

Swann, L.

Inglewood, L.

Swinfen, L.

Kimball, L.

Swinton, E. [Teller.]

Lauderdale, E.

Terrington, L.

Layton, L.

Thomas of Swynnerton, L.

Lindsey and Abingdon, E.

Thorneycroft, L.

Liverpool, E.

Tranmire, L.

Long, V. [Teller.]

Trefgarne, L.

Lucas of Chilworth, L.

Trumpington, B.

Macleod of Borve, B.

Tryon, L.

Malmesbury, E.

Vickers, B.

Marley, L.

Vinson, L.

Marshall of Leeds, L.

Vivian, L.

Maude of Stratford-upon-Avon, L.

Ward of Witley, V.

Whitelaw, V.

Merrivale, L.

Windlesham, L.

Mersey, V.

Wolfson, L.

Milverton, L.

Young, B.

Mottistone, L.

Zouche of Haryngworth, L.

Resolved in the negative, and amendment disagreed to accordingly.
6.33 p.m.
[Amendments Nos. 40 and 41 not moved.]
Clause 12 agreed to.
Clause 13 agreed to.
Clause 14 [Terms of contracts of service or schemes restricting choice to be void]:
Viscount Hanworth Viscount Hanworth moved Amendment No. 42:
Page 18, line 18, leave out from beginning to ("any") and insert—
("Subject to the exception of occupational pension schemes which at the date of enactment are contracted out for the purposes of the Social Security Pensions Act 1975 and other such exceptions as may be prescribed.").
The noble Viscount said: I do not want to divide the Committee but to find out what the Government say about this amendment and the attitude of the Committee as a whole. The clause as it now stands would prevent an employer from making membership of a particular pension scheme compulsory. This would enable existing members of schemes to opt out of their employers' occupational pension schemes and contribute to a personal pension scheme. The clause already provides for exception to be made to provision, but no indication is given in the Bill as to what such exceptions might be. The amendment therefore seeks to define established occupational pension schemes which are contracted-out under the Social Security Pensions Act 1975 at the date the Bill comes into force, as an exception, within the wording of the Bill.
I am concerned that many employees may opt out of membership of good occupational pension schemes, such as, for example, the electricity supply pension scheme, and contribute to a personal pension scheme simply because of the immediate saving in contributions which would be obtained, rather than by a reasoned comparison of the future benefits that each provides. Many young employees might make such a decision on the basis of saving in cost at a time when they have other family commitments such as mortgage payments and the cost of bringing up and educating children. Similarly, many married women might make such a choice on the basis of the saving which could be obtained, and they rely on their husbands to provide any shortfalls in their retirement benefits which might arise as a consequence.
On an earlier amendment, I described the difficulties of going out into the private sector for pensions because, as I said then and will not repeat now at length, this is an area where very high pressure salesmanship is used. As I think many Members of the Committee will appreciate, having listened to the proceedings on this Bill, the whole thing is extremely complicated. One really cannot make right decisions without expert advice. Therefore, one is concerned that people might move out of occupational pension schemes which provide benefits not only for themselves but for their dependants, and move in, on a short term basis, to find something cheaper outside. That, in the end, may not serve their old age (which perhaps they do not worry about at that time) and may even, in terms of what the Government have to do, provide a major problem in the future century. I beg to move.
Baroness Turner of Camden: I rise to support the amendment which has been moved by the noble Viscount, Lord Hanworth. I have an amendment myself of a similar kind which we shall come to later, but I am inclined to the view that perhaps the amendment of the noble Viscount is rather better than mine.
Clause 14 is the clause which prevents employers from making it a condition of employment that employees should join the company's occupational pension scheme. I have to say to your Lordships that this could very well have a bad effect not only on pensions but on industrial relations generally. Trade unionists regard pension provision as deferred pay. For years now pensions have been matters not just for employers' discretion and benevolence and sometimes a means to keep key employees—although of course they are often that—but they are part of negotiated terms and conditions of employment, and terms and conditions which are negotiated collectively. If employees can opt out of one negotiated term of employment, that could set a very bad precedent so far as other collectively-negotiated terms of employment are concerned.
Moreover, I can remember the days when membership of schemes was not compulsory and many people in those days reached retirement, and are still reaching retirement, without adequate pension provision. Many of those people of course were women. I remember earlier on in my working life many women with whom I worked decided not to join
784
the firm's pension scheme, even though there was one. When they came to retirement, they discovered that they did not have the same kind of pension provision that the others of us had who had opted to join the firm's pension scheme. That kind of thing came to an end when we had the new legislation—the legislation which this present Bill seeks to amend.
The purpose of my amendment is to protect a defined benefit scheme. The amendment of the noble Viscount, Lord Hanworth, goes rather more broadly than that and it provides that where there are contracted-out schemes they should be exempt, and, as I understand his amendment, it would make it possible, if there is a contracted-out scheme and the employer can offer contracted-out pension provision, that can then form the basis of a term and condition of employment and it would not be invalidated by this clause. If that is the situation, and if that is what his amendment means, I hope that he will press it because it is a worthy amendment and I shall certainly be supporting it.
Lord Vinson: The question of compulsion really stands at the heart of alternative pension provision. We need to look forward to the labour market conditions that are rapidly developing in this country, where we are seeing a contraction of the sort of cradle to the grave jobs that we had in the past, and an inevitable increase in part-time employment or multiple employment. The existing pension arrangements that have been built up over the years, and very often for the best possible reasons, will simply not be satisfactory, and are even now unsatisfactory, for a great many people of the wider national workforce.
It is argued that people will of their own free volition leave a good pension scheme and go to one that is worse. One can understand those who want to keep the status quo exactly as it is putting forward the worst possible construction on the future, but I do not think it will happen in that way. Most people who opt for personal pension provision are going to do so because they think it will suit their future better.
It is ridiculous at the moment where, if somebody decides to go self-employed as a window cleaner, nobody objects to him currently having a personal and portable self-employed pension. I hear no reports of great abuse or that he is being unfairly dealt with. Yet a learned professor of economics, a member of his university pension scheme, has to be a member and has, at the moment, no choice as to whether he would rather run his own affairs. So to say that a window cleaner can have a personal and private portable pension but a professor cannot illustrates the absurdity of the current situation.
We must give people free choice and we must work on the assumption that most people will exercise that choice wisely. To argue that, if people are no longer made to join a company scheme, that scheme will become untenable seems to me to be reaching the point of absurdity. It would mean, as I tried to point out on the Second Reading of this Bill, that companies would be so worried about the viability of their pension schemes that, even in recession, they would be recruiting labour in order to keep their pension scheme solvent. Of course, they would do no such thing. It is precisely because company pension schemes can learn

785
to live without recruits during a period of recession that they can learn to live without recruits coming to those pension schemes at all times, apart from the fact that the whole business of pensions insurance means that your contributions, even in pool schemes, average out in order to pay, ultimately, for the pension you may be getting.
No actuary worth his salt will advise a pension scheme that it simply has to recruit additional members, and no actuary worth his salt will set up a pension scheme that would become insolvent if it failed to recruit members. So it is a bogus argument to say that it will damage them. There may be some lesser grounds for saying that people might leave a company scheme to their own disadvantage, but I do not think it will happen in that way.
So I think that the question of free choice in a free society, with an increasingly sophisticated workforce, is very important indeed in terms of pension provision, and we have to remember that there is no compulsion to leave a company scheme. People will only do so of their free volition. For that reason, this is a very important part of the Bill, and I hope the Government will resist any amendments that sacrifice the forthcoming freedom of choice.
6.45 p.m.
Baroness Trumpington: I must say that I am a little surprised and disappointed that, nearly two years after the personal pensions debate began, there are still people who are not yet persuaded that every individual, whether in a public or a private sector scheme, a salary-related or money purchase scheme, should be allowed this basic freedom of choice. Although there has been some strong opposition to certain aspects of the Government's pensions proposals, I think it is now increasingly recognised, even by the opponents of personal pensions, that this option should be available to all.
I should at this point stress that the Government have never suggested that the personal pension route is the right one for every employee. We are very well aware of the excellent benefits provided by the great majority of existing occupational pension schemes, and we certainly do not expect to see a significant exodus from these schemes into personal pensions. Those who do predict a bigger movement out are, admittedly, rather fewer in numbers than they used to be. But I must admit that I am dismayed by their defeatism. They have such a good product to sell to their members: all that really remains is for them to go out and sell it rather more effectively than many of them have had to do up to now.
Among people now in occupational schemes we see the personal pension option as being most appropriate for those who expect to change jobs frequently, or who wish to have a more direct say in the investment of their pension savings. But far more important will be the opportunity personal pensions provide for employees who are currently tied to the state scheme. While we think it would be quite wrong to deny the new options to scheme members, we rather doubt if many of them will take it up, and we do not expect the providers to aim their marketing efforts at them.
786
It has been suggested that some individuals may be persuaded out of their occupational scheme by high-pressure salesmen making superficially attractive promises. I can offer considerable reassurance on this point. The Government have never lost sight of the importance of providing protection against such practices. This protection will primarily take the form of the "cooling-off period" provided for in the Financial Services Bill, which will allow for the cancellation of any agreement within certain time limits. We are also taking powers—debated in relation to Clause 12—that will enable us to prevent personal pensions being marketed on the basis of misleading projections.
We do not want to see individuals enticed out of their occupational schemes on the basis of a false prospectus and we shall do our utmost, with the very significant help of the financial services self-regulators, to ensure that they are not. But what we do want to see is occupational schemes responding to the challenge by making their members more aware of the considerable benefits they offer.
With regard to exceptions, we are considering, first, schemes providing only lump sum death benefits for dependants, subject to this being permitted under tax rules; and, secondly, contracted-out salary-related schemes could be compulsory for employees who did not join a personal pension. Both of these possible exceptions were discussed in another place and will be subject to further consultations later this year.
The ideal for which we aim is that every employee should be in a position to make an informed decision on the best pensions option for himself and his family, and then to act freely on that decision. Ours is an administration which has already made great strides in widening choice and giving people more freedom to act in their own best interests. The changes we are making to pensions come squarely in that tradition and we are convinced that, at the end of the day, our reforms will result in a stronger, healthier occupational sector. This, coupled with personal pensions will reduce dependence on the state, and that is why we feel that we must strongly resist these amendments.
Baroness Gardner of Parkes: Some mention was made of this being a parallel situation to the cases where women were in the past able to elect to pay for no pension, but as I understand it this is not a parallel. You would be either in your company's scheme or in a personal pension plan. Therefore, the same situation will not arise. It is important to appreciate that we are not envisaging here going back to the position where a woman would have no pension whatsoever at the end of the day.
Baroness Trumpington: It is a parallel, I would say.
Baroness Gardner of Parkes: Oh, is it?
Baroness Trumpington: Yes.
Baroness Turner of Camden: Perhaps I may respond to that. I understand that that is the situation. I was simply referring to the position that applied before it was compulsory to belong to any scheme at all. I was speaking in support of the notion that where there is

787
good occupational pension provision and where this is part of a contract of employment that position should not be invalidated by this clause.
Viscount Hanworth: I thank the noble Baroness for a very full explanation. What I wanted to do at this stage has been achieved, and therefore I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Banks Lord Banks moved amendment No. 43:
Page 18, line 21, leave out ("must be a member of") and insert (", on becoming eligible, join")
The noble Lord said: With the leave of the Committee, I should like to speak also to Amendments Nos. 44, 47, 48, 49 and 50. I share the concern about the destabilising effect on occupational schemes of allowing members of occupational schemes to opt out of them at any time, a concern expressed by my noble friend Lord Hanworth and the noble Baroness, Lady Turner, when we were discussing the last amendment. I seek to deal with that in a way which goes not nearly so far as the amendment that has just been moved and the amendment which stands in the name of the noble Baroness, Lady Turner.
These amendments are intended to do three things. First, they seek to limit the opportunity to choose between occupational schemes and personal pension schemes to the point when an employee first becomes eligible to join the occupational scheme. In other words, he does not have to join; he can choose a personal pension scheme instead. But if he chooses to join, the employer can make his continued membership a condition of future service. Secondly, the amendments seek to allow those contracted out before the commencement of the Act a six-months period within which they could switch to contracted out personal pension schemes if they wished to.
Thirdly, the amendments seek to allow members of occupational schemes, whether contracted in or out, to pay additional voluntary contributions into a personal pension scheme. So even if a person was under these arrangements in his occupational scheme as a condition of service, having decided to enter it when he first had the opportunity to opt out, he would nevertheless be able to put additional voluntary contributions into a quite separate personal pension scheme if he wished to.
Additional voluntary contributions can be made at the moment into the employer's occupational scheme or into a separate occupational scheme for the purpose maintained by the employer. The contributions are limited in that total contributions including the additional voluntary contributions—that is, what goes into the occupational scheme and what is paid by way of additional voluntary contributions—must not exceed 15 per cent. of the employee's earnings. Additional voluntary contributions cannot however be made to Section 226 personal pensions policies at the present time. The amendment would allow additional voluntary contributions to be paid, if the employee so desired, to a personal pension scheme.
I submit that, taken together, these amendments constitute a more satisfactory approach, if a more cautious one, to freedom of choice. I beg to move.
Baroness Trumpington: I hope I have already made clear today the importance which the Government attach to the new right that this Bill will give to members or prospective members of occupational pension schemes to opt for a personal pension. We believe it is now widely recognised that it would be quite wrong to deny any individual this basic freedom of choice.
With these amendments, the noble Lord, Lord Banks, while not looking to remove that right altogether, nevertheless has sought to restrict considerably the opportunity for people to opt for a personal pension by making it a "once only" right. For prospective members, that opportunity would be limited to the time at which they first become eligible to join their occupational scheme. So should they decide to join that scheme they could then be tied into it for the rest of their working life unless, of course, they changed jobs. With his usual thoroughness, the noble Lord has also catered for people who are already members of schemes by allowing them a period of six months from the date of commencement of this Act in which to exercise their new right to opt for a personal pension. But again the effect is that they then would lose that right forever unless they changed jobs.
Despite my enormous respect for the noble Lord, Lord Banks, I must say that that would amount to a very feeble extension of freedom in pensions. We fully recognise the importance of protecting schemes against a "free-for-all" of people opting in and out as they choose. That is why we think it is right that employers may decide whether or not to accept back into their occupational scheme an employee who has opted for a personal pension. We are also taking steps to protect the finances of existing schemes by limiting the right to a transfer value where a person leaves an occupational scheme but continues in the job.
But if the new right is to be a real one people must be allowed more flexibility and time in deciding whether or not, and when, to take the personal pension route to retirement—a flexibility that will allow them to take fully into account the career path they wish to follow and, in particular, the number of job changes that that may involve, a flexibility that will allow the employee who develops a desire to have more say in his financial affairs to invest his pension savings in the financial institution of his choice. These are not decisions that can be made overnight or should be restricted to one arbitrary six-month period in a person's life.
But there is a more fundamental point to make. We do not now, and never have, accepted that the new options will encourage significant numbers of people to opt out of good occupational schemes. Personal pensions will be attractive mainly for people without an employer's scheme. However, that observation does not justify denying those who are members of occupational schemes, the opportunity and right to reverse that decision if they so wish.
The noble Lord, Lord Banks, was taking Amendment No. 50 as well, which is not grouped with the first two amendments. I am sure that the noble Lord is aware that his Amendment No. 50 would not achieve the end he desires. There is nothing in existing social security legislation or this Bill which prevents

789
members of pension schemes making additional voluntary contributions to other schemes. The point is quite simply that tax rules do not permit it; or to be more precise, any such contributions would not qualify for tax relief and the scheme receiving them would lose its tax exempt status. This is why the new right which Clause 11 gives scheme members to make additional voluntary contributions deals only with AVCs within the scheme.
Your Lordships may recall that in his Budget speech in another place the Chancellor of the Exchequer said:
"I intend later this year to publish detailed proposals designed to give personal pensions the same favourable tax treatment as is currently enjoyed by retirement annuities. Publication of these proposals will enable there to be the widest possible consultation prior to legislation in next year's Finance Bill".—[Official Report, Commons, 18/3/86; col. 176.]
I cannot predict what will be in those consultative proposals but I am sure that Treasury ministers will be very glad to reflect on what has been said in this debate and to consider representations once proposals are published, which I understand is likely to be in the autumn. On the basis of my last remarks, I hope that the noble Lord, Lord Banks, will withdraw his amendment.
7 p.m.
Lord Kilmarnock: Before my noble friend decides what to do with his amendment, perhaps I may ask the noble Baroness to clarify one point. She is very much attached to freedom of choice, and I am much in agreement with her in most circumstances. The amendment of my noble friend Lord Banks would give members of contracted out occupational schemes the capacity to make additional voluntary contributions to a personal pension plan that is not contracted out—that is, to a different scheme. That would seem to me by definition to be an extension of choice. However, I believe that I heard the noble Baroness say that in the last Finance Bill, those AVCs could only be made within the existing scheme. That would seem to be a narrowing of choice and I should like clarification as to whether that is the case. If it is, then it does not seem desirable, and Amendment No. 50 of my noble friend Lord Banks does seem to be desirable.
Baroness Gardner of Parkes: As we are speaking to Amendment No. 50 also, I should like to take up the points made by the noble Lord, who was speaking a moment ago. As I understand it, one can pay anything one likes to any pension plan at the moment but one cannot have the tax advantages of doing so. That is what Amendment No. 50 is all about, and that is what I should like to see. I support the principle of Amendment No. 50. It would be a very good thing if we could persuade the Chancellor to encourage people to make better provision for their old age through additional contributions. There is no doubt that the way people will be encouraged to do so is by making some tax allowances towards it. We saw what effect it had on life assurance when premium relief was removed. It would be very pleasant if we could see some further tax relief allowed for people who wished to take either of the actions suggested in Amendment No. 50. If this debate will be among the other matters to be considered by the Chancellor in due course, then
790
certainly I am pleased to place on record my support for the principle of Amendment No. 50.
Lord Vinson: We seem to have strayed on to Amendment No. 50, and I was rather looking forward to the opportunity of agreeing very much with the noble Lord, Lord Banks, and the noble Viscount, Lord Hanworth. There is much merit in Amendment No. 50, which I believe should be supported. As we have reached discussion on Amendment No. 50 already, I take this opportunity of saying that I wholly agree with it.
Lord Banks: The noble Baroness Lady Trumpington, described the choice that was given by the set of proposals contained in Amendment No. 43, and in the others to which I have spoken as "feeble". Yet they give a choice to every eligible person in the country. Those who are at present in occupational schemes would have the opportunity during the six-month period to switch to a personal pension scheme if they wished. Those who come to the point where they are eligible to join in the future will have the opportunity to make the choice at that time.
The noble Baroness said that there was a lack of flexibility in what I was suggesting, but there is the further flexibility of being able to apply an additional voluntary contribution within the 15 per cent. limit that now prevails to a personal pension plan and enjoy the same tax privileges. I agree entirely with what was said by the noble Baroness, Lady Gardner of Parkes, when she spoke about the purpose of Amendment No. 50. Its purpose is to place an additional voluntary contribution to a personal pension plan in the same category as additional voluntary contributions to occupational pension schemes, or schemes specially for the purpose, that are maintained by the employer.
It seems to me that all those points together represent a particular approach to freedom of choice that is more satisfactory in their effect than that proposed in the Bill. I regret very much that the noble Baroness does not see her way to accepting any of the proposals. I shall consider carefully what she has said about taxation, and in the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 44 not moved.]
Baroness Turner of Camden Baroness Turner of Camden had given notice of her intention to move Amendment No. 45.
Page 18, line 22, leave out ("particular")
The noble Baroness said: I believe that we had the discussion on this amendment when moving Amendment No. 42. In the circumstances, and in view of the time, Amendment No. 45 is not moved.
[Amendment No. 45 not moved.]
[Amendments Nos. 46 to 50 not moved.]
Lord Swann Lord Swann moved Amendment No. 51:
Page 18, line 38, at end insert—
("( ) Where an employed earner who is a member of an occupational pension scheme gives notice to his employer in such form as may be prescribed that he wished to withdraw from the scheme the employer shall have the right to require—

(a) that notice shall be given in writing; and

791

(b) that it shall contain an acknowledgement of the fact that after the date of withdrawal from the scheme there shall be no further liability on the scheme in the event of death of the earner to provide such benefits for dependants as may be described in the said notice.")

