Pensions

HL Deb 15 June 1994 vol 555 cc1749-76

6.37 p.m.

Lord Jay rose to call attention to the losses which may be incurred by pensioners who have transferred from the state earnings-related pensions scheme to occupational pension schemes or to personal pensions; and to move for Papers.

The noble Lord said: My Lords, in the past few years the Government's pension policies and their failure properly to regulate private occupational or personal pension schemes have caused a great deal of anxiety and done some real damage to a very large number of pensioners, present and future. Ministers owe it to the House to explain how they propose to avoid more future damage and to compensate those who have suffered from government policies.

First, in the 1980s, the Government set out—or so it appeared—deliberately to undermine the state earnings-related pensions scheme, or SERPS as it has come to be called. That scheme was the second step in the development of universal contributory pensions after the state contributory pension was introduced by the National Insurance Act 1946 which, incidentally, then raised the retirement pension by 160 per cent. in one stroke.

However, by the 1960s and 1970s, a dilemma had become apparent. With a single contribution and single pension either the contribution was too large for the poorest contributors or the pension was negligible for the better off. Therefore the earnings-related contribution and pension were introduced in the 1976 legislation which, let us remember, at that time was broadly endorsed by all parties. In that form SERPS had many benefits: the pension was contributory and therefore partly earned and not charity; it allowed for different levels of income; it enabled people to change jobs as often as they wished without risking their pension; and it was both guaranteed by the state and index-linked. That is not just my view. The Financial Times, in an article by Michael Prowse—one of its expert writers —said, The original SERPS had all the virtues of a good pension scheme. It offered exceptionally low administrative costs, job mobility and maximum security in old age. Nothing: in the private sector can match this combination of virtues".

How right he was, as it turned out. But what have the present Government done since the mid-1980s? They have set out to undermine SERPS, apparently for only two reasons: first, the Government's obsession (now amounting almost to a feud) against any kind of collective provision for anything; secondly, a largely illusory scare about the prospective army of idle old people who are supposed to threaten us in the coming century. On the latter I would only say this: as better health and fitness raise by 10 per cent. the length of life, so they lengthen by the same proportion the years of fitness to work. Here is an opportunity for more productive work and it is surely the business not of pension policy, but of general economic and employment policy, to see that there are jobs for all those able and anxious to do them.

One settled long-term strategy should be to raise gradually the age of retirement proportionately to the average length of life; the age of 65 is already largely out of date. The Government however, whether or not misled by those perverse motives and, incidentally, with the help of an advertising campaign, proceeded to bribe as many contributors as possible to leave SERPS and take their chance with private personal or occupational pensions. Incidentally, there was nothing to prevent members of SERPS supplementing their state pensions, if they so wished, with private pensions.

The "bribe"—as it generally came to be called—took the form of a tax concession known as a national insurance rebate which made the simple pensioner believe that he or she would gain somehow by contracting out of SERPS into either personal or occupational pension schemes. But the Government offered that bribe at the taxpayers' expense, without either ensuring that the private, personal or occupational pension schemes acquired were at least as favourable as SERPS or that expert independent advice was somehow available to ordinary contributors on this extremely complex subject.

The result was dramatic and one might say illustrates all the joys of deregulation. Up to the present date, according to the financial press, around 5 million people took the bribe and opted out of SERPS. It now turns out that many of those 5 million—some say half—will be worse off than if they had remained in SERPS. One independent actuary states that 1.8 million of the 5 million people will be worse off. No wonder large numbers of those who have been misled are opting back into SERPS. The Securities and Investments Board advises that large numbers of people have been misled. Indeed, only this past weekend the Financial Times said, In tens of thousands of cases, policies are thought to have been against the best interests of customers".

Can the Government say whether those figures are correct as regards the number of people who have opted out and the number of those who are worse off as a result? If my figures are wrong, can the Minister give us the correct ones? If the Government cannot give us more accurate figures, most people will assume that the independent expert estimates are not far from the truth.

The reason why so many pensioners, on balance, have lost out is partly due to Government pressure to opt out; partly due to the absence of expert independent advice and partly also, I am afraid, due to the behaviour of some of the private insurance companies themselves in selling personal pensions. First, a sum amounting to up to 13 per cent. of the bribe handed on by the opter-out to the insurance company was swallowed up in commissions and administrative charges; and, even worse, in some cases, by what the industry calls mis-selling—that is, false promises by the companies' employees, sometimes acting on commission, in order to sell such policies. The taxpayer lost; the prospective pensioner lost and only the insurance companies gained. Some of the more famous insurance companies no doubt acted wholly scrupulously throughout. But some remarkable names have been quoted in the catalogue of mis-selling.

Equally remarkable as the number of people affected in the exercise are the amounts of taxpayers' money poured out by the Government in the whole proceedings. According to the Financial Times analysis, the Government paid out gross £10.5 billion in the past five years by way of rebates to encourage people to opt out of SERPS. The National Audit Office, in an earlier report, gave an estimate of the gross cost to the National Insurance Fund as being £9.3 billion—pretty close to the other estimate. After allowing for the presumed saving on the fund's future obligations as a result of people opting out of SERPS, we have a net cost of £5.9 billion. That was the estimate given by the Audit Office. Can the Government say whether those figures are correct and, if not, will they tell us what the correct figures are?

Whatever the precise total, those are enormous sums of money, particularly when we compare them with the results in terms of pensioners who have suffered. The whole escapade is the most wasteful and reckless disbursement of public money that I can remember. At the same time, the mis-selling of policies by the insurance companies extended not merely to those who opted out of SERPS into personal pension schemes, but also to those who opted into occupational schemes both of which hamper changes in jobs and about which, though many are responsibly managed, much anxiety has been felt by many people since the Maxwell fiasco.

Some months ago the independent Pension Law Review Committee, headed by Professor Goode, made a series of recommendations to restore confidence in the occupational schemes which at present cover 11 million people—it is not a trifle we are discussing this evening —in the public and private sectors together. These detailed recommendations cover the rights and duties of trustees and the companies. They cover compensation for the members of the scheme where there has been mis-selling and so on and recommendations for fund management and the safeguarding of assets. They are all designed to protect employee members of the scheme.

The all-party Select Committee of the other place which considers social affairs has also broadly endorsed the Goode Committee proposals including stronger representation of members on trustee boards, compensation in the case of fraud, and the appointment of a regulator by the Secretary of State. Surely it is now clear that this branch of pension and trust law ought to be strengthened and clarified. And as this needs legislation, it surely cannot be left to the SIB or the PIA (Personal Investment Authority) whose own responsibilities could respectively do with a bit of clarification.

We have two thorough reports from the Goode Committee and the Select Committee. I understand that we have been promised a White Paper. However, it has been postponed again. Perhaps the Government can tell us the position as regards this presumed White Paper. I hope that the Government will tell us tonight what they propose to do about the committee's recommendations; that they will give the House the figures that I have asked for, particularly as regards the number of people who have opted out of SERPS and the number who are worse off as a result. I hope that the Government will also tell us the gross and net loss to the National Insurance Fund.

