Social Security Bill

HL Deb 22 May 1990 vol 519 cc836-88

House again in Committee on Clause 11

Lord Henley moved Amendment No. 77: Page 15, line 43, leave out from (" of) to end of line 45 and insert ("requiring the provision by schemes to which this section applies of annual increases in the annual rates of pensions under those schemes.").

The noble Lord said: In moving this amendment I shall speak also to Amendments Nos. 85, 87, 88, 90 to 97 and 99 to 101. These are minor drafting, consequential and technical amendments aimed at clarifying the wording of Clause 11 and Schedule 2.

Amendment No. 85 will clarify the term "pension" as used in Schedule 2 to make it clear that it covers both pensions which have already commenced, and those which will commence in future. Amendments Nos. 88 and 93 will redraft paragraph 2(2) of the schedule to enable the first increase under Section 58A(1)(b) to take effect on the anniversary of the date the pension started, if convenient to those involved. Paragraph 2(2) will require the first increase to be given no more than 12 months after the pension starts and each subsequent increase to be given no more than 12 months after the previous one. I invite the Committee to agree to the amendments.

Baroness Turner of Camden

Is the Minister speaking to all the amendments in this grouping? If so, I have one small point to make as regards Amendment No. 97.

Lord Henley

It will be in order for the noble Baroness to make her point at this stage.

Baroness Turner of Camden

The point I have to make is a very small one. The amendment proposes to leave out "months, rounded to the nearest whole month" and insert "complete months". As I understand it, that formula results in a slight reduction. It is, in fact, a very small reduction, being one-twelfth of 5 per cent., if 5 per cent. was the amount in question. I wonder why it has been felt necessary to introduce a reduction into the Bill even though a slight one. I hope that my reading of what is proposed is correct.

Lord Henley

The noble Baroness is correct in her reading of what is proposed. I think that it is preferable to insert "complete months" in place of the wording, months, rounded to the nearest whole month". However, I think that it would be better if I were to write to the noble Baroness with a greater explanation as to why we have phrased the proposal in this kind of terminology. With that assurance I hope that she is able to accept the amendment at present.

On Question, amendment agreed to.

Lord Mottistone moved Amendment No. 78: Page 16, line 14, at end insert ("or 3 per cent., whichever be the lower figure.").

The noble Lord said: In moving this amendment, I should like to speak also to Amendment No. 84. I believe that Amendment No. 81 tabled in the name of the noble Baroness, Lady Turner of Camden, is also grouped with these two amendments. Clause 11 and Schedule 2 require all final salary pension schemes to pay annual increases in line with inflation (up to a limit) on pension rights built up after an appointed day. This risks reinforcing inflationary expectations.

My amendment would put a ceiling of 3 per cent. on such increases, which is indeed the maximum percentage at which my own occupational pension is put. However, the majority of occupational pension schemes do not promise inflation pro of ing. Many are small schemes, averaging 100 members using an insurance policy as the investment vehicle, as indeed is the case with my pension. The CBI tells me that about 40 per cent. of schemes provide some limited inflation pro of ing. However, only 10 per cent. would presently match the Government's proposed requirement which I understand calls for an annual increase of up to 5 per cent.

The impact of the Bill as drafted is threefold—one might even say fourfold, as Members of the Committee will find. First, there will be a significant rise in the unit labour costs of those companies which decide to provide indexation. I am reliably advised that to provide a 5 per cent. annual increase in pensions, an extra contribution of 5 per cent. of pensionable pay would be required. It is highly likely that such increases in employers' unit labour costs would further fuel inflation in the economy as a whole. I cannot believe that that would be the Government's wish, especially at the present time.

Secondly, companies unable to afford increased labour costs could be forced to consider reductions in pension benefits. For example, instead of promising a pension of two-thirds final salary, companies may only be able to offer a pension of one-half final salary. Alternatively, they may move to money purchase arrangements. Either move would undoubtedly cause industrial relations problems but—and I emphasise this point—not of the employers' making.

Thirdly, the Bill without my amendment may lead to a long-term shift in the nature of occupational pension provision. There is likely to be a move away from final salary schemes by companies which already provide pensions, while companies setting up new arrangements would be unlikely to choose this option. It may not be the Government's aim to discourage final salary schemes—and I rather felt from something said by my noble friend earlier that it was net—but that could certainly be the effect of the Bill as drafted.

Finally, the parts of the Bill we are discussing were added at a very late stage of the proceedings in another place and have not been subject to consultation with those most directly affected. By this I mean the majority of small and medium-sized companies which do not already provide index-linked pensions.

A further new factor of great importance is the recent decision of the European Court of Justice in Barber v Guardian Royal Exchange. The decision by that court, which was announced on 17th May and which concerned equal pension ages, reinforces and renders overwhelmingly the case for moving back from the 5 per cent. proposal. While its precise impact remains worryingly unclear, it is certain to have a major cost implication for the vast majority of occupational schemes.

The Government's judgment that employers with occupational pension schemes can afford to find the resources to meet the indexation of 5 per cent., as opposed to 3 per cent. which we propose, must have been based upon the assumption that in all other respects pension arrangements, and therefore costs, would remain substantially unchanged; in other words, that the status quo would continue. I suggest to my noble friend that the decision of the European Court of Justice has changed the situation and that perhaps the Government should reconsider the indexation proposals in the light of the substantial and unanticipated new burdens facing occupational schemes.

In conclusion, the Government's 5 per cent. indexation is certainly better than the unlimited price indexation required by some interested parties. That could unleash a stampede away from final salary schemes. A level of 3 per cent. such as I propose would be more in keeping with the level of inflation that the UK could successfully sustain. It would also reduce the additional costs; hence the undesirable move away from final salary provision.

I suggest that this will be a reasonable minimum level of increase which the CBI believes could be attainable by most, if not all, final salary schemes. Many may choose to do more, as they do now, but in response to what is affordable and what the labour market suggests is appropriate rather than in obedience to a government decree that comes dangerously close to institutionalising an intolerable underlying rate of inflation.

In these amendments I have suggested points to which the Government might give careful thought. I hope that my noble friend is able to give a reply which will at least show that he has understood the various factors that I have pointed out, including the recent finding of the European Court of Justice. I hope that he will be able to agree to the amendment or come back with something more satisfactory at a later stage. I beg to move.

Baroness Turner of Camden

I shall reserve what I have to say about uprating until I come to my own amendment. I cannot agree with the amendment of the noble Lord, Lord Mottistone, and he would not expect me to, since I do not agree with the 5 per cent. limit proposed by the Government. I am surprised that in these days when inflation is running at around 9 per cent. the noble Lord should think it enough to provide pensioners with only 3 per cent. I cannot think that he believes that all pension funds genuinely cannot afford to pay more. Many have substantial surpluses and contribution holidays have become quite an established rule in many companies.

I am glad that the Secretary of State has dealt with the whole issue of uprating in the way that he has, even though the limit is unacceptable. It is after all, as I understand it, a requirement for future prospects. The funds and pension schemes have been given adequate time by the Minister under the proposals of the Government to make the necessary funding arrangements for uprating.

We can now expect to live about 20 years longer than our parents; therefore people can expect to spend 25 years in retirement. We must face up to the issue of protecting pensions payments in the years to come, perhaps in the next century. Otherwise it seems to me that we shall simply look forward to a situation in which people in extreme old age suffer real penury because their pensions are not adequate to keep them at a reasonable level. They will fall back on social provisions once again. I hope that the Government are not inclined—I am sure they are not—to accept the 3 per cent. figure instead of 5 per cent. I should like to debate the whole issue of RPI uprating when I come to move my amendment.

Lord Vinson

The Government, having willed the end by suggesting 5 per cent., should try to help industry provide the means. One form of inflation pro of ing would be for them to issue more tranches of index-linked gilt stock which would effectively allow the private sector to have the same base and security of funding as the public sector now has.

I accept that a sudden leap to 5 per cent. might be difficult although, judging by the performance of most pension funds over the past 10 years, many have the reserves to do so. In order to help industry implement this and to budget for the future I suggest that the Government take on board the concept of issuing further tranches of suitably dated and priced index-linked stocks. That would enable the theory, the concept, to be turned into reality.

8.45 p.m.

The Earl of Buckinghamshire

This is a difficult area. The Committee, I am sure, agrees with the concept of increasing pensions and payments. We should all like to have as much provided as possible. However, there must be a limit because of the cost. My noble friend Lord Mottistone has referred to the costs of the exercise and the ruling of the European Court. That will add perhaps another 3 to 5 per cent. to the pension costs if the worst, or rather the greatest, liability is caused by that decision.

I have seen annualised costing figures quoted in the press of something like £3 billion per annum for the uprating and indexation of 5 per cent. I have seen the figure quoted of another £3 billion for the decision by the European Court of Justice. I have no way of checking that figure. A good friend of mine who is an actuary tells me that that is the position.

As I listened to the comments of noble Lords, it struck me—and my noble friend the Minister will correct me if I am wrong—that since 1988 the guaranteed minimum pension must be increased by the employer by 3 per cent. I am concerned that we are entering another level of increases on top of administrative duplication. It could be that a compromise would be to revert to the 3 per cent. I say that with some concern: we are all worried about the fate of pensioners and their payments. However, I am also concerned about the ability to pay in future years. Perhaps that could be taken into account when my noble friend replies.

Lord Henley

I understood that we were to debate my noble friend's amendments with that of the noble Baroness. I thought that at this stage I should be in a happy position somewhere in the middle. Obviously that is not so because the noble Baroness has decided to deal with her amendment separately.

My noble friend urges me to require schemes to provide statutory increases of 3 per cent. He is quite rightly concerned about the impact that there could be on employers. Much depends on the extent to which schemes currently make increases. A leading firm of actuaries, R. Watson and Sons, has suggested that the average additional cost for all schemes might be between 0.25 and 0.75 per cent. of the payroll. This takes account of the statistics that about 80 per cent. of members' schemes are receiving annual increases, mostly in the range of 3 to 5 per cent.

Some schemes currently make no pension increases. These could be faced by extra contributions. However, as my noble friend points out, they would have the option of reducing the accrual rate or looking to higher contributions from employees if they wish to contain their costs.

It is worth recalling how far we have come in a few short years. Up to 1985 there was no statutory requirement for schemes to revalue pensions for early leavers at all. The current position is that an early leaver from a pension scheme with a membership of two years or more must be provided with a preserved pension in respect of pensionable service from 1st January 1985. This statutory requirement for revaluation in respect of service after 1st January 1985 was brought in by the Social Security Act 1985. Paragraph 4 of Schedule 4 to the Bill extends that requirement to service before 1985 so that early leavers will in future have all their preserved benefits above the guaranteed minimum pension level increased by prices up to 5 per cent.

This by itself is a substantial step forward. It has been taken further in the Bill with, I hope, little controversy, largely because many schemes saw it as nonsense to limit the revaluation to the post-1985 period. They voluntarily extended it to the whole of the member's pensionable service. When we came to consider what level of pension increases should apply for rights accrued from future service, it was necessary to balance the question of the cost of provision with that of protection for the member. This is why we concluded that 5 per cent. was about right. The Government's position is to have regard to the concerns expressed by all those who have an interest in this matter and to try to strike a balance which is reasonable for all parties concerned. I believe that the figure of 5 per cent. or the RPI, whichever is the lower, strikes just such a balance. I believe our proposal is a sensible and balanced measure. I also believe it is a great advance and that it will make occupational schemes both attractive to their members and an asset to employers in recruiting good quality staff.

My noble friend said there was likely to be a move away from final salary schemes. It is not the Government's aim to favour final salary as opposed to money purchase schemes. We would hope that there is both a balance and choice between the two. I remind my noble friend of future demographic trends and the possible future tightness of the labour market. It will be up to employers to offer to their employees the best package that they feel is necessary to obtain appropriate employees. If they feel that the best package will include a final salary scheme that is a matter for them to decide. Similarly if they feel they can attract the right staff by offering personal pensions or money purchase schemes that is a matter for them.

My noble friend also raised the matter of the recent judgment of the European Court. He believed that, following that judgment, there could be additional costs for schemes and employers. Many schemes have already equalised the age at which occupational pensions start to be paid. I see no reason why, when doing so, schemes should not take account of the requirement in this Bill to provide for limited indexation of pensions in the future. There is nothing in the Bill to prevent reducing the rate at which pensions accrue. Schemes can therefore alter the benefit structure if they cannot meet these costs in the future. We are studying the judgment and its implications. I would prefer to leave the matter at that stage until we have completed our study of the implications of the judgment. I hope therefore that my noble friend will feel able to withdraw his amendment.

Lord Mottistone

I thank my noble friend for his full reply. I had a slight feeling while he was giving his reply—I suspect this may affect the noble Baroness, Lady Turner, also—that the kinds of people he had consulted for his advice represented the 10 per cent. of the companies which could match the Government's proposed requirement. In the nature of things the kinds of companies the noble Baroness, Lady Turner, may consult will be the big companies rather than the small ones. However, the companies I am worried about are the medium and small companies which have introduced pension schemes relatively recently and are struggling to organise them.

I rather suspect that all the senior people in the major political parties and in the Government tend to talk to the top people and not to the bottom people. I really think that small companies need special consideration. However, this is not the time to press this point in any way, apart from the fact that I would not gain support from the Benches opposite. I shall read carefully what everyone has said. I thank my noble friends very much for their contributions. At this stage I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 79 and 80 not moved.]

Baroness Turner of Camden moved Amendment No. 81: Page 16, line 25, at end insert: ("(3) In section 52A of the Pensions Act (Duty of the Secretary of State to specify a revaluation percentage)— (i) in subsection (3) leave out "Subject to subsection (8) below, "; and (ii) leave out subsections (8) and (9)").

The noble Baroness said: I said earlier that I wanted to reserve what I had to say about index linking until I came to move my own amendment. It has a tw of old effect in that it removes the 5 per cent. a year limit on both the new provisions to require increases to be made on pensions in payment and from the existing provisions for increases to be made on deferred pensions. As regards the 5 per cent. limit to revalue pensions, as I said earlier I think that in current circumstances this is not enough. As I also said earlier, the average employee can now expect to live 20 or more years in retirement. The Minister has already made reference to demographic changes in that connection. If someone who retired in 1970 had only obtained increases on the basis provided in the Bill—that is the 5 per cent. increase—his benefit would now be worth only about 40 per cent. of its initial value.