The noble Lord said: This is a modest amendment and it will not take me long to explain it. It is not a matter of life and death, although in a sense it is a matter of death. There is one facet of the Bill that worries me, which is the possible effect of someone who opts out of an occupational pension and who dies when he is relatively young.
More people die when they are young than might be imagined by most. I have it on good actuarial authority that something of the order of 2,000 people in their twenties who are members of occupational schemes die every year as a result of illness or accident, and that 2,500 die in their thirties. Therefore, in the average life of a government, something like 20,000 breadwinners die who are in occupational pensions.
Under this Bill, employees will be able—quite rightly, in my opinion—to opt over to personal pensions. I do not want to get involved in an argument about occupational pensions versus personal pensions, because there are points to be made on both sides. However, one thing that occupational pensions do rather well, and which by their nature personal pensions do not do well until one has been in them for quite a long time, is pay benefits on death for dependants in general and for widows, orphans, and indeed widowers, and so on.
Even if the employee is quite young, one will get from most occupational schemes a handsome lump sum for the widow and a continuing income. In a personal pension scheme, until one has had quite a number of years in which to build up one's capital sum, one's widow will get very little indeed.
If everyone is perfectly efficient, then the husband, or whoever it might be, when he opted out of his occupational scheme, would remember that he would not have death benefits for his widow, or at any rate that he would accumulate them only slowly. He would no doubt tell his wife. They could then discuss the situation and he could take out an insurance policy or something of that kind.
Unfortunately, life is not generally like that. I suppose that as a small but unfortunate by-product of that situation, one is going to find over the years quite a number of widows, caused through accident or illness, who will find that they do not receive what they thought they were going to receive under the previous arrangements. I do not suggest, and I do not think it is possible, that one can enter into family relationships and require that dependants give their consent. I do not think that one could even require, and it would be unenforceable, that the scheme member should inform his dependants. However, there is a possible half-way house, which may look rather odd, and even a little unsympathetic, but which is probably about the only way that one could give effect to what I consider is a necessary humanitarian gesture on the part of the whole system.
I have only one final observation, which is that I do not hold any great brief for the wording of this amendment. It may be all wrong and it may be in the
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wrong place, but I think that if possible something ought to be done, because, as Members of the Committee will recall, as a result of the Social Security Act last year disclosure of information will shortly be required and members and their dependants will be able to find out as of right what their benefits will be. It would seem to me that this is a wholly logical extension of such thinking and therefore I hope that the Committee will look kindly on this rather modest contribution. I beg to move.
Baroness Turner of Camden: I rise to support the amendment moved by the noble Lord, Lord Swann. As he rightly says, most occupational pension schemes provide quite generous compensation for people who die while in service. Indeed, the Inland Revenue maximum is four times the annual salary as a lump sum paid on death in service. Most schemes provide two-and-a-half times the annual salary as a lump sum, and, as the noble Lord rightly points out, there are also continuing survivors' benefits.
The problem to which he has drawn attention is that there could be a situation in which the earner has opted for a private personal pension, and if unfortunately he dies, his widow—and usually it will be a widow I am afraid, though of course this measure applies to widowers as well—will expect to receive a lump sum and some continuing benefit because she has not been told that her husband had changed the arrangements. As has already been indicated, if the earner has opted for a private personal pension, that may very well not happen, particularly if the earner is relatively young.
I think that it was to try to cover that situation that I gave this matter some thought and wondered whether it would be possible to devise an amendment which would make it obligatory for the spouse to be notified if there were a change to a personal private pension, though that might be terribly difficult to provide for in legislation. I think that the amendment of the noble Lord, Lord Swann, seeks to cover that situation and to spell out that the notice shall be given in writing and that there should be an acknowledgment of the fact that should the earner die in service—and it will mostly be a "he", I expect—the benefits that exist in the occupational scheme will simply not be coming to his dependants. I think it is very necessary that we should have a provision of this kind in the legislation. I therefore support the amendment.
The Earl of Buckinghamshire: May I just say that I agree with the noble Lord, Lord Swann, that his is a modest and innocuous amendment; nevertheless it is important, as the noble Baroness has just said. As I understand it, the amendment does not wish to rely solely on statutory release from the liability but is seeking an active disclaimer from individuals when they opt out from a personal pension. Let us add some figures to the numbers of people who die at a relatively young age. If 5,000 people die in their 20s and 30s, we are talking of something in the region of £1 billion worth of death benefits payable to dependants, excluding widows' pensions which add a further £1 billion plus. So quite a lot of money is at stake, and therefore I think that this is an important amendment.

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As I have some experience of administering pension schemes, I can see that there will be quite a lot of discussion taking place as to who is and who is not a member at any moment in time, and I think that if my noble friend does not find this amendment particularly to her liking, certainly trustees and companies will wish to seek a disclaimer in order to establish the position. Perhaps I may conclude by saying that I support this amendment and I hope that my noble friend will find it to her liking as well.
7.15 p.m.
Lord Vinson: I am sure that we are all grateful to the noble Lord, Lord Swann, for drawing this matter to the attention of the Committee, but I should like to put the case the other way round. We do not necessarily want the existing occupational scheme to stress all the negatives to anyone who wishes to move to a personal and portable pension scheme. The fact is that an employee who has relatively recently joined an occupational scheme would probably obtain life cover, because that is very cheaply bought, and most occupational schemes throw it in as an addition, but it is very unlikely that his widow would get anything more than a pension that was pro rata to whatever he might have received at that time relative to the length of time over which he made contributions.
What I think would probably meet the very important point of the noble Lord, Lord Swann, is for the providers of personal portable pensions to be encouraged to couple the pension with life cover, which for young people—which is the point he was making—can be bought extremely cheaply, so that lump sum benefit life cover can be obtained by anybody. That, coupled with a personal and portable scheme would certainly meet the life cover point. It probably would not meet the point of someone who is fairly elderly buying cover for his future widow, but that is the sort of person who in any case is not likely to wish to transfer out of an occupational pension scheme.
So in welcoming the noble Lord's indication of concern for this particular area I should like to suggest to the Government that his point would be better met by encouraging the providers of personal pensions to couple such pensions with life cover.
Lord Banks: I, too, should like to support the amendment that has been moved by the noble Lord, Lord Swann, for the reasons that have already been expressed. I should like to ask the noble Baroness, Lady Trumpington, one question. Is there anything in the Bill which prevents an employer making compulsory a group death-in-service scheme; that is, making it a condition of service? It might be possible to have the option to change available for members of the pension scheme, and to run quite separately alongside it a group death-in-service benefit scheme which could be made a condition of service.
Baroness Trumpington: The noble Lord, Lord Swann, chairs with distinction the Company Pensions Information Centre. There are all sorts of surprises in store for anyone taking up a ministerial post at the DHSS—some pleasant, and some rather less so. One
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very pleasant surprise for me was to discover the existence of the CPIC. The people who work there carry out a not often widely noticed, but very important and influential, role in disseminating information about occupational pension schemes to employers and employees. We appreciate what they do and look forward to an expansion of their activities in the brave new pensions world which this Bill seeks to create.
The noble Lord has made very clear the thinking which underlies this amendment. I do not suppose that he will be very taken aback when I tell him that we cannot accept it as it stands, but I hope that he will listen to me and not be too disheartened.
There are two main reasons. First, we think that it is technically defective—as the jargon goes—in that one unintended effect might be to allow schemes to relinquish liability for surviving dependants which they would otherwise be obliged to retain. Secondly, we think it very likely that employers would be able to do much of what is sought by this amendment without specific statutory authority—and I think that was what my noble friend Lord Vinson was suggesting.
It seems to us to be eminently reasonable that employers should be able to require written notice before terminating scheme membership, and it may well be sensible for such notices to include a statement from the person concerned that he is aware of the implications for his own pension rights, and those of his dependants in the event of his death, which follow from his decision. I gladly undertake to examine further whether there is any need to put anything on the face of the Bill to allow this to happen. If, as we suspect, there is not, we shall examine with the pensions industry, including the CPIC, what sort of guidance might be offered to schemes and whether there is any case for a new disclosure requirement under the Social Security Act 1985.
The noble Lord, Lord Banks, asked me a specific question about death-in-service schemes being compulsory. The answer is no. With regard to death benefits in personal pension schemes, we expect most personal pensions to offer life assurance cover as an optional extra and most people with dependants would take that up if it was properly explained to them. Clause 14 of the Bill would prevent a compulsory death benefit scheme, but we are considering making this an exception under that clause.
I hope that the noble Lord, Lord Swann, will think that I have been fairly forthcoming. But I must add a warning note. We shall have to be very careful to respect the privacy of couples and not to intrude in the private affairs of husbands and wives. This is an area where the state should become involved only when things have gone badly wrong. We should be most reluctant to encourage interference when there is no such difficulty. I think that, from what the noble Lord said when moving the amendment, he had already latched on to that possibility. Despite having to end on that note of caution, and taking account of the feeling of the Committee, I hope that my general message has been sufficiently encouraging to persuade the noble Lord to withdraw his amendment.
Lord Swann: I must indeed thank the noble Baroness and perhaps remind her that in this very House a year or so ago, commenting on something that I had said, she said that she felt like Mrs. Mopp and she wished to ask, "Could she do me now, Sir?". She has done me twice this evening splendidly and most graciously. I shall try to respond equally graciously, and so I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
Clause 14 agreed to,
Clause 15 [Actuarial tables]:
Baroness Hooper Baroness Hooper moved Amendment No. 52:
Page 19, line 30, after ("applies") insert ("(including changes affecting adjustments under the regulations)").
The noble Baroness said: This is a technical drafting amendment to clarify that the Government Actuary's report on changes to the factors affecting the actuarial tables may include changes affecting adjustments to the tables. I beg to move.
On Question, amendment agreed to.
Clause 15, as amended, agreed to.
Clause 16 agreed to.
Baroness Hooper: This may be a convenient moment to break for dinner. In moving that the House do now resume, I suggest that we return in an hour's time, at 8.25 p.m. I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Forestry Bill
7.24 p.m.
Lord Gisborough: 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.—(Lord Gisborough.)
On Question, Motion agreed to.
House in Committee accordingly.
[The LORD MURTON OF LINDISFARNE in the Chair.]
Clause 1 [Restocking]:
Lord Kilbracken Lord Kilbracken moved Amendment No. 1:
Page 2, line 2, leave out ("period, not exceeding ten years,") and insert ("such a period of not less than ten years as shall be").
The noble Lord said: I raised this matter on Second Reading. Clause 1 of the Bill inserts a new section in the Forestry Act 1976 under which the commissioners may serve a notice, referred to as a restocking notice, on any person who has felled trees illegally, requiring him to restock that land or other land that may be specified. The Bill at present lays down that the trees planted must be properly maintained for a period specified in the notice of not more than 10 years after planting. The amendment would make 10 years the
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minimum rather than the maximum period, without any upward limit. The Bill at present follows the language used in Section 12(1) of the Act, where "not exceeding 10 years" is the period for which trees planted on foot of a felling licence must be maintained after they are planted.
In reply to my remarks at Second Reading the noble Lord, Lord Gisborough, gave that fact as one reason for using that same phrase here. I did not agree on Second Reading and I still do not. In the first place, I should be happier anyway if a longer minimum period were specified in the Act. Secondly, the circumstances in this case are materially different and there is no need for the same words to be used here.
In the Act we are considering an occupant who respects the law, as he has shown by applying for a felling licence. We may assume that he is much more likely than not to conform with the spirit as well as the letter of the law, and that has been borne out by the experience of the commissioners. In the Bill we are considering a case of a blatant law-breaker. He is someone who has contravened Section 9 of the Act by felling trees without a licence, for which certainly he would have had some very good reason. I think that it would therefore be acceptable that in this case a different, longer maintenance period should be required.
What danger exists in the present wording of the Bill? We know that for some reason the rascal involved believes that it would be profitable to clearfell the land. As the Bill stands, he has only to wait a maximum of 10 years (perhaps only seven or five years) until the designated maintenance period has ended. He will then normally be able to clearfell the area, unless a very large area is involved, with complete immunity up to, I reckon, about 1.2 hectares or some three statutory acres.
He can do that because trees with a breast-height diameter of up to 8 cm do not require a felling licence under Section 9(1) of the Act. Even if softwoods are planted, probably not more than some 10 per cent. will have reached that size in a decade and very few indeed—perhaps none—if only a period of five or six years is specified in the restocking notice, as is now possible. Any that then remain can be felled under Section 9(2) of the Forestry Act, which permits the felling without licence of trees totalling up to 5 cu. m, as now amended, which is a lower total than previously, in any quarter. Even a fast-growing species such as sitka spruce after the maximum period of 10 years will not hold more than 0.03 cubic metres on average. That would require a useful length of 2 metres with an average diameter of 15 centimetres. That is quite a tree after such a short period. At least 330 more trees could be cut without any licence within three months of the ending of the maintenance period out of the few trees left behind. It may be one in 10 of those over 8 centimetres in diameter. I calculate that 3,300 trees occupying 1.2 hectares could be removed.
I should prefer to see the period specified in the Bill extended to 20 years. I am not asking for that. I propose that 10 years should become the minimum instead of the maximum period, and that the commissioners should be able to extend that to 20 years or more in cases where they may have suspicions. By that time the trees will be much more

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fully established. No one would wait that long to carry out his nefarious and illegal purposes. I beg to move.
7.30 p.m.
Lord Gisborough: I can understand the concern of the noble Lord, Lord Kilbracken, to ensure that an owner or tenant who has been found guilty of an illegal felling and who is served with a restocking notice should be bound to maintain the trees for at least 10 years. It is important to recognise, however, that someone who is having to replant after an illegal felling is in exactly the same position as someone having to replant as a condition of a legitimate, licensed felling.
The objective of the restocking condition or notice is the same. It is to ensure that the trees will be maintained until they are properly established. The longer term conservation or protection of the woodland is not the aim. That is covered by the general felling licence provisions. An owner may choose to remove trees before they reach licensable age. The age at which they might do so varies widely depending on the species and the conditions under which the trees are grown. That assumes that an owner would be willing to destroy what is becoming a valuable asset. In the Forestry Commission's experience that rarely happens. If a woodland is of high amenity value, the local authority has the power to place a tree preservation order on it.
The risk of the young woodland being destroyed is therefore small. That apart, I return to the point that restocking conditions under the felling licensing regulations are aimed at the re-establishment of woodland not at its longer term protection.
I have been assured by the Forestry Commission that it has experienced no problems with a maximum period of 10 years as laid down in the Forestry Act. It does not anticipate any problems arising simply because a restocking requirement arose from an illegal felling. The noble Lord can also be reassured by the fact that where broadleaves are concerned the Forestry Commission's practice is to specify maintenance for a full 10 years.
The effect of the noble Lord's amendment would be to introduce an inconsistency. In the great majority of cases where restocking is taking place following a legitimate felling, the trees would have to be maintained only for the period that the Forestry Commission thought necessary to see the woodland properly established. That is a matter of professional judgment. In a tiny minority of cases following illegal felling trees would have to be maintained for at least 10 years even when the faster-growing conifers were involved. The commission's felling licensing regulations work well. This clause simply seeks to extend them to cover an illegal felling. It is closing a loophole, but no more than that.
The noble Lord should also consider that if trees in their 11th year were still under 8 centimetres, which would be poor growth, the cost of grubbing would have to be taken into account, and the high value of the asset. There is a limit to the bureaucratic controls which should be imposed. If trees were that small, one would wonder whether the site were suitable for growing trees. It would be unfortunate and confusing
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for those who have to administer the felling licensing regulations if we were to end up with two slightly different sets of restocking conditions especially when, as I have explained, all restocking requirements are for the same purpose. I am afraid, therefore, that I cannot give my support to the amendment.
Lord John-Mackie: We cannot but agree with the noble Lord, Lord Gisborough, who has very carefully put the Forestry Commission's point of view as to what the situation would be. We must congratulate the noble Lord, Lord Kilbracken, who has looked at this matter in a slightly different way. Somebody who had disregarded the law comes under the same conditions as the law-abiding citizen. I think that the noble Lord, Lord Kilbracken, wanted something a little harder for someone who had broken the law.
The noble Lord, Lord Gisborough, said that the conditions would make it almost impossible to grub up trees. He said that the amendment would create more bureaucratic controls. I do not know how many areas are involved. There must be quite a number to make the Forestry Commission want to bring in the Bill. Although we are disappointing the noble Lord, Lord Kilbracken, we sympathise with his point of view.
Viscount Davidson: I should also like to thank the noble Lord, Lord Kilbracken, for giving the Committee an opportunity to discuss his amendment. I do not have a great deal to add to what my, noble friend Lord Gisborough said in his cogent speech. He brought out the point very well that the whole purpose of the restocking requirement following felling is the proper re-establishment of the woodland. The number of years for which the trees have to be maintained to achieve that end is very much a matter for the professional judgment of the Forestry Commission.
I can confirm that the commission has found a maximum maintenance period of 10 years to be wholly adequate. I should emphasise the point made by my noble friend that the maximum 10-year maintenance period is now always applied in the case of broadleaves. If young trees of high amenity value are thought to be at risk, there is always the fall-back protection that a local authority can provide by means of a tree preservation order.
I agree with my noble friend that it would be unfortunate if in extending the scope of the felling licensing regulations to cover the aftermath of an illegal felling, we should end up with two different conditions for the maintenance of trees planted under a restocking requirement, especially when there is no obvious need for that.
The Government's view is that a maximum period of 10 years during which the trees have to be maintained in accordance with the rules and practice of good forestry covers all reasonable circumstances. I therefore hope that the noble Lord will not press his amendment.
Lord Kilbracken: I am grateful to the noble Lords who have taken part in the debate and for some words of comfort from my noble friend on the Front Bench and the noble Viscount the Minister. Even the noble Lord, Lord Gisborough, seemed to agree with some