In addition, how will the Government compensate those who lost through being persuaded to opt out of SERPS, of which there are certainly many? I would also like to know what plans Ministers have for providing ordinary citizens in future with expert and impartial advice on their future pensions? As we are here discussing the future fortunes of a huge proportion of our working and retired fellow citizens, I also devoutly hope that the Minister can now assure us that the Government firmly support the principle and preservation of SERPS for the future as an essential core of provision for old age in this country. My Lords, I beg to move for Papers.

6.53 p.m.

The Earl of Clanwilliam

My Lords, I rise in lonely glory on this side of the House. When I saw the weight of expert names on the list of speakers I wondered whether I had the courage to put myself forward to speak on behalf of the Government. But I have taken up the challenge.

I support the Government. They have reacted to the demographic effect, which is a fact of life. We all know that it is going to happen; namely, that there is going to be an insupportable number of old age pensioners in future. Something should be done seriously to relieve the problem. The Government and the party opposite —if they believe that they are going to be in power for the next 30 years—should be extremely glad that arrangements are being made so that people can make their own provision and relieve the Government of the guarantee which the noble Lord has pointed out is the responsibility of the Government. It is going to be too great a charge on the Government. Alternative arrangements have to be made. The problem is not so much arguing about how many millions of pounds have been lost here and there, but how to reorganise the whole system in future so that it can work.

There has been some debate on the effect of transfers from SERPS to occupational schemes. As I understand it, an occupational pension scheme is either contracted in or out of SERPS. If you are in an occupational scheme you are extremely unlikely to contract out of SERPS if the scheme that you are in is contracted in. A person would be very ill-advised to do so. I cannot believe that many people have actually done so. People in SERPS have contracted out altogether into personal pensions. A personal pension is the means whereby this country is going to be able to provide pensions in future.

The occupational pension scheme is excellent. Many people are in it and, as the noble Lord said, 11 million people are involved. When people leave an occupational pension scheme they probably have to go into a personal one, otherwise they get left every time they move with some tiny guaranteed minimum pension plan which is left on the books of the company. The company may have responsibility for looking after it for the next 30 years. Then that person leaves the next company five years later and there is another guaranteed minimum pension to be looked after for perhaps 25 years by another company. Additional costs are piling up in the occupational pension scheme which would be relieved if everyone had their own personal pension.

I know that the KPMG survey commissioned by the industry in 1993 produced some fairly horrific figures. But I believe that the jury is still out on the matter. I have no doubt that my noble friend on the Front Bench has many more figures to give us which we shall no doubt all want to hear. Yesterday on the Terrace I was at an industry meeting with insurance brokers and the noble Baroness. They were recommending that the only way to improve SERPS was to ensure that, with increasing age, the Government offered an increasing incentive to contract out of it. They would say that, wouldn't they? It indicates the complication of deciding whether to be in SERPS or out of it. For women it is for a period of 33, 35 or 38 years and for men 40 to 45 years. Different sections of the industry give different figures. It depends on the estimate made by the experts as to which is the right figure.

It is extraordinarily complicated and difficult and of course people have made mistakes. Companies with tied agents have sent them into the field to sell the exchange, which is their job. Some of them have made a good job of it and others a bad job. The problem is that a great many of the companies were ill-advised and certainly did not advise their agents properly. They, together with the insurance brokers, are the people responsible for making good any damage that has been done. It is not the responsibility of the Government to look after that matter.

As the noble Lord said, there are 11 million people in occupational pension schemes. There are 5 million people in private schemes, and 23.5 million people who are employable in this country. We have an enormous record of success in the provision of pension arrangements for private individuals. The state pension is not enough for anybody and no one has suggested that it is. Private provision has to be made in addition. Therefore I believe that there should be more transfers from SERPS into private pensions where one can make better contributions, with better benefits.

There is the argument as regards a defined benefit as against a defined contribution. The defined benefit cannot be defined; it is a purely notional figure based on what someone is going to get in future. That therefore puts an enormous charge and cost on the provider, who has to make the provision for the future, whereas in the defined contribution system the private individual knows what he is putting away and can readily and immediately find out how much he has in the kitty. He can decide whether he wants to put in more or whether he does not need to put in so much. He has the control. To that extent, I think that personal pension schemes are very much to be recommended.

I should like to hear the actual figures from my noble friend the Minister. I do not believe that they are quite as bad as the noble Lord, Lord Jay, suggested, but no doubt we shall hear. In the meantime, I feel strongly that there should be as much opting out of the various schemes as possible into personal pensions. That is the way of the future.

7 p.m.

Lord Eatwell

My Lords, this evening we are discussing what is, by any stretch of the imagination, a disaster. Of that there can be no doubt whatsoever. As far as the best actuarial skills can judge, certainly hundreds of thousands of our fellow citizens—perhaps millions, as my noble friend Lord Jay has argued—have been persuaded to take financial decisions which will mean that their pensions will be significantly less than they might reasonably have expected. If nothing is done, many will suffer significant hardship in old age.

Those hardships will be a direct result of the Government's pensions policy. It is a fact that if, in the Social Security Act 1986, the Government had not created the option of opting out of SERPS into personal pensions, the disaster which now faces so many of Britain's future pensioners would not happen.

Yet in your Lordships' House on 13th January this year, the noble Lord, Lord Henley, declared: 'The Government's personal pensions policy has been a striking success".—[Official Report, 13/1/94; col. 231] That remark was an insult to all of those who have seen their pension entitlements decimated. I hope that the noble Lord will take the opportunity today to withdraw that statement and to apologise.

What we are debating is not just a disaster; it is a scandal. It is a scandal not merely because insurance companies and pension funds have wilfully mis-sold personal pensions, often to the most vulnerable people in our society; it is a scandal because the most active, enthusiastic and irresponsible salesman of all was the Conservative Government.

Unfettered by any apparent sense of responsibility, it was the Government who made the hard sell for personal pensions. It was the Government who used £4 billion of taxpayer's money to fund the 2 per cent. bribe for people to opt out of SERPS, plus another £ 10 billion or so in national insurance rebates. It was the Government who squandered £1.2 million on a prime-time television campaign which portrayed SERPS as a straitjacket from which the British people were to be liberated. And it is the Government who are now spending a miserable £100,000 on a low-key advertising campaign to warn of the pitfalls of the personal pensions policy that they created. Will the noble Lord tell us just how many of the 5 million people who have opted out of SERPS have telephoned the number contained in the Government's new warning advertisement to ask for advice?

When this issue was debated in another place on 30th March this year, the Secretary of State, Mr. Peter Lilley, argued that the problems which have arisen with the opt-out from SERPS have become evident only with hindsight. The excuse is simply not credible.