We all hope, of course, that the higher rates of inflation will not continue to be part of our environment for the future. If we knew that governments could contain inflation within the 5 per cent. figure, what the Government propose would seem wholly acceptable. However, with inflation climbing up again, a measure that purports to protect scheme members' future interests but allows the benefits to fall to half their real value looks rather unsatisfactory. It costs more money and not less to look after the very old and the Government's proposal could well result in real poverty for such people in future years, and of course in a greater burden on social security benefits.

We therefore feel that schemes should be required to increase pensions in line with the RPI. That is not such a big deal. For most of this century the wages index has outstripped the retail prices index. It looks as if this trend will continue into the next century. Even with full RPI indexation, pensioners will still be worse of f than those in employment, irrespective of the fact that there will undoubtedly still continue to be inland revenue limits on the level of final salary pension that can be paid. The question of cost is of ten raised. The argument is always advanced that this measure would be just too expensive and too much of an open-ended commitment. It is argued that an insistence upon it would frighten away employers from providing pension schemes at all. The noble Lord, Lord Mottistone, has already made that point.

We reject that argument. Employers provide pension schemes because it is in their interests to do so. They need to attract and retain staff. They also need their staff to retire as they get older so that they may be easily replaced by younger people. It is therefore in their interests to provide attractive schemes. Moreover, in recent years there has been increasing union pressure for good schemes. Clearly the question of cost is relevant, but I am advised that what we propose will not require significant increases in employers' contributions over and above what the Government are already proposing.

The big increase in the current cost of providing a pension scheme arises when a scheme makes no provision for increases at all and is then improved to provide RPI increases limited to 5 per cent. It has been estimated that this could substantially increase the cost of a scheme. However, most schemes do not start from that position. Most employees belong to schemes which already guarantee or make provision for increases at or near the level of the Government's proposal. It is important to appreciate that the move from limited increases to full RPI is much less significant than the move from no increases at all to 5 per cent. That is because in most cases the assumptions made by the actuary which determine the contributions to be paid are in practice similar, whether or not there is any limit. I must say that I am indebted to a practising actuary for this information.

The key factor here is the difference between the assumption made about future investment returns and the assumption about future pension increases. Broadly speaking, this difference will be very similar for schemes that guarantee pension increases, whether or not they have a 5 per cent. limit. We therefore consider it quite reasonable to require schemes to provide full inflation pro of ing. We understand that the increase in contributions required to achieve this will only be about 1 per cent. of payroll over and above any increase in cost already proposed by the Government. In practice many schemes, particularly larger ones, are already providing for increases in line with what we propose and so for those the current cost will be smaller or even nil. As for past service benefits accrued before the appointed day, those pensions should also be increased in line with the RPI as far as surpluses permit. So long as there is a surplus in a scheme we see no reason why it should be used for employer refunds or contribution holidays before it is used to protect the real value of members' benefits.

Again, we do not believe that the cost of our proposal should be a deterrent to good pension provision. If we look at what schemes have done over the past five years, we find that the schemes to which people already belong are doing what we suggest to quite an extent. The Watson index of pension increases produced by Watsons, the consulting actuaries, whose name has already been mentioned in the debates this evening, shows that the average pension increase, allowing for a lag in implementation, has been more or less in line with the RPI.

I trust that the Government will come to see the sense in what we say. The whole basis of their legislation is that members are entitled to adequate protection against inflation and that that should be the first call on any surplus. It therefore makes no sense to impose a limit of 5 per cent. while allowing employers to benefit from the surplus. I hope that the Government will consider what could be the eventual results of not doing what we suggest. Do we really want to see in the next century large numbers of very old people dependent upon pensions that have become inadequate for their maintenance and relying on state benefits? We do not want that, I suggest, after all the trouble taken to persuade companies, unions and employees to co-operate in the establishment of good pension schemes. I beg to move.

9 p.m.

Lord Henley

As I said earlier, I thought that the amendments were to be taken together and that I should find myself in the happy position of being in the middle. Obviously that is not to be the case.

The proposal of the noble Baroness, Lady Turner, goes rather wider than our proposals and considerably wider than those of my noble friend. Her amendment would not only require pension increases in Schedule 2 to be in line with the RPI, with no maximum limit, but would also amend existing legislation so that that applied also to the revaluation requirement for early leavers.

I accept that the noble Baroness speaks for individuals who are concerned about the level of their occupational pensions. As the Committee will know, between 1979 and 1987 the average value of occupational pensions received by people over pension age increased by 77 per cent. in real terms. That means that for many pensioners their occupational pension is now their most important source of income. We believe, as the OPB suggested in its report, that it is of the greatest importance to introduce a degree of certainty of regular pension increases.

The Government have tried to strike a balance which is reasonable for all parties concerned. We believe that we have struck such a balance. The noble Baroness asked for full price linking of pensions. The point of the government proposal is a guaranteed rate of increase. To guarantee full price linking would be a substantial commitment for employers, as we have already heard from my noble friend Lord Mottistone. That is why we have tried to strike a balance between the two amendments. I believe that it would be unfair and unjust to place such a burden on employers as the noble Baroness has suggested. Many employers could be deterred by that.

I know that the noble Baroness is fully committed to final salary schemes, and on occasion she has expressed a degree of hostility to personal pensions and money purchase schemes. However, I suggest that what the noble Baroness proposes might further deter employers from adopting final salary schemes. Despite what I said earlier in answer to my noble friend Lord Mottistone—that employers will have to look to the much tighter labour market in the coming years and consider what they offer in order to attract employees—I believe that what the noble Baroness suggests would increase the cost of final salary schemes considerably and could have a significant deterrent effect on final salary schemes.

The noble Baroness made her point in favour of an increase in line with an unlimited RPI. However, I do not believe that this is the time to go that far. I believe that the half-way house of RPI or 5 per cent., whichever is the lower, represents a good balance between the two. I hope that the noble Baroness will accept that we have struck more or less the right balance and will be prepared to withdraw her amendment, just as my noble friend withdrew his amendment proposing a limit of 3 per cent.

Lord Vinson

I share the noble Baroness's desire to see those in retirement receive the maximum pension possible. However, she rightly raised the question of demographic changes occurring in this country and the fact that people are living 20 years longer than their parents. The fact is that the economically active people will increasingly have to support more and more economically inactive people. However we talk about the funding of pensions;, they are funded in name alone. All pensions, are a transfer from the rice bowl of the working to the non-working. There is no escaping that fact.

Therefore, while on the face of it the amendment would appear to be irresistible and it would appear to be impossible to disagree with it, in practice full indexation of pensions will place a substantial burden on the ever-diminishing number of the economically active. It will mean less rice in the rice bowl for them.

Those of us who are interested in pension provision for the future will have to have a long, hard look at what will be the correct level of support for those in retirement. We keep dodging the issue. However, I believe that the Government have come fairly close to the issue in saying that the appropriate burden to place on the economically active is to index pensions at about 5 per cent. If the proposal of the noble Baroness, Lady Turner, of full indexation were to be adopted, I fear that that would place far too severe a burden on the economically active. I fear that, as was suggested earlier, we might have to index pensions, but at a level of 50 per cent. of the final three years' salary rather than the goal of two-thirds—which, incidentally, is very seldom reached.

We are talking of a limited amount of money and a decreasing number of people producing the wherewithal. That factor must come into our consideration. Therefore, I believe that at this moment the Government have probably got the balance about right.

Baroness Turner of Camden

I should like to thank the Minister for his explanation. I do not intend to press the amendment tonight. I wanted to put on record the view from these Benches that we think that eventually full indexation will have to be adopted. I accept that the government proposal is a substantial step forward. I have never disagreed with that fact.. It marks a step forward because there is a statutory obligation to index link to the 5 per cent. limit. However, I maintain that that will not be enough for the future, as has been pointed out by the noble Lord, Lord Vinson. He rightly makes the point that whether pension provision comes from private or public sources, it has to be paid for by the people who are economically active. That is absolutely right. On the other hand, we may be looking at different patterns of retirement for the future. These are matters that may arise in the future and they will affect the way we look at future pension provision.

My noble friend Lord Carter has reminded me that public sector schemes have been indexing pensions in payment for a very long time. The Civil Service has had an index linked scheme for 20 or 30 years, as have a number of other public sector schemes. I am also reminded that some years ago there was an investigation into whether or not indexation should continue. The report of that committee was overwhelming; it stated that indexation should continue. It has continued ever since that time.

If people working in the public sector have that kind of protection, it should also be extended to those working in the private sector. One day we shall have to do so, perhaps when my party is in government. We should have to face up to the consequences of so doing. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Henley moved Amendment No. 82: Page 16, line 27, at end insert: ("(3) In the case of an occupational pension scheme— (a) such as is mentioned in subsection (I) of section 58A of the Pensions Act, and (b) which is constituted by trust deed, no payment shall be made out of the resources of the scheme to or for a person who is or has been the employer of persons in the description or category of employment to which the scheme relates until such time as provision has been made by the scheme for every pension which commences or has commenced under it to be increased as mentioned in paragraph (b) of that subsection. (4) Nothing in subsection (3) above applies in relation to payments made to or for a person by virtue of his or any other person's membership of the scheme in question. (5) Expressions used in this section and the Pensions Act have the same meaning in this section as they have in that Act. (6) The provisions of subsection (3) above override any provisions of a scheme to the extent that it conflicts with them.").

The noble Lord said: In moving this amendment I should like to speak also to the amendment in the name of my noble friend Lord Mottistone. I am grateful to my noble friend for the way in which he has presented his case. I do not think it will be any surprise to him or to the Committee if I make it clear at this point that I am unable to accept the amendment.

The Occupational Pensions Board, in its report Protecting Pensions, referred to surpluses and said that some respondents to its consultative note had urged it to make general pronouncements on the ownership of surplus. The board concluded that that was not possible. The report goes on to say: We have therefore sought to make specific recommendations on different issues in this report rather than to formulate a general directive of 'ownership' of surplus or deficiency".

The Government accept this sensible approach. The underlying objective of our proposals in this Bill has been to improve the safeguards for the benefits which schemes are designed to provide. Our thinking was stimulated by the problems posed by takeovers and mergers, where in some cases members have lost out badly despite being in a scheme apparently well funded with a surplus of assets over liabilities.

Our proposal in paragraph 3 of Schedule 2 is in line with that approach. It is not the Government's intention to decide who owns a surplus but we believe it is entirely reasonable that, where surpluses exist, members should be guaranteed a limited measure of indexation. The decade during which this Government have held office has been a period of strong investment performance by pension funds, which have yielded large surpluses. Many schemes have used those surpluses to improve benefits for members, but a number could have done more.

We are therefore going to require that, from an appointed day, schemes will have to use surpluses to pay increases to members for pension rights which they have already built up. The guaranteed rate of increase that each scheme will have to pay will depend on the surplus in the pension fund, but the target rate of increase for schemes will be the rise in the retail prices index up to 5 per cent. a year. Government Amendment No. 82 also clarifies the fact that employers will not be able to take a refund until such increases have been provided.

The noble Lord has made a number of detailed points about how the surplus is to be calculated and the possible effect that it might have on some employers who have made arrangements for some years ahead on how they intend to use their surplus—perhaps by a contribution reduction or even a holiday. There must be some doubts, in any case, as to the wisdom of setting in concrete such financial planning for many years ahead. However the Government are not requiring that the whole of the surplus has necessarily to be used in providing pension increases. Many schemes already guarantee them at the required level and a number have been accustomed to giving increases, albeit on a discretionary basis. They will turn discretion into certainty.

The Government believe that it is no longer acceptable for schemes generating surpluses to avoid their obligation to their members. of course surpluses cannot be guaranteed to be achieved at each and every valuation, and I think that the vast majority of members appreciate that fact. A number of letters that I have received have, however, expressed what they consider to be unfair treatment when surplus exists.

There are a number of detailed issues still to sort out, and officials are already in discussion with the professional actuarial bodies in order to do so.

We shall have regard to matters of detail during these discussions. We noted in particular points that had been made in the past about the use of discretion in the allocation of the surplus. I can see that that is probably what my noble friend will try to achieve. However, I should like to consider the matter further to see whether it can be accommodated within our overall objectives. I make no commitment but we have the necessary powers to consider these matters. I therefore invite the Committee to accept the amendment.

9.15 p.m.

Lord Mottistone

I speak to Amendment No. 89, which, in a sense, goes down a slightly different route from that taken by my noble friend the Minister. At the outset I should say, just in case there is any doubt, that not only myself but companies all recognise that a reasonable pension which keeps reasonably in touch with the cost of living is terribly important for all employees. There is no doubt about that. We are arguing about what companies, particularly the smaller companies, can presumably afford and what it is reasonable for the Government to direct them to do.

In Schedule 2 there is a very strong element of central direction which would have appealed to Mr. Stalin but probably not to Mr. Gorbachev. It would certainly appeal to the noble Lords opposite. With that in mind, I feel that although the object of this schedule is attractive, some of the means have ugly aspects. In effect the schedule provides that the first charge on any surplus disclosed should be the indexation of pensions accruing before the appointed day.

That position is strengthened by Amendment No. 82, against which I would not argue in particular; in general it just means that Auntie Government is telling us even more firmly what to do. Surpluses generally arise because the outturn proves less costly than the actuarial assumptions had anticipated. Sometimes cautious actuaries warn of a potential deficit and the employer responds by injecting more money into the fund. That is the responsible and appropriate response. But sometimes in the event the assumptions prove over-cautious and the injection of cash proves unnecessary to meet the specified commitments.

I ask whether in those circumstances the employer should lose all rights over the money injected. Surely in equity he should not. But that would be the effect of paragraph 3 of Schedule 2 in all cases in which limited price indexation is not already promised to existing pensioners. That is bad policy. We want pension funds to be backed up to and beyond the extent of their potential liabilities. That is in everybody's interests. But if the cost of putting in money to guard against a potential shortfall may be not only the permanent loss of that money but also the triggering of new and costly obligations in respect of pensions accruing before the appointed date, many will look long and hard before putting extra resources into the fund to guard against contingencies.

Those are the facts of life that we must take well to heart in making sure that the legislation that is before us in fact does not put too much of a burden on people who provide the money which enables us all to live and the country to survive. So paragraph 3 of Schedule 2 is neither equitable nor prudent.