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aspects of what I was saying. I do not intend to press the amendment because if it were carried it would cause a great deal of difficulty in getting the Bill through another place. I always think that it is unfortunate when this occurs. One feels under some inhibition about letting through an amendment that might otherwise find acceptance, because if it is accepted, we shall not get the Bill.
I should like to make one or two comments on remarks that have been made. The noble Viscount, speaking for the Government, said that a 10-year period has been found to be absolutely adequate. I agree that a 10-year period is absolutely adequate if one wants to make sure that the planting is fully established. Some sitka spruce trees that I planted six years ago have now formed a canopy in two metre square spacings. These have done exceptionally well. I do not have to go near them again until I start taking thinnings out of them. But that is not really what I am talking about. I am talking about whether this is long enough to prevent someone cutting down trees in order to clear an area where for some reason he does not want trees.
The noble Lord, Lord Gisborough, said that a tree that had only reached eight centimetres breast height diameter after 10 years was not much of a tree and perhaps the land should not be in trees at all. I know that my trees grow remarkably quickly. They often put on over a metre a year in height. If all trees reached a breast height diameter of eight centimetres after a decade, one would not have anything to complain about.
The noble Lord, Lord Gisborough, said that he thought my amendment was closing a loophole. That was, I believe, the phrase that he used. I will check it in Hansard. If there is a loophole, it should be closed. My noble friend Lord John-Mackie has already referred to the point that I made that there is no reason for the words to be identical or for the conditions to be the same as those used when a felling licence is granted. Here, we are dealing with a blatant law-breaker. I am grateful to my noble friend for his support. It is, I believe, certainly the case.
It is my intention to withdraw the amendment. While not looking for any undertaking from the noble Lord, Lord Gisborough, I would express the hope that between now and the Report stage—I shall not put down the amendment again—he may think the matter over with his friends and officials and perhaps let me know what conclusions he reaches. With those words, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 1 agreed to.
7.45 p.m.
Lord Dulverton Lord Dulverton moved Amendment No. 2:
After Clause 1, insert the following new clause:
("Increase in maximum number of members of regional advisory committees.
. In subsection (3) of section 38 of the said Act of 1967 (which provides, inter alia, that the maximum number of members of a regional advisory committee shall be nine) for the word "nine" there shall be substituted the word "twelve".")
The noble Lord said: I gave an indication on Second Reading that I felt moved to ask your Lordships to consider the subject of this amendment. It is my strong
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belief that the amendment could commend itself to the Committee, other things being equal. However, they are not because of our colleagues in another place. I tried briefly at Second Reading to explain that the Forestry Commission, as forestry authority, has given its mind to criticisms of certain environmental lobbies that its regional advisory committees—generally known as RACs—were too sympathetic to new forestry applicants for planting grants. The Forestry Commission has suggested in a paper I hold here, entitled The Composition and Procedures of the Forestry Commission's Regional Advisory Committees the addition of three members to its RACs from people representing interests other than that of forestry itself.
I need hardly tell the Committee that the role of the RACs is to examine applications for planting grants or indeed felling licences of any scale that give cause for concern to other interests such as farming, nature conservation, amenity and recreation. They are asked to advise the forestry authority of their findings. Where any party is dissatisfied at the end of the day, there remains an appeal to the Minister concerned. I would remind the Committee, as I said the other day, that where the decision goes against the applicant for a planting grant, Timber Growers United Kingdom, a body to which I belong that represents the private sector of foresters—it is the recognised body—strongly advises its members not to go ahead with their proposals as they might in some circumstances do without the planting grant. In other words, they are asked to respect the decision of the forestry authority as advised by the RAC.
When applications of any substance reach the forestry authority, it informs the agriculture ministries, the two Countryside Commissions, the Nature Conservancy Council, in certain cases the local authorities and in Scotland the Red Deer Commission, in addition to one or two perhaps illogically chosen voluntary agencies. If any of these bodies objects, the appropriate RAC is called into action to examine each case on the ground. That has not happened very often. When it has, there have been very few cases over which the RACs have failed to arrive at decisions acceptable to all. "The system may indeed claim to have worked well and with a great degree of responsibility. Now it is being suggested that the membership of the RACs should include more voices from land use interests outside forestry. At present, there is a chairman, four forestry representatives, one representative from trade unions, one from environmental interests, one from farming interests and one from planning interests. It is suggested that there should be added one from nature conservation, one from amenity/recreation interests and one from farming interests. This would give, apart from the chairman (who is chosen for a wide spectrum of experience), a ratio of four forestry-orientated members to seven representing other interests.
Should we not applaud and welcome this broadening of the consultative base offered by the forestry authority rather than throwing it away as happened in another place? It really must be a move in the right direction. The objections to this simple and laudable move were made on the motivation of the Royal Society for the Protection of Birds, the Council

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for the Preservation of Rural England and the Royal Society for Nature Conservation, to all of whose main objectives I have long subscribed. I deplore, however, their present line of action. I believe that others of their members would do so if they knew about it. To be outspoken, they seem to me to be acting quite irresponsibly and/or with ulterior motives at a time when foresters are genuinely trying to meet the interests of conservation in its widest sense.
Having been in touch with the Association of County Councils, I learn that it, too, welcomes the expansion of interests on the RACs, although it is critical of certain aspects of their modus operandi. Perhaps it would not have been quite so critical had it really studied this paper from the forestry authority that I have already waved at the Committee. It seems to me to contain a well reasoned line of thinking. In any case, that latter question is not one directly related to the matter now before us. I have a hope that, whatever we may do now, indications may be given from all sides of this Chamber of support for the simple measure of providing stronger representation of the interests of farming, nature conservation, amenity and recreation on the RACs, from which my amendment is motivated.
Some Members of the Committee know that I have a deep and abiding interest in nature conservation. I am all the more sorry to see the organisations which I have named, and which I have supported over the years sometimes in substantial degree, taking such a regrettable and confrontational stand. I beg to move.
Lord Taylor of Gryfe: I congratulate the noble Lord, Lord Dulverton, not only on the content of his amendment but also on the very persuasive and succinct manner in which he has moved it. No one is better qualified than the noble Lord, Lord Dulverton, because of his abiding interest not only in forestry but also in the broader field of wildlife conservation and nature conservation in general. Whatever respect the conservation lobby has for the noble Lord, Lord Dulverton, here in this country, he has been recognised internationally for his interest in wildlife conservation.
The noble Lord has pointed out that the objectives of his amendment are to provide a wider consultation framework. This is in line with the Forestry Commission recommendations. The Forestry Commission is extremely anxious to respond to the pressures of conservationists and others who feel that they are inadequately represented in the constitution of the RACs. The Forestry Commission would certainly welcome the adoption of the amendment that is before the Committee.
As the noble Lord, Lord Dulverton, has pointed out, the present statutory framework for RACs provides a reasonable balance between the requirements of good land use, amenity, recreation and nature conservation, and the individuals who act on the RACs are concious of the responsibilities in all these fields. It should be recognised that there is no call for any dramatic change other than an extension of the representation because this conciliation machinery works very well. It would be a retrograde and unacceptable
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proposition—as is threatened from some of the amenity and conservation lobbies—to have this scrapped and replaced by planning procedures. Planning procedures governing forestry would be bureaucratic and probably delaying and frustrating. The people concerned in looking at planning applications for forestry are not necessarily qualified in this field. The RACs and the local forestry conservators and their staff are intimately concerned with the land over which they have stewardship.
I hope, therefore, that by supporting this amendment we shall be giving an indication to some of the conservation lobbyists that Members of the Committee believe that the RAC principle should be observed and that the principle of conciliation and consultation which has served us so well in this field should not be scrapped in favour of some kind of bureaucratic control.
Let us look at the cases that have been referred to the RACs. In the past 10 years 9,000 applications have been made for planting grants; 18,000 applications have been made for felling licences. In the case of the planting grants 0.6 per cent. of these have been referred since they were not approved by the usual conciliation machinery. In the case of the 18,000 felling licences 0.1 per cent.—that is, 18—have been referred. This indicates that the machinery for consultation has been working effectively and that there is no cause for the introduction of any other framework.
I must say that as a former chairman of the Forestry Commission I joined it without any forestry background. If I had any interest in forestry it was in the excellent facilities for recreation in the forest. But I grew to respect the judgment and the deep concern of foresters for the land over which they had responsibility. These foresters are not vandals in the countryside. They are people who live in the countryside, enjoy living in the countryside, enjoy working in a rural environment, and certainly accept all the responsibilities that go with that.
Let me say one final word because the case has been so well represented by the noble Lord, Lord Dulverton. Let me quote for a moment from the excellent booklet published by the Timber Growers United Kingdom called The Forestry and Woodland Code, in which they lay down for their members the code of behaviour that should be observed in forestry development. It starts in the foreword:
"The countryside is a community of interests. Forestry is an important and established part of that community, and like the other members, it has a responsibility to co-operate with and respect the legitimate interests of its neighbours".
That has certainly been the practice with the Forestry Commission. As most people who have practised forestry in this country recognise, the Forestry Commission has been a good neighbour; and similarly the private sector is now laying down that forestry in the private sector should be equally responsible.
A letter has been sent in connection with the regional advisory committee by the Royal Society for the Protection of Birds. This letter was sent to the Forestry Commission. I regard it as one of the most offensive and arrogant letters that I have ever read in any business or any other connection. The secretary of the RSPB writes:

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"To be frank we consider the RACs to be partial, overly secretive, and offering nothing more than a cosmetic gloss to the FC's activities. It would have been simple for us to propose that the RACs be scrapped and contend that they are beyond redemption … I should caution you"—
he says, writing to the Forestry Commission—
"that unless a more realistic approach to the membership of the RACs"—
and so on. I want to say to this gentleman: "I should caution you" that there are people in this country who have a respect for the countryside and for the preservation and the protection of birdlife who will lose sympathy with your organisation, with consequent effect on their finances, if you go around threatening and cautioning in such terms as this letter. I hope that that will be noted.
Let me look for a moment at the case about forestry threatening birdlife. The Institute for Terrestrial Ecology have had a number of studies on this subject, one with the Professor of Terrestrial Ecology at Edinburgh, who is a specialist in birdlife. He concluded in his recent interesting essay that,
"It must be said that the effects of upland afforestation on birdlife have so far been mainly beneficial. No species has yet been seriously threatened on a national scale from the effects of commercial forestry, but some have markedly declined on a regional scale".
That is fairly authoritative and I would recommend the study of that essay to the Secretary of the Royal Society for the Protection of Birds. I have very great pleasure in seconding the amendment which was so well moved by the noble Lord, Lord Dulverton.
8 p.m.
Baroness White: I had not intended to speak in this debate. I simply came out of respect for the noble Lord, Lord Dulverton, and to listen to what he had to say. However, having listened not only to the noble Lord, but also to the noble Lord, Lord Taylor of Gryfe, I feel moved to intervene very briefly because there is another point of view.
I entirely appreciate the sentiments of the noble Lord, Lord Taylor of Gryfe, but he is living somewhat in the past. Those of us who are worried about the future have some reservations about a slight improvement in the representation on the regional advisory committee, which would give those committees what some of us may consider to be a not altogether reliable breadth of view, although such a change may appear to be making matters rather better than they may otherwise be.
We are looking towards the future. Already in Scotland, and it is apprehended also in Wales, we may have a very dramatic increase in areas devoted to forestry because of changes in the current situation of agriculture. For that reason I believe—although I have not consulted the bodies mentioned and I am not directly concerned with any representations that they may have made—that to rely upon the RACs of the Forestry Commission may not be adequate protection for certain areas of land. If one listens to the Minister of Agriculture, Mr. Jopling (as I do fairly regularly on the radio), one understands that those areas of land are likely to be diverted from the present pattern of agriculture, because of the changes in the CAP and so on, and be devoted to forestry on a scale and over an area which some of us would prefer not to—
Lord Dulverton: I am—
Baroness White: I was about to give way to the noble Lord; I just wanted to finish the sentence.
Lord Dulverton: I am sorry to interrupt the noble Baroness, but information which I have received quite recently is that the new planting in Wales last year was no more than 200 hectares. That will not alter the face of Wales very much.
Baroness White: But we have not yet, by any means, experienced the full effects of the changes in agricultural practice which we apprehend may be about to develop in the less favoured areas in the Principality over the next decade or so. It is for that reason that simply to add three members, one of whom will be representing farming interests, another representing recreational interests and one representing conservation interests, may not be sufficient protection. I do not wish to prolong the debate, but I felt, particularly in the light of the remarks made by the noble Lord, Lord Taylor of Gryfe, that I ought to indicate that there are people who hold slightly different views.
Lord John-Mackie: The noble Baroness is perfectly correct: there are people who hold different views. Like the noble Lord, Lord Taylor, who was my predecessor in the Forestry Commission, I have tremendous respect for the noble Lord, Lord Dulverton, and for all that he has done for forestry, conservation and the environment not only in this country but also abroad. I have seen a great deal of his work. He is the right person to put forward this proposal because nobody could possibly criticise what he has done. He put the case very clearly and I cannot but support him.
There are two sections of forestry in this country. First, there is public forestry which is covered by the Forestry Commission and, secondly, there is private forestry. Both work very well together. During my time as chairman of the commission one fact which was obvious was how well private forestry and the commission worked togther. When situations arose, as they did from time to time, the way in which the RACs solved the problems and held consultations and so on was a sign that those bodies did a first-class job. I attended quite a few of their consultations and was most impressed by the way in which they got on.
Like the noble Lord, Lord Taylor, I very much deprecate the letter which he read out and which was sent to the commission. I should like to give two instances of the type of situation that arises. The first example arose in Wales, which has already been mentioned, and in particular in North-East Wales. There was quite a large planting programme and the argument was that the kites would be pushed out of their habitat. I felt it was my duty to go and see the situation. I went there and naturally I discussed the matter with the ranger in that area. He had been in that area since planting had started and he said, "All I can tell you, Mr. Mackie, is that over the last eight or 10 years since planting started on a big scale there are more kites now than there were before". That is the type of situation that can arise.

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Secondly, I went to another forest in Wales; namely, Newborough Forest in Anglesey. A tremendous job had been done of planting almost in pure sand. A tremendous forest had been built up in that area covering coal mines and almost reaching the shore. The forester there, a Mr. Griffiths, who was a very nice Welshman—all Welshmen are nice, but he was particularly nice—showed me around with great pride because he had been there at the planting. He said, "Of course we had to put up with all these people who came along with placards objecting to the planting. We are now at the stage when we shall be cutting shortly, and I am looking forward to seeing them come back with their placards to stop us cutting it down".
In my view the pressure which is being put on MPs in another place to object to this amendment puts our parliamentary system into a lower key, and I do not like it at all. Apart from anything else, the conservationists in this country have been reorganised on a much bigger regional scale. There were nine people on those bodies previously. Surely to add an extra three and thus increase the size for a bigger area is sensible. As has been pointed out by the noble Lord, one of those people will represent recreation, another will represent the environment and the third will represent agriculture. I cannot for the life of me see why that should be objected to. Such a course would do nothing to stop any further consultation between environmenal and conservation bodies and the Forestry Commission. It would not stop it at all, but that seems to be the argument.
In supporting the amendment I feel that it should be given a chance. However, I know the feeling about the matter and I am aware of what can happen in another place. I shall look forward to hearing what the Government have to say and to seeing what the noble Lord, Lord Dulverton, does after he has heard the Government's comments.
The Earl of Bessborough: Like the noble Baroness, Lady White, I had not intended to take part in the debate. However, I was most interested to hear the arguments on both sides on this particular matter of increasing the number of members of the RACs. I rise because I sponsored in this House a complementary Bill last year called the Town and Country Planning (Amendment) Bill, which assured that any protected woodland tree destroyed in contravention of a tree preservation order would have to be replaced, etc. I am glad to support this present Forestry Bill, which has been so ably introduced in your Lordships' House by my noble friend Lord Gisborough.
The arguments are well balanced on both sides. Like the noble Lord, Lord Taylor of Gryfe, I have the highest possible opinion of my noble friend Lord Dulverton, who is no doubt the greatest authority on these matters in your Lordships' House. I am glad that he has spoken. He has argued the Forestry Commission proposals cogently in so far as you can make a case for increasing the number of members of the RACs. I see the point about broadening their base.
However, I should like to agree with the noble Lord, Lord Taylor of Gryfe—and this is one of the reasons why I have risen this evening—on the incredibly
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offensive letter by the Royal Society for the Protection of Birds. I cannot believe that my noble friend Lord Blakenham, their chairman, can have approved it himself. This seems to me quite extraordinary, and I shall be interested to hear what comes out of that. While I appreciate the arguments on both sides, I should like above all to hear what my noble friend Lord Gisborough has to say on this amendment before making up my mind, and also what my noble friend Lord Davidson on the front Bench has to say.
There is one important point that was made in regard to the previous amendment, and that is that we do not want to lose this Bill. It is a most valuable Bill, which I strongly support. By the adoption of this amendment by my noble and highly respected friend Lord Dulverton, I feel there might be a chance of losing the Bill, and that I do not wish to do.
Lord Gisborough: I should like to congratulate my noble friend Lord Dulverton upon the succinct and persuasive manner in which he has presented the case for the reintroduction of the clause which was removed from the Bill in another place. The noble Lords, Lord Taylor of Gryfe and Lord John-Mackie, also spoke to good effect on this amendment.
I am on the horns of a dilemma in this matter. I should like to accept this amendment, since I wholeheartedly agree with its aim. But this is a case where my head must rule my heart and I must, for reasons which I shall shortly explain, and which have been anticipated to some extent by the noble Lord, Lord John-Mackie, argue against it. The amendment seeks to increase by three the maximum number of members of each of the Forestry Commission's regional advisory committees. Such a change would enable the commissioners to appoint additional members to broaden the representation of farming and environmental interests on these committees. This would meet present criticisms that, because of statutory limitations on membership, they are overweighted in favour of forestry.
An improved balance in the committees' membership would be of particular value in the important role they play in seeking to reconcile conflicting views in disputed grant and felling licence applications, and in giving advice to the commissioners when no reconciliation is possible. Indeed the commissioners themselves favour a change in the balance of membership of the regional advisory committees and have sought views on how the extra places might be allocated. This amendment would therefore seem to be a sensible and welcome measure.
I regret the fact that this measure has not been welcomed in all quarters, as has been mentioned on all sides.
A number of conservation bodies are opposed to it. I understand that their opposition stems from their wish to see more comprehensive changes introduced following the consultation exercise currently being undertaken by the Forestry Commissioners into the composition and procedures of the regional advisory committees.
I believe that the bodies opposing this measure would really like to see forestry come under planning control. This is not a subject which I wish to debate