In September 1985, the National Association of Pension Funds stated that: It is our firmly held view that a collection of money purchase personal pensions can be no substitute for the security of a defined benefit final salary scheme". In 1986, commenting on the Government's backing of their hard-sell with the 2 per cent. bribe, the Consumers' Association argued: We are concerned that the use of such incentives may encourage people to switch from…SERPS to a personal plan without giving adequate consideration to the benefits forgone. The individual carries far greater risk of ending up with inadequate income by contributing to a money purchase plan than by contributing to a defined benefit scheme". On the same theme at the same time, the CBI declared: This incentive is likely to make employees shortsighted about their pensions. They may be tempted to take the subsidy without understanding the long term implications…relying solely on personal pensions could leave people and their families less well off, if not inadequately provided for". The CBI was exactly right. "Inadequately provided for" is exactly the position in which millions of people find themselves today.

And yet the Government went ahead despite all the advice. Why did they do it? Was it really just, as Joel Joffé, the former deputy chairman of Allied Dunbar, has argued that this was: a government which was ideologically blind to any objections…that the only people it was prepared to listen to were its own supporters"? That is, of course, self-evidently true. But the Government's policy is based on something more than ideology. It is based on false analysis as well.

The central fallacy in the Government's pensions policy was demonstrated by Mr. Peter Lilley in another place on 30th March. Mr. Lilley said: Private provision is good for the individual and for the economy. When the state finances pensions, nothing is saved or set aside for the future. This year's contributions are used to pay this year's pensions. It is pay-as-you-go. By contrast, in private schemes this year's contribution is saved and invested. It goes into British industry to build up the assets that will pay for the pensions in 10, 20 or 30 years' time, when people retire".—[Official Report, Commons, 30/3/94; cols. 968–69] That is absolute nonsense. Mr. Lilley is displaying with remarkable frankness that he does not have the faintest idea of how the economy actually works. It is simply not true that the savings of "private schemes" are invested in British industry. For example, since the boom in private pensions began in 1988, investment in British industry has fallen every year, year after year, and is now at an all-time low. The savings in private pensions go into the purchase of financial assets. Whether there is investment in the real economy, building up real goods and real services to sustain the real incomes of the pensioners and of everyone else in the future, is determined by completely different economic forces, upon which the savings of future pensioners have only very indirect, and very uncertain effects.

The Earl of Clanwilliam

My Lords, where is the pension money invested on a daily and monthly basis other than in the stock market?

Lord Eatwell

My Lords, investments in the stock market are not translated into real investment in real capacity in British industry. They simply raise the prices of stocks and shares. The noble Earl will know that less than 8 per cent. of investment in British industry is funded through the stock market. More than 80 per cent. of investment in British industry is funded by retained profits. I am afraid that the noble Earl has been misled by Mr. Lilley's total misunderstanding of how the economy actually works.

The correct way of understanding the economics of pensions is to characterise the economy as a cake, a share of which, say 15 per cent., will be consumed at any one time by pensioners. The question is: how do they get their entitlement to that 15 per cent. of the cake? They may receive it as a political entitlement, a commitment made by government to provide a pension —whether a standard state retirement pension, or SERPS. In this case, the 15 per cent. will be extracted from the rest of us by taxation and transferred to the pensioners. Exactly the same process, taking the 15 per cent. from the rest of us and passing it over to the pensioners, takes place with privately funded schemes, but by another far less visible and circuitous route. In the case of a funded scheme, the entitlement to the 15 per cent. is not a political entitlement, but a financial entitlement, the result of the accumulation of financial assets over preceding years. But the rest of us still have to be persuaded not to consume that 15 per cent., and that is done either by persuading us to save—not to consume—or, if we refuse to save, by raising taxes.

In both cases the issue is: who gets what share of the cake at any one time? How much do pensioners as a whole get, and which pensioners get a better deal? Who gives up part of the cake today, so that the pensioners can have it today? And most important of all, can pensioners be confident that they will have sufficient entitlements to a reasonable share of the cake, and can they be sure that their entitlements will be honoured?

The great virtue of SERPS is that those on lower earnings can have some confidence that when they become pensioners they will have a real entitlement, guaranteed by the Government, to their share in the output of the economy at that time.

Lord Northbrook

My Lords, surely the problem is that as the population is getting so much older, in 2010 any government will have a big crisis in funding SERPS. That is one of the reasons why the opportunity to opt out and to buy a personal pension was introduced. Whichever government is in power will have that funding problem.

Lord Eatwell

My Lords, the noble Lord has been misled by talk of the demographic time bomb. Recent assessments of demographic profiles have considerably reduced the problem that he described. Indeed, the Government's figures which portrayed this problem were incredibly pessimistic about the overall growth of the economy. I can assure the noble Lord that the higher growth of the economy which will be achieved under a Labour Government will make the funding of these pensions much easier.

The great virtue of SERPS is that there is a guarantee. The great weaknesses of personal pensions are that not only are the smaller contributions of low earners swallowed up by the fees and commission charges of the private pension companies, but also that savers have no guarantee whatever that they will actually accumulate any significant entitlements at all.

The Conservatives claim that the SERPS had to be reformed because it costs too much. Did they mean that it costs too much to run? Did they mean that the administrative costs were too high? Of course not. They meant that the transfer to pensioners would be too high. So the pensions of poorer pensioners who relied on SERPS should be cut—cut so that everyone else could have a bigger share of the cake. That is what their so-called pensions reform was all about.

The Government's pensions policy unites choice with insecurity. What is needed is choice with security. Some potential ways forward were outlined by my honourable friend Mr. Donald Dewar in a speech delivered in March of this year. He has examined a variety of routes by which, using perhaps a modernised form of SERPS, a minimum pension income could be combined with a flourishing well-regulated private pensions sector so that those who choose to do so can make extra provision. If there is to be choice with security there must also be an effective mechanism for providing people with accurate and disinterested pensions advice.

It is simply not good enough for Mr. Lilley to argue that: no one is better placed and or has greater interest in monitoring the progress of pension arrangements than the individual to whom they belong".—[Official Report, Commons, 30/3/94; col. 971.] How is the ordinary person, who is busy earning a living and bringing up a family, expected to understand all the complexities? Mr. Lilley is paid £40,895 a year to spend all his time understanding pensions and his speech demonstrates that he does not understand them at all. Ordinary people need clear, honest advice and the Government should ensure that they get it.

My honourable friend's proposals are for two or three years' time. Our immediate problem is what is to be done about the millions of people who face hardship in old age because of the Government's behaviour toward SERPS. In the past few months, the Government's strategy has become clear; do not apologise, blame everyone else.

The noble Lord, Lord Henley, told your Lordships' House that, with respect to SERPS, there is: no evidence of systematic compliance problems",—[Official Report, 13/1/94; col. 231] but, where non-compliance with regulations has damaged individual investors, those responsible will take remedial action".—[Official Report, 13/1/94; col. 233.] What he failed to admit, what is staring everyone else in the face, is that the source of the systematic compliance failure is the Conservative Government who created the structure in the first place. The Government cannot now wash their hands of the SERPS pensioners.