Furthermore, the measure would require that any surplus identified, however small, must go entirely toward the provision of limited price indexation until all the pensions accruing before the appointed day are given the same protection as those accruing thereafter. But that will not necessarily be the best use of the surplus. Implementing the rule could mean providing very little to a large number spread over many years, when it could have been used with discretion to provide a real and immediate uplift for a few hard cases.

Measurement of surpluses other than by the properly cautious approach adopted by the Inland Revenue is an uncertain business, closer in some respects to astrology than to accountancy. I do not suppose that the actuaries will be pleased to hear me say that, but certainly that is the experience of the member companies of the CBI.

The only true pension fund surplus is that revealed when a fund is wound up. All the rest are estimates. I look to my noble friend for help on that point. Do the Government recognise the uncertainties of surplus measurement? Will they err on the side of caution in considering what amounts to a surplus, remembering the expectations cost to fund members fuelled not least by legislation of this kind?

Some funds have achieved remarkable surpluses during the past decade, sometimes because the sharp redundancies of the 1980s meant that they were left over-providing for future calls from pensioners, more of ten because investment income outstripped prices and earnings. That is not the prospect facing many pension funds today. I look for reassurance that the Government also recognise that in the climate now prevailing, not least with the additional burdens imposed on final salary schemes in this and other legislation in recent years, we are much less likely to see substantial surpluses being thrown up than in the turbulent conditions of the 1980s. It is important that the Government state that so that unreasonable and unfulfillable anticipation is not generated among pensioners.

I could continue but I believe that I have made my point firmly enough. I wished to show the other side of the coin which I believe everyone—not only the Government—needs to consider with care. However, I thank my noble friend for stating—I think—that the officials of the Government have been discussing matters with experts to try to ensure that the resultant orders that come before us are the best that can be provided.

That principle is fine, but I hope that they cast the net wide to find the people to consult. As I said when moving another amendment, I am fearful that large trade unions, large companies and government talk to the top people but do not know what goes on in small companies.

Lord Carter

Perhaps I may ask the noble Lord a question. He referred to discretion in the use of the surplus. Would the trustees have the discretion to award extra increases in pensions payments to certain groups of employees such as senior executives or directors?

Lord Mottistone

If the terms of the trust said so, yes, they would be able to do so; or even to give a lump sum to someone. But the trust in which the pension fund is set up has to give them that authority, and a lot of them do so.

The Earl of Buckinghamshire

I was interested in that last comment. Presumably certain highly paid people are more likely to receive increases than others. I can understand that being a problem. I can also understand some of the merits of saying that the surplus should be spread straight across the board so that everyone has a slice. In the real world if one provides it right across the board, it will be spread very thinly.

My noble friend Lord Mottistone has raised the anxiety on what I referred to at Second Reading as using a sledgehammer to solve this problem. The problem is providing for the pensioners of the day in this instance. It is not about providing for the pensioners of tomorrow.

There has been much discussion about what should be done for employees by a good employer, and such concepts. We may have forgotten that it is a partnership between the state, the employing company and the employee. Those people with, hopefully employed, working lives ahead of them will have the opportunity to make provision for their retirement. Those people who have retired do not have the same opportunities. I fully understand the comments of the Minister about trying to prevent the pension asset stripper continuing into the 1990s. However, I am concerned about the allocation of a scarce resource to the most needy. I believe that the provision is a fairly unfocused attempt to solve the problem. We should be targeting the pensioners. The issue should be considered very thoroughly by the Minister. I am sure that he will do so, and will reflect on the concerns of all in this Chamber. The use of the surplus for both active people and pensioners needs to be very carefully considered.

Lord Mottistone

Perhaps I misinterpreted the query of the noble Lord, Lord Carter. When he asked me whether the money could be disbursed to individuals, I was thinking of the poor individuals who do not have enough money. When my noble friend Lord Buckinghamshire was speaking, I had the impression that the noble Lord, Lord Carter, was perhaps thinking that the chairman would give himself a great benefit. When I gave my answer, I did not think that any chairman would be so wicked or so stupid. Pension funds can be diverted to the good of the needy—by whom I mean the really needy—but I do not think that they can be distributed to the non-needy.

Baroness Turner of Camden

I have little quarrel with this part of the Bill because one of the issues with which I of ten had to deal as a trade union official was the concern of members as to who owned the surplus. I was constantly asked, "Who owns the surplus? Does the company have the right to take a contribution holiday? Can it do what it likes with the surplus? Is it not our money anyway?"

The ownership of the surplus is a difficult and tricky question. The Occupational Pensions Board decided not to pronounce on it because there are arrangements, particularly in a balance of costs arrangement, under which the employer is bound to pay into the scheme sufficient money to meet pension promises. If he receives cautious actuarial advice, he may overpay into the scheme and may therefore feel with some justification that he has perhaps paid too much into the scheme. That is why there is a surplus.

However, in making the proposition the Government have clearly said that the first call on a surplus must be the pensioners—the people whom it is intended to cover. That must be right. I can assure the Minister and the noble Lord, Lord Mottistone, that from an industrial relations point of view the business of who owns the surplus if of ten a vexed question. People become terribly worked up about contribution holidays. Given the Government's proposition in the Bill, that question is to some extent settled and I welcome the way in which it is done.

Lord Vinson

Although I welcome the move along the right road down which the clause takes us, it may be overtaken to some degree by an EC derogation. However, in this instance I would go much further than the other side of the Committee. The Government should state unequivocally that the money in pension funds belongs to those in receipt of pension, those with a deferred pension and those likely to receive a pension—the present contributors. Although this is a major step forward, we are all appalled at the way in which so many pension funds are gratuitously used as a slush fund for senior directors to prepare for their retirement. That behaviour is reprehensible. I should have liked a clearer and a more positive statement that the money in pension funds belongs to the pensioners and no one else. However, I welcome the measure as a first step and give full marks to the Government.

Lord Henley

We are becoming a little bogged down in this government amendment on which we have now spent 18 minutes. I have come under fire from my noble friend before, but I do not think that he has ever gone so far as to accuse me and my noble friends of being like Stalin and—even worse—of being much the same as noble Lords opposite.

As I have already said, there are problems with the definition of the word "surplus". There are a number of detailed issues, in addition to the definition of "surplus", to be sorted out. officials are S already in discussion with the professional actuarial bodies in order to sort out those problems. We shall have regard to my noble friend's views on the matters during those discussions. We have particularly noted his remarks. I can see what he is trying to achieve and I should like to consider that further in order to see whether that can be accommodated within our overall objectives. I make no commitment on that, and I stress that we already have the necessary powers. I commend the amendment to the Committee.

On Question, amendment agreed to.

Clause 11, as amended, agreed to.

9.30 p.m.

Baroness Seear moved Amendment No. 83: After Clause 11, insert the following new clause: ("Equal treatment of women in occupational and personal pension schemes. In paragraph 2 of Schedule 5 to the Social Security Act 1989, sub-paragraphs (4)(d), (4)(e), and (4)(f) shall cease to have effect.").

The noble Baroness said: This amendment was tabled before the seminal judgment of the European Court in the case of the Guardian Royal Exchange v. Barber. It seems to me, very largely if not entirely, that that judgment has shot my fox. I have no objection to that if, at the same time, it has winged the Government, which it seems to me to have done.

This is a very unusual circumstance. Perhaps the Minister will give me some idea of the Government's reaction and what they propose to do in response to that judgment. It may save time if we do not debate the issue now but return to the matter on Report when we have a clearer statement from the Government.

As Sir Anthony Lester said in The Times today, sex equality has been won for pensioners and the major issues which we were going to consider here of pension ages, survivors' benefits and optional provisions all seem to be covered by the judgment, although as the judgment is so recent I should not like to claim that I understand all its implications. Perhaps the Minister will comment on that matter before we proceed on this amendment.

Lord Henley

I hope that the noble Baroness does not go round committing the culpable crime of vulpicide with great frequency. As the noble Baroness said, it is not of ten that an amendment tabled in advance to a social security Bill achieves the topicality which the noble Baroness has achieved on this occasion.

The noble Baroness quite rightly pointed out that last Thursday the European Court of Justice gave its judgment in the case of the Guardian Royal Exchange v. Barber. I cannot help the noble Baroness very much further at this stage. We are very carefully considering the judgment and we are aware that the Government's response may be significant in influencing the way in which schemes react to the court's judgment. As the noble Baroness admitted, this is a very complex matter and we are seeking legal advice on the judgment before deciding what action, if any, is necessary or appropriate.

Of course we shall make a statement, and, with that in mind, I hope that the noble Baroness will withdraw this amendment. of course, we may return to this matter at a later stage.

Baroness Seear

That is the sensible course to take in the circumstances. I hope that before the Report stage—and there is a brief Recess—the Government can give rapid and deep thought to the implications of the judgment. In innocence, the implications seem to be clear; but I agree that they are both extensive and expensive. However, if there is a reasonable expectation that we shall have a statement from the Government before Report stage, then I am happy at this juncture to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 2 [Schedule to be inserted as Schedule 3A to the Pensions Act]:

[Amendment No. 84 not moved.]

Lord Henley moved Amendment No. 85: Page 32, line 36, after (" "pension" ") insert ("in relation to a scheme, means any pension which commences or has commenced under the scheme but").

On Question, amendment agreed to.

[Amendment No. 86 not moved.]

Lord Henley moved Amendments Nos. 87 and 88: Page 33, line 5, after ("by") insert ("at least"). Page 33, line 8, leave out ("before the expiration of the period of twelve months beginning with") and insert ("not later than the first anniversary of).

On Question, amendments agreed to.

[Amendment No. 89 not moved.]

Lord Henley moved Amendments Nos. 90 to 97: Page 33, line 26, at beginning insert ("Except in a case where regulations otherwise provide"). Page 33, line 28, leave out ("except in a case where regulations otherwise provide"). Page 33, line 31, after ("are") insert ("actuarially"). Page 33, line 34, leave out from ("effect") to second ("the") in line 35 and insert ("not later than the first anniversary of). Page 34, line 1, after ("percentage") insert ("as determined in accordance with regulations"). Page 34, line 5, leave out paragraph (a) and insert— ("(a) provision has already been made by the scheme for the annual rate of the earlier service component of every such pension as is mentioned in sub-paragraph (1) above to be increased annually in the aggregate by at least the appropriate percentage of that rate, or"). Page 34, leave out lines 15 to 17 and insert: ("(7) The powers conferred by sub-paragraphs (1) and (5) above to make regulations include, respectively, power to provide that the valuation of the scheme's assets or liabilities is to be calculated and verified, or the percentage in question is to be determined,—"). Page 34, line 36, leave out ("months, rounded to the nearest whole month") and insert ("complete months").

The noble Lord said: I spoke to these amendments with Amendment No. 77. I beg to move.

On Question, amendments agreed to.

Baroness Turner of Camden moved Amendment No. 98: Page 34, leave out from beginning of line 44 to end of line 23 on page 35.

The noble Baroness said: This amendment is a probing amendment. I do not understand the reasons for the Government's provision. There is a restriction in the Bill on increases for pensioners under the age of 55. I should have thought that that was likely to be a very small number of people. I cannot see any logical reason for excluding them. They are likely to be a vulnerable group; they probably do not receive state benefits, and if they are drawing their pension they are probably unable to find work.

Inflation hits those people just as badly as anybody else; they may even be more badly hit, because, if they are younger, they may have dependent children and mortgages. Early retirements at this age are very few, I should have thought, but a pension is a pension. If it is paid it should be protected in the same way as pensions for other people. Perhaps the Government would kindly explain why they have felt it necessary to impose that restriction.

Lord Mottistone

I should like to explain the provision, although I am sure that my noble friend will have a good answer. It is exactly what happened to me when I was in the navy. When they increased our pensions we did not manage to draw the new increased pension until we were 55. It is a straight copy of that situation. I expect it saves a lot of money.

Lord Henley

I shall try to be brief in response to this particular amendment.

Paragraph 5 of Schedule 2 is included simply because it is our intention to provide that schemes should be statutorily obliged to provide pension increases for those individuals who might be considered to have retired. There are a number of different employments where the normal retirement age is quite young—for instance, professional footballers. A pension may be paid but it is more than likely that the individual will not consider himself retired and will look for other employment. It would not be reasonable to expect occupational schemes to have to pay increases of pensions in those circumstances.

There are, of course, exceptions to the age 55 rule. The first is if the individual is under 55 and is out of the full-time employment field by reason of mental or physical infirmity which is considered to be of a permanent nature. The second is if he has retired by reason of mental or physical infirmity from the particular job from which he is receiving a pension. In both of those instances it is clear that the individual can be said to have retired.

As my noble friend pointed out, there is an anology with the public service pension schemes in this provision. We think it fair to keep the public and private sectors on an even keel in this respect. I hope that the noble Baroness will be reassured by this explanation.

Baroness Turner

I am grateful for the explanation given by the Minister. As I said earlier, it was not my intention to press the amendment. I wanted to know the reasons for treating a pension paid at a younger age differently from other sorts of pension. The Minister has explained and I will look at his reply in Hansard. For the time being, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Henley moved Amendments Nos. 99 to 101: Page 35, line 10, leave out ("subsection") and insert ("sub-paragraph"). Page 35, line 17, leave out ("being"). Page 35, line 18, after ("member") insert ("or are not paid in full").

The noble Lord said: I spoke to these amendments when speaking to Amendment No. 77. I beg to move.

On Question, amendments agreed to.

Lord Henley moved Amendment No. 102: Page 35, line 23, at end insert: ("Application of Schedule to pensions not attributable to pensionable service 5A. Regulations may provide that this Schedule (other than this paragraph) shall apply in relation to any pension under a qualifying scheme as if so much of the annual rate of the pension as would not otherwise be attributable to pensionable service were attributable in accordance with the regulations— (a) to pensionable service before the appointed day; (b) to pensionable service on or after that day; or (c) partly to pensionable service before, and partly to pensionable service on or after, that day; and any reference to the earlier or later service component of the pension shall be construed accordingly.").

The noble Lord said: This amendment will enable the Secretary of State to require that any part of the annual rate of a pension that would not otherwise be increased be treated as either earlier service component or later service component for the purposes of this schedule.

Our intention with this amendment is to enable the Secretary of State to deal with pensions that are not attributable to pensionable service. Pension which is derived from notional service and supplemental credits awarded to the member after the appointed day will form part of the later service component. Any remaining pension based on these will form part of the earlier service component. We would not wish to see these elements of a member's pension excluded from the provisions requiring increases, and are taking steps to include them in this way. I beg to move.