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today. I merely mentioned this to illustrate the ultimate and far-reaching change which these bodies may have in mind. However, such a fundamental change could not be introduced without a great deal of thought, and could only be justified if the evidence pointed to an irreparable breakdown in the present consultative system. There is no such evidence. Indeed, the present arrangements, as the Forestry Commissioners have made clear in their consultation paper, have a truly excellent record. Over more than a decade, there have been only two significant areas afforested without clearance from the commission out of more than 9,000 cases dealt with satisfactorily through the present consultative procedures.
The Forestry Commissioners recognise that the balance of membership of the regional advisory committees, which have a vital role to play in these procedures, could be improved. This is what the Bill originally sought to do by increasing the membership from nine to twelve. It is astonishing that interests which would have benefited from the change have rejected what was clearly a bird in the hand in the hope of getting more. To have accepted the proposal would not have prejudiced further changes being introduced at a later stage if the case were made out for them. As it is, we shall be left with the present balance of membership on the committees.
It is plain that the bodies which brought pressure to bear to have the clause removed from the Bill have not had any change of heart. I must regretfully advise your Lordships therefore, that, if the clause is restored as a result of my noble friends amendment, the Bill as a whole will be placed in jeopardy when it is returned to another place. This is not because of any general lack of support, but because just one objection would mean the loss of the Bill as a result of absence of time for debate. This is what bedevilled the Bill in its earlier stages and led to the present position.
It gives me no pleasure to oppose a measure which I am sure the Committee would welcome, but I do so with the interests of the remainder of the Bill in mind. I hope that with this explanation my noble friend will agree to withdraw his amendment.
Viscount Davidson: I can be brief. It is clear that most of your Lordships agree that the amendment proposed by my noble friend Lord Dulverton makes a great deal of sense. It made sense when the same provision was in the Bill when it was introduced in another place. However, for reasons which my noble friend Lord Gisborough has made clear, it was subsequently removed from the Bill in response to pressure from certain conservation bodies.
It is unfortunate that this had to be done in respect of a proposal which clearly has a wide measure of support in both Houses. However, the procedures under which the Bill was introduced in another place made it particularly vulnerable to any objection. It is not a Government Bill, although we wish it well. It is, however, vulnerable to outside pressure and we must accept that fact.
In short, if we amend the Bill is it almost certain to be lost when it is returned to another place. No matter what our individual or collective wishes may be about this amendment, I am sure that your Lordships would
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not wish the sound measure contained in Clause 1 of the Bill to fall by the wayside. I hope therefore that in those circumstances my noble friend will not press his amendment.
Lord Dulverton: I should like to say a heartfelt thank you to those noble Lords and the noble Baroness who have spoken to this amendment. I am flattered that I was followed by two ex-chairman of the Forestry Commission, and my noble friend Lord Bessborough, the president of the Men of the Trees.
The Earl of Bessborough: I am sorry; I did not declare my interest.
Lord Dulverton: I am very grateful for the kind remarks which all noble Lords have made as well as for those of the noble Baroness, Lady White, whose love of rural Wales I know full well. I could wish that she was as keen as I might be to see some of the vast prairies of bracken replaced by beautiful growing trees. But we will leave that aside. My noble friend Lord Gisborough moved this Bill very ably and of course I entirely respect the thoughts he has just given us. I regret that this should be the case, as he has explained and my noble friend the Minister also has explained it. I know this to be the case, but I hope that some people outside this House may somehow get to know of the support. I led off on this matter by saying I hoped the support would be coming from all sides of the House; it has done so and I hope some people will take note of it. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 2 agreed to.
House resumed: Bill reported without amendment: Report received.
Lord Skelmersdale: I beg to move that the House do now adjourn during pleasure until twenty-five minutes past eight o'clock.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was suspended from 8.23 until 8.25 p.m.]

Social Security Bill
House again in Committee.
Clause 17 [Retirement pensions]:
Lord Banks Lord Banks moved Amendment No. 53:
Page 21, line 3, at end insert—
("( ) From the commencement of this Act the basic pension shall be increased in real value by not less than 2 per cent. per annum for five years; this increase will only be paid to the extent that it exceeds the additional component provided by the State or a guaranteed minimum pension or the product of minimum contributions to a contracted-out money purchase occupational scheme or a contracted-out personal pension policy.")
The noble Lord said: I beg to move Amendment No. 53. This Bill is much concerned about pensions in the future; there is a great deal of concern lest those retiring 50 years from now should do so with nothing more than an inadequate basic pension. Hence the

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maintenance of SERPS, though to be reduced, and the opportunities for occupational pensions and persons pensions.
In moving this amendment, I am concerned about those already retired with little or no SERPS, and with no occupational or personal pension. After all, nobody will have a full SERPS pension before 1998 and everybody will not be on a full, though reduced SERPS pension until well into the next century—in fact, not until all those born before 1933 have died.
In their comment in the Green Paper, Age Concern said:
"Age Concern believes that the basic state pension is too low, as do 69 per cent. of the public, according to a recent MORI poll (April 1985). It should be raised to a level which permits pensioners to live and participate fully in society."
The House of Commons Social Services Committee, in their report on the age of retirement published in 1982, said that many, and in particular those with poor employment records, would receive little or no additional component. They said that the future of those pensioners was of major concern. There would emerge a gap in pension levels, particularly between those currently retiring and those due to retire in and after 1998.
They went on to say that they were convinced that some sort of assistance for older and poorer pensioners was inevitable and that future governments, of whatever political complexion. would have no choice but to regard this as one of the first calls on any additional resources.
The Social Security Advisory Committee in their report for 1982–83 quoted these words and said that they shared the Social Services Committee's conviction. They said that the special problem of lower income among those who had not had the opportunity on grounds of age to take advantage of the earnings related element was a transitional one. "We believe", they said, "it needs to be tackled in a way which will not add to the long-term costs of the scheme or affect its build up for younger contributors".
This amendment is designed to tackle the problem precisely on that basis. First, it would increase the real value of the basic pension by 2 per cent. per annum for five years, approximately a 10 per cent. increase in real value achieved over five years. That is a modest enough improvement, and it may be said that the percentage may be higher and the term longer; but, after all, I am seeking to persuade the present Government.
Secondly, when someone is in receipt of SERPS or GMP or pension from minimum contributions to money purchase occupational schemes or to a personal pension scheme, the increase in real value will only be paid to the extent that it exceeds that additional component. Thus if the increase in real value—just to take easy figures—is worth £200 per annum and a pensioner is receiving £100 of additional component, he would only draw £100 extra as a result of this amendment. If the additional component amounted to £200, he would draw nothing, but if he had no additional component, as millions now retired have not, he would draw £200. Thus the amendment would help the poorest. I estimate that the cost in the first year would be about £320 million.
In considering that sum, we also have to consider the view of Age Concern, of the House of Commons Social Services Committee and of the Social Security Advisory Committee that the basic pension will have to be increased. The cost would build up for five years and then gradually reduce so that eventually it became minimal. The proposal thus complies with the Social Security Advisory Committee's view that the problem should be tackled in a way which will not add to the long-term costs of the scheme or affect its build-up for younger contributors. The Government of the day might want to continue the increases for longer than five years, but even an increase over five years would do something to enable pensioners to catch up with earners. Pensioners are falling behind as pensions are linked to prices whereas earnings have been increasing consistently at a faster rate than prices. If this continues the basic pension will become a smaller and smaller proportion of the total state pension. To solve all these problems I hope that the Government will feel able to accept this amendment. I beg to move.
8.30 p.m.
Baroness Turner of Camden: I rise to support from these Benches the amendment moved by the noble Lord, Lord Banks. It must be a matter of concern to everyone that the position of people who are existing simply on the basic state pension—and there now are many of them—should be in many instances in penury. The noble Lord, Lord Banks, has already referred to representations made by reputable organisations such as Age Concern. What he is suggesting seems to us to be an extemely modest suggestion under which there would be an increase in the real value of the basic state pension for the period mentioned in the amendment. By real value he means, I take it, that not only would the basic pension be increased by the inflation rate in regard to prices, but there would be an increase on top of that. I should very much like to see this, and therefore I believe that this amendment should be supported.
Lord Vinson: All of us would like to see an increase in the basic state old-age pension. Indeed, I believe I share with the noble Lord, Lord Banks, the belief that were we starting from scratch we would abolish SERPS and increase the basic state old-age pension, which would be far more equitable as it would treat all our citizens alike, whatever the work or employment pattern of their careers. But the fact remains that it is inescapable that we are sharing the rice in the rice bowl and the greater one increases retirement provision the greater one raises regressive taxation. It is inescapable that the higher the pensions paid the more difficult becomes the problem of the poverty trap. There is no such thing as a free pension: it has to be paid for by the working. What we are talking about in simple terms is how we divide the rice bowl between rewarding the working and rewarding the retired. This is the dilemma that lies at the basis of all our discussions tonight.
There are many people who believe that once pensions are funded in some way this no longer affects the economy. But one man's tax privilege is another man's tax rise. It all comes back to the division of the rice bowl. While I should be the first to support a

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fundamental increase in the old-age pension—indeed, governments always have done their best to increase this in line with inflation, or more importantly in line with what the nation can afford—it would be wrong by statute to build in an automatic increase over a period of years.
While I sympathise totally with the noble Lord, Lord Banks, in the terms of his amendment, in practice it would be impracticable and it should be left to the discretion of governments, because at the end of the day it falls to the Government to share out the rice equitably. In that case they would be right to oppose this motion and to review the level of the old-age pension regularly from time to time but without automatic increases being written in by statute.
Baroness Trumpington: I should like to say how much I agree with the wise words of my noble friend Lord Vinson. The noble Lord, Lord Banks, seeks to provide a substantial real increase in the value of basic retirement pension, but to pay it only to those who do not have any, or only a small, earnings-related pension. This device is similar to the guaranteed additional component discussed during the 1970s. It would also be in line with the recommendations of the Social Services Select Committee in another place, which in 1982 recommended action to narrow the income gap between those who had already retired with little more than the basic pension and those who would be receiving substantial extra sums under the earnings-related pension scheme.
I have much sympathy with the noble Lord's objectives, but I have to say that the amendment would not be acceptable. First of all, it would be costly—an additional £1,310 million in the fifth year. In the first year costs would be an additional £270 million.
Secondly, it would complicate the pensions awarding arrangements, though I would not wish to make too much of that. But, thirdly, I do not think it would achieve its aim. Under any system where part of a pension is tied to earnings-linked contributions, some people will do worse than others because they have not earned, or not earned as much. That will be just as true in forty years' time as in the next five years. But under the noble Lord's scheme as expressed in this amendment, only the product of 10 per cent. of the basic pension after five years from 1988 will be available to help narrow the gap between the pensioner with the basic pension and the pensioner with high additional pension. Since it is currently possible to receive additional pension up to £23 a week, and 10 per cent. of the basic pension is £3.80, the noble Lord would be setting up a rather complicated scheme to produce a mouse.
The Government are very conscious of the need to protect pensioners' living standards, and we believe our record is a good one. But we do not believe an amendment of this kind is the right way to help those pensioners who are less well off.
Lord Ennals: May I add a word to the arguments that have been put forward both by my noble friend and by the noble Lord, Lord Banks? Yesterday I had a meeting with 28 longstanding traditional welfare
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organisations, several of which have been in existence for over 100 years—the Soldiers', Sailors' and Airmen's Families Association; the Family Welfare Association, and so on. Many of them deal with the problems of the elderly. All of them say that they find greater poverty among the elderly than they have known in recent years. I certainly should not say in the last 100 years—nothing like that. But there is no doubt that many of these organisations working for the elderly are quiet charities which have been doing their best. They have come together because of their concern, not just about the state of welfare of the elderly but about other things that we shall deal with later in the Bill. I do not believe that the noble Baroness should feel any sense of complacency about the feelings and the degree of poverty and hardship that exists among many of our elderly in society.
The second point I should like to make is to remind the noble Baroness and the noble Lord, Lord Vinson, that while this Government have rightly and marginally more than covered pensioners' pensions against the rising rate of inflation—the rate of inflation is lower than it has been for some 15 years, all credit to be given—until this Government came to power pension increases, as the noble Baroness will know, were linked with the level of earnings rather than the level of inflation.
One of the things that must trouble this Government at the present time is that earnings are rising so much faster than inflation or production; and it will have its consequences. Had legislation not come in that linked the pension to inflation proofing rather than earnings-level proofing, pensioners would now be getting a much more substantial increase than they are. One way to do it is as has been suggested by the noble Lord, Lord Banks.
Of course, the noble Baroness says, and no doubt others of her supporters will say, "We can't afford it. It's a matter of priorities". We have to ask ourselves as a society what our priorities are and where in our priorities is the welfare of the elderly compared with all sorts of other things that the Government have to consider. The welfare of the elderly should come very high and I believe that this five-year proposal with the 2 per cent. increase which has been suggested by the noble Lord, Lord Banks, would at least make a contribution to easing poverty among the elderly in our society.
Baroness Gardner of Parkes: That was a very interesting speech and we all agree that we want to see as much help as possible for the elderly. But I do not think that this amendment is the way to do it. The elderly certainly suffered terribly during the years of very high inflation when we had 20 per cent. inflation. That is what cut back the savings that people had made for their old age—people on a fixed income—and they were terribly hard hit during those years. This proposal, as I see it, would only perpetuate the poverty trap for the elderly and, indeed, for the whole of our society because it would mean increasing the rate of taxation in order to meet the additional financial commitment that is set out.
I think that instead it is far better to deal with the elderly through the social fund, which comes up at a later stage in this Bill and which is geared to give real

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help to those in real need; and many of the elderly are in real need. If we could also get through to many elderly people the feeling that they are entitled to whatever help the Government can give them, it would be of great importance.
I happen to be the first ever president of the War Widows' Association. I am so impressed by the frugality and pride of these women. They will re-use an envelope two or three times without thinking that to most people an envelope is nothing. To them an envelope is an important thing. They watch every penny. These women are so proud of managing that they hate to ask for anything. If we can get through to them the point that they will be quite entitled to take their needs to the social fund and get help in that way, that will be far better than building in anything that is suggested in this amendment. For that reason I could not support this amendment.
Lord Ennals: May I respond very briefly to the points very eloquently made by the noble Baroness. It is quite right that elderly people are very proud and do not like to go and ask for means-tested benefits. This is the advantage of the amendment that has been put forward by the noble Lord, Lord Banks. The noble Baroness says that it is an entitlement, but it is an entitlement only when you have proved the extent of your poverty. That is the case. To me that does not mean an entitlement. An entitlement is something that the state accords to you because you are an elderly person and not because you are poor. That is why I think it should be in this part of the Bill and not simply related to the social fund.
Baroness Gardner of Parkes: I thank the noble Lord for that reply. I should like to come back again and say that to my mind if it is something which is given as a blanket hand-out to everyone, it loses its merit because it is so uniform that it does not help those in real need.
Baroness Trumpington: May I come back to what the noble Lord, Lord Ennals, has said. The Government are certainly not complacent but, as my noble friend Lord Vinson said, it is better to take decisions on the level of pensions at the time that uprating decisions are taken than to enshrine a fixed increase in a statute, regardless of what the state of the economy is at the time. As my noble friend Lady Gardner has said, our success in the fight against inflation is the best news that pensioners have had.
8.45 p.m.
Lord Banks: I should like to thank the noble Baroness, Lady Turner, and the noble Lord, Lord Ennals, for their support of this amendment. I regret that the noble Baroness, Lady Trumpington, has felt that she must turn this down along with most other things. I think that she has to answer the argument—and I do not think that she has—put forward by the three bodies that I mentioned. It may be said that Age Concern, excellent organisation that it is, has obviously a vested interest in looking after the interests of old people. When it comes to the Social Services Committee in another place and the Social Security Advisory Committee, they are grappling with problems across the whole range of social security.
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Both those bodies have felt it necessary to say, "Here is a problem which, as far as we can see, governments will have to tackle, will have to take up, will have to solve". The noble Lord, Lord Vinson, said that it would be nice to do something, but do not let us put it into the Bill; let us leave it until the time when the Government feel they can to it. We know that governments do not often have these feelings. Therefore, if you want to make some progress, it is essential to get it written into the law. If we were to have this particular system which has been suggested, which has the merit that it follows the guidelines suggested by the Social Security Advisory Committee, I think it would be essential to introduce it by means of statute. I do not see how we can have the offset otherwise.
Incidentally, the noble Baroness, Lady Gardner of Parkes, has said that there is not much point in giving a benefit if it is uniform. We could argue about that. But this particular benefit is not uniform because of the offset, and so that particular argument of hers would not seem to hold.
Then the noble Baroness complained that it is too much money producing too little result. Of course, we could have it higher if she would prefer that. The £1,310 million extra by the end of five years, introduced over that period of time, is, she says, something which we cannot contemplate. Yet we contemplate paying out much more than that for pensions in the next century. We hold up our hands in horror at the thought that people in the year 2030 or 2040 may not have these pensions that we think are so desirable. But the only people whose pensions we are asked to pay for are the people who retire today. We are not going to pick up the tab for paying the pensions in the years 2030, 2040 or 2050. We are picking up the tab for paying today's pensioners. Yet we expect other people to do more in the future than we are prepared to do today.
This particular amendment is rather important to us on these Benches. We have made it clear that while we are prepared to talk about modification of SERPS and while we realise that there could be a problem about expense in the middle of the next century, we cannot agree to it unless there is some increase in the basic pension. Therefore, this affects our view on other amendments which are to come later and on our whole attitude to this part of the Bill. That being so, I feel that it is essential—
Lord Vinson: I hope the noble Lord, Lord Banks, will forgive me for coming back again. He said that we, this generation, will be paying for the pension. Of course, he is absolutely right. But the point that I think he should dwell on is that it is not the better off in society who will be paying for it; it is actually the very low earners in society, those who are the victims of the poverty trap. The higher the pension you pay, the more rice you dish out to those in retirement, the less rice there is to pay for those who are actually earning.
This is an inescapable problem that all governments try to solve. Of course we should like to pay our pensioners more but, equally, had the noble Lord, Lord Ennals, just come from a meeting of the low-paid who were complaining that their rate of tax was far too

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high, he—and I am sure we all would agree—would wish to see the lower-paid pay less tax.
We know the dangers of the poverty trap and how socially it is incredibly unjust. So we have two injustices to deal with: the injustice of not paying pensioners enough and the injustice of taxing the low-paid too much. How do we strike the balance on this? I merely suggest that the right way to do it is for governments to try to take that decision relative to the good fortunes or bad fortunes of the economy at the time and not to enshrine it in an Act.
Lord Banks: If what the noble Lord says has any validity, it would seem to me to apply now, yesterday and tomorrow just the same. It does not seem to be an argument that is related to our particular situation at the moment. It would seem to be an argument against pensions of any size at any time and one that you could bring out just as strongly against pensions in the year 2030 as pensions this year. The noble Lord nods: that is so—yet the Government are placing an obligation, without knowing what the circumstances will be at that time, on people 50 years ahead to pay at certain rates. They are not at all concerned about it and they are very anxious that they should not be involved in paying this bit extra at the present time. I feel this is a matter on which I should like to test the feeling of the Committee and that I must therefore press the amendment at this stage.
8.50 p.m.
On Question, Whether the said amendment (No. 53) shall be agreed to?
Their Lordships divided: Contents, 35; Not-Contents, 57.