Will the Minister give a firm undertaking today that the procedure for contracting back into SERPS, using DSS form APP2, will be widely publicised, and that those who have contracted out of SERPS will be able to contract back in without loss of benefits as if they had never contracted out?

Will he also categorically reject the arguments of the curious organisation, Conservative Way Forward, an organisation of which Mr. Lilley is, I believe, a member, which proposed in April that: ministers should announce the abolition of SERPS … those who remain in SERPS threaten to place an intolerable burden on the state"? It is exactly that kind of thinking which created the disaster in the first place.

And will he now declare that the Government accept unequivocally the Goode Committee proposal that there should be a pensions regulator with overall responsibil-ity for the prudent operation of the pensions industry?

Finally, will the Minister accept that it is vital to rebuild the broad all-party consensus which used to exist on pensions before the sorry episode of the 1986 Social Security Act? Pensions are too important. They must not be political footballs.

Unless he gives those four assurances, it will be clear that the Conservative Government have every intention of continuing their practice of reneging on their promises to pensioners. They have remorselessly cut the state pension as a proportion of earnings. They have cut the value of SERPS in half. And they have ruthlessly sold potential SERPS pensioners the idea of inappropriate personal pensions, which will leave so many of them impoverished in old age. If there is one lesson to be learnt from this sorry episode it is that the Conservative party can never be trusted on pensions, ever again.

7.16 p.m.

Lord Monks well

My Lords, one of the advantages of a two-hour debate with a relatively limited list of speakers is that we can get some fantastic contributions. The noble Lords, Lord Jay and Lord Eatwell, gave masterly expositions of the problem. The speech of my noble friend Lord Eatwell was the finest that I have heard him make in this House. It demonstrates the value of real experts in their field being able to contribute at reasonable length to advise your Lordships.

The debate highlights the horrendous mistakes made by the Government in creating a climate of fiscal, legal and other circumstances which have caused large numbers of people to lose thousands of pounds in pension rights. The problem goes to the heart of this Government's philosophy: that individuals must stand alone without any reference to the collective benefits that accrue to people working together.

When in the early part of this century the Government of Lloyd George introduced old-age pensions, it was in response to a wide-ranging public campaign by individuals, church groups, community groups and trade unions to meet the needs of people who could no longer support themselves. In effect, it was the recognition by society that it had a duty towards those who could not support themselves.

It is sad that many people do not realise that our original national old-age pension provision was based on popular pressure as a result of the circumstances of the day and was forced on that Liberal Government. The Liberals could not let things develop in that way. Under the Beveridge proposals, their philosophy that things had to be bought and paid for in monetary terms was included in the National Insurance provisions of those proposals of the 1940s. At the same time, large companies developed occupational pension schemes in which the deferred pay of workers was held under the control of company management to deliver pensions for the workers.

As a result of that and in recognition that some workers, while earning higher wages, were not covered by occupational pension schemes, the Government of the 1970s, with all-party support and under the leadership of Barbara Castle, introduced SERPS; the state earnings related pension scheme. But in the climate of the Thatcher Government and in an era of "There is no such thing as society", that concept of good collective provision was too much and it had to be done away with.

I suspect that there was another reason why it had to be done away with. That accords with the experience that I have had in the private sector. Throughout the 1980s one of the spin-offs of companies making workers redundant because of economic circumstances was that the commitments of occupational company pension schemes diminished, as did the need to fund them. A number of companies effectively either took pension holidays or took money out of pension funds because it was surplus to requirements. That practice had been going on for years before the Maxwell situation. I wonder whether part of the Tory Government's reason for their introduction of the old personal pension plan philosophy was to get people out of SERPS and to leave the money in the pot for them to spend in other ways.

The excuse which they used was that people lost their pension rights on transferring from one job to another. The other excuse was the wholly fictitious scare which they raised about the cost of SERPS in the future. Therefore, instead of requiring the harmonisation of occupational pension schemes, the Government devised the concept of personal pension schemes. That effectively broke the links between pensions and collective provision and instituted a regime of personal savings instead of collective pension provision.

When people retire and are unable to work, they are dependent upon their fellow citizens who can work for the provision of the goods and services which they need to sustain life. To try to translate the provision of those goods and services into a monetary amount at the start of retirement, beset by evils such as inflation and low income during one's working life, is more than society can really bear because of the complete instability of future pension provision.

The problems have manifested themselves in the tragedies which have unfolded before our eyes. Decent people have been persuaded by untrained and unscrupulous salesmen, with government assistance, to surrender a good guaranteed pension under SERPS, underwritten by the state, or a good occupational pension scheme, underwritten by fellow employees, in favour of a personal savings plan. That cannot be called pension provision. It is subject to the vagaries of the stock market, the insurance company or the personal pension fund which is organising it. We have now learnt that the stock market can go down as well as up, which obviously creates a source of instability and lack of assuredness with regard to one's pension provision.

I hope that the loud and clear message to go out from this debate will be that when we retire, we cannot depend on our savings for our future pension provision; we must depend on our fellow workers.

As has been said before in the debate, we are discussing a scandal. The result of the evil excesses— and I choose my words carefully—of this corrupt Government has been that those in our society who are least able to make provision for themselves have opted to go on their own. Low paid teachers, nurses and coalminers have been persuaded to leave good occupational pension schemes. It is sad that those are the very groups of people in our society whom the Government have seen fit to pillory, to attack, to reduce their living standards, and to throw them out of their jobs. Now a number of them will suffer poor pension provision when they retire because the Government have attacked them again in another way.

7.25 p.m.

Baroness Seear

My Lords, first, I apologise to the noble Lord, Lord Jay, that I was not in my place when he opened the debate. Not to put too fine a point on it, I was busily lobbying the noble Baroness, Lady Chalker, in a good cause. I know that she goes overseas so often and if I had not collared her then, I might not have seen her in time. I am sure that the noble Lord will understand that I was as speedy as I could be, but I felt that that was something that I had to do.

Old age has many advantages. One of them is that one cares so much less about what other people think. That will enable me to make the speech which I wished to make this evening. However, one of the difficulties of old age in comparison with other stages in one's life, and one which makes the issue of pensions particularly important, is that when you are younger, if you fall on hard times and lose your job or your circumstances change, there is, in normal times, although not so much recently, a reasonable hope that you can start again and make up for some of the losses. There is still an opportunity to improve your purchasing power.

The dread which haunts many old people is that if the security for which they have looked in old age is undermined and they do not receive the income which they expected to receive, there is no way in which they will be able to make good that loss. Most old people do not require high incomes but they want security. They want the certainty that they will have a reasonable income to maintain a reasonable standard of life and, perhaps even more important, they wish to maintain their independence. The fear of poverty, the fear of the loss of independence and being dependent on somebody else for the basic necessities of life, or the inability to maintain something like the standard of life to which they have been accustomed, haunts many old people. That puts the problem of pensions in a rather different class from the problems of other kinds of benefits which we discuss so often in your Lordships' House.