On Question, amendment agreed to.

Schedule 2, as amended, agreed to.

Clause 12 [The Pensions Ombudsman]:

Baroness Turner of Camden moved Amendment No. 103: Page 16, line 31, leave out ("commissioner to be known as the Pensions Ombudsman.") and insert ("commission to be known as the Pensions Tribunal.").

The noble Baroness said: In moving this amendment I speak also to Amendments Nos. 104 to 115, 117 to 133, 138 to 156, 158 and 159.

In this series of amendments I propose that the ombudsman, proposed as the appropriate official to hear pension complaints, be replaced by a tribunal. The Occupational Pensions Board, of which I am a member, in preparing its report entitled Protecting Pensions: Safeguarding Benefits in a Changing Environment, considered the relative advantages of a tribunal compared with a single ombudsman. The board decided that while an ombudsman was suitable for disputes between a large bureaucracy and an individual, there was a need for a body which could decide large, complicated issues, perhaps when two sets of trustees or trustees and other organisations—possibly unions representing employees—were involved.

I am very keen on the concept of a tribunal. In fact, when we debated this matter within the OPB I and several others pushed hard for a tribunal against the proposal, also considered, for an ombudsman. I know from my own experience just how costly it can be if the only way of resolving a dispute about pensions is to take the dispute to the High Court, because that is a long-winded procedure. A specialist tribunal plainly appeared to be the best way of dealing with such disputes. of course, access to the courts would already exist as a backdrop on a point of law and that continues with the proposals I now put forward. All I have done in the amendments is to replace the ombudsman with a tribunal where reference to that office appears in the Bill.

I envisage a relatively informal tribunal with two independent persons, with a lawyer in the chair who is experienced in pension matters. The independent persons would themselves have had pension fund experience or training but would represent the interests of employers and employees in the broadest possible way. Many of the issues would have some connection with employment. The industrial tribunal concept has been found useful in dealing with employment issues even if, over the years, the atmosphere at such tribunal hearings has become more legalistic and formal than originally intended.

It is still unclear to me why the Government rejected these arguments and decided on an ombudsman even though the proposed powers of the ombudsman are much more akin to those held by a court than those possessed by other ombudsmen. I should be interested if the Minister could say why the very detailed report of the OPB and the recommendations for a tribunal were rejected in favour of this single office. I beg to move.

9.45 p.m.

Lord Coleraine

I should explain to the Committee, perhaps with a note of apology, that I speak to this amendment on the pensions ombudsman, and the subsequent amendments, not out of concern for occupational pension schemes or personal pension schemes but because I am concerned at the proliferation of ombudsmen in recent years which seems now to be turning into a flood. A number of ombudsmen have been created. They have been created in various ways and they have various functions with one seldom resembling another. Until now they have tended to have in common an interest in the investigation of maladministration.

In the schedule that we are now discussing it is quite clear that there are two functions to be put into the hands of the person who is to be called the Pensions Ombudsman. Under Section 59C(1) proposed for the Pensions Act, he is clearly going to investigate maladministration. I should have thought that was the clear remit of the ombudsman as the term is now understood by most people.

When one turns to the proposed Section 59C(2), one sees that he is also being asked to determine disputes which have arisen in relation to matters of fact and law. What he is being asked to do is to act himself as a poor man's court. The logical way to deal with the matter is to create two schedules; one to create a pensions ombudsman to deal with maladministration; and the other to put matters into the hands of a tribunal which would be a better body to deal with matters of fact and law. That was a matter which was canvassed at some length in Standing Committee in another place and it is not the amendment which is before us this evening.

When one looks at the functions of this new person, the maladministration function is of less significance than the function of determining disputes as to matters of fact and law. It is on that basis that I express considerable sympathy with the amendment moved by the noble Baroness, Lady Turner, this evening. There is a great deal to be said for leaving this matter in the hands of a tribunal and not an ombudsperson.

Lord Henley

It is with some foreboding that I respond to the noble Baroness on this issue. Not only has she presented her case, as she always does, very clearly, but as I believe I said at Second Reading, she brings a wealth of experience as a member of the Occupational Pensions Board. It was the OPB which produced the report commending a tribunal. My noble friend has also intervened and stated that ombudspersons—I think he said—were proliferating like a flood. Some might say the same is true of tribunals. However, everyone will agree that one or the other is necessary on this occasion.

The OPB reported that a substantial majority of those who responded to their consultation note expressed the view that there was a need for an ombudsman or a body to adjudicate in disputes. There is, I am sure, general agreement that there is a need for a quicker, cheaper and more effective alternative to the High Court for pension scheme members. The High Court is not a realistic possibility for most members of schemes. The OPB looked very carefully at the relative merits of an ombudsman and a tribunal and, in the words of the report, came down on balance in favour of a pensions tribunal.

When this was discussed in Committee stage in another place, the Opposition tabled amendments that there should be both a pensions tribunal and a pensions ombudsman. They argued that there would be a hard core of cases where the expertise and legal standing of a tribunal was required, but that the ombudsman would be able to deal with most cases expeditiously and informally.

This latter point of expedition and informality was a major factor in the Government's thinking. It is recognised that a tribunal should not have both advisory and adjudicatory duties, in order to avoid conflicts of interest. The tribunal would only be able to listen to arguments put to it, whereas an ombudsman is able to take the initiative and investigate the complaints. That is of great benefit to the individual. Legal expertise will be available to the ombudsman not only in the staff he may appoint but also in the legal experience of outsiders whose services he will be able to buy in as required. A single ombudsman will be able to cover the whole of the United Kingdom, including both Scotland and Northern Ireland, whereas it seems quite possible that separate tribunals might be needed for Scotland and for Northern Ireland.

The OPS recommended, and the Government accepted, that the "consumer package" should be financed from fees paid by pension schemes and providers. The package consists of the tracing services based on a register of schemes, the grant by the OPB to the Occupational Pensions Advisory Service and the ombudsman, or tribunal as the OPB recommended. We agree that it is right that the industry should meet such costs, but whereas this is a practicable proposition in dealing with a pensions ombudsman, it would not be possible with a tribunal.

In the Government's view, an ombudsman scheme is a more appropriate way to deal with the types of problems that individuals can face. The ombudsman has quite extensive powers in any case so that he, or for that matter she, can fulfil some of the functions which a tribunal might undertake. For example, he has power to seek a High Court ruling on a point of law in the public interest.

One of the strengths of an ombudsman system, and in particular the power we are proposing to give to the pensions ombudsman, is that it is simple, clear-cut and comprehensible to members of the public and, even more important, to members of pension schemes. I have listened carefully to what the noble Baroness has said, and I do not think there is a great deal between us in what we are both trying to achieve. The Committee will have noticed that government No. 136 will ensure that any oral hearing that the ombudsman decides to have will, unless there are exceptional circumstances, be held in public. This is akin to what would occur in a tribunal system, but there is the added advantage of the flexibility inherent in the ombudsman system.

Among the plethora of amendments about a tribunal, there is tucked in an amendment the effect of which would be that, in certain circumstances, the pensions ombudsman would feel it necessary to consider the balance of interest between members and non-members of a pension scheme and then automatically come down on the side of the members. I cannot accept that proposition. The ombudsman is expected to act fairly and impartially. It cannot be right for him to have a predisposition to come down on the side of the members; he is not their advocate. The point of an ombudsman is that he investigates, weighs the evidence and then comes to a determination.

I invite the noble Baroness not to press her amendment which at this hour I am sure she will not do. I accept that we are not far apart on this point. The noble Baroness would prefer a tribunal. For the reasons that I have given, the Government would prefer an ombudsman. Bearing that in mind, I hope that the noble Baroness will feel able to withdraw her amendment.

Baroness Turner of Camden

I thank the noble Lord for his explanation. He is quite right; I have no intention to press the amendment at this hour. I know that in another place it was proposed that there should be both an ombudsman and a tribunal. I deliberately did not do that because it seemed to me that my case would be strengthened if I stayed with the recommendation of the OPB as I was a member of it and supported its recommendations.

I still believe that in practice a tribunal would be the best means of handling these issues. We shall have to see how the ombudsman system works out in practice. When I was drawing up the amendments, I took the view that the ombudsman should clearly be seen as protecting the interests of scheme members. That should be the main function. Scheme members would be the ones most likely to complain if they felt that their interests were not being properly looked after, and it would be scheme members, or those who represented them, who would be most likely to utilise either the services of the tribunal or of the ombudsman. Therefore it seemed quite reasonable to lay down that it should be the function of the ombudsman to look after the interests of members of the scheme.

However, I note what the noble Lord has said. We shall watch carefully to see how the scheme operates in practice. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 104 and 105 not moved.]

Clause 12 agreed to.

Schedule 3 [The Pensions Ombudsman]:

[Amendments Nos. 106 to 115 not moved.]

Lord Henley moved Amendment No. 116: Page 36, line 15, after ("remuneration") insert ("compensation for loss of office").

The noble Lord said: In moving this amendment I shall speak also to Amendment No. 160. These amendments would provide for the registrar and the ombudsman to be paid compensation in the event of loss of office. It has always been our intention that the registrar and the ombudsman should receive compensation for loss of office, as well as remuneration, pensions and so on. The purpose of the amendment is to make that absolutely clear in the Bill. I commend the amendments to the Committee. I beg to move.

On Question, amendment agreed to.

[Amendments Nos. 117 to 133 not moved.]

Lord Henley moved Amendment No. 134: Page 39, line 46, leave out ("after consultation with the Council on Tribunals").

The noble Lord said: In moving this amendment I shall speak also to Amendments Nos. 135, 136 and 137. Amendments Nos. 134 and 135 would delete the unnecessary reference to consultation with the Council on Tribunals and clarify the role that the council will play in the operation of the ombudsman scheme. It has always been our intention to enable the ombudsman to consult the Council on Tribunals with regard to the procedural rules which will govern how he considers disputes of fact or law. We introduced amendments to this effect at Report stage in another place, and these two amendments will clarify the wording of Section 59F(2).

Amendment No. 136 will make clear that the procedural rules which govern the ombudsman's duties will include power to require any oral hearings held in connection with the investigation of a complaint or dispute to be heard in public, except in specified types of cases. In addition to this, the rules will be able to make provision as to the persons who shall be entitled to act as representatives on behalf of the parties to the investigation. The fourth amendment is consequential upon this. I commend the amendment to the Committee. I beg to move.

Lord Coleraine

I welcome the clarification provided by my noble friend's amendments. I wish to refer especially to Amendment No. 136 which gives some clarification as to what should be included in the rules. I have two points to make. First, it seems to me that the rule as regards, requiring any oral hearing held in connection with an investigation", really only applies to the "poor man's court" side of the ombudsman's function and not to the maladministration. Does my noble friend envisage that the same rule would apply to both investigations under Section 59C(1), as proposed, and Section 59C(2)?

My second query arises out of the same possible rule. It requires, any oral hearing held in connection with an investigation … to take place in public". That seems to carry the clear presumption that whether such a hearing—and I am thinking of a hearing under proposed Section 59C(2)—will be held in public is a matter for the sole discretion of the ombudsman. I should have thought that the amendment which my noble friend has put before the Committee ought to have continued to enshrine the proposition in the form of a rule that any hearing shall be held in public, except in such cases as may be specified by the rules. I should be grateful if my noble friend would consider these points if he cannot answer them now.

Lord Henley

I shall certainly consider my noble friend's points. I can answer his first question by simply saying, yes. I commend the amendment to the Committee.

On Question, amendment agreed to.

10 p.m.

Lord Henley moved Amendments Nos. 135 to 137: Page 39, line 49, leave out ("and investigation of complaints") and insert (" of complaints, the reference of disputes, and the investigation of complaints made and disputes referred, "). Page 40, leave out lines 1 to 5 and insert: ("(3) The rules may include provision— (a) requiring any oral hearing held in connection with an investigation under this Part of this Act to take place in public, except in such cases as may be specified in the rules; and (b) as to the persons entitled to appear and be heard on behalf of parties to an investigation, as defined in section 59E(5) above."). Page 40, line 6, leave out ("referred to in subsection (2) and (3) above").

The noble Lord said: I have already spoken to these amendments. I beg to move.

On Question, amendments agreed to.

[Amendments Nos. 138 to 156 not moved.]

Lord Coleraine moved Amendment No. 157: Page 41, leave out lines 30 to 36.

The noble Lord said: When I spoke to the noble Baroness's amendment I tried to explain to the Committee why I considered that a tribunal was the appropriate forum for dealing with the provisions covered by the third schedule to the Bill. In moving this amendment I wish to put forward my view that it is inappropriate for an official masquerading under the title of ombudsman to deal with these matters.

My amendment provides that the determination of the pensions ombudsman shall not be enforceable in the courts. I seek to probe to the heart of the schedule. I have chosen this means because so far as I am aware it is altogether without precedent for a statutory or any other ombudsman scheme to provide that the determination of the ombudsman shall be rubber stamped for enforcement purposes by a court.

I am conscious that my amendment will not find favour with my noble friend, nor with anyone who cherishes "Mom and apple pie". I do not propose to press the amendment, but someone must point out that Schedule 3 does not create an ombudsman scheme at all except in relation to the maladministration proposals. Maladministration is the smaller part of the whole. The larger part of the scheme deals with the resolution of disputes arising in contract and the law of trusts. It is a clear effort to oust the courts, whether the High Court or tribunals. I refer to them equally here as courts.

It seems to me that it is clearly a corporative idea that justice should be administered by a functionary acting as inquisitor, prosecutor, judge and jury and by someone who can then hand over his decision to be enforced by courts, which have had nothing to do with the matter at all until then. All this is said to be in the interests of a straightforward method of redress for consumers' problems. It is said to be a cheaper and more effective alternative to the High Court and quicker and more effective than a tribunal.

However, does not this all mean little more than that legal aid costs in the High Court would be saved? Does it not reflect the absence of the availability of legal aid before tribunals? I consider that the principle here is wrong and the precedent which the scheme establishes leads in the wrong direction—towards further private justice administered by a civil servant in secret. I submit that it is not appropriate for all these matters to be dealt with by a tribunal. It is certainly not right to hand them over to someone called an ombudsman. I beg to move.