DIVISION NO. 4

CONTENTS

Airedale, L.

Jeger, B.

Banks, L.

Kagan, L.

Blease, L.

Kilmarnock, L.

Buckmaster, V.

Lloyd of Kilgerran, L.

Cledwyn of Penrhos, L.

McNair, L.

Crawshaw of Aintree, L. [Teller.]

Nicol, B.

Northfield, L.

Darcy (de Knayth), B.

Parry, L.

David, B. [Teller.]

Pitt of Hampstead, L.

Ennals, L.

Rochester, L.

Ewart-Biggs, B.

Seebohm, L.

Ezra, L.

Serota, B.

Faithfull, B.

Stoddart of Swindon, L.

Grey, E.

Strauss, L.

Hacking, L.

Taylor of Gryfe, L.

Hanworth, V.

Turner of Camden, B.

Hatch of Lusby, L.

Underhill, L.

Henderson of Brompton, L.

White, B.

NOT-CONTENTS

Allenby of Megiddo, V.

Cork and Orrery, E.

Ampthill, L.

Craigavon, V.

Auckland, L.

Davidson, V.

Belstead, L.

Denham, L.

Birdwood, L.

Dilhorne, V.

Boyd-Carpenter, L.

Donegall, M.

Brabazon of Tara, L.

Dulverton, L.

Brougham and Vaux, L.

Elton, L.

Buckinghamshire, E.

Enniskillen, E.

Caithness, E.

Gardner of Parkes, B.

Carnegy of Lour, B.

Gisborough, L.

Colville of Culross, V.

Glanusk, L.

816

Glenarthur, L.

Munster, E.

Gray of Contin, L.

Rankeillour, L.

Hanson, L.

Renton, L.

Harvington, L.

Rochdale, V.

Henley, L.

Rodney, L.

Hives, L.

St. Aldwyn, E.

Hooper, B.

Sharples, B.

Inglewood, L.

Skelmersdale, L.

Kaberry of Adel, L.

Swinton E, [Teller.]

King of Wartnaby, L.

Tranmire, L.

Layton, L.

Trumpington, B.

Long, V. [Teller.]

Vinson, L.

Lucas of Chilworth, L.

Whitelaw, V.

Macleod of Borve, B.

Windlesham, L.

Margadale, L.

Young, B.

Mersey, V.

Zouche of Haryngworth, L.

Mountevans, L.

Resolved in the negative, and amendment disagreed to accordingly.
8.58 p.m.
Baroness Turner of Camden Baroness Turner of Camden moved Amendment No. 54:
Page 21, line 13, leave out from beginning to end of line 14 on page 22, and insert—

("(a) in relation to any surpluses in the pensioner's earnings factors for the tax years in the period beginning with the tax year 1978–79 and ending with the tax year 1987–88, the weekly equivalent of 11 per cent. of the amount of these surpluses;

(b) in relation to any surpluses in the pensioner's earnings factors in a tax year after the tax year 1987–88, the weekly equivalent of the relevant percentage of the amount of these surpluses; and in this paragraph "relevant percentage" means:

(i) where the pensioner attains pensionable age in the tax year 2009–2010 or any subsequent year, 1;

(ii) where the pensioner attains pensionable age in a tax year following within the period commencing with the tax year 1999–2000 and ending with the tax year 2008–2009, 1+X, where X equals 0.025 for each year by which the tax year in which the pensioner attains pensionable age precedes the tax year 2009–10;

or, if there are more than 20 such surpluses, of those 20 which give the largest weekly equivalents.").

The noble Baroness said: Clause 17 of the Bill is the clause which seeks substantial amendments to the state earnings-related pension scheme. A major feature of the scheme, as everyone knows, is that entitlement is based on the best 20 years' earnings rather then averaged out over a lifetime. Our objective on these Benches is to try to retain this vital element of SERPS. This was always seen as a major advantage to certain groups. Those were, and are, women who spend years out of the workforce with domestic responsibilities, the disabled who have a chequered work pattern, manual workers, some of whom also have a chequered work pattern, the unemployed and indeed everyone who for one reason or another could not remain in employment continuously over a normal lifetime of work.
The greatest benefits of the scheme in any event would not come into effect until 1999: yet it is that date on which the Government have chosen to end the "best 20 years" rule. Clause 17 of the Bill provides for SERPS to be calculated over a lifetime's average earnings for contributions over a lifetime. Clearly this will disadvantage those whom SERPS was originally meant to assist.
A great deal of stress has been laid on the fact that there is said to be no urgency about any of this. The

817
SERPS protection does not cease to apply until 1999, which is when the "best 20 years" rule will disappear. This is made clear in the Notes to the Bill with which we have been supplied, and it has misled many people into thinking that people working today will not be affected; but they will be. The pensions of many young and middle-aged men and women will be affected. For example, a 20 year-old man in 1988 who is unemployed from 1988 until 1993 will lose five years from the pension he will receive in 2033. The old SERPS would not have disadvantaged him in this way.
It is true that the Bill now before us provides some protection for certain people, but it does not provide anything for the unemployed. Moreover, the effect on women who work part-time and in low paid work for some years during their working lives will not be a good one. There has been a welcome acknowledgement by the Government that special protection is needed for those bringing up children, for the disabled themselves and for those caring for disabled people. However, they also have periods of low earnings outside the home and those years of low earnings would reduce the ultimate value of the pension.
This has not escaped the attention of the Equal Opportunities Commission. In fact, they have already made a statement on this question in which they say:
"In principle, the plan to apply home responsibilities protection (HRP) to SERPS is designed to recognise women's different working patterns. However, this new scheme looks set to discriminate against the majority of married women, who, after starting a family, return to part-time work.
"This is because under the new system a woman who does part-time work for a large part of her working life will receive a smaller (SERPS) payment than a woman who has chosen to claim the new home responsibilities protection for a greater number of years, but who has worked full time for the rest of her working life."
The commission suggest that the way out of this kind of anomaly would have been for the Government to leave the best 20 years provision alone.
If we look at some of the arguments that have been advanced for emasculating SERPS—because that is what it is—I do not think that they stand up to real examination. The most common statement is that we cannot afford the old-type SERPS. The Government Actuary is frequently called in aid here, yet the rate of growth predicted by the Government when talking about social security provision is different from and lower than that referred to when they are talking about rates of growth in other connections.
Even so, the argument that we cannot expect future generations to pick up the bill is really not a worthy one. Each generation relies on the work that has been done by previous generations. The standard of living that we enjoy, the systems of government that we have inherited and the material benefits of this generation compared with previous ones all are due to the work of our predecessors. Each generation has an obligation to fulfil to future generations. Incidentally, I do not think we are fulfilling it very well at the present time to those working people now retired, though those of us who voted for the amendment which has just been before the Committee attempted to do so. But the whole idea of SERPS was to lift future generations above that standard.
It is not an argument to say that provision can be made through private personal pensions. Many of the people covered by SERPS now have not the expertise—indeed, why should we expect them to have?—to make choices between the various schemes which will be on offer after SERPS has been emasculated. Pensions are provided from total resources, whether publicly or privately provided, and what the Government are really saying is that we should not commit ourselves to seeing that those who come after us, and who are now at work or beginning to work, should have a reasonable standard of living when they retire. The standard of living offered by SERPS is, after all, not a luxurious one. It is a basic earnings-related one. For that reason, it should not be allowed to disappear. The object of this amendment is to preserve the best 20 years provision and I therefore commend it to your Lordships. I beg to move.
Baroness Faithfull: It would seem sensible, having heard the noble Baroness introduce this amendment, to speak also to Amendment No. 56, because that covers exactly the same points as the noble Baroness has made. Is that acceptable to the Committee or does the Minister prefer not to do that?
Baroness Trumpington: I think we would rather not, because we have Amendment No. 56 grouped with a different set of amendments.
Baroness Faithfull: I will speak later.
Lord Ennals: If the noble Baroness is not going to expand the argument, and having sat like a Trappist monk until the last amendment, perhaps I may say a word on an issue on which I feel very strongly. Having myself been involved in the introduction of the new pension scheme as Secretary of State, I want to express myself and to state the arguments.
I think the noble Baroness will remember that on Second Reading on 3rd June at col. 683 of the Official Report she said:
"I know that some concern has been expressed in another place about the position of other groups who currently stand to gain from the "best 20 years" rule but for whom we have not so far announced any special protection"—
I notice the words "so far", and therefore I live in hope—
"in particular the long-term unemployed, some disabled people, mothers returning to part-time work. I am sure we shall have ample opportunity to debate the situation of particular groups when we come to consider Clause 17".
We are now doing so.
When the pension scheme, SERPS, that is now being amended was introduced, the best 20 years formula was an essential part of what we sought to do. I would remind the Committee that, at the time when we introduced the best 20 years formula in 1975, it—as well as the rest of that legislation—was supported totally by the Conservative Opposition and not totally by the Liberal Party, as I almost always have to say. There was a very wide measure of support for the Bill and for the principle of the best 20 years.
It was recognised that a pension formula based on the individual's lifetime average earnings could not produce adequate pensions for people whose working life was interrupted by periods of sickness, as may have

819
applied to many, by unemployment—and we had not contemplated at that stage that it would be anything like its present level or what looks like being its future level—by domestic responsibilities or in cases where earning capacity was reduced by disability. Obviously the noble Baroness was aware of these problems when she made the points that she did in the Second Reading debate. Taking into account only the best 20 years' earnings would mean that people in all these situations would be able to earn a decent pension—that is what it is about—an average of which even the best occupational schemes could not match.
One of the main aims of the 1975 scheme was to give a better pensions deal to women, whose careers are usually interrupted by pregnancy and child rearing and in relation to whom in so many cases a professional career is given up to looking after elderly parents, as people are living so much longer these days—elderly people or disabled members of the family. The best 20 years formula was an important element in the achievement of this aim. Together with the provisions for home responsibility protection, it enabled a woman to earn a full pension if only half her working life had been spent in full-time paid work.
It may be said—and perhaps the noble Lord, Lord Vinson, is waiting to leap up and say so, though I have a lot more to say before he does, so he must contain himself—that we must not be too generous. The noble Lord will know that by international standards the best 20 years formula is not abnormally generous. In France, for example, the pension formula was changed as long ago as 1971 to give pensions based on the best 10 years' earnings, so we are falling far behind the arrangements of our friends and competitors—whichever way one likes to look at France.
One advantage of the best 20 years formula is its simplicity. The scheme as a whole has been criticised as being unduly complicated, but this aspect of it is very clearly understood. It is expressed in only 16 words in the Social Security Pensions Act 1975, and I quote:
"or, if there are more than 20 such surpluses, of those 20 which are the largest".
Compare this with the algebraic complications of the present provision. I should love to hear the noble Baroness actually explain exactly what is set out on page 21 of the Bill. Perhaps she will do so in reply to me. But if one is talking about simplicity, I must say that the words I quoted are a little simpler than those set out in the new scheme.
The reason for the complexity is that, having decided to base the pension on lifetime's earnings instead of the best 20 years, the Government realised that this would create major anomalies and injustices. In fact, not surprisingly, it would penalise precisely those people whom the best 20 years formula was designed to protect. The clause makes a rather feeble attempt to remedy that situation. It does this by leaving certain years of a person's working life out of the total number of years over which the lifetime's earnings are to be averaged. That is what all this algebraic stuff is about. But it simply creates new anomalies. Arbitrary distinctions are made between years that are included and those that are excluded. The most blatant injustice is that years of
820
unemployment will count as part of the working life. Pension rights will be protected to some extent during periods of long-term sickness or domestic responsibility, but not at all during periods of unemployment. How can that be fair? No justification has been offered for this latest discrimination, if I may call it so, against the unemployed.
The Bill provides special protection for some groups but not for the unemployed. The Government have resisted all attempts to extend protection to these people, though the words of the noble Baroness at Second Reading give me hope that she may say that the Government will come forward with some protection, particularly for the groups I want to protect. During the Committee stage in another place the Minister of Health said, (and I quote from Standing Committee B, col. 439):
"While I do not in any way suggest that there may not be a problem in relation to this group"—
the unemployed
"in the early part of the next century, I think it is a problem"—
this will commend itself to the noble Lord, Lord Vinson—
"that exists at that time and is not one which we need to settle at this time".
This is in a sense a very persuasive agrument, but it totally disregards the anxieity of people who are unemployed now and who have no guarantee that a government at the end of the century will change the rules to protect them. Again, this Government have hidden behind a statement, repeated frequently by Ministers, and have refused to recognise the injustice of the mathematical calculations used for the assessment of those people who are disabled or are caring for children, or disabled people who try to work within their capacity or who need to work part-time but who earn above a certain low earnings limit. In those circumstances, they will not receive protection and the years of low earnings will serve to reduce the pension. The injustice of that situation will then be apparent, in that those who work and contribute will have a lower pension than those who do not go to work. How often have I heard Ministers speaking about not discouraging people from going to work? The clause that we are seeking to amend does precisely that.
Equally indefensible is the fact that under the proposed formula many people will find that by taking a job at a lower rate of pay, or by working part time, they will lose part of the pension that they have already earned, because each year of low earnings will reduce the average on which the pension is based. That will particularly affect married women and disabled people considering whether to return to work. I hope that the noble Baroness, who showed a measure of understanding in the quotation with which I started this brief intervention, will realise that now is the moment, in Committee on Clause 17, to deal with precisely the issues she recognised that we would want to deal with.
9.15 p.m.
Lord Vinson: I feel somewhat handicapped in replying to the noble Lord, Lord Ennals, and the noble Baroness, Lady Turner of Camden, because we share

821
so many of the same goals. We want to see that those who have chequered earnings have a higher rate of pension. Incidentally, I may not have had chequered earnings but I have had a chequered career, which is a wholly different thing.
If I may say so, the arguments of those opposite are misplaced. The whole time they are arguing for those who are lucky enough to have been eligible to get into SERPs at all. One is talking about only half the working population. The other half are not in SERPs. They also have chequered earnings—they have no earnings at all. They stay at home to look after handicapped mothers. They live in rural areas where there are no jobs. They have large families and cannot go out to work. They live nowhere near créches and so could not go out to work even if jobs were available. So the whole time, this marvellously genuine gush of compassion is directed at only half the population.
If we are really concerned, then we must look at the whole population who have chequered earning patterns. We must then remind ourselves—and I am sorry to keep returning to the rice bowl analogy—that if we do not somehow try to balance the rice that we give to those who have been fortunate enough to be in work, then we will find that there is less rice to give as a general rise in the general old-age pension. I want to see—and I hope that in future generations we will see, and that the economy will be able to support it—a major rise in old-age pensions that will treat all those people for whom we are so concerned alike and uniformly. I hope that it will be possible to so treat those who have not been fortunate enough to be in work. If we do not accept—
Lord Ennals: The noble Lord recently asked the noble Lord, Lord Banks, to give way. Will he now give way?
Lord Vinson: Of course.
Lord Ennals: I am most grateful. The noble Lord was saying that only half the population is included in SERPs. I would ask the noble Lord why that is so. We should like to see included the whole of the population who have had earnings at any stage during their working lives. That can apply to people who were at some stage unemployed and who were at some stage employed. It can apply to disabled people who may have gone through training courses, who have been earners but who are now disabled and unable to work, but who may perhaps return to part-time work. It could apply to women and all the other categories about which I was speaking, who are all people we want to see within SERPs.
The noble Lord says that those people are not within SERPs, and when he adds the phrase "gush of compassion", I do not know whether he is talking about me or about the noble Baroness, because I have not seen much of a gush of compassion from the other side of the Committee in this debate.
Lord Vinson: I was speaking about the state earnings-related benefit. If one does not happen to earn, then one does not get the benefit. There is a whole raft of our citizens, particularly women, who do
822
not earn and who are not in a position to earn. We are talking about how we look after the one half of the population who earn, and who relate some pension to their earning capacity. I am equally concerned about the other half who do not earn, in trying to relate some pensions to them.
If one is sharing out the rice in the rice bowl then it would be more sensible to say that those who have been lucky enough to earn have had both earnings and now a pension on top, but for those who have not been lucky enough to earn—the other half of the population—then we must do our best to give them more rice and raise the old-age pension. I should like to achieve the same goals as noble Lords opposite would like to achieve, not by keeping the rate of SERPs reward higher, but by switching that rice to the general level of old-age pension. Then we could treat all the cases over which we share compassion uniformly and fairly.
Baroness Trumpington: This amendment does very little to reduce the huge cost of SERPs which would be passed on to future generations of contributors in the next century. Admittedly, it does contain an element of pruning by eventually reducing SERPs pensions from 25 per cent. of earnings down to 20 per cent. of earnings over a 10-year transitional period from 1999. But the most extravagant and badly targeted feature of the scheme, the 20 best years rule, is left untouched. It means in effect that everyone who has been in the scheme for the first 10 years from 1978, whatever their age, will be half way toward a full SERPs pension by 1988. They will already have earned a pension based on 12½ per cent. of their earnings over those years. Ten years later they will have earned a full SERPs pension, the remaining years only serving to top up that entitlement for any years in which the earnings come within the best twenty. Meanwhile, the occupational pensions of better-off people in good occupational schemes will be being indiscriminately topped-up by the state, because GMPs will have been building up more slowly over the whole working life, and the state pays the difference between the two.
Our proposals for protecting people who have qualified for home responsibilities protection or national insurance contribution credits for incapacity or with invalid care allowance will be much more accurately targeted on the people we want to help, and will avoid the indiscriminate excesses of the 20 best years rule.
The amendment rightly preserves SERPS rights earned before April 1988 on the 25 per cent. basis, and we have already provided for this in Clause 17. Likewise, we have provided for a gradual transitional reduction from the 25 per cent. rate down to the 20 per cent. rate. But we cannot agree to retaining the 20 best years rule, which is the single most expensive feature of the scheme. Its abolition will save £5.9 billion in 2033–34 and accounts for half of the total savings which our proposals for SERPS will produce—savings which will help put SERPS on an affordable and sustainable footing for the future.
The Government actuary's central assumption for earnings is that they will grow at 1½ per cent. a year above prices. This is a little less than experience since the last war but better than the record for the last 100

