Social Security Bill

HL Deb 17 June 1986 vol 476 cc731-95

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 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 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 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 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.

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 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.

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 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". 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 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 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 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 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 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 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 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.

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 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 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 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 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 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 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.

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 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—

1. (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;
2. (b) the amount to be deducted to cover administrative expenses;
3. (c) the net amount that will be invested on his behalf;
4. (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;
5. (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 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.

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 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 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 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—

1. (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
2. (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
3. (c) the circumstances are such as may be prescribed; and
4. (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 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 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—

1. (a) by reason of the commission by any person of a criminal offence;
2. (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 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 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 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 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.

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 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 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.

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.

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 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.

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 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 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. (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 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, 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 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 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 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 moved Amendment No. 23:

Page 94, line 4, leave out ("for the reference in paragraph 9") and insert ("in paragraph 9—

1. (i) for the reference to an occupational pension scheme there shall be substituted a reference to a personal pension scheme; and
2. (ii) for the reference").

On Question, amendment agreed to.

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 moved Amendment No. 25: Page 96, line 1, after ("29") insert ("(2) and").

On Question, amendment agreed to.

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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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.

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 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 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.

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 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 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 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.

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 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 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 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 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 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 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—

1. (a) that notice shall be given in writing; and
791
2. (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 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.

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 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 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.