Baroness Seear

I was much impressed by the arguments put forward by the noble Lord, Lord Coleraine. He said that he would not press the amendment so I do not suppose that this is of great interest to him, but the case he made seems to me to be unanswerable. We are moving all the time towards executive interference in matters which ought to be in the hands of some form of judiciary. This is much to be deplored.

Lord Henley

Earlier I was accused of being Stalin. Now I am accused by different noble friends of being a corporatist. As my noble friend quite rightly said, the effect of his amendment would be to remove the provisions whereby the determinations or directions of the pensions ombudsman could be enforceable in the courts. In other words, the proposal is that it should be entirely voluntary whether or not the trustees, or manager of the scheme concerned choose to comply with the pensions ombudsman's ruling.

Perhaps I may briefly explain how the procedure is intended to operate. An individual will apply to the pensions ombudsman with a complaint. That complaint may be an allegation that he has been unfairly treated because of maladministration on the part of the trustees or manager of an occupational or personal pension scheme, or it may be a request to determine a dispute of fact or law which has arisen.

If the ombudsman decides to accept the application, he will conduct an investigation into the complaint, and of course will allow all parties concerned the opportunity to comment on the issues raised. The ombudsman may refer any question of law to the High Court or, in Scotland, the Court of Session, if he thinks it necessary. In due course he will send a written determination to the parties concerned. This determination is final and binding on the parties, except that on a point of law an appeal may be made to the High Court or Court of Session.

It only really makes sense for the determination to be final and binding if it can be enforceable in the courts. Unlike some other ombudsman schemes where individual firms or companies decide to join, the pensions ombudsman will make decisions which will apply to all occupational and personal pension schemes. There are hundreds of thousands of such schemes, the vast majority of which could be relied upon to implement a decision of the ombudsman. But the very nature of the scheme is that he will deal with cases where there are problems and where there is a dispute between the trustees and an individual. of ten the conciliation bodies such as OPAS are unable to make an impact because of intransigence.

It must, therefore, be right that the courts should be able to enforce the ombudsman's decisions. One of the current problems, as the OPB report pointed out, is that there is a need for an easier way for scheme members to resolve grievances. The expensive and time-consuming option of the High Court would continue to be the only one open to individuals if schemes decided to ignore the ombudsman's decision.

Having said that and before asking my noble friend to withdraw his amendment, I should point out that it is always open to a scheme member to go to the High Court before he approaches the ombudsman. That right is not lost. It is only when one uses the ombudsman's services that his decision is then binding, except on a point of law, in which case the High Court can be brought into the matter. My noble friend said that he would not press his amendment. Nevertheless I hope I have satisfied his questions on this matter.

Lord Coleraine

As I have said, I have no intention of pressing the amendment. I have only one comment to make on what my noble friend has said, which is that it seemed to me that in a sense he conceded the case when he said—I hope I understood him correctly—that the ombudsman would make determinations which would affect all pension schemes. It seems to me that there could be no clearer case for these matters to be decided in the open before a court or a tribunal. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 158 and 159 not moved.]

Schedule 3, as amended, agreed to.

Clause 13 [Registration of occupational and personal pension schemes]:

Lord Henley moved Amendment No. 160: Page 17, line 19, after ("gratuities") insert ("or compensation for loss of office")'.

The noble Lord said: I have already spoken to this amendment. I beg to move.

On Question, amendment agreed to.

Clause 13, as amended, agreed to.

Lord Vinson moved Amendment No 161: After Clause 13, insert the following new clause: ("Entitlement to opt annually for a PPP at full transfer value of accrued rights including pre-1988 rights.

Notwithstanding any provision of the Social Security Act 1982 or of the Income and Corporation Taxes Act 1988, as amended, any member of an occupational pension scheme (not yet in receipt of pension) shall have the right annually to elect to transfer the full value of his accrued rights to a Personal Portable Pension at the same actuarial valuation of transfer entitlement as he would have enjoyed had he left the employment of that company.").

The noble Lord said: I am grateful for the support of other Members of the Committee for the amendment. Its purpose is fourfold: first, to correct an anomaly in existing law governing the transfer of pensions; secondly, to give more freedom of choice in pension provision; thirdly, to encourage higher personal savings; and, fourthly, to develop the spread of the ownership of the assets of the United Kingdom more widely among its citizenry.

Since the concept of personal portable pensions was introduced, over 4 million citizens have taken advantage of the new provision. It has proved more popular and been taken up on a greater scale than anyone anticipated. The take-up is still very substantial.

Currently, if one leaves the employ of a company one is entitled to the full transfer value of one's accrued pension rights. These can be transferred by the individual either into his new company's pension scheme or as the foundation for a new personal portable pension that he can set up at that point. Thereafter his pension follows him, literally on his back, from company to company. Because it is his own personal pension he naturally takes more interest in it, and he is also more likely to save by way of additional voluntary contributions because he is adding to his own personal pot. Last but not least, he becomes a citizen with a discernible stake in the wealth of the country.

However, a technical obstacle remains. By an anomaly in the law as it presently stands, if an existing employee elects to have a personal portable pension, he only has the right to take the accrued value since 1988, which is obviously very small. The pre-1988 values cannot transfer until he leaves. I believe that that restriction was inserted at the time when personal portable pensions were introduced so as to inhibit members of existing schemes from transferring to personal schemes and thereby simultaneously putting a double strain on the administrators of those schemes while the new systems were being introduced. However, that was some time ago.

I have consulted with leading actuaries. One in particular said to me that the original denial of pe-1988 rights was due to the fear of a mass walk-out. That is and was a chimera. It is not a problem and he and others do not believe that an undue strain would now be placed on the administration of pension funds. I believe that I am right in saying that the NAPF is agnostic towards this proposal.

The industry could now cope. All the arrangements are in place to give an actuarial valuation of a member's rights when he leaves. As the law currently stands, members are entitled to ask for that valuation.

Apart from the very small additional administrative burden, the arrangements which I propose are costless to the company because the actuarial valuation of a pensioner's entitlement equals precisely the liability that that fund has accumulated in order to meet his pension obligations to date. Thus the solvency of the fund is neither enhanced nor diminished by the withdrawal so long as the actuarial calculation is a correct assessment of the pensioner's entitlement, which it would be.

It has been put to me that companies should have some time to raise the necessary cash in order to effect a transfer. While I believe that the number of employees asking for these arrangements will be relatively small, it would be quite reasonable for the company to have six months to execute the transfer and to be able to do so at the valuation calculated at the precise point of sale.

Also, if an individual opts for a transfer to a personal portable pension, it would be perfectly reasonable that that employee should not have the right of re-entry, as hopping in and out of a company pension scheme would place an unreasonable burden on its administration. The clause that I have put down does not make that point particularly clear. No doubt it could be tidied up subsequently.

I believe that the clause that I propose has an inevitable logic about it. It is an extension of the present rights currently given to those who leave a company. It would in future allow any existing employees of a company an opportunity annually to elect to have a full personal portable pension if they desire it and to do so while in the employ of that company. In practice, most employees would probably be quite happy to leave arrangements as they are. I do not anticipate a rush of existing employees asking for personal pensions.

However, we live in a world where labour mobility is increasing, where "cradle to the grave" jobs are abnormal and where job changing, particularly and perhaps inevitably by female employees, is at a much higher level than hitherto. Personal and portable pensions fit that pattern much better, apart from severing the somewhat anachronistic ties between an employee and a company for which he or she may have worked for 15, 20, 30 or umpteen years.

We can expect to see the demand for personal portable pensions grow. It is right that existing employees should have the freedom to choose a personal pr of itable pension, should they wish to exercise that choice. I beg to move.

Lord Joseph

I hope that my noble friend's speech, which contains assurances that the amendment could do no harm and will do good, will be seriously considered by my noble friend the Minister. I support my noble friend.

10.15 p.m.

Baroness Turner of Camden

I am sure that the Committee will not be surprised to learn that I am not in favour of anything which encourages personal portable pensions. The noble Lord, Lord Vinson, stated that 4 million citizens had opted to take personal private pensions. Most have opted against SERPS and not against occupational pensions. They have been encouraged to do so largely by the Government providing a bribe in the shape of a national insurance rebate which runs for a certain period. That situation has enabled those who purvey personal private pensions to encourage many people to opt againt SERPS. We have seen advertisements which state, Why be a SERPS? Join a personal private pension". I am pleased to say that that does not apply very much to occupational pensions. I asked for the figures in relation to those at a meeting of the Occupational Pensions Board. It appears that relatively few people have opted against occupational pensions.

An amendment to the legislation agreed when it was before your Lordship's House means that it is not possible to opt if one has not been a member of an occupational pension scheme for a reasonable period of time. I am pleased to say that one of the reasons why members of occupational schemes have not opted for private personal pensions is that a good side effect of the Government's legislation has been that providers of schemes have had to popularise what they have on offer with their members. Increasingly, a great deal of information has been made available that sets out very clearly to their members exactly what is on offer and how much better that is than anything they could get outside.

From the point of view of most employees an occupational pension scheme to which they pay a contribution and which the employers have to fund on a balance of cost basis is a very good investment. I should hate to see that scheme further weakened by possible incentives for people to join personal private pensions in opposition to the occupational schemes which, generally speaking, offer a very good deal to members. I hope that the Minister, when he replies, will say that the Government are satisfied with matters as they are and see no reason to give further incentive or encouragement to the growth of private personal pensions.

Baroness Seear

I, on the other hand, very much hope that the option will be made available. If the occupational pension schemes have to compete with personal private schemes, they will be more attractive. That is a very good thing. Occupational schemes have become more flexible. But there is no doubt that in the past they tied people to employers. They increased immobility and operated heavily against people who had the enterprise to get out and do something else.

When I sat on the Top Salaries Review Body we had reason to go into this matter in considerable detail. We found that people who had had the enterprise to move out—perhaps to move several times in the course of their career—were very heavily penalised when it came to drawing their pension at the end of their career. I know that that situation is not as serious as it was; but I still think that it is a very important point. It is also, as the noble Lord, Lord Vinson, said, extremely important in connection with women, although not only with women. However, women more than men are inclined to move in and out of employment and to go from one employer to another. If they can build up a personal pension and continue to pay into it in some scheme while they are not working full time, that must be an advantage. At the end of the day many women find themselves with totally inadequate pension provision. Many of them have to look after themselves when they are old—because of the increased incidence of divorce and so on—and the desirability of women being able to build up resources to enable them to look after themselves when they finally retire seems very strong indeed.

If the occupational pension scheme is good and it suits that person because he or she is planning to have that kind of career, that is fine. But a lot of people do not have that intention. I think that that should be an option.

Lord Henley

I am not surprised at the opposition of the noble Baroness, Lady Turner, to this amendment. I am surprised and have been surprised in the past by her repeated opposition to personal pensions and the whole success of the personal pensions initiative. I feel that she should welcome the success of the Government.

As my noble friend Lord Vinson appreciates, the introduction of the pensions reform package in 1986 was aimed particularly at enabling employees not covered by an occupational pension scheme to take out a personal pension in order to make better provision for their retirement. The first of his two proposed amendments, in which I assume he means to refer to the 1986 Act, concerns a restriction that currently exists whereby the rights that have to be transferred from an employer's pension are limited to those built up since 1988, when personal pensions started. That contrasts with the position for people who change jobs. They can transfer all their pension rights from their previous employer's scheme (with no 1988 limit) to any scheme which they are eligible to join provided that they left on or after 1st January 1986. If they left before that date such transfers are at the scheme's discretion.

As the Committee no doubt will recall, there was considerable discussion at the time about whether the transfer of rights from an occupational scheme to a personal pension or other scheme should cover all the accrued rights or whether there should be some sort of restriction on the period for which rights could be transferred. It was concluded at the time that without some sort of restriction the financial viability of schemes could be put at considerable risk because schemes would not have made provision for an increase in early withdrawals. The resulting depletion of assets could adversely affect their funding arrangements. We felt then that a balance was needed between the interests of the member who leaves and of the member who stays in the scheme and who may want to exercise his or her right to leave at some future point.

The Committee will be well aware of the very significant part played by my noble friend Lord Vinson in getting personal pensions on the political agenda. As I said in my opening remarks, the Government are certainly extremely pleased with the way in which this new form of pension provision has taken of f. However, we are firmly committed to the development of all forms of pension provision, including final salary schemes. That is why we attach such importance to the measures that we are introducing in the Bill currently before this Chamber.

We have been monitoring all aspects of the social security reforms that we introduced in the 1986 Act and their impact on the interests of all concerned; ! that is, the members of occupational schemes, those providing them, the holders of personal pensions, and the financial institutions. We shall certainly look carefully at what my noble friend Lord Vinson suggests. But we should need to consult fully before we could see our way to introduce the change that he seeks in his first amendment. We know from experience that some schemes will take some considerable convincing of the need for change. I appreciate that my noble friend has canvassed views and I am grateful for that. I feel confident, however, that he, in his turn, will recognise that we need to consult formally all the various interests involved.

I turn now to my noble friend's second amendment. It would require trustees of all schemes with more than 100 members to tell all their members every year the value of the pension rights that they could transfer into a personal pension scheme if they chose to leave their occupational scheme. My noble friend will no doubt know that the present disclosure requirements give members the statutory right to ask for this information, and if they do ask for it then the trustees are obliged to give it. To make the issue of such a statement compulsory could put an extra administrative burden on schemes although I appreciate that my noble friend is proposing to exempt very small schemes from this added burden and to give the rest four years to make the necessary arrangements. Many members receiving statements would not want to leave anyway. However, I can understand my noble friend's point in wanting to make people aware of the possibilities that are open to them. The Government have done much to make sure that scheme members are provided with adequate information when they need it, and we would in any case need to look at this aspect if the transfer provisions were altered on the lines that my noble friend proposes in his first amendment.

We shall look carefully at the suggestion in my noble friend's first amendment, but again we would need to consult before changing the present rules. I am most grateful to my noble friend for raising those issues. However, I hope that in the light of what I have said, he will feel able to withdraw the amendment.

Lord Carter

Before the noble Lord decides what to do with the amendment, perhaps I may first comment on the Minister's reference to the success of the personal portable pensions. He referred to the success in terms of the uptake of those pensions. The success of a pension fund should be measured in its performance, not in its uptake, in particular when there has been a four figure inducement to the taxpayer to persuade people to take up these PPPs.