Therefore, I agree absolutely that this is one of the most important subjects for discussion. I regret that there is such a poor attendance at a debate of such importance, although I know that there are many other events taking place which will attract the attention of noble Lords.

I echo one sentence—and almost only one sentence —in the speech of the noble Lord, Lord Eatwell; namely, that we should try to reach a consensus on the subject of pensions. We did achieve that once and it is a great pity that we have lost it. I am bound to say that some of the speeches that I have heard this evening were a rather odd prelude to the development of consensus. But no doubt that is something with which we can deal later.

I make it absolutely clear that on these Benches we do not applaud or support the continuation of SERPS. I do not accept the point made by the noble Lord, Lord Eatwell, that we can brush aside the difficulties of a pay-as-you-go scheme in view of the population changes which will take place, and in view of the expectations with regard to standards of living which exist and which will continue to exist both among the employed population and the retired population. My party's policy has always been to advocate a higher basic pension for everyone of which they can be certain. As the noble Earl, Lord Clanwilliam, said, anyone who attempts to live exclusively on the basic pension today is in a very difficult position. It is desirable that that basic pension, secured in whatever way you will, should be available for everyone.

With the rising standards of living which we have experienced throughout the century—and most of us, certainly those of us of my age, have observed a change in standards and expectations in all sections of society —people in old age expect and will want something very much more than any basic scheme will be able to give them. In my view, and in the view of my party, it is not reasonable, or a practical possibility, to expect that future generations (and one expects there will be some increase in the younger generation) will be maintained at a standard of living which they expect constantly to be improved. Indeed, there will be many people around because we are all living much longer. I am a real offender in that respect. I know that a great many of us are living long beyond what is reasonably expected. But here we are, and most of us intend to stay. I see that the Minister seems to be looking for my birth date. If that is the case, I can tell him what it is.

Lord Henley

My Lords, I can assure the noble Baroness that I was not looking for her birth date; indeed, I was referring to other matters relating to demographic changes which might be likely according to the number of children that different Members of the House might have.

Baroness Seear

My Lords, be that as it may, we see no prospect that the reasonable expectations of people in retirement, given the number of people in retirement and the rising expectations through all sections of society, will be maintained simply by transfer payments. Therefore, we say that the basic pension should be raised. It is reasonable and proper that that should be done. But then we should encourage additions to it through a variety of different ways. I agree that appalling things have happened in connection with personal pensions. However, the fact that a particular personal pension scheme has gone wrong does not mean that all such pension schemes should be rejected; on the contrary.

There are many people for whom personal pensions are the best option. We are faced with a labour market in which there is wide acceptance of the fact that a large number of people will change their jobs a considerable number of times in the future. The maintenance of continuing employment throughout one's lifetime will not be the pattern for many people. That has always been the position with women. Indeed, one of the reasons why so many women in old age are living in considerable poverty is that they have never been in continuous employment long enough to acquire through any scheme the kind of pension which they need and ought to have.

There is a great deal to be said for the personal pension if it is handled properly, especially at a time when people will be changing their jobs and when there will be an increasing number of people working part-time or dropping one job and moving on to another. It is something which we should try to develop properly. That is not to say that I support the scheme put forward by the Government. However, I believe that the personal pension programme should not be abandoned: it should be reformed.

There are many criticisms that could be made; for example, the whole system of selling pensions on commission needs to be looked at most carefully. If a recent article in the Economist is to be believed, some horrendous returns have been made by salesmen selling pension schemes. If people are paid on commission— and it applies to anyone selling on commission—they will obviously be biased in the direction of getting a quick sale and increasing their number of sales. I must question whether the commission system is at all appropriate for the way in which personal pensions are being disposed of. I would argue that what we need to do is not to abandon the scheme but to look at it extremely critically to see what changes ought to be made, what selling practices should be prohibited and the ways in which selling practices could be improved.

At present, for the great majority of people the alternative to the personal pension is the occupational pension. The latter has developed very considerably over recent decades. In my view, it is the greatest pity that we did not start on occupational pensions earlier. I remember visiting the TUC some 40 years ago—I am playing on the old-age card—and hearing speakers say, "Oh no, we don't negotiate occupational pensions; that is the responsibility of the state". That has been a great weakness. If the trade unions had negotiated then for occupational pensions, a considerable amount of today's poverty among old people could have been avoided.

However, that is in the past. We need good occupational pension schemes. We should ensure that they are better run and more reliable. After all, we have had the hideous example of Maxwell. But, against that, it is only fair to say that there are many schemes to which one could refer which are paying very satisfactorily as regards occupational pensions. We need to bring the level of occupational pensions up to the standard of the best.

In view of the recommendations that it put forward, the Goode Report should be taken seriously by the Government. Indeed, it is long overdue. We must have new pension legislation on a consensus basis which is based on—though, not necessarily, word for word—the recommendations of the Goode Report, so that we can ensure that we are achieving the right mix of state-based pension, plus personal pensions, plus occupational pensions which gives the flexibility that a rapidly changing labour market requires if people are to have confidence. As I said at the beginning of my remarks, that confidence is so essential to peace of mind in old age. People must know that they will have an adequate income and that their independence can be maintained.

The Earl of Clanwilliam

My Lords, I should just like to say that I thoroughly agree with everything the noble Baroness said. However, I have one point to make with regard to the promotion of occupational pension schemes. I believe it is true to say that the cost of those schemes is such that no new occupational pension scheme has been started by any company in the past three years.

7.37 p.m.

Baroness Turner of Camden

My Lords, I am sure that the House is most grateful to the noble Lord, Lord Jay, for raising such an important issue for today's debate. Back in the 1970s, I and many others believed that we had found a solution to the problem of retirement provision. As several speakers have already said, there was all-party agreement to the pensions framework then introduced, including the noble Baroness's party. At that time, the Liberal Party supported that framework which covered the notion that there should be a two-tier pension—the basic flat-rate state pension linked to the earnings index, which I stress —plus a second-tier pension provided either by the state through SERPS (the state earnings related pension scheme) or by a good occupational pension scheme which could then contract out of participation in SERPS, provided that it met certain standards, including the provision of a guaranteed minimum pension.

SERPS in particular was seen as an enormous advance for people in low paid employment—for people with a chequered work pattern—and especially for women, the majority of whom still earn less than £10,000 a year. Entitlement in SERPS was to be based on the best 20 years' earnings revalued—in recognition of the fact that, for many people, their best earning years are not immediately before retirement but some years earlier.