823
years. The Government actuary has given us a range of public projections of future pension costs taking different assumptions about growth. When we are talking about burdens on future generations we have a responsibility to use realistic projections. Unemployment is assumed by them as at 6 per cent. We should be accused of over-optimism if we assumed a lower figure, given present levels. The demographic assumptions are based on recent trends in mortality and an optimistic assumption that fertility returns to a 2:1 per mother replacement rate (compared with 1.75:1 now).
We must be cautious when making assumptions for long-term commitments like SERPS. It would be an abdication of responsibility to base plans for the future on the most optimistic assumptions. At the time we made clear our reservations about pay-as-you-go schemes, which are a blank cheque drawn on the future, and my right honourable friend the Secretary of State warned specifically that the financing of SERPS could become extremely onerous. The latest projections have confirmed how right he was.
I think it was the noble Lord, Lord Ennals, who mentioned the French scheme; but comparisons with other countries are notoriously difficult, and indeed can be misleading because their schemes both in funding and in benefits are all on different bases, and one must also take account of other provisions.
However, our total spending on all programmes for the elderly compared with the gross domestic product is the third highest in the European Community. I suggest that that is a much better comparison. I have to say that when I was in Athens last autumn for a social security conference the worry expressed by all the other European nations concerning their pension plans and the situation for the future was more serious than ours. They looked at our plans with the greatest interest. They too have aged populations.
With regard to part-time married women workers being worse off working than not working, we have seen the various representations made about the possible effect of the special SERPS protection in Clause 17 on women returning to part-time work, having stayed at home to bring up children. I must say that the examples quoted tend to use unrealistic earnings levels and work patterns to produce exaggerated effects. Nearly half of all part-timers earn below the national insurance lower earnings limit. If they have dependent children under 16, they will continue to get the full benefit of the special SERPS protection. It is also at least arguable that women with higher earnings could be expected to make more provision for their old age than women with no earnings.
The important points to bear in mind are, first, that we already have powers in the Bill to make the regulations which could deal with the problem; and, secondly, there is no great urgency about this. No one's state pension will be affected until 1999 and there is plenty of time to smooth away rough edges between now and then. DHSS records are held in a way which would allow full and effective backdating of additional protection if that were considered necessary in the future.
The noble Lord, Lord Ennals, referred to a lack of simplicity in Clause 17. I agree that the material on
824
page 21 of the Bill appears to be rather complicated. The reason for that is that we have ensured that there are generous transitional arrangements for reducing SERPS from 25 per cent. to 20 per cent. of earnings over a long period. Transitional protection is by nature complicated, but I do not accept that the regulation-making power for protecting people's SERPS rights is complex. It is a wide power, deliberately short on details.
We have endeavoured to do that in the fairest way, very much on the rice-bowl system expounded by the noble Lord Vinson. It is no good shouting out emotional statements and getting carried away by the rhetoric of the thing. One has to look at this from a sensible but a caring point of view, and we have done both.
Lord Ennals: I quoted an important statement that the noble Baroness made on Second Reading when we were talking about the unemployed. It was that she did not in any way suggest that there might not be a problem in relation to this group in the early part of the next century. She thought that it was a problem which could be sensibly examined in relation to the unemployment problem that existed at that time and was not one which we needed to settle at this time. She said that it was an issue that we could look at in Committee. Did she not at that stage give us hope that there might be a morsel thrown towards us?
Baroness Trumpington: One man's idea of a morsel is another man's idea of something quite different. I think that the noble Lord must have misunderstood me.
Baroness Turner of Camden: I am rather disappointed with the noble Baroness's response to the amendment. As she rightly said, its effect is to retain the 20-year rule. We have not sought to change the proposal to reduce the accrual rate from 25 per cent. to 20 per cent. Although we do not like it, we have accepted that that is not part of this amendment. We are anxious to retain the best 20 years provision because we think that it is important. I should almost describe it as the heart of SERPS. It is one of the reasons why when SERPS was introduced it was welcomed on all sides of the House. It was seen that it would provide cover for people who hitherto had not had adequate pensions cover in occupational schemes or by private provision.
It was an arrangement under which people who had a chequered work pattern and who had spent time out of the work force and then returned into it would nevertheless be able to have a pension entitlement based on their best 20 years' earnings instead of having them averaged out as is now proposed.
The familiar arguments have been advanced, which I do not accept, that we have somehow to cut the cost of SERPS because we cannot afford it. The demographic considerations to which the noble Baroness referred were the same 10 years ago as they are now. I do not accept that it has suddenly been discovered that we have somehow to make a change because of the demographic prognostications.
I believe that we are under an obligation to those who come after us to ensure that we leave with them

825
a pensions arrangement provided by the state which will ensure that they can look forward to at least a reasonable level of retirement benefit. If we abandon the 20-year rule, we shall be unable to do that. That is a great pity.
I am reluctant to divide the Committee but I intend to because it is important that we should have an opportunity to test the Committee's views on this most important element of SERPS. I therefore intend to press the amendment.
9.32 p.m.
On Question, Whether the said amendment (No. 54) shall be agreed to?
Their Lordships divided: Contents, 28; Not-Contents, 55.

DIVISION NO. 5

CONTENTS

Banks, L.

Kilmarnock, L.

Blease, L. [Teller.]

Lloyd of Kilgerran, L.

Buckmaster, V.

McNair, L.

Cledwyn of Penrhos, L.

Masham of Ilton, B.

Crawshaw of Aintree, L.

Parry, L.

Ennals, L.

Pitt of Hampstead, L.

Ezra, L.

Rochester, L.

Grey, E.

Seebohm, L.

Hanworth, V.

Stoddart of Swindon, L. [Teller.]

Hatch of Lusby, L.

Henderson of Brompton, L.

Taylor of Blackburn, L.

Houghton of Sowerby, L.

Taylor of Gryfe, L.

Jeger, B.

Turner of Camden, B.

Kagan, L.

White, B.

Kilbracken, L.

NOT-CONTENTS

Ailesbury, M.

Brabazon of Tara, L.

Allenby of Megiddo, V.

Brougham and Vaux, L.

Ampthill, L.

Buckinghamshire, E.

Belstead, L.

Caithness, E.

Boyd-Carpenter, L.

Carnegy of Lour, B.

826

Colville of Culross, V.

Layton, L.

Cork and Orrery, E.

Long, V. [Teller.]

Craigavon, V.

Lucas of Chilworth, L.

Craigmyle, L.

Macleod of Borve, B.

Davidson, V.

Margadale, L.

Denham, L.

Mersey, V.

Dilhorne, V.

Munster, E.

Donegall, M.

Onslow, E.

Dormer, L.

Rankeillour, L.

Dulverton, L.

Renton, L.

Elton, L.

Rochdale, V.

Enniskillen, E.

Rodney, L.

Gisborough, L.

Sandford, L.

Glenarthur, L.

Skelmersdale, L.

Gray of Contin, L.

Swinton E. [Teller.]

Greenway, L.

Tranmire, L.

Hanson, L.

Trumpington, B.

Harvington, L.

Vinson, L.

Henley, L.

Whitelaw, V.

Hives, L.

Windlesham, L.

Hooper, B.

Young, B.

Inglewood, L.

Zouche of Haryngworth, L.

King of Wartnaby, L.

Resolved in the negative, and amendment disagreed to accordingly.
9.39 p.m.
Baroness Trumpington Baroness Trumpington moved Amendment No. 54A:
Page 22, line 4, after ("contributions") insert ("or earnings").
The noble Baroness said: This is a consequential, technical amendment that flows from the proposals in Clause 72 and Schedule 8 which relate to earnings factors. Under those provisions, people entitled to credits would be credited with earnings rather than contributions. This amendment takes account of that proposed change. I beg to move.
On Question, amendment agreed to.
Baroness Turner of Camden Baroness Turner of Camden moved Amendment No. 55:
Page 22, line 9, at end insert—
("( ) was entitled to national insurance credits because of incapacity for work, unemployment, or approved training; or

( ) paid national insurance contributions amounting to less than 52 times the class 1 contribution payable on the lower earnings limit for that tax year, or

( ) was, by virtue of training or apprenticeship, paid at a rate which is less than the normal adult wage for that category of employment; or

( ) was not resident in the United Kingdom; or

( ) was, for any part of the tax year, for any reason, credited with national insurance contributions; or

( ) was entitled to Home Responsibility Protection.")

The noble Baroness said: We have had an interesting debate on the issues of the best of 20 years. I now want to move Amendment No. 55. The intention of the amendment is to try to give some cover to people who spend some time out of the workforce through unemployment, or because they are undergoing training or apprenticeship, or for any other reason.
Baroness Trumpington: The noble Baroness is due to move this amendment and to speak to Amendments Nos. 56. 57 and 58.Am I correct?
Baroness Turner of Camden: Yes—because I think that they cover much the same kind of ground.
The intention of these amendments is to provide some kind of cover and protection to individuals who spend some time out of the workforce through unemployment or because they are undergoing training or something of that kind. That is spelt out in some detail in the amendment. The problem, as has already been highlighted during the previous debate, is that with the disappearance of the provision concerning the best of 20 years there will be many people who will spend some time being unemployed or possibly undergoing training; or they might be disabled. There will be some reason why they are not in the workforce. Because of that it is necessary to provide some kind of cover for them. That is the object of the amendments. I beg to move.
Lord Kilmarnock: On these Benches we should like to support the noble Baroness on this amendment and the categories which she wishes to exclude. It seems to me particularly important that if one is to abolish the best-of-20-years rule one must take into account those who have very low earnings, or no earnings, or are in other special situations. It seems to me to be entirely inequitable that those years should have to be counted in for the qualifying period. Therefore on those grounds we support the amendment.
Baroness Trumpington: These amendments seek to add a multitude of additional categories to those for whom we have said we shall provide special protection of their SERPS rights following the abolition of the 20-best-years rule. I am tempted to say that this amendment, with Amendments Nos. 56 and 57, attempts to re-invent the 20-best-years rule. But I have to say that we are not convinced that a case has been made for extending the protection of SERPS right
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beyond the groups we have already identified.
Clearly there is a case for protecting the position of people who are out of the workforce for long periods of time and for whom the 20-best-year rule was originally intended. Women who give up work to bring up children, the long-term sick and disabled and those caring for them are the obvious examples, and we have said that we shall protect them. However, people covered by the other categories in these amendments are, by and large, out of the workforce, or suffer earnings reductions, for shorter periods when looked at in the context of a whole working lifetime.
Amendment No. 57 would extend the special protection specifically to people who have been unemployed and available for employment; the unemployed are also included in Amendment No. 55. Of course we are all concerned about present levels of unemployment. But we must not let our grave concern about unemployment cause us to make hasty judgments about pension rights which will not become payable until well into the next century for most of those concerned. It is perhaps appropriate for me to remind the Committee that the abolition of the 20-best-years rule will not affect people reaching pension age before the end of this century and its effects will build up gradually as the new century progresses. It is our view that it is much better to decide what action, if any, needs to be taken nearer to the end of the century when we shall have the actual unemployment figures for the periods in question, and a much clearer picture of the extent to which people's pensions rights will be affected.
Amendment No. 56 seeks to extend the protection, in prescribed circumstances, to people whose surplus earnings factors in a particular year are lower than 75 per cent. of their average earnings factors for the preceding years. We are well aware that there will be cases where, because of, for example, reduced earnings following disablement, or when a mother returns to work on a part-time basis, some people could fare less well in some years, so far as SERPS is concerned, than those people with little or no earnings who qualify for the special protection. It is inevitable that the abolition of the 20-best-years rule will mean some people receiving lower SERPS pensions next century than they would have done if the rule remained in force. Our priority has all along been to protect those people who will be hardest hit—that is, those people who are prevented from working, or have very low earnings, as a result of disability, and those who take time off work to look after their children or a disabled person.
It is also inevitable with any concession of this kind that some people will fall the wrong side of the dividing line, wherever that line is drawn. But we have made clear in another place that we are prepared to extend the proposed protection to disabled people who would have qualified for incapacity credits but for the fact that they had earnings just above the annual lower earnings limit for national insurance contributions, and we have also said that we shall consult with the Social Security Advisory Committee and disablement organisations on the detail of the proposed regulations. But at the present time—14 years before the abolition of the 20-best-years rule even begins to take effect—we do not consider that there is a case for going further than that.

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However, I am sure that it has not escaped the Committee's attention that the proposed new subsection (2B)(a) in Clause 17 contains a very wide regulation-making power which would allow any of the proposed categories of people covered in these amendments to be protected without the need to amend primary legislation. We believe that it is right to deal with any anomalies nearer to the time they are likely to arise. That is why we have deliberately provided such a wide power. It will enable a future administration to add additional categories to those which will be specially protected at any time if they consider that there is a case for doing so. What we have done is to have the courage to state clearly where we think the line should be drawn.
Turning to Amendment No. 58, the proposed regulation-making power appears to allow a person's earnings, which would have counted towards SERPS, to be disregarded if that particular year is one which is excluded from the working lifetime over which the person's average earnings are calculated, because it was a year of home responsibilities protection or credits.
In cases where there is entitlement to home responsibilities protection or credits there will of course be no surplus earnings factor, because HRP and credits are only awarded when earnings are below the annual lower earnings limit for contributions. The noble Baroness has raised an important point with regard to the position of disabled people with earnings just above the lower earnings limit, in respect of whom we made clear in another place we would extend the special protection by virtue of the power in new subsection (2B)(c) of Clause 17.
Once a year has been excluded from a person's working life, he has in effect been compensated for the effects of the abolition of the 20-best-years rule for that year. On the fact of it, it seems right that the surplus earnings factor in that particular year should also be excluded from the average earnings calculation so that the person is not over-compensated. I am grateful to the noble Baroness for drawing this to our attention. We should like to give the matter some further consideration and shall return to it on Report.
Viscount Buckmaster: I rise to support Amendment No. 55, and I should like to speak particularly to subsection (4), or is it paragraph (d)? I must confess that I find the nakedness of the numerology somewhat disconcerting. I should like to speak particularly in the context of ethnic minorities. Those members of the ethnic minorities who enter the job market last will experience fairly harsh repercussions from the changes proposed in this Bill. In particular of course such people will receive a reduced national insurance retirement pension.
Let me briefly explain. In the first place, many such people will often experience long delays before they are accepted in this country, whether they come here as seekers of asylum—that is to say, as refugees—or whether they come here for other reasons; for example, to join spouses or other members of their families. Indeed, it is not uncommon for such people
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to wait three years or more before they are accepted. I have had Ugandan friends who have had to wait up to four years before their entry has been finalised. Those from the Indian sub-continent in particular are often subject to lengthy delays.
Then of course there are those who arrive late in life. They arrive in their thirties or forties and have only 20 or 30 years before their retirement. Not only will such people receive a reduced retirement pension, but their opportunities to earn a second pension to offset the need for related state benefits in retirement may be severely diminished. Already a disproportionate proportion of ethnic pensioners, because of their late start in the British job market, have to claim a supplementary pension. This denies them the chance of earning more than £4 a week, as compared with those pensioners with a full national insurance retirement pension who can earn up to £75 a week with no loss of pension. On these grounds, I strongly support this amendment and commend it to the Committee.
Baroness Faithfull: I feel that I must speak to Amendment No. 56. I do not want to be done out of my little speech. I apologise if I repeat what has in some cases already been said; but I should like to make two points. First, I believe that the wording of Amendment No. 56 is perhaps a wiser wording than the noble Baroness's Amendment No. 54. When I was a social work student, more years ago than I care to admit, I found that I had to study economics and social policies; and even as a student I found that social policies and economics cut across one another. I find it so in this Bill. I have hesitated to recommend what I wished because of financial aspects. Throughout the whole of this Bill we have had to strike a balance and look at priorities.
The three groups of people who are very much touched by this amendment are the unemployed, women, and the disabled. It is surely right that we should think of them. I should like to take a much wider picture than has been taken before. The unemployed will suffer under the 20-year rule. The women are the ones I am deeply concerned about. I know that I have been pressing women not to go out to work when their children are very young. But it would seem to me—particularly perhaps with fairly professional women—that if they think that this 20-year rule is going to operate they will look for other ways to look after their children. My noble friend Lady Darcy (de Knayth) will speak about the disabled.
It is a question of balancing the financial position and the priorities of those vulnerable in our society whom we really care about. I would like to look at a much broader view of the whole of society and what is the cost benefit to society as a whole. We often look at policies in one department and in another department, but we do not look at the policies overall. I suppose that we do not do this because it is very difficult to cost it, and that is partly our problem.
I have said in your Lordships' House on several occasions that I wished that there was a central policy unit within our Government which would look at