Perhaps I may ask the noble Lord, Lord Vinson, this question. With the transfer or portability of these pensions, what is the effect on the cost and eventual outturn in performance? We all know that when one takes up a new pension scheme commissions have to be paid. There is the question of a front-end loading and a recovery of cost. Is he not concerned that with the portability of the pensions the pensioner will be worse of f at the end of the day because of the cost incurred and the pr of its that would be taken at each of the moves?

Lord Vinson

Perhaps I may deal with some of the points raised. The Minister has slightly overtaken my second amendment by giving his reply before I had made the point. Perhaps I may catch up.

With her background, I would naturally expect the noble Baroness, Lady Turner, to favour collective forms of investment. She said that the demand for personal pensions had been relatively small, and non-existent from those in occupation schemes. She then realised that she had tripped herself up because that is precisely the point of my amendment: that such employees in occupational pension schemes are locked in and do not have the option of personal portable pension schemes. The amendment corrects that. If we were to meet in a few years' time, we could test which of us has the correct prognostication.

Unlike the noble Baroness, I am not against occupational pension schemes. I am relatively neutral. I am anxious that the potential pensioners of this country should have the freedom of choice. All pension schemes are money purchase schemes. People sometimes talk in derogatory terms about personal pensions being money purchase schemes. All pensions are money purchase schemes. Pension fund managers spend their time buying and selling shares and purchasing money. The difference is that personal pensions are disaggregated money purchase schemes; and occupational schemes are aggregated money purchase schemes.

At the end of the day the situation will be neutral. There is only so much rice in the rice bowl. How it is distributed will very much depend on the growth and wealth creation of this country over the next 20 or 30 years. We want schemes that stimulate and help that process. When more widely spread, the ownership of the assets of this country will bring about a wider shareholding base which will take a much more active and participative part in the wealth creation process.

The noble Lord, Lord Carter, raised the question of costs. The costs of administration will be fairly neutral. Nothing could be more expensive than the existing costs of occupational schemes where the managers of those schemes have to keep tabs on and records of potential pensioners for 20, 30 or 40 years and then send them a snippet of a pension—£1.20 a week—for the few years for which they worked for that company some 30 years before. That is an anachronistic form of administration which the gradual transfer to personal and portable pensions would overcome. It would more clearly fit the labour market patterns of the future.

The object of my second amendment is to try to relate the people of this country more closely with the enormous wealth—the £250 billion of assets—that currently lie in occupational pension funds. That money is no one's money. It cannnot be satisfactory to have it owned anonymously. The amendment seeks to encourage people to take a closer interest in that and to encourage company employees to participate more actively in the management of those pension funds—an objective which I am sure I share with the noble Baroness, Lady Turner. We must begin the process of turning what is no one's money into someone's money and the optional development of personal and portable pensions begins to work towards those ends.

I am partly reassured by the Minister's comments. I am sure that he will read carefully what has been said tonight. I have no doubt that he will consult throughout the industry, but I hope that at the same time he will have a mind of his own and that the Government will have a mind of their own. The job of government is to lead in these matters, not necessarily to follow. I hope that, having taken soundings, he will then feel that there is much merit in the two proposals.

I am grateful to noble Lords for their support and for the most valuable comments that they have made. In view of the Minister's reassurance, I shall not press the amendment. I beg leave to withdraw it.

Amendment, by leave, withdrawn.

[Amendment No. 162 not moved.]

Clause 14 agreed to.

10.30 p.m.

Schedule 4 [Occupational and personal pension schemes]:

Lord Henley moved Amendment No. 163: Page 45, line 38, leave out from ("employer") to end of line 39.

The noble Lord said: In moving this amendment, I wish to speak also to Amendments Nos. 164, 166 and 168.

These are minor drafting and technical amendments intended to clarify or correct the words of Schedule 4. I therefore invite the Committee to accept the amendment.

On Question, amendment agreed to.

Lord Henley moved Amendment No. 164: Page 45, line 6, leave out paragraph (b) and insert— ("(b) any power— (i) which the scheme confers on the employer (otherwise than as trustee or manager of the scheme), and (ii) which is exercisable by him at his discretion but only as trustee of the power, shall be exercisable only by the independent trustee; ").

On Question, amendment agreed to.

Baroness Turner of Camden moved Amendment No. 165: Page 45, line 46, at end insert— ("57CC. If and so long as section 57C above applies in relation to a scheme, the trustees of the scheme shall exercise their functions in such manner as shall best promote the welfare of members of the scheme.").

The noble Baroness said: This amendment makes clear that the job of the trustees, when a scheme is being wound up, is to look after the interests of scheme members. We consider that, although having an independent trustee when an employer goes into liquidation is welcome, it could well be limited in its impact. The power of the independent trustee is largely limited to the exercise of a blocking veto on any discretionary power vested in the trustees. That is inadequate as employers usually gain from the winding up of a fund if discretionary powers are not exercised.

We therefore believe that the independent trustee must be positively charged with the responsibility to look after members' interests. The recommendation of the Occupational Pensions Board report upon which the Clause is based was to safeguard the position of scheme members. That is definitely what the board had in mind. The Secretary of State said, in moving the Second Reading, that the intention was to give greater protection to members of schemes. Therefore we consider that the Bill is deficient because it fails to make clear that that is the job of the trustees and in particular, of the independent trustees. I hope that the Minister will regard this as a useful and constructive addition to the Bill. I beg to move.

Lord Henley

This amendment would require that when a company becomes insolvent and an independent trustee is appointed to the pension scheme, all the trustees would have to consider the welfare of scheme members only.

At first sight, this amendment might appear quite benign, as it appears to amount to a simple restatement of the current position in trust law. As the Committee will know, it is a general requirement of trust law that trustees exercise their powers in good faith and in the interests of all the beneficiaries under the scheme. Indeed this amendment might be viewed as unnecessary, in so far as it does restate that basic principle.

I am concerned, however, that if this amendment were to become law, it would cause confusion among both trustees and beneficiaries. If the employer is not insolvent, and there is therefore no independent trustee, this overriding duty would not apply. The amendment seems to suggest that the duties of trustees are different depending upon the circumstances of the employer. This is clearly not the case.

A more important point is that this amendment actually contradicts a basic principle of trust law. This amendment would require the trustees of a scheme to consider the welfare of scheme members only in certain circumstances. I am sure the noble Baroness does not wish the trustees to disregard the welfare of widows, widowers and dependants, but this is what the amendment would achieve.

I would remind the Committee of the OPB's view that trust law should remain the basis for occupational pension schemes. The Government firmly support that approach. Having said that, I hope the noble Baroness will feel able to withdraw the amendment.

Baroness Turner of Camden

I am grateful for the Minister's explanation. I did not intend to press the amendment. I merely tabled it to probe the matter of the independent trustee and the need to ensure that the welfare of members was given a very high priority in situations of wind up or other difficulty. However, in view of the Minister's reply, I do not propose to press the amendment and I beg leave to withdraw it.

Amendment, by leave, withdrawn.

Lord Henley moved Amendment No. 166: Page 46, line 6, leave out ("insolvency") and insert ("winding up, bankruptcy or sequestration").

On Question, amendment agreed to.

Lord Mottistone moved Amendment No. 167: Page 47, line 30, at end insert: ("() Where an occupational pension scheme exceeds the restrictions as to the proportion of its resources which may be invested in employer-related investments, the scheme shall not be required to sell or otherwise dispose of any employer-related investments, but the scheme shall not add to such investments until such time as the level of employer-related investment falls below the permitted maximum proportion.").

The noble Lord said: This amendment is grouped with Amendment No. 167A in the name of the noble Lord, Lord Stallard. It seems from Schedule 4(3) that the Government have taken a stand against the investment of pension fund monies in parent enterprise. They are quite understandably anxious the people should not have all their eggs in one basket and should not face the risk in extreme cases of losing not only their employment and associated earnings should the firm go under but also their pension prospects and, therefore, their provision for comfort in later years.

Since first indicating their plans in this area the Government have made it plain that they will exempt from fresh regulation small self-administered pension schemes where all members are 20 per cent. directors, all members are trustees and all investment decisions are unanimous. That is a welcome recognition that the case against self investment is not absolute and, secondly, that the practical effect of requiring some funds to move within a limit of, for example, 5 per cent., would be to force a sale of assets, which is likely to depress their value and could mean loss of ownership or even closure, as several firms have warned.

In small, self-administered schemes, substantially higher investment is quite common. Where those are director-only schemes, the participants knowingly choose to use their pension fund in this way as an available source of finance and they recognise the risks. Some larger funds which have sound outside investments covering all probable liabilities would argue as follows. First, that self-investment may justify itself as a source of suitably high returns for the more speculative element of investment appropriate with some of the surplus; secondly, as an investment in their own sector, it is appropriate for the balance of the fund and it would clearly be a nonsense for the pension fund to have split loyalties through investments in a competitor.

I summarise by saying that self-investment is not necessarily a bad thing. Though there are significant differences between the German situation and our own, and we do not know how insurance companies would react to the idea, perhaps the Government would consider allowing self-investment to continue on an insured basis. That would overcome the "all the eggs in one basket" objection without losing the advantages which some enterprises find in the self-investment process.

Whether or not the Government accept that self-investment can ever be beneficial, they must surely accept that any element of a forced sale is always thoroughly undesirable. That is the purpose of my amendment. It is the only way to achieve a movement away from self-investment without the risk of a forced sale. I beg to move.

Lord Stallard

When speaking to Amendment No. 167, I also speak to Amendment No. 167A. Perhaps I may begin by saying that I understand and appreciate the objectives behind the proposals. I can readily accept those proposals. However, in so far as the objectives seek to safeguard the interests and provide greater protection for members of occupational pension schemes, I hope that the Minister will share my concern. There is a real possibility that the proposals as they stand could operate adversely on some schemes; they may even threaten the existence of some schemes.

A number of schemes and a number of Members are not very happy about the operation of this particular provision. Perhaps the quickest way is to illustrate by way of example. I have no personal or financial interest whatever in the scheme that I speak of; I am familiar with it purely because it operates in the constituency which I once represented in the other place. That particular scheme was set up around 60 years ago by a gift of company shares. The income from those shares was used in part to buy further shares, and eventually the whole of the share capital of the business. That was strictly in accordance with the terms of the benefactor's wishes, which specified that the shares would be used for the benefit of the company employees.

The pension scheme therefore owns the company; it is the other way round to the situation that we normally consider. The product of that unusual arrangement—I am aware of this—is a non-contributory pension scheme with a record beyond comparison with any other schemes of which we know. That might not be a unique situation. I understand that there are others. However, it is certainly one which is seldom catered for in pensions legislation.

I am sure that the Minister will appreciate how difficult the question of self-investment becomes in such an instance; in the previous amendment the question was similar. Any requirement imposed upon the trustees to sell their investment in the company, as well as causing a breach of the original terms of the trust, could also lead to great practical difficulties. It could wind the company up, and we know the consequences which flow from that. The employees of the company of which I spoke are very well served. They are content with the situation, and any blanket legislation binding or restricting self-investment would clearly militate against the best interests of those people whom the scheme exists to serve.

On the basis that the interests of beneficiaries are of mutual concern, I hope that the Minister will accept Amendment No. 167A. It gives the Secretary of State powers, on the advice of the occupational pensions board, to exempt or partially exempt individual schemes from compliance with such restrictions for such period as seems to him to be appropriate. That seems to be fairly mild, constructive and of assistance to not only this scheme but many others. I therefore hope that the Minister will accept the amendment.

From reading the proceedings of another place it appears that the Government intend to conduct a survey. I do not know the details of that survey and I should be grateful if the Minister could say what form it will take, how long it is expected to last and whether its findings will be reported to Parliament. Some general information on the survey is necessary. I commend my amendment.

Lord Vinson

Briefly, I support these amendments. They are eminently sensible and I hope that the Government will take them on board.

10.45 p.m.

Lord Henley

I cannot accept these amendments. The noble Lord, Lord Stallard, and possibly my noble friend, are aware that the amendments are unnecessary. There are sufficient powers in the Bill to do in regulations what they wish to do.

There is general agreement, I believe, that self-investment can be a harmful practice. The National Association of Pension Funds issued a report in June 1988 entitled Self-Investment by Pension Funds and concluded that: The potential for conflicts of interest, irresolvable pressures and arguments is so great that self-investment is an unhelpful and undesirable practice". On the basis of that conclusion, the report set out a code of best practice, aimed at stopping new self-investment but also at running it down where it already existed.

The Occupational Pensions Board then looked carefully at all the arguments when considering its report and agreed that it was desirable to settle a level of self-investment; though it saw the argument for that to be temporarily exceeded in special cases.

The Government agree that there is a potential for conflicts of interest. If pension scheme trustees decide to invest in the company to which the scheme relates failure of the company places a double jeopardy on scheme members. Both their job prospects and their pension benefits are put at risk. That is clearly not desirable.

My honourable friend the Parliamentary Under-Secretary announced in the Committee stage of the Bill in another place that we have decided to arrange for a survey to be carried out which will provide up-to-date information on the extent of self-investment, in which sectors it is concentrated and what the problems will be in restricting it. This survey will begin very shortly and we shall be receiving the report during the summer so that we can consider it before introducing the appropriate regulations. The noble Lord, Lord Stallard, specifically asked about that.

This report will guide us as to what is the appropriate action to take, both in considering what limits to self-investment there should be and in considering what time scale it is reasonable to adopt. Our regulation-making powers are wide and flexible, so there will be scope to take whatever action we believe is necessary.

I have noted the points made by my noble friend Lord Mottistone, and we shall have regard to them in framing regulations. Clearly it would not be right for me to express a view on the amendment the noble Lord has spoken to as that would imply that we had already made up our minds without waiting for the survey to be conducted. We want to look at the results, examine the evidence and then bring forward specific proposals. I was interested in my noble friend's proposal that some form of insurance might provide the necessary safeguards and we shall look at that suggestion carefully. I therefore hope my noble friend will feel able to withdraw his amendment.

I have also listened to the points made by the noble Lord, Lord Stallard, and I know that he has concern for the scheme he mentioned. He may like to know that officials from my department met the trustees of that scheme only last week and had a useful discussion on the problems that it might face. I can assure the noble Lord that we have taken note of it and that we shall take it into account.

Lord Carter

The Minister referred to the requirement for existing schemes to run down their self-investment. Am I correct in thinking that when this was first proposed it applied to self-administered schemes; that now it has been decided that self-administered pension schemes will not have to act retrospectively, so to speak; and that the limitation on self-investment will only apply to their investments in future? The decision caused considerable anxiety at the time among the self-administered pension schemes.