It was the first opportunity that many working had had to qualify for a pension related in some way to their earnings while at work—an entitlement which many middle-class and professional people in good occupa-tional schemes had long taken for granted. The legislation in the mid-1970s also led to an increase in and an improvement of occupational pension schemes. There was a significant increase in the number of occupational pensions, based on the final salary formula, and funded by employers on a "balance of cost" basis.

Clearly, that was enormously beneficial to the employers who belonged to such schemes. The employees' contribution was often, and still is, set at around 5 per cent. of salary. But in order to meet pensions promises, especially in times of inflation, employers would frequently have to pay double or even three times the amount of the employee contribution.

It is quite true that the set-up was not perfect. In particular it tended to favour in occupational terms those who stayed a lifetime with the same employer, or else those in public service. Those who moved around the labour market were clearly grossly disadvantaged compared with those who stayed put and the Government, looking from the 1980s onwards towards labour mobility, tended not to look on this with favour. But remedies were available, and one of them was actually suggested by the Occupational Pensions Board when I was a member. We suggested that deferred pensions should be uprated in line with inflation to a maximum of 5 per cent. per annum, and while this did not entirely solve the problem it went some way towards doing so.

Those who remained in SERPS, of course, did not have a transferability problem. It would also have been possible to do something about transfer values, generally seen as too low, but the Government preferred —instead of simply legislating in line with the OPB recommendations (although they eventually did so in regard to the uprating of deferred pensions)—to tear down the structure which had only so recently been agreed. So we had in 1985 the so-called Fowler Review.

I well remember the debates on the legislation that followed the Fowler Review because that was the first debate of consequence with which I was involved in your Lordships' House. The clear intention of the Government was to move away from collective pension provision in favour of individual, personal pension provision. In the beginning there seemed even a desire to scrap SERPS altogether. There was much talk of the demographic time-bomb—we have heard some more of that this evening—awaiting us in the next century when the working population would not be able to support the large number of pensioners. SERPS, we were told, could not be afforded, and that argument has again surfaced.

Moreover, the Government had almost as little liking for collective occupational schemes as they had for SERPS. Clearly they wanted to encourage money-purchase schemes, which had largely begun to disappear following the introduction of the mid-seventies pensions legislation. But the benefits of the Government's stance were always illusory. A good final salary occupational pension scheme is just about the best "fringe benefit" an employee can get and good employers have always recognised this and have understandably seen the provision of good pensions as a way of retaining valuable employees.

Despite the occasional concerns about occupational schemes, such as the doubts about contribution holidays by employers and scandals like that of Maxwell, in general employees lucky enough to be in them are very well served by final salary occupational schemes. They have the great merit that the employee knows precisely what his entitlement will be as it is based on the number of years service, and in a good scheme is capable of producing a pension equal to two-thirds of the employee's final salary at retirement, in the case of an employee who has spent a working lifetime with that employer. That of course goes for people working in public service as well as in a number of previously nationalised industries.

It is not so with money-purchase, where you simply get what the money has been able to obtain over the years by way of investment. If the performance has not been good, the benefit will be that much less. So it is a gamble, which final salary schemes are not, and nor, of course, is SERPS, provided that the Government do not actively seek to wreck it of course. But that is precisely what they have done. They wanted to get rid of SERPS, but there was such an outcry that they could not do so —at least not immediately. So they embarked upon another, less frontal attack. The best 20 years' provision in SERPS was abolished and the accrual rate was worsened. Then people were actively encouraged to leave SERPS and, incidentally, occupational schemes. People who took out personal private pensions were given a national insurance rebate—in other words, a bribe—to persuade them to take out private personal pensions. The Government's attitude gave the green light to the insurance industry to go out and sell private personal pensions. And sell it did: after all, its staff are in business to sell insurance. There was an enormous campaign. There were posters on the Underground which stated, "When did the Government ever give you money?" (referring of course to the national insurance bribe and urging people to take it up) and "Don't be a SERPS" and similar slogans. The implication was that people should rush to pick up this wonderful bargain being offered by the Government.

But we know now—as the noble Lord, Lord Jay, and my noble friend Lord Eatwell have said—that it was not wonderful after all. People in good occupational pension schemes were persuaded to leave those schemes in some instances and to take out private personal pensions when that was clearly not to their advantage. The same is true of SERPS. People who would have been better off to have stayed in SERPS have been encouraged onto the private personal market. Now the Securities and Investments Board is holding an inquiry. The whole thing has become quite scandalous. People have discovered that in order to get the kind of pension they feel they will require, they will have to pay quite large sums of money—the amounts they have been paying are not likely to buy them very much. There clearly has been mis-selling and it is easy of course to blame the sales persons working in the industry. Some companies are already taking steps to do what they should have done anyway and are retraining their sales staff.

But the whole environment in which all this became possible was created by the Government and was ideology-driven by a government who are anti-collective. I know that sales staff were put under terrific pressure to sell. Some of them are members of my union. In some companies commission is a very large element—sometimes the only element—in the salary package. In some companies it is customary to set targets, and sales staff who do not reach those targets are liable to lose jobs. And it is cold out there. There is now a lot of unemployment in the financial services sector and salesmen and women have mortgages and families like everyone else. No, whatever SIB's inquiry reveals, and whatever is done about compensation, the greatest share of blame for this disaster—it is a disaster and I agree with my noble friend Lord Eatwell on that—for many people largely lies with the Government.

The Government have forgone money in the shape of national insurance contributions in order to get private personal pensions off the ground. According to the Financial Times, which my noble friend Lord Jay has already quoted, the Government have forgone £10.5 billion in order to persuade people into private personal pensions. A large number of these would have been better off staying where they were. About 60 per cent. of the nearly 5 million people who took out personal pensions since 1988 were making no provision other than the refund paid out by the Government after they opted out of state pensions. Clearly, this was never going to be enough to buy them pensions of a satisfactory level on the private market. The whole thing has been a quite scandalous folly. The Government should never have sought to undermine the consensus on pensions agreed in the mid-seventies. They should have sought to build on it and improve it.

The argument that private provision had to be encouraged because future generations would not be able to afford SERPS was, in my view, always a false one. Whether the money comes from a state scheme, or via private insurance, the community as a whole still has to pay. If the private market does not produce a reasonable level of pension, then it will have to be supplemented by social security benefits. And it was always unlikely that the poorest section of the population could ever be properly catered for on the private market in any event. Poorer people are simply not a commercial proposition for the industry.

The Government have got a large number of people into an awful mess. A Labour government—which I hope we will have in the not too distant future—will have the task of trying to unscramble what has been done and to return to the fair and reasonable framework devised earlier, but with some updating to take account of some developments since then. Meantime, if a vote of censure were possible in your Lordships' House, this is eminently the kind of issue on which it would be fully warranted.

7.48 p.m.

Lord Henley

My Lords, the noble Lord, Lord Eatwell, spoke about an alleged betrayal by the Conservative Government of pensioners since 1979. I would like just to start with a few facts to put the matter in perspective. Since 1979 we have seen pensioners' average total net incomes grow by something of the order of 42 per cent.