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policies right across the board. Therefore, I am in a very great dilemma over this amendment. I believe it to be a good amendment. I believe it would help the unemployed, women and the disabled, however, in society as a whole, taking into account how women must care for children and how greatly the disabled would be helped by the amendment, I recognise that a balance must be struck taking into account the money that we have.
I would make one point: ought we not to look more at the here and now instead of looking into the next century? Things can change and we hope that they will change for the better. I beg to move Amendment No. 56.
Baroness Darcy (de Knayth): I too should particularly like to support Amendment No. 56, which is, thankfully, pretty free of complicated-looking mathematics and which would help those disabled people who would not, as the Bill stands, receive protection because they were earning just enough to pay contributions although they were on a low wage. I am a fool about pensions, but I think the noble Baroness, Lady Trumpington, has offered some help for precisely these people; I am not quite certain what, so I shall carry on supporting Amendment No. 56 for the moment. I feel very strongly that we should do everything possible to encourage disabled people to return to work or to enable them to continue working for as long as possible.
Members of the Committee have already talked very much about their problems: there is not much left to say, but it seems to me illogical to spend a lot of time, money, energy and expertise in nursing and rehabilitating someone who becomes, for instance, a paraplegic after an accident, and then to make it difficult for him to achieve total rehabilitation by returning to work. He may well be able to support himself and his family eventually, but he will very likely have to work part time at first before returning to fulltime work, or he may have to change his job and take a cut in wages.
Also, I think it is true that he will stay fitter and happier and consequently his family will be happier if he remains at work. It is also true that someone with a progressive disease—for example, multiple sclerosis—will remain fitter physically and psychologically if he can continue work within his capacity. This may well be part-time work interspersed with periods of full-time work for as long as he can. As I understand it, as Clause 17 stands at the moment, every year he continues to work on a lower wage could mean a reduction in his pension. Surely he should be encouraged to continue to work for as long as he can.
I rather hope the Minister will like this amendment, because I think it is moderate and flexible. It would apply only in prescribed circumstances and I hope the noble Baroness will agree that it not only has value in terms of human happiness but is also sensible when one considers the cost of restoring people to fitness or caring for them when they are ill.
10 p.m.
Baroness Gardner of Parkes: We seem to be dealing with some quite different amendments here, but we are linking together Amendments Nos. 55, 56, 57 and 58. I should like to comment in particular on both Amendments Nos. 55 and 56. I think Amendment No. 55, as worded, is far too wide. I must say that I do not agree at all with the noble Viscount, Lord Buckmaster, about giving credit to people who are not resident in the United Kingdom. To me that is quite unbelievable. I came here from another country fortunately at an age when I was at the beginning of my national health pension time, but I would have found it a remarkably generous country if I had come some 10 years later and I had been given 10 years' credit for the years when I was not resident in the UK. That is the rather unbelievable category that is suggested here.
As regards the unemployed, of course, I should like to see a credit given. I see that in Clause 17 it is covered, but we must be very aware that although the great majority of unemployed people are genuinely unemployed a few are voluntarily unemployed, and there would be every incentive to be voluntarily unemployed if you could get full credit for everything while you were unemployed. We would have to be quite sure that those people receiving full credit were those who were genuinely unemployed. Amendment No. 57 would have covered this point. I hope the Government take that into consideration because it is important that the unemployed should have prescribed circumstances and be available for employment. In that sense I support the sentiment of that, but I think the wording of Clause 17 already covers that and allows for the regulations to be so worded as to cover that aspect.
Amendment No. 56 has a sound principle in it that I think should be carefully considered by the Government, if not in its presently worded form certainly in principle. It is greatly to the disadavantage of women to lose the 20-year situation. It will not be so good for them to have their pensions worked out on a 30-year basis. But I do not accept for a minute the argument put forward many times that for every working year worked at a lower rate you earn less towards a pension. I do not think that is correct. If it is averaged over the whole of someone's earnings it will still be averaged over 30 years, or whatever years are allowed. I cannot see that earning anything can take someone down instead of up because it must give additional earnings. The only point in dispute could possibly be whether you might be entitled to a year of credit and that year might be higher than a year of low earnings. That point is something that would have to be covered. But if people are saying that a year of low earnings would be worse than nothing, if someone was not entitled to a credit, then that part of the argument would not follow.
I feel strongly about the disability argument. It is greatly in the nation's interests and in the interests of individuals to encourage people who have intermittent disability or partial disability to be fully occupied. I know that all sorts of employment laws have been made to help the employment of the disabled, but many of them cannot do a full-time job. That is

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something that the Government should consider. I hope, too, that in due course they will consider the issue of part-time work, particularly for married women who have been in full-time employment and have given up to look after their children. I understand this clause will give them credit for that period when they are at home. Many do not then wish to go back to full-time employment because they can care better for their family in part-time employment. I hope that the Government will try to think of some way to help women in part-time employment as that would help to compensate for the changeover from 30 years to 20 years.
In conclusion, I hope that the Minister will consider these points that have been made and perhaps think of some solution, unless she can assure us that the clause as worded is already wide enough to cover the various concerns that we have all expressed tonight.
Baroness Macleod of Borve: If I may I shall briefly ask one question on a subject that has not been mentioned tonight as far as I know, and that is the problem of widows who have worked most of their lives and have then lost their husbands. Often they take quite a long time to readjust to a life where they have to go back to work without the support of the man in their life. I am wondering what view the Government take about this problem vis-à-vis widows.
Baroness Trumpington: Perhaps I may try to answer a few of the questions that have come up. May I immediately say to the noble Baroness, Lady Turner, that it was Amendment No. 58 to which I was referring when I said that I was grateful . I thought I had better clear up that point. The noble Viscount, Lord Buckmaster, talked about people arriving in this country late in life. Proposals for SERPS, which were based on earnings-related pensions on the whole working life, bring the arrangements into line with the occupational pensions. We are concerned here with pensions which relate to earnings and we consider that it is right that, apart from the special groups that we propose to protect, such pensions should be based on the earnings of those years of membership of the scheme in just the same way as occupational pensions.
A number of noble Lords talked about Amendment No. 56. We could not accept an amendment which tied us to the 75 per cent. as it says in that amendment. The quest for completely even-handed treatment has resulted in an impossibly complicated social security system. If we are to get a reasonably simple and workable system, there are bound to be some rough edges. Some of the losses projected in the press for part-time women workers as a result of our proposals are very exaggerated because they are based on unrealistic earning levels. Over half the part-time women workers earn less than the lower earnings limit. Many of them will qualify for home responsibilities protection and thus protection for their SERPS rights.
In another place we have said that we shall protect the position of disabled people whose earnings just exceed the lower earnings limit. We intend to consult fully the Social Security Advisory Committee and disablement organisations, and I should like to suggest that we include in those consultations representations from widows' organisations on the detail of the
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regulations. The powers in the Bill are wide enough to allow us to deal with problems at the margin like this. We have plenty of time to sort it out. The new SERPS protection will not start to affect people's pensions until 1999 or 2000.
The noble Baroness, Lady Darcy (de Knayth), talked about disabled people on low-paid work. Disabled people will be protected automatically if they are incapable of work. We will also protect such disabled people with earnings up to and just over the lower earnings limit. We shall consult fully on our detailed proposals before the relevant regulations are made.
The noble Baroness, Lady Faithfull, spoke on Amendment No. 56 and said we should not look at the next century but should consider the position now. I must stress that we are proposing no changes for SERPS until the next century. We have wide regulation-making power which will enable us to cover as necessary any of the categories mentioned in the Committee and no further special protection or provision is necessary.
My noble friend Lady Gardner talked about averaging out over the working life. She is right when she says that earnings are averaged over the whole working life in the way she explained. The widows about whom my noble friend Lady Macleod spoke will qualify for national insurance widows' benefit. This includes widows' husbands' SERPS pension. On retirement, the widow will be able to add the inherited SERPS up to a maximum sum to her own SERPS. That is really all I want to say for the moment.
Baroness Turner of Camden: I am rather disappointed, as Members of the Committee may not be surprised to hear, with the response of the noble Baroness. I had hoped that she would have found it possible to have accepted at least one of these amendments. So far as concerns Amendment No. 55, that is a very wide amendment and I take the points that have been made in the debate. I shall not be pressing it this evening. I note that there is to be consultation and some possible steps taken in relation to disabled people. I welcome that, and we shall have to see what those steps turn out to be.
However, on the whole matter of the unemployed I do not really accept that it will not affect people for a very long time and therefore we do not have to bother about it. I said earlier when I was talking about the best 20 years that a 20 year-old man in 1988 who is unemployed from 1988 to 1993 will lose five years from the pension he will receive eventually from SERPS. Quite obviously, unemployment is going o affect people's ultimate pension entitlement quite substantially because of the loss of the "best 20 years" rule. Therefore it seems only reasonable that some kind of protection should be given to people in those circumstances.
I think on reflection that possibly the best amendment on this score is Amendment No. 57, which talks about people who are unemployed and available for employment. I think that is quite a reasonable point which was made by the noble Baroness, Lady Gardner, and I am disappointed that the noble Baroness, Lady Trumpington, has not found it possible to take that on board.

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However, when we turn to women and the effect of the loss of the "best 20 years" provision in relation to them, I am interested in what the EOC has to say in its press release, because it seems to me that the position is described with great clarity, in these terms:
"In practical terms, a woman who does part-time work for a substantial part of her working life will receive a smaller SERPS entitlement than a woman who has chosen to claim home responsibilities protection for a greater number of years but who in the rest of her working life has worked full-time. Because many married women work part-time when their children are young (and many earn enough to pay national insurance contributions) the effect of the new provision will be to gain extra contributions from mothers working part-time whilst reducing their ultimate SERPS entitlement, which is manifestly unfair."
The EOC has made a proposition to counteract this effect and it recommends to the Secretary of State:
"that a further option be introduced into the new SERPS arrangements. In any tax year when a person pays national insurance contributions but, had he or she not earned, would otherwise have qualified for home reponsibilities protection, he or she should have the choice of whether to include that year's earnings for SERPS calculations or to have the earnings disregarded and claim home responsiblities protection".
I commend that as a possible solution of the part-time problem to the noble Baroness, Lady Trumpington. In the circumstances and in view of the late hour, I do not intend to press these amendments to a Division although I reserve the right to look again at the situation and possibly bring back something similar on Report. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Faithfull Baroness Faithfull had given notice of her intention to move Amendment No. 56:
Page 22, line 12, at end insert—
("or (d) in prescribed circumstances earned so little that his earnings factor for that year was less than 75 per cent. of the annual average of his earnings factors for tax years prior to that year taken into account for the purpose of calculating N.")
The noble Baroness said: I should just like to thank my noble friend the Minister for what she had to say in relation to Amendment No. 56. With the noble Baroness, Lady Turner, I should like to consider this amendment and perhaps return to this point at the Report stage.
[Amendment No. 56 not moved.]
[Amendments Nos. 57 and 58 not moved.]
10.15 p.m.
Baroness Trumpington Baroness Trumpington moved Amendment No. 58A:
Page 22, line 16, at end insert—
("(5) For the purpose of determining the additional pension falling to be calculated under section 6 of the Social Security Pensions Act 1975 by virtue of section 7, 13 or 16(4) of that Act in a case where the deceased spouse died under pensionable age, the following definition shall be substituted for the definition of "N" in section 6(2B)—
"N=the number of tax years which begin after 5th April 1978 and end before the date when entitlement to the additional pension commences, except that where—

(a) in a case in which the deceased spouse was a man, that number would be greater than 49; or

(b) in a case in which the deceased spouse was a woman, that number would be greater than 44,

N=49 or 44, as the case may be;".
(6) For the purpose of determining the additional pension falling to be calculated under section 6 of that Act by virtue of section 14 of that Act (invalidity pension for persons under pensionable age), the following definition shall be substituted for the definition of "N" in section 6(2B)—
"N=the number of tax years which begin after 6th April 1978 and end before the first day of entitlement to the additional pension in the period of interruption of employment in which that day falls except that where—

(a) in a case in which the person entitled to the pension is a man, that number would be greater than 49; or

(b) in a case in which the person so entitled is a woman, that number would be greater than 44,

N=49 or 44, as the case may be;".")
The noble Baroness said: This is a technical amendment. I beg to move.
On Question, amendment agreed to.
Baroness Turner of Camden Baroness Turner of Camden had given notice of her intention to move Amendment No. 59:
Page 22, line 16, at end insert—
(" (5) In section 14 of the Social Security Pensions Act 1975 (invalidity benefit and disablement pension) for the words "shall for any period of interruption of employment be" to the end of the section, there shall be substituted "shall for any period of interruption of employment be—

(a) in relation to any surpluses in the earnings factors for the tax years in the period beginning with the tax year 1978–79 and ending with the tax year 1987–88, the weekly equivalent of 1¼ per cent. of the amount of these surpluses.

(b) in relation to any surpluses in the earnings factors in a tax year after the tax year 1987–88, the weekly equivalent of the relevant percentage of the amount of these surpluses; and in this paragraph "relevant percentage" means;

(i) where the period of entitlement begins in the tax year 2009–2010 or any subsequent year, 1;

(ii) where the period of entitlement begins in a tax year following within the period commencing with the tax year 1999–2000 and ending with the tax year 2008–2008, 1 + X, where X equals 0.025 for each year by which the tax year in which the period of entitlement begins precedes the tax year 2009–2010.

or, if there are more than 20 such surpluses, of those 20 which give the largest weekly equivalent.')
The noble Baroness said: The object of this amendment is to deal with the whole question of invalidity pensions. The effect of the amendment would be to retain the 20 years rule in respect of invalidity pensions paid before pensionable age, although without changing the proposal to reduce the accrual rate from 25 per cent. to 20 per cent.
Baroness Trumpington: This came up with Amendment No. 54—
Baroness Turner of Camden: I beg the Committee's pardon. I do not move the amendment.
[Amendment No. 59 not moved.]
On Question, Whether Clause 17, as amended, shall stand part of the Bill?
Lord Ennals: I fear that I gave notice that I would move that Clause 17 should not stand part of the Bill, although I hoped that I would not have to do so because we would have had something from the noble Baroness. I know she said that she would look again at Amendment No. 58, but that is not enough. I believe that this is the most important clause in Part I of the Bill. It is absolutely fundamental, because it

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contains the main changes to SERPS and, therefore, the assumptions on which the Government have embarked upon this project.
I want to deal with these in a moment or two, but before doing so I want to say that I am amazed by what seems to be a total change in attitude in 10 years by the very same people. I well remember Mr. Norman Fowler, when he was speaking for the Opposition on health and social security, not just supporting the Bill but arguing exactly the opposite of what the noble Baroness has been arguing; namely, that it was necessary to have a long-term scheme in order that people could plan for the future, in order that we could see.
Norman Fowler at that time, and Kenneth Clarke his deputy, then in opposition, shared our hope that by the time the scheme fully matured, and from then on, people would retire on pensions which would keep them above the supplementary benefit level. That was the objective. We were aware and talked of occupational pension schemes, which, after all, are themselves enabling those who are part of them to plan for their own retirement, to know roughly what they will get in 20 years' time. Obviously, that will depend on the inflation rate as well as a number of other factors, but an occupational pension scheme sets out to enable those who are part of it to know what to expect when they retire.
It may be true that younger people do not take so much notice of this. I take a great deal of notice of it; in fact, I wrote to the noble Baroness only a day or two ago to ask whether she would have a look at how I was going. I knew where I was going, but I wanted to check what were my entitlements. My entitlements are based on my payments, and that is how it should be.
To paraphrase the noble Baroness, she said that it does not really matter that happens 15 years from now, and that is an absolute denial of the position that was being taken 10 years ago—
Baroness Trumpington: I think the noble Lord is not quoting me or paraphrasing me at all correctly. I never said that it did not matter. I simply said it was wrong to take judgments so far ahead, when there is plenty of time for those in the future to judge what is needed in that day, just as 10 years later the situation will have changed for those same people about whom we were talking just now, and they will plan accordingly. I really cannot be misquoted like that.
Lord Ennals: I am most grateful to the noble Baroness for getting up and saying exactly what she said, because that is always far better than any attempt to paraphrase. I disagreed with what she said just as much as I was going to disagree with my paraphrase of what she said. I do not believe that every 10 years we should have a look at our pension scheme and therefore change people's expectations. What matters is not just the SERPS cuts but the total effect of the Government's policies on the future value of the state pension, basic earnings-related, as a proportion of pre-retirement earnings. If earnings rise by an average of 1.5 per cent. per annum, as the Minister suggested was the basis (and we know it is) of the Government's calculation, the effect of tying the basic pension to
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prices rather than earnings will be even more catastrophic than the actual SERPS cuts, and it will hit all pensioners, not just those retiring after 1999.
The figures in the first part of the technical annex to the White Paper Reform of Social Security, together with figures published in reply to parliamentary Questions in another place, show the effects of the Government's policies on men and women with typical patterns of lifetime earnings. The pension expectations of low earners would be cut by about 50 per cent. as a result of this clause and what goes with it; the expectations of high earners would be cut by about 45 per cent. I am not making any great point that high earners get a smaller cut than the rest but nevertheless that is how it works out. For a high earning man the cut is divided equally between the basic pension and the earnings-related pension. But in every other case most of the cut is in the basic pension.
I do not know what the Minister will say when she replies—she may not feel it necessary to do so—but she may reply that the basic pension is tied to prices only as a minimum and in practice will go up more or less in line with earnings. That is roughly the line she has been taking. The figures in the technical annex all assume that pensions will rise only in line with prices. The statement in paragraph 2.2 of the White Paper that the earnings-related scheme as it stands would account for more than half the total cost by 2033 is also based on this assumption. So we are right in assuming that it will largely be based on the inflation rate.
The Government claim that the cost of SERPS if not reduced will become intolerable in the next century. That is why the change is being made; that is the justification for it. It is expected, and it was expected when the scheme was introduced, that demographic trends would result in a steep rise in the proportion of pensioners in the population from about 2020 onwards. We made this assumption 20 years ago and my noble friend Lady Turner was right when she said that the demographic assessments which were made 10 years ago vary hardly at all from the demographic assessments which are made now. The proportion of pensioners in the population will rise from about 2020 onwards, though the proportion will actually fall again after 2040.
What is not generally realised is that a bigger increase in the proportion of pensioners to the population of working age has already occurred since the 1950s than is expected to occur in the next century. We have had the biggest upward swing in the level of the pensioners. Yet over that period pensions have actually risen significantly in real terms. If I were to stand here and say that they had not risen in real terms, the noble Baroness would leap to her feet and say that, certainly in the past seven and a half years or however long it is, they had risen. Today's population has been prepared to ensure a rising pension level for its current pensioners.
The Government Actuary's report on the Bill shows in Table 5 what contribution rates would be required in the next century depending on whether SERPS is cut or stays as it is, and whether the basic pension rises in line with prices or earnings. The present 1986–87 contribution rate for contracted-in employees in 17.65 per cent. On the basis of the Government's present