Lord Henley

I think that the noble Lord slightly misunderstood me. I referred to a report by the National Association of Pension Funds. It then issued a code of practice aimed at stopping new self-investment, but also aimed at running it down where it already existed. We agree with that body and with the OPB that, in the main, self-investment is an undesirable practice. As I have said, we want to look further at this matter before we come to any conclusions; hence the survey that I announced. There are considerable problems, as the noble Lord, Lord Stallard, has mentioned. Before we come forward with any firm proposals we must have an up-to-date survey of the position.

Lord Mottistone

I thank my noble friend for his very full reply and for some of the points that he made. I am glad that he has taken up the idea of insurance on the German lines. My noble friend mentioned the report which has been made on the survey. Is that report to be publicly available or will it be seen by the Government alone?

Lord Henley

I am not sure what the answer is. I shall let my noble friend know as soon as I can.

Lord Mottistone

I shall read carefully what my noble friend said before deciding whether to pursue this matter further. At this stage I beg leave to withdraw the amendment.

Lord Stallard

I am grateful for what the Minister said. I shall welcome a copy of the reply that he sends to his noble friend on the question which I also asked concerning what happens to the report.

Amendment, by leave, withdrawn.

[Amendment No. 167A not moved.]

Lord Henley moved Amendment No. 168: Page 48, line 23, at end insert— ("(2) In paragraph 3 of that Schedule (average salary benefits) in sub-paragraph (5) (definition of "salaries") for the words from "means" to "terminated" there shall be substituted the words "means, subject to sub-paragraph (5A) below, the member's salaries for the period between the date when his pensionable service commenced and the date when it terminated". (3) After that sub-paragraph there shall be inserted— (5A) Where the member's pensionable service terminated before the coming into force of this sub-paragraph, sub-paragraph (5) above shall have effect with the substitution for the words from "means" to "terminated" of the words "means the member's salaries for the period between 1st January 1985 and the date when his pensionable service terminated".").

The noble Lord said: I spoke to this amendment with Amendment No. 163. I beg to move.

On Question, amendment agreed to.

Baroness Turner of Camden moved Amendment No. 169: Page 48, line 25, at end insert— ("Contributions to scheme in deficit. The following section shall be inserted after section 58 of the Pensions Act— 58A. If the liabilities of an occupational scheme exceed its assets, both valued in accordance with prescribed principles, the employer shall be liable to make such additional contributions to the scheme as may be prescribed.".").

The noble Baroness said: What is being proposed here is that occupational pension schemes should be funded on a statutory basis so that all reasonable steps are taken to ensure that there is enough money in the schemes to pay for the pension benefits.

It seems that such a requirement is particularly necessary now that schemes are to have an obligation to pay pension increases as well as the obligation to revalue deferred benefits. That places an obligation on the Government to ensure that schemes are adequately funded to meet these new obligations.

Perhaps the Minister will tell me if I am wrong, but it is my impression that the Government were considering some kind of special funding requirement. If there are to be these obligations then quite clearly there is a necessity to lay down certain requirements in order that the members of schemes can be quite certain that the money is going to be there to meet the obligations promised in statute and in the schemes themselves. I beg to move.

Lord Henley

Certain of the provisions in this Bill will ensure that, if a scheme winds up, employers will have to ensure that members receive pension increases at the prices—5 per cent. rate for rights built up after an appointed day. For pension rights built up before then, increases will depend on what has already been guaranteed as a result of these provisions and on any additional surplus emerging when the scheme winds up. Any deficiency in the scheme's assets will count as a debt on the employer. Our aim is to see that, if an employer winds up a pension scheme, the members receive the benefits to which they are entitled.

This amendment would go much further than our proposals and would lead to an unnecessary extension of interference in the operation of pension schemes where there is no question of the employer wishing to avoid responsibilities or of the scheme being wound up. The amendment would take away from the trustees of the scheme the flexibility which they now have to agree a contribution rate with the employer.

As I have said, we are all concerned to ensure that members receive the benefits to which they are entitled under the scheme. But I cannot accept that this will be achieved by taking away from scheme trustees and employers the right to decide the funding level of the scheme. The trustees can take account of many factors, such as the employer's business prospects, in deciding whether there is adequate security for members' benefits, and this can benefit employees as well as employers. I therefore invite the noble Baroness to withdraw the amendment.

Baroness Turner of Camden

I thank the Minister for that explanation. I shall study it carefully in Hansard tomorrow. When I put down the amendment it seemed to me that there was a need, in view of the new obligations to be imposed, to have some kind of funding standards. However, in view of what the noble Lord has said I shall withdraw the amendment. It had certainly not been my intention to press it at this hour. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Turner of Camden moved Amendment No. 170: Page 48, line 25, at end insert— ("Consultation on Takeovers and Mergers The following section shall be inserted after section 56N of the Pensions Act— 56P. Power to make regulations requiring consultations on takeovers and mergers affecting occupational pension schemes (1) The Secretary of State may by regulations require an employer—

1. (a) to give notice of his intention to make any change to an employee's conditions of service relating to an occupational pension scheme which will arise or have arisen on that employer being taken over by or merged with another employer; and
2. (b) in connection with any such notice, to furnish such information as may be prescribed and to undertake such consultations as may be prescribed with any organisation representative of the employees concerned.

(2) Until such time as the employer has met his requirements under sub-section (1) any amendments to the provisions of the scheme to give effect to such changes shall have no effect.".").

The noble Baroness said: This amendment requires employers to give prior notice of any changes in pension arrangements that arise when a company is merged or taken over. It also requires an employer to consult representative organisations about such changes on the basis of adequate information. The problem is that employees are usually the last in line when takeovers are considered. Sweeping changes can be made with little or no notice, let alone any consultation. Employees in this country have fewer rights in takeovers and mergers than many employees elsewhere in Europe. This issue is wider than just pensions, but in the context of the present Bill and the Government's declared intention of strengthening pension protection it seems appropriate that some such legislative provision is made as is contained in the amendment.

Although there is little evidence of takeovers happening just so that a predator can exploit a surplus, employees have genuine fears about their pension rights in such circumstances. The report of the Occupational Pensions Board was much concerned to try to deal with such fears and to provide some further protection. This it sought to do, and I am glad that the Secretary of State has followed to quite an extent the board's recommendations.

However, we think that when takeovers and mergers are contemplated employees affected should be given notice of when any changes in their pension arrangements are to take place and their representative organisations should be consulted. We are not suggesting that advance notice of the actual takeover should be given as in many cases that would be quite impracticable. Until such time, however, as the notice has expired employees should be entitled to whatever benefits they were entitled to receive prior to the takeover. I beg to move.

Lord Vinson

It gives me great pleasure to support the noble Baroness. I see exactly eye to eye with her on it.

Lord Henley

The speech by the noble Baroness reminds us of some of the reasons why the Occupational Pensions Board was asked by the then Secretary of State for Social Services to provide a report on various issues relating to occupational pensions. One of the issues was the involvement of pension schemes in company mergers and takeovers. As the board's report makes clear: There is a need to ensure that occupational pension schemes serve their purpose of providing security amidst the risks and uncertainties of commercial and industrial life when company takeovers are frequent". The object of this amendment is to require notice to be given about changes to an employee's pension arrangements following the change in control or sale of a business. As I understand it, it is not usually these events which trigger of f the changes to the pension arrangements; rather, they result from a change in the exercise of discretion or a transfer to a completely different scheme.

These points were raised in the OPB report, and the Government have accepted the board's recommendations. At present, on the disposal of a business a bulk transfer may be made from a group scheme of the previous owner to a scheme of the new employer, of ten without the consent of members. We have agreed that there should be a broad equivalence of rights and expectations acquired in the new scheme to those given up in the old. The intention is therefore that bulk transfers, without the consent of the members, should be permitted only if the actuary to the transferring scheme certifies that the rights and expectations to be provided in the new scheme to the transferring member in respect of their past service are equivalent, on an overall basis, to their rights and expectations in respect of past pensionable service in their original scheme. If the actuary cannot give such a certificate, then the transfers would proceed on the basis of individual consents.

The Government have also decided to review the disclosure of information regulations relating to occupational schemes. Regulation 5(6) of the Occupational Pension Schemes (Disclosure of Information) Regulations 1986 already requires trustees to provide information about changes to the scheme. We intend also to require that persons concerned in a bulk transfer should be entitled to receive, at least one month before the date of the proposed transfer, full information about its terms, including details of the basis on which past service rights are being allotted. I hope that the noble Baroness will accept that we are going some way to meeting her concerns, even if we cannot go along with her amendment entirely. I invite the noble Baroness to withdraw her amendment.

Baroness Turner of Camden

I thank the Minister for that reply. I welcome the assurances he has given about the Government's intentions to try to tighten up on the arrangements both in regard to notice and in regard to the disclosure of information by trustees. I believe that these are steps forward. We are dealing with pensions in the context of a Bill and although we have put down many amendments, generally speaking the main thrust of the legislation supports the policies which we advocate on this side of the Chamber. In the light of the undertakings given, I am happy to withdraw the amendment.

Amendment, by leave, withdrawn.

11 p.m.

Baroness Turner of Camden moved Amendment No. 171: Page 48, line 25, at end insert: ("Appointment of Members as Trustees The following section shall be inserted after section 56N of the Pensions Act— 56P. Power to make regulations requiring the appointment of members as trustees etc.— (1) The Secretary of State may by regulations specify requirements to be complied with by occupational pension schemes with respect to the appointment of persons representative of scheme members as scheme trustees such that those persons exercise voting rights in excess of 50 per cent. (2) Regulations made under this section override any provision of an occupational pension scheme to the extent that that provision conflicts with them.".").

The noble Baroness said: This is, I believe, the last of my pension amendments. The proposal would enable the Secretary of State to make regulations giving members control over their pension schemes. We believe that this is necessary because the money paid into pension funds represents the earnings of the workers concerned. We had some discussion earlier about surpluses. I welcome the statement of the noble Lord, Lord Vinson, on that issue. Even in schemes funded on a balance of cost basis, the employer perceives provision of pension via a fund as part of a general employment package. It is quite normal for the costs of salary increases in response to salary claims to contain an element for pension provision.

We realise that not all employers support the view expressed in the amendment. Some believe that they should control the money until such time as the benefits are actually paid. However, many of the large schemes have for a very long time provided for employee-trustees. Such arrangements have of ten been highly successful. The employee-trustees become deeply interested in the performance of the pension fund and very much committed to its success. In practice, the rate of return earned on the investments held by a pension fund is as important to the members of the fund as to the employer. While it may not directly affect the benefits provided under the rules, except in those schemes which are funded on a money purchase basis, it will affect those matters on which trustees have discretion. It is also easier to negotiate improvements in a scheme when it is in a healthy financial position.

Perhaps I may say here that, in practice, it has been seen that employee-trustees are quite well aware of the difference in function between those who are trustees and those whose job it is to negotiate terms and conditions of employment. In addition, members have a justified concern about the security of their benefits and this is given mainly by the size of the fund. All we suggest here is that the good practice that exists in many schemes should become general practice as a result of the power to make regulations which the amendment gives to the Secretary of State. I beg to move.

Lord Henley

The noble Baroness said that she had come to the end of her list of amendments on pensions, but there is one more for myself, following hers. This amendment seeks to give the Secretary of State power to appoint member representatives as trustees of pension schemes, and to give these member representatives a majority of voting rights among scheme trustees. To do so, it would have to override the rules already laid down in pension schemes for appointing trustees.

The idea of appointing member representatives as trustees is not a new one. The OPB, for example, commended this as good practice but argued that arrangements to this end could best be developed naturally as part of good industrial relations. There is much to be said for involving members in this way in the running of pension schemes. Trustees' decisions have the benefit of members' views and members are made aware of the responsibilities involved in being a trustee and taking decisions which affect an individual's retirement income.

It is, however, altogether another matter to give the state the power to require schemes to have member trustees. I am sure that the Committee needs no reminding of the origins of occupational pension schemes. They have been set up, voluntarily, by employers as a means of rewarding and motivating their employees.

However, it is important to remember that employers are in business and have to consider their own interests. They will only set up and continue pension schemes so long as they think it is to their advantage to do so. Giving the state power to impose member representatives on schemes will discourage occupational provision. To give these member trustees a majority of voting rights among scheme trustees would only exacerbate the situation.

The policy review of the noble Baroness's party came down in favour of trade union representatives having a majority of the voting rights among pension scheme trustees. This amendment would allow that policy to be put into effect by regulation. I can think of no better way of choking of f the continued healthy development of occupational pension provision that has done so much to increase the incomes of pensioners since we came to power in 1979. I trust that the noble Baroness will feel able to withdraw her amendment.

Baroness Turner of Camden

I am not at all surprised by the Minister's response to the suggestion in the amendment. However, I felt that I had to put it down because on this side of the Committee we feel strongly that there is a case for insisting that there should be a statutory requirement to have employee trustees on the boards of pension schemes. I well remember that in 1979 a White Paper was issued which provided for one-half of the scheme trustees to be drawn from the employees. Unfortunately, that proposal never saw the light of day as legislation because the government of the day were not re-elected in 1979. However, we hope for better things in 1992. When that happens, I am sure that we shall move towards a situation in which employee trustees are involved under the statute.

I do not take the view that this will choke of f many pension schemes and that employers will feel less inclined to make pension provision. Many of the large and successful schemes already do as is suggested. Almost all the big public sector schemes have employee trustees, and that is the case in a number of large schemes of which I have knowledge. It is true of many schemes in the big banks and finance houses: they have had employee trustees for a long time. I do not think that they would be at all scared of f by the notion that other people who are not yet complying with this good practice would be expected to do so under the statute.

Lord Harmar-Nicholls

The noble Baroness contradicts herself: she says that what she wants is happening under the voluntary system; it is desired and voluntary on both sides. However, her amendment indicates that she thinks that the trade union wishes should have statutory backing. Why is that? If this is being done voluntarily, the case for it will be weakened by being made compulsory.