Basic pensions have more than kept in line with inflation. Most pensioners now have income on top of social security benefits—some 88 per cent. of recently retired pensioners and 85 per cent. of all pensioners. Some 61 per cent. of all pensioners and 69 per cent. —in other words the figure is growing, and will continue to grow—of recently retired pensioners receive income from an occupational pension, and that has grown from a mere 43 and 55 per cent in 1979.

The average amount received by occupational pensioners increased by nearly half between 1979 and 1990–91—to over £60 a week. Further, the number of pensioners with saving income has increased dramatic-ally since 1979. The amount of money that pensioners have received from savings now averages some £40.10 a week, again up by 120 per cent since 1979. It fell between 1974 and 1979.

Lord Eatwell

My Lords, the noble Lord really must not claim credit for the legislation of the Labour Government on occupational pensions. The figures which he gave relating to the growth in occupational pensions are the result of Labour legislation. Does the noble Lord agree that as a share of male average earnings the pension has fallen from 20 per cent. in 1978 to 15 per cent. now, and, if the Government's policy of uprating only with prices is continued, it will fall to about 6 per cent. by the year 2030?

Lord Henley

My Lords, I should be very interested to know whether the noble Lord is making a commitment from his own Front Bench to restore the link with prices or earnings, whichever is the higher. If the noble Lord is so doing, I wonder whether he has the permission of the leader of the party opposite and whether that is a commitment for the next election.

Lord Eatwell

My Lords, the noble Lord is aware that one cannot make financial commitments these days when the Conservative Party has wrecked the economy to such a degree. If only we have a Labour Government which restores the productivity of the British economy, then decent pensions can be paid again.

Lord Henley

My Lords, I note the noble Lord's commitment.

If I may, I shall now return to the subject matter of the debate. It may help if I provide some background on the state scheme, SERPS, and on the objective of recent government reforms, and correct some of the misconceptions of the noble Lord, Lord Jay, and his colleagues.

As the House is perfectly well aware, SERPS operates on a pay-as-you-go basis. Contributions made today go towards paying the pensions of today. During the 1980s, whatever noble Lords say, it became clear that without reform the costs of SERPS would become unsustainable. In the mid-1980s the costs of SERPS were something less than £200 million a year. It was recognised that those costs would escalate rapidly to something around £4 billion a year by the end of the century, rising to some £30 billion by the year 2050. I do not believe that that is a wholly fictitious scare, as the noble Lord, Lord Monkswell, said. At the same time, whatever the noble Lord may say—

Lord Monkswell

My Lords, I am sorry to intervene. I know that the noble Lord wants to move on. However, the figures that he quoted of absolute amounts of money do not give a clear indication of the effect on the economy of the proportion of economic output spent on pensions and the proportion of economic output going to the rest of the community. Therefore the figures are rather misleading.

Lord Henley

My Lords, I do not believe that they are misleading. Perhaps I can put them in simpler, demographic terms. Obviously the proportion of people in work financing the scheme compared with those out of work who are beneficiaries of the scheme—the pensioners—will change. Roughly speaking, at the moment we have something of the order of three workers per pensioner. Roughly, by the time I retire —and I imagine that the noble Lord will retire at about the same time as myself (I have not managed to look up his date of birth)—there will be approximately two workers for each pensioner. It is quite obvious to the meanest intelligence that that will require a 50 per cent. greater contribution from those in work, whether by means of a funded contribution or on a pay-as-you-go basis.

Lord Monkswell

My Lords, I am sorry to intervene again, but surely the Government are proceeding on the basis of projections of their own handling of the economy. It is quite possible that if a Conservative government stayed in office for the next 30 or 40 years we would continue to have the economic problems that we have at present in which approximately 25 per cent. of the productive capability of the economy is effectively idle. If we have a Labour government, as we hope to have fairly shortly, a large proportion of that quarter of the productive capacity of the economy will be put back to work. Therefore the figures are again misleading.

Lord Henley

My Lords, they are not misleading. Obviously it is very difficult to make any long-term prediction of the economy to the year 2030, and no one would do so. What we can say is what SERPS would cost on the old basis. We can also say what we think the demographic changes will be.

It may be that, like the noble Lord, Lord Jay, who I understand has four children, or the noble Lord, Lord Eatwell, who has three, and myself who have three, everyone might do the same. The noble Lord, Lord Monkswell, also has three children. As the noble Baroness puts it, we have been highly productive. It might be that the average number of children per family rises from the present 1.9. However, it seems that throughout the Western world there is a general fall-off in birth rates. Therefore, we can predict that there will be those demographic changes. That means that, whatever the state of the economy, those in work will be paying roughly 50 per cent. more to pay for the contributions of tomorrow than they are paying now.

Baroness Turner of Camden

My Lords, I am grateful to the noble Lord for giving way. Does he not agree that, whether or not the resources come from the private sector of the economy or the public part of the economy, it still has to be paid for from the same pot? Therefore, whether the funding is private or public does not matter. One has to pay it or people will be starving in the streets.

Lord Henley

My Lords, I accept the point that the noble Baroness makes. One cannot make a total distinction between something that is funded and something that is unfunded. Obviously it all has to be paid for by the economy tomorrow. However, there is still an important distinction between unfunded pensions and funded pensions. I think that the noble Baroness will accept—as I shall go on to show—that the fact that in this country roughly speaking some 50 per cent. of our pension arrangements are funded and 50 per cent. are pay-as-you-go is a considerable strength compared with most of our European colleagues, where pensions are completely unfunded and are all on a pay-as-you-go basis. If the noble Baroness will bear with me I shall go on to set these things out in somewhat greater detail.

As I was trying to make clear, we believe that, unreformed, SERPS looked set to make promises which those future generations—our own children and grandchildren—simply could not afford. That is why we introduced the Fowler reforms in the Social Security Act 1986. We modified SERPS and made it sustainable into the next century. We introduced measures to encourage the growth of funded pension provision, which I have been talking about, where contributions made today are invested to provide pensions in the future.

The Government's objectives on pensions are rooted in that 1986 Act. We wish people to have a choice of pension arrangements which are flexible, portable and appropriate to their needs. We want people to be able to plan for their retirement securely, with confidence in those providing pensions. And we want to see a thriving pensions industry which continues to be the strongest in Europe.

We have made much progress towards those objectives. Before our reforms individuals had relatively few options. They were compelled to rely either on SERPS or they could be required to join an employer's pension scheme as a condition of employment, even when that particular pension scheme was clearly unsuitable. We gave the choice back to the individual.

Today the individual can choose the pension which best suits him or herself. It could be a state or non-state pension, a personal pension or, if available, according to the firm he or she works for, an occupational scheme. There was relatively little mention of occupational pension schemes, but I have to stress to the House that something of the order of 11 million people are in such schemes, opted out of SERPS. That figure has stayed broadly the same since the 1986 reforms.