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plans for cutting SERPS by tying the basic pension to prices, the peak contribution rate in 2033 to 2034 would be about 14.4 per cent. Actually, therefore, there would be a cut in the proportion of contributions. But it is plainly absurd to assume that contributors will not be prepared to accept any increase in contribution rates over that period, especially as the rates are likely to fall again after 2040.
I really do not understand why Ministers and those who support them in this Committee and in another place assume that the responsibilities that we are prepared to take today for our pensioners are responsibilities that our children, when they are our age, will not be prepared to accept for their pensioners. I absolutely challenge that pessimistic assumption.
I ask myself what is the difference in the calculation between that which was made in 1975, or rather, in preparation for the 1975 Act, and now. It is not the demographic practice at all; it is the Government's confidence in the development of the improvement of the economy. The Government have so little confidence in what the economy is going to do—less than we had 10 years ago—that they are saying, "Ah! We cannot afford this for our senior citizens 20 and 40 years from now".
According to the Government Actuary's table, if there were no SERPS cuts but the basic pension rose in line with prices only, the 2033–2034 contribution rate would be 18.5 per cent.—very little more than the present rate. On the basis of the Government's assumption that the basic pension is tied to the price index, the SERPS cuts are therefore clearly unnecessary. It is because we believe that they are absolutely unnecessary that I am making this argument.
Only if SERPS in its present form is combined with raising the basic pension in line with earnings does the contribution rate look at all problematic. In fact, one would come in 2033 not to the figure of 18.5 per cent. that I gave earlier but to one of 27.3 per cent. I can understand the Govenment saying, "We need to reduce our commitment", but to reduce their commitment to that extent they are simply saying, "We will do as we are doing now, linking pensions with prices and not with earnings". On the basis of the Government's assumption that the basic pension is tied to the price index, the SERPS cuts are therefore absolutely unnecessary.
The figure of 23.7 per cent., as I have said, is nearly 10 per cent. above the present contribution rate. Compared with the increases in contribution rates imposed by the Government in the last few years, even an increase of 10 per cent. over a period of half a century does not seem all that alarming, especially bearing in mind that that level of contribution would be needed, in all probability, for only a few years, because the number of pensioners in the population would then begin to fall.
Finally, there is the argument that even if we could afford such a provision, we ought not to pre-empt resources on such a scale 50 years ahead. That is the basis of the argument that has been put forward perhaps particularly effectively by the noble Lord, Lord Vinson. However, as I said at the beginning, that is precisely what occupational pension schemes are all about, and he knows that is what they are all about.
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That is why when we introduced the new earnings-related pension scheme we had the objective not only of ensuring that everyone would have a decent pension when they retired—two pensions, in fact, in the form of a flat-rate and an earnings-related pension—but also of improving upon the level, standard and provision of occupational pensions. That has been done to an extent, but not to an entirely satisfactory extent. The Government propose to tear up that guarantee, not only in relation to the state scheme but also in respect of private schemes, which they hope will in future be built on the shifting sands of money purchase.
I and my colleagues on this side of the Committee will be determined at each stage of this Bill to ensure that nothing is done by the Government's conviction in the value of money purchase arrangements to undermine occupational pension schemes, any more than we want to see SERPS undermined. It is because we do not want to see SERPS undermined that I do not want, any more than do my honourable or noble friends, to see Clause 17 stand part of the Bill.
10.30 p.m.
Lord Vinson: We have heard a number of speeches here tonight, and earlier on in the evening I have said how much I agree with the ultimate goals of the noble Lord, Lord Ennals; but really his speech just now was a triumph of hope over actuality. Things will not necessarily work out that way. As he rightly says, the only way that higher pensions can be ensured in the future is by having a more prosperous economy. Indeed, he recognises that the Government have raised pensions substantially faster than he might have anticipated 10 years ago, which I think shows that the Government have great confidence in their future policies.
But as I tried to point out earlier this evening, there has been a very substantial downside to that achievement, which is that the general level of taxation required in order to pay higher pensions has been kept high; the regressive level of taxation has been harder, and as a result we have exacerbated the poverty trap. The inter-relationship between these two points was well brought out by the noble Baroness, Lady Faithfull. We simply cannot and must not run away from these realities.
In retrospect and with the wisdom of hindsight, many of us feel that SERPS was badly conceived. There are many people who work in the pensions field who feel that actually it is a thoroughly inequitable piece of legislation. But we are lumbered with it—and I say "lumbered" because of the complexities that we have been going through tonight to try to make certain that unto those who have work shall be given more, and unto those who have not had work shall be given nothing. Previously we were talking about how to average out the earnings of those who have been unemployed, or those who have been handicapped or disabled, or those who have had to look after parents and work at home, and how those with a chequered pattern of earnings could have their SERPS made up. In reality we are talking about making up 20 per cent. of their average earnings.

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For the people at the lower end of the wage scale that probably represents a factor of about £3, £4 or £5 a week. We could be much more equitable to all our citizens—including the other half of them who do not and are not entitled to state earnings-related pensions—if we raised the basic old-age pension; but we cannot raise the basic state old-age pension if we give it away by (excessive) provision through SERPS—I put "excessive" in brackets because we should all like to see the maximum provision made for people in retirement. But I am sure that it is right to look after those who have not had the chance to earn and save, and therefore have that additional spending power. We must also keep SERPS and the payments we make to SERPS in balance and in relation to the payments the state feels that it can afford under the basic state old-age pension, which treats all alike, including those who are unfortunate enough not to be able to earn through SERPS.
I did not notice this balance appearing in the speeches of the noble Lord, Lord Ennals. I share with him totally the desire to raise the old-age pension; but I wish he would try to view these problems more in the round, looking at what the nation can afford and at the equitable treatment of all its citizens.
Lord Banks: I made it clear in our debate on Second Reading of this Bill that in the Liberal Party we had a long record of arguing for a much higher basic pension and that we felt that if we could obtain a much higher basic pension it should be possible to leave earnings-related pensions to the private sector, whether they are occupational or personal pensions.
Given that we were to have a state earnings-related scheme, we have not been opposed to the 20 years rule. Clearly it has some merits and they have been demonstrated during our discussions tonight, but we have been concerned about what we have regarded as a bad principle. There have been arguments as to whether or not the nation can afford it. But whether or not we can afford it, it seems to be a bad principle to commit future generations to paying for their pensioners much more than we are prepared to pay for our pensioners today. Because we were concerned about that principle, the Alliance parties were prepared to consider a modification of SERPS if there were to be an increase in the basic pension. But the Government have voted that down tonight. They have voted down a comparatively modest increase in the basic pension over five years. They have even refused the exceptions that we were discussing in the most recent amendments. In those circumstances, we support the proposition that Clause 17 should not stand part of the Bill.
Baroness Turner of Camden: I rise to support the Motion moved by my noble friend Lord Ennals that Clause 17 should not stand part of the Bill. We have had a lot of discussion this evening about SERPS and the best 20 years provision. I repeat that in my view that provision is the very heart of SERPS. For that reason it attracted a lot of support at the time that it was introduced. Like all other Members of the Committee, I have undergone a lot of lobbying on the Bill from various organisations. I do not think that I
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have received more lobbying on any aspect than on the 20-year rule. Many organisations have written to me, and undoubtedly to others, protesting about the disappearance of that provision if the Bill passes unamended.
I respect the arguments of those who say that there ought to be better basic state provision; quite clearly there should be. But, on the other hand, it has been made clear by the noble Baroness in the debate that we are not likely to see a real improvement in the basic state pension. That being the case, I fail to see why we should continue with the scheme to emasculate SERPS.
I believe that basically the reason for the Government's insistence on that is that they want to push people in the direction of making private personal pension provision. Even though the noble Baroness was good enough to say earlier this evening that the 2 per cent. incentive was being rethought in relation to occupational pension provision, there is to be no rethinking on SERPS. As I understand it, there will still be an incentive for people to opt out of SERPS. That simply strengthens my view that that is because the Government want to encourage people to take PPPs rather remain with SERPS.
Private pensions are by no means the best solution for large numbers of people currently covered by SERPS and relying on the best 20 years provision. Among the organisations that have written to me is the Royal Association for Disability and Rehabilitation (RADAR). It is very concerned about that feature of the Bill, which it says diminishes the role of contributory benefits in favour of private provision. It says that private pensions are unavailable to many disabled people and in general pay very modest benefits to people struck down by illness or disability early in their lives. It continues by saying that the key benefit for people unable to work is being attacked. It says that it is being attacked with the disappearance of the 20-year rule.
That is only one section of the population who will be disadvantaged if the 20-year rule disappears. We have discussed the position of the unemployed. The Government have introduced provisions which are not adequate to cover the situation of women who spend some time off out of the workforce caring for children. All those complications would be unnecessary if the Government simply retained the heart of SERPS—the best 20 years provision. For that reason I back the Motion that Clause 17 should not stand part of the Bill.
Baroness Trumpington: The so-called 20 best years rule is the single most expensive feature of SERPS. It was originally intended to help women and people with years out of the workforce, but it has turned out to be badly targeted.
To return to the statement made by the noble Lord, Lord Ennals, that my right honourable friend the Secretary of State was a party to the Pensions Act 1975 which brought SERPS into existence, I must tell him that we made clear at the time our reservations about pay-as-you-go schemes which were a blank cheque drawn on the future. My right honourable friend warned that the financing of SERPS could become

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extremely onerous. The latest projects have confirmed how right he was.
The main cost of the 20 best years rule comes from topping up good occupational pensions of people in contracted-out schemes. This is because guaranteed minimum pensions are calculated on lifetime's average earnings, and pensioners who have been contracted-out get the difference between their GMP and their SERPS rights paid as a balance of SERPS pension. The abolition of the 20 best years rule will bring the calculation of SERPS into line with the calculation of GMPs in occupational pension schemes. However, there will be special protection for people who take time out of work to bring up children or to look after someone who is disabled, or because they are themselves disabled.
Under the special power in Clause 17(3) people who qualify for home responsibilities protection for their basic pension, or who qualify for national insurance contribution credits for incapacity or for invalid care allowance, will be able to have those years excluded from the years over which their average earnings for SERPS will be calculated. We also made clear in another place that we shall protect the position of disabled people who would have qualified for credits but for the fact that their earnings were just above the annual lower earnings limit for contributions. We shall use the additional power in Clause 17(3) to treat them as entitled to credits and thus to the protection of their SERPS rights. Our detailed proposals will be subject to consultation in due course.
The second change is that for people retiring next century; SERPS rights will be calculated at 20 per cent. of relevant earnings instead of 25 per cent. However, there will be a generous transitional period over which this change will take place. Everyone retiring this century will have his SERPS rights earned up to 1988 calculated on the 25 per cent. basis. The change to 20 per cent. will be phased in gradually over 10 years from the year 2000, so that it will not fully apply until people reach pension age in 2009.
I should remind the Committee that these provisions do not apply to people retiring before the end of this century. They will continue to have their SERPS rights calculated in exactly the same way as now. The effects on people retiring later will be gradual, and they will have plenty of time in which to build up alternative provision if they wish.
Our modification to SERPS puts the scheme on a sustainable and affordable footing for next century by cutting down on its more extravagant features. It reduces by half the intolerable burden which would otherwise be passed on to future generations of contributors—a burden which could well turn out to be unbearable and lead to broken faith with the then generation of pensioners. Bringing the future costs of the scheme down to more manageable proportions will also give future governments greater flexibility in deciding the allocation of resources to meet the priorities of the time than they would otherwise have with a large proportion of those resources pre-empted by an unmodified SERPS.
The noble Lord, Lord Ennals, quoted the Government Actuary's figures. In 1975, he warned of a sharp increase in the number of pensioners after
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2009, but the figures were not given. Some 10 years later we have a much clearer picture of how sharp that increase will be. The latest figures look ahead to 2035 and use revised mortality assumptions. We must face the fact that by 2035 there are expected to be 4 million more pensioners. It is not just a question of whether SERPS can be afforded; at the end of the day, the Government must decide whether it is right to allow the burden of SERPS for future generations to continue to mount and mount and pre-empt future resources.
We have no intention of undermining good occupational schemes. We propose to widen the choice and increase occupational cover into areas where at present occupational schemes do not reach.
The noble Baroness, Lady Turner, referred to the best-of-20-years rule as the very heart of the SERPS scheme. But it is a very expensive and extremely badly targeted heart of the scheme. Half of its cost ultimately goes on topping up the good occupational pensions of better off people in contracted-out schemes. I can do no better than conclude by quoting the noble Lord, Lord Houghton of Sowerby, who said at Second Reading:
"Taking all the things together they think it is doubtful whether our scheme would be acceptable in its commitments to those who would have to pay for it when the time comes and that we ought to modify it to make it more acceptable in any foreseeable circumstances. That I call prudence and I think it is to be commended".—[Official Report, 2/6/86; col. 643.]
Clause 17, as amended, agreed to.
Clause 18 agreed to.
10.45 p.m.
Lord Tranmire Lord Tranmire moved Amendment No. 61:
After Clause 18, insert the following new clause:
("Entitlement of married women to Category A retirement pensions. 1985 c. 53. 1975 c. 14.
—(1) Subsection (2) of section 11 of the Social Security Act 1985 shall be amended by the substitution of the date 6th April 1979 for the date 22nd December 1984.
(2) In consideration of the additional condition for the entitlement of a married woman to a Category A retirement pension imposed by section 28(2) of the Social Security Act 1975 the second condition shall be deemed to be satisfied for each of the years the contributor concerned was precluded from employment by responsibilities at home.")
The noble Lord said: Earlier today the Minister said that pensions have been too complicated for too long. This is particularly true of the married women's half test under which older married women today are worse treated than the younger. Unfortunately, complicated legislation has put them in a very difficult position. Looking at the history of the treatment of married women under the national insurance Acts, one finds that the 1946 Act dealt with them purely by regulation. Section 59 left to regulation the treatment of married women for insurance purposes. There was nothing in the Act to warn women that they were in danger of losing the benefit of their past contributions unless they re-entered the scheme as voluntary contributors.
When the appointed day came in July 1948 most married women who were insured discontinued their contributions. Under Section 59(2)(b) of the 1946 Act their past contributions could be credited to them for

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maternity allowance purposes. There is little evidence that I can find that married women were warned of the danger of not continuing contributions. This is particularly true of many women serving abroad in the services who married during, or at the end of, the war. Governments could be forgiven for not circulating details to troops serving in theatres of war.
The 1975 Act brought into statute law the married women's half test rule. Four years later Parliament passed the 1979 Act which said that for women reaching pension age on 6th April 1979 or after the married women's half test would no longer apply. That was really a recognition by Parliament that the married women's half test was wrong, that there was undue discrimination against married women, and that this should be put right. However, it left out completely the older married women who reached pension age before 6th April 1979. That is why we come to the present new clause in an attempt to put this right.
The following stage was when the European Community issued a directive pointing out that the marrried women's half test of the 1975 Act was unduly discriminatory. Then Parliament in the 1985 Act tried to put this right and made it apply to all women, but backdated it only to 22nd December, 1984. One had the position that women covered by the 1979 Act—the younger married women—received their pension directly when they came of pension age, whereas the older married women, who probably needed it more, received it only from 22nd December, 1984, a difference of five-and-a-half years.
In attempting to try to reduce this anomaly and injustice, the amendment which the noble Lord, Lord Ennals, and I are introducing in subsection (1) is putting the date back from 22nd December, 1984 to the same date as in the 1979 Act—6th April, 1979. That would remove the unequal treatment. One will never correct the basic anomaly in this discriminatory married women's half test. What we can do is to see that married women are treated alike. I think one can do that by this provision.
I put subsection (2) in the amendment because to me there has been very little evidence in the correspondence that I have seen between the ministry and the women affected that this provision has been applied. As I understand the law, it does not appear to apply to the older married women. If my noble friend tells me that it is unnecessary, obviously it could be removed. But I think for the sake of clarity it is wiser to include it.
It is a long-festering injustice and I hope that this amendment may help to remove that injustice and remove some of the indignation felt by some of those married women whom this situation affects. I beg to move.
Lord Ennals: It would be presumptuous and quite unnecessary for me to add any further argument to the very well argued case put forward by the noble Lord, Lord Tranmire, who himself drafted the amendment. I was impressed by it and put my name to it because I felt that there was a case here to put right an injustice. This was, in my view, typical of the noble Lord, whom I had the privilege of knowing when he was in another
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place. I say no more than that I totally support every word he said and the amendment that he proposed.
Baroness Hooper: As has been said, the half-test was an additional contribution condition that married women had to satisfy before they could receive a pension on their own contributions. It provided that a pension could be awarded only where a married woman had paid full rate contributions for at least half the years between marriage and the date of retirement.
As my noble friend Lord Tranmire has said, this was a complicated provision—as indeed are so many in this field—but the half test was abolished from 6th April, 1979 for women retiring after this date, although it still affects women who retired earlier.
Following the implementation of the European Community Directive on equal treatment in 1984—and I must correct my noble friend by saying that the European Community Directive did not refer to the half-test in any way—the Government decided in the light of the Directive that the half-test should be completely abolished. It was found that these residual effects of the half-test could also be held to be discriminatory, and the Government accordingly took steps to remedy the position from 22nd December, 1984, when the Directive came into force.
The Committee will remember that we discussed the issue during the passage of the 1985 Social Security Bill. Since then an extensive exercise has been undertaken to identify married women affected by the remains of the half-test, and pension has been awarded to about 20,000 women. However, in many cases it was found that this did not mean any additional payment because most women affected by the test were already receiving a higher amount of pension on their husband's contributions.
The amendment seeks to backdate the abolition of the half-test for those who reached age 60 before April 1979. I have to stress that this is not acceptable to the Government for several reasons. First, the administrative effort required to search all records of married women who reached pension age before April 1979 would be considerable, and as I have already noted from the previous 1984 experience in many cases the result would give no additional benefit to the pensioner, because her entitlement on her own contributions was less than the pension she was already receiving on her husband's contributions.
Secondly, as my noble friend has said, the half-test was introduced at the outset of the national insurance scheme in 1948 and was accepted by governments of both parties. It was designed to distinguish between those women who chose on marriage to pay the special low-rate married women's contribution while in work and to rely for pension on their husbands, and those women who sought to retain an independent contribution record.
I remind the Committee that married women had and have a unique advantage in being able to receive a pension of their own without contributing at all. Indeed, until 1975 men and single women had to pay compulsory contributions even if they did not work. Married women had the privilege of choosing whether or not to pay contributions. A married woman who failed to satisfy the half-test had, by definition, decided

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deliberately not to maintain a full contribution record. It seems unfair to change, seven years after the event, the conditions of their entitlement to pension, and particularly to award them contribution credits for years at home during which they paid no contributions, as the amendment also seeks to do. But if one is to do it, why choose 1979? The half-test affected women from 1948 onwards; and 1979 is only relevant because it saw the end of the first year of the earnings-related pensions scheme and the abolition of the married women's reduced-rate contribution. Thus it is significant for women retiring into the new scheme and contributing on new conditions, but not for those who retired earlier. Most of the older women to whom my noble friend referred now have high pensions on their husband's insurance.
Retrospection is not in general a feature of contributory benefits. Pension and other benefit rights are determined under the legislation in force at the time the benefit is required. Such rights cannot be reassessed at every subsequent change in the law. The point about the abolition of the last effects of the half-test from December 1984 was that from that date European law overrode domestic legislation. It makes no sense, and establishes dangerous precedents, to abolish it from an earlier stage.
A further point is that these benefits are awarded for maintenance. It has long been held that even where entitlement existed, if a claim had been made, there is no sound reason to pay benefits long after the period for which they were intended when the claimant clearly has maintained himself or herself without them. Thus there is an absolute rule that benefits are not backdated for more than a year except in cases of official error. This amendment would breach that principle.
On the second premise in the amendment, I can assure my noble friend that the present arrangements for home responsibility protection broadly have the effect that this amendment seeks to achieve, but instead of deeming a woman as satisfying the second contribution condition it reduces the number of years for which she needs to pay contributions for a full pension. The provision is therefore unnecessary. For all these reasons the Government cannot accept the amendment. The half test has indeed wholly gone. In the circumstances, I trust that my noble friend will feel able to withdraw his amendment.
Lord Tranmire: In view of what the noble Baroness has said I beg leave to withdraw the amendment, although I am dissatisfied with the decision.
Amendment, by leave, withdrawn.
[Amendment No. 62 not moved.]
Baroness Hooper: I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.
House adjourned at one minute past eleven o'clock.