Baroness Turner of Camden

On the contrary, the objective of legislation is to bring the people who are lagging behind up to the standard of best practice. I do not see any contradiction at all in what I am saying. Unfortunately, not everyone does the right thing. One of the reasons why we have legislation is to ensure that people do the right thing so far as possible. I do not see any contradiction at all in what I am saying. I shall not press the amendment at this hour, and I had not intended to do so. The amendment is an exploratory, probing amendment as I wanted to know what the Government's attitude was on this matter. Nevertheless, I still hold the view that, sooner or later, we shall have employee trustees and they will be there as a result of a statutory obligation. However, at this stage, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Henley moved Amendment No. 172: Page 52, leave out lines 10 to 35 and insert: ("(a) the insurance company with which it is or was taken out or entered into— (i) is, or was at the relevant time, carrying on ordinary long-term insurance business in the United Kingdom or any other member State; and (ii) satisfies, or satisfied at the relevant time, prescribed requirements; and").

The noble Lord said: This amendment makes a fairly technical change to the provision in paragraph 9 of Schedule 4 to the Bill. Currently Section 52C of the Social Security Pensions Act 1975 permits the trustees or managers of an occupational pension scheme to be discharged from their liability to provide a guaranteed minimum pension under a contracted out scheme or the deferred pension of an early leaver, provided that the members' rights in a scheme have been used for the purchase of an insurance policy or an annuity contract. The discharge is permitted only if the insurance company is one that is authorised to carry on ordinary long-term insurance business in the United Kingdom under Sections 3 or 4 of the Insurance Companies Act. Paragraph 9 of Schedule 4 was intended to extend the sections' provisions to apply to friendly societies. The amendment would remove the statutory specification of the friendly societies which are covered, but permits them to be specified in regulations. The Government's intention is that those who satisfy the criteria currently specified in the Bill would be prescribed. The amendment goes further, however, by permitting insurance companies carrying on business only in another European Community member state to be prescribed. We do not propose to exercise the regulation making power in respect of non-UK based insurance companies unless those companies are authorised by the appropriate regulatory bodies in the relevant member state. I beg to move.

On Question, amendment agreed to.

Schedule 4, as amended, agreed to.

Clause 15 [Grants for the improvement of energy efficiency in certain dwellings etc.]

Lord Carter moved Amendment No. 173: Page 19, line 21, leave out ("where any such work is, or is to be, carried out").

The noble Lord said: This amendment re-emerged from the thickets of pensions to return to the sunlit uplands of social security benefits. Clause 15 gives the Secretary of State power to make grants for the improvement of energy efficiency in certain dwellings. This is a probing amendment.

The effect of this amendment will be to remove the necessity for practical insulation measures to be carried out before energy advice can be grant-aided. As it stands at the moment, the clause only allows the Secretary of State to grant-aid energy advice when other measures are being provided. Work by the Building Research Establishment has indicated the value of energy advice. A number of studies have shown that savings on fuel bills following the provision of energy advice can equal those achieved by practical insulation measures.

It is also important to note that the energy efficiency measures to be grant-aided initially are fairly limited. Although the legislation permits the Secretary of State to grant-aid any measure which improves the thermal efficiency of dwellings and improvements to heating systems, the consultation document on the scheme produced by the Department of Energy suggests that initially the only practical measures to be grant-aided will be draughtproofing, l of t insulation and tank and pipe lagging. There are of course many other ways in which one can improve energy efficiency. I should like the Minister to confirm that the Secretary of State has the power to widen the Bill's scope when he feels it is the time to do so.

The other question I should like to put to the Minister on the subject of advice, which at present has to be linked to the carrying out of work, is to ask who would have to pay for advice which did not result in practical improvements. Network installers may provide advice to clients who intend to have one or more of the practical measures carried out, and the most appropriate time to offer energy advice is at the initial survey stage before any other work is carried out. If there is then a change of mind and the advice is not taken, who would have to pay for it? I beg to move.

11.15 p.m.

Baroness Blatch

It is increasingly important that all of us, but particularly those on low incomes, understand the most efficient ways of using energy. To do so may not only save individuals money, but will also make life more comfortable, as well as making a contribution to the wider need to save energy. Those involved in this area have long called for a provision such as now appears in the Bill.

The Committee will know that the Department of Energy has been consulting on the nature of the scheme of grants to be introduced under this legislation. The consultation period closed only yesterday. While it is clear that there has been considerable interest in the nature of the advice to be made available under this scheme, it is too early for a view to have been taken on the basis of comments received.

However, the ideal time to provide such advice is when other energy efficiency measures are being installed. My ministerial colleagues in the Department of Energy do not believe that having a separate grant for advice under this scheme would be an effective use of resources. There are many other sources of advice on energy efficiency. The gas and electricity boards, citizens' advice bureaux and local authorities all provide energy advice. So, too, do more specialised organisations such as a number of the community installation projects, advice centres such as the Bristol Energy Centre, trade associations which form part of the Building Energy Efficiency Confederation and, of course, the Department of Energy's Energy Efficiency office.

If grant-aid was to be considered necessary for advice on energy efficiency measures more generally—and this is the point which was raised by the noble Lord, Lord Carter—statutory powers to introduce grants exist under Section 15 of the Energy Conservation Act 1981.

I hope that, in the light of that reply, the noble Lord will feel able to withdraw his amendment.

Lord Carter

I thank the Minister for that most helpful reply and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clauses 15 to 17 agreed to.

Schedule 5 agreed to.

Clause 18 [General financial provisions]:

Baroness Turner of Camden moved Amendment No. 173A: Page 25, line 21, leave out ("Schedules 1 and 5") and insert ("Schedule 5").

The noble Baroness said: The amendment is consequential upon the amendment which was carried in Committee yesterday. It removes Schedule 1, which was not adopted by the Committee, from the Bill. I beg to move.

Lord Henley

We accept these entirely technical amendments while we consider the implications of the decision on Clause 7 and Schedule to the Bill.

On Question, amendment agreed to.

Clause 18, as amended, agreed to.

Clause 19 [Regulations and Orders]:

Earl Russell moved Amendment No. 174: Page 25, line 43, leave out subsection (3).

The noble Earl said: Members of the Government probably realised when they saw the amendment that I had been listening to the noble and learned Lord, Lord Simon of Glaisdale. The most economical way in which I can make the point that I wish to make is to read the words that I propose to delete: A power conferred by this Act to make any regulations or an order, where the power is not expressed to be exercisable with the consent of the Treasury, shall if the Treasury so direct be exercisable only in conjunction with them".

It is a rather Humpty-Dumpty form of words—even if it does not need the consent of the Treasury, nevertheless it still does. It provides a rather painful contrast with the resistance to the proposal that the Minister's powers of direction in regard to the social fund should be exercisable with the consent of Parliament. I hope that we shall be told why the Government are so much more careful to secure the consent of the Treasury than they are to secure the consent of Parliament. I beg to move.

Lord Henley

The amendment seeks to overturn a long-standing practice that the Treasury should always be formally involved in the approval of secondary legislation when it chooses to do so. The reason for that is simple. As the guardian of public expenditure, the Treasury must always be able to concern itself when Ministers' authority to make regulations brings with it the power to introduce new spending commitments. The Bill therefore allows the Treasury to insist that its consent is sought and given on any issue. In practice, it is a right not of ten exercised, but it is clearly one which the Treasury should have. It is, moreover, a power that is not restricted to social security legislation, but which applies across government.

On a more technical note, I understand that the passage of the amendment would render the future consolidation of social security legislation more difficult. I am sure that my noble kinsman will feel able to withdraw his amendment.

Earl Russell

I am sorry not to be told why the consent of the Treasury is more essential than the consent of Parliament, but I did not expect to be told. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 19 agreed to.

Clauses 20 and 21 agreed to.

Schedule 6 [Minor and consequential amendments]:

The Deputy Chairman of Committees (Lord Cocks of Hartcliffe)

I should inform the Committee that if this amendment is agreed to, Amendments Nos. 176 to 169 are pre-empted.

Earl Russell moved Amendment No. 175: Page 59, line 9, leave out paragraph 7.

The noble Earl said: I cannot promise to be quite as speedy when speaking to this amendment as I was in regard to the last one. This is a technical matter and I am not certain that I have understood it correctly. I would be delighted to be told that I have got it wrong.

If I understand the situation correctly, this is another part of the Government's long-running tangle with the courts relating to Amendment No. 176, which we debated yesterday. The amendment would minimise the effect of rulings made by the social security commissioners, the Court of Appeal, the House of Lords and the European Court of Justice. The Government are concerned with entitlement. They seem to be trying to nullify the effect of a test case as far as any time in the past is concerned. They are trying to make an entitlement that flows from a test case relate only to the time of the test case onwards.

There seems to be a confusion between legislation and judgment. It is perfectly proper that the law should change from the moment of legislation, but I have always understood that the effect of a court judgment was not to change the law but to assert what the law was. Therefore, if the Department of Social Security loses a test case in court, that does not mean that the law has changed; it means that the law is not what the department supposed it was. As far as I can see, that does not entitle the department to deprive claimants of entitlement simply because it has misinterpreted the law.

I should like to remind my noble kinsman of what I said yesterday when debating Amendment No. 176. An entitlement is a right. It is to be treated as a form of property. It is not to be taken away except by due process of law. This passage in the Bill shows a distinctly limited respect for the courts. I shall be very glad if my noble kinsman can convince me that I am wrong. I beg to move.

Lord Carter

I wish to say very briefly that so far as one can see the Government appear to be seeking to minimise the effect of rulings by the social security commissioners and appeals to the House of Lords acting in its judicial capacity and the European Court of Justice. I am just surprised by the Government's lack of ambition in this matter.

Lord Henley

I am not sure how to respond to that remark. As I explained last evening when I spoke to various government amendments on this provision, in moving Amendment No. 20, to which my amendments after Amendment No. 175 were attached, we merely seek to introduce a degree of equity into existing arrangements so as to provide that where there is a reinterpretation of the law by a higher appellate authority all beneficiaries from that reinterpretation—whether they be applicants for review of previously disallowed claims or new claimants following the date of the reinterpretation—will have arrears backdated to a common date, the date of the reinterpretation.

As I explained last evening, the Parliamentary Commissioner for Administration has criticised the present arrangements in relation to review of previously disallowed claims as being inequitable. These provide that where arrears become payable following a reinterpretation of the law they are restricted to up to 12 months before the application for review. This means that for every week of delay in identifying and having reviewed an affected case, the claimant will effectively lose one week's arrears for each week of the delay before a review decision is given.

Our new proposal provides an equity of treatment that the existing backdating provisions lack and provides that all gainers from a reinterpretation of the law will have their benefit arrears paid from a common date. This means that if a claim previously disallowed comes to light many years after the date of the reinterpretation the beneficiary will have his arrears backdated to this common start date. As I explained, this is not so under the current arrangements where arrears are restricted to a maximum of 52 weeks only.

Perhaps I may now turn specifically to a point raised by my noble kinsman yesterday evening. This concerns the effect of our provisions on test cases. As he may know, the department already has procedures which allow that where a question of entitlement to benefit involving a situation common to a number of persons arises, a test claim may with the agreement of these persons' representatives—for example, a trade union—be taken through the appeals system, with the ultimate decision on this one case providing the basis for the decisions on all others hanging on the result of the test claim. This means that all claimants will get the same benefit as if they themselves had been the test claimant. The Committee will wish to know that my officials will be developing arrangements to ensure that these procedures—which are mutually beneficial to both claimants and department alike—continue to ensure that all persons agreeing to have their claims await the result of a test claim will, if that claim is successful, not be caught by these new provisions so as to restrict their benefit arrears.

In the light of this explanation, I hope that my noble kinsman will feel able to withdraw his amendment.

Earl Russell

I cannot say that I am entirely satisfied with that reply but it is not quite so bad as the matter arising in Amendment No. 176. In those circumstances I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Henley moved Amendment No. 176: Page 59, line 11, leave out subsection (7) and insert—("(7) Subsection (8) below applies in any case where— (a) on the determination, whenever made, of a Commissioner or the court (the "relevant determination"), a decision made by an adjudicating authority is or was found to have been erroneous in point of law, and (b) in consequence of that determination, any other decision— (i) which was made before the date of that determination, and (ii) which is referable to a claim made or treated as made by any person for any benefit, falls (or would, apart from subsection (8) below, fall) to be revised on a review carried out under subsection (1A) above after the coming into force of this subsection. (8) Where this subsection applies, any question arising on the review referred to in subsection (7)(b) above, or on any subsequent review of a decision which is referable to the same claim, as to any person's entitlement to, or right to payment of, any benefit— (a) in respect of any period before the date of the relevant determination, or (b) in the case of widow's payment, in respect of a death occurring before that date, shall be determined as if the decision referred to in subsection (7)(a) above had been found by the Commissioner or court in question not to have been erroneous in point of law. (9) In determining whether a person is entitled to benefit in a case where his entitlement depends on his having been entitled to the same or some other benefit before attaining a particular age, subsection (8) above shall be disregarded for the purpose only of determining the question whether he was so entitled before attaining that age. (10) For the purposes of subsections (7) to (9) above— (a) "adjudicating authority" and "the court" have the same meaning as they have in section 165D below; (b) any reference to— (i) a person's entitlement to benefit, or (ii) a decision which is referable to a claim, shall be construed in accordance with subsection (4) of that section; and (c) the date of the relevant determination shall, in prescribed cases, be determined in accordance with any regulations made under subsection (5) of that section.").

The noble Lord said: I spoke to Amendment No. 176 with Amendment No. 20 yesterday. I beg to move.

11.29 p.m.

On Question, Whether the said amendment (No. 176) shall be agreed to?

Their Lordships divided: Contents, 15; Not-Contents, 8.

DIVISION NO. 3
CONTENTS
Belstead, L.	Kimball, L.
Blatch, B.	Long, V. [Teller.]
Craigmyle, L.	Reay, L.
Davidson, V. [Teller.]	Saltoun of Abernethy, Ly.
Ferrers, E.	Strathclyde, L.
Harmar-Nicholls, L.	Strathmore and Kinghorne, E.
Henley, L.
Hooper, B.	Ullswater, V.

NOT-CONTENTS
Carter, L.	Mackie of Benshie, L.
Cocks of Hartcliffe, L.	Russell, E. [Teller.]
Grey, E.	Seear, B. [Teller.]
Hacking, L.	Turner of Camden, B.

11.37 p.m.

The Deputy Chairman of Committees

As it appears that fewer than 30 noble Lords have voted, in accordance with Standing Order No. 55 I declare the Question not decided and that further proceedings on the Bill stand adjourned.

House resumed.

House adjourned at twenty-two minutes before midnight.