Before those reforms no one had a right to move his pension if he changed jobs. Now everyone can transfer the value of accrued pension rights if they choose. If they choose not to transfer, we gave people the right to have the pension they leave behind protected against inflation.

Before, if an individual wanted to save more for retirement, choices were limited. Now everyone has the right to make top-up payments to boost their pension, either to their employer's scheme or by making free-standing contributions.

The success of our reforms in encouraging people to plan for their retirement has been dramatic. I repeat what I said before, which the noble Lord quoted when he demanded my apology. We now have something of the order of eight million personal pension investors—five million of them contracted out of SERPS—in addition to the around 11 million people in various employers' schemes. I simply do not accept the numbers that the noble Lord, Lord Jay, claimed had lost out. Much of the recent coverage in that report has been due to a misunderstanding of the figures and remarks produced by the firm of accountants. I understand that it issued a press notice following the recent articles which, in its own words, aimed to set out the background to the reports which have appeared in the press in recent days which have misrepresented our views. There must be a real danger that unnecessary distress could be caused to those people affected". The newspaper articles demonstrated a misun-derstanding of what DSS statistics on appropriate personal pension investors showed. For example, figures referred only to a single year. They represent only a snapshot of the profile of appropriate personal pension holders. It is earnings over a lifetime which determine an individual's pension. Just because an individual does not receive a DSS contribution in any given year, does not mean that that policy has necessarily been mis-sold. An individual may have become unemployed suddenly, having started the policy while in work. As soon as the individual began working and paying national insurance again, DSS contributions to his personal pension obviously would resume. If he is not earning, or if he is earning below the lower earnings limit, he would not anyway be building up any pension entitlement, had he remained in SERPS.

I am grateful for the remarks of the noble Baroness, Lady Seear, about the advantages of personal pensions in particular for those who are likely to move jobs frequently during their career. With the changing nature of the job market, that is a matter for which we have to plan, in particular for women. Although the noble Baroness did not refer to them, one should mention the strengths of such pensions for those who are self employed and who do not have the advantage of benefiting from SERPS.

Furthermore, since those reforms we have seen some 16,000 more occupational schemes. More people than ever before are committing more of their income to save for a pension.

Last year individuals and their employers contributed £2.5 billion towards personal pensions—almost a tenfold increase over 1988 when contributions totalled just £260 million. And members of occupational schemes have been saving more for retirement too.

Contributions to top-up pensions—known as free-standing AVCs—have grown more than twenty-fold, from just £20 million in 1988 to £420 million last year in 1993. In total, employees and their employers contributed nearly £30 billion in 1992. We believe that, together with the pay-as-you-go scheme, that strong foundation of privately funded pensions built up in this country leaves us well placed to face the challenges of the next century. The noble Lord, Lord Eatwell, seemed to suggest that it would be far better for the Government to retain all the money. Perhaps I misrepresent him. However, I believe that a balance between both a pay-as-you-go scheme and a funded operation, with the City being able to invest that money, is a far more satisfactory solution than all the money being retained by the Government.

Few European countries have developed any significant level of funded pension provision—and none can rival the strength of the United Kingdom pensions industry. Over £500 billion are invested in pensions and life insurance schemes in the United Kingdom; and that figure, as I said earlier, is more than the rest of the European Union put together. I believe that only now are other countries facing up to the problems we addressed a decade ago and are seeking to emulate British success in building up funded private pension provision for the future.

There was some reference to the problems of Maxwell, which I do not think it would necessarily be appropriate to say anything about this evening, other than that by taking the appropriate action that the Government have taken we have ensured that no Maxwell pensioners have suffered loss of SERPS entitlement; and in fact all pensions have been kept in payment thanks to government action. However, as it obviously raised very serious issues concerning the regulation of occupational pension schemes, as the noble Lord, Lord Jay, mentioned, we set up the committee under Professor Goode to give detailed scrutiny to these matters. The noble Lord, referred to it. That committee presented its report last September. I am afraid that at the moment I can only say that we are considering its recommendations most carefully and are undertaking further consultation. My right honourable friend the Secretary of State for Social Security intends to publish a White Paper soon setting out his proposals for the future regulation and governance of occupational pension schemes.

The Government are equally determined that there should be effective regulation of personal pensions. The House will be aware that the Securities and Investments Board has recently uncovered evidence—the matter was referred to—of what, regrettably, can only be described as poor compliance with rules on selling practice involving the sale of personal pensions to people transferring from employers' schemes. That was in fact the subject of the original Motion of the noble Lord, Lord Jay, although not, strictly speaking, the subject of today's Motion, although it is a matter that we ought to address this evening.

The chairman of the SIB has made it quite clear that there is no evidence of fraud or theft. Nor is it clear to what extent investors' interests may have been damaged. Nonetheless, we believe that it is a highly serious matter and the Government have made their position clear. Concerns about compliance must be thoroughly investigated by the regulatory authorities to determine the extent of any problems. Where investors have lost out as a result of mis-selling, it must be put right. And anyone whose pension arrangements have been jeopardised must have a remedy.

The Securities and Investments Board is undertaking a major investigation into pension transfer sales. It has already taken action to prevent and to deter future mis-selling. Last month the SIB published new guidance for raising future standards of business, with new requirements for companies undertaking pension transfers.

The SIB has already ordered pension providers and independent intermediaries to begin to identify pension transfer business for clients who may have suffered disadvantage. Those measures will start to take effect from the beginning of July. Within the next few weeks, we expect the SIB to complete its investigations, and to make a full report.

The SIB will tell providers and intermediaries how they should review their pension transfer business for clients who may have suffered disadvantage. It will provide guidance on how firms should contact their clients. And it will lay down a framework by which firms should calculate redress in cases where investors have suffered harm and not been adequately protected by the regulations. So no personal pension investor need be alarmed. Nor should they take precipitate action. If investors have any questions about their policy, they should contact their personal pension provider.

The SIB's current investigation does not extend to the sale of personal pensions used in place of SERPS —known as "appropriate" personal pensions, more properly the subject of today's debate. The chairman of the SIB has indicated that he has no evidence of systematic non-compliance with rules covering the sales of schemes used in place of SERPS, despite what the noble Lord, Lord Jay, said. Nevertheless, the SIB will be conducting a review of these sales in due course. As in the case of pension transfers, if the SIB finds evidence of bad advice and mis-selling of appropriate personal pensions, the Government will expect those firms responsible for the bad advice to provide suitable remedy.

The Government will continue to take action where necessary to provide security for pension entitlements. We recognise that people must be able to rely on the highest standards of advice when choosing a pension. Again, it seems a pity that the noble Lord, Lord Eatwell, seemed to be of the opinion that most people are not able to understand such advice. We want those pension consumers to be able to make informed choices based on sound information. That is why my right honourable friend has published a number of booklets offering advice to those desiring to contract out or make the most of their personal pension. I can give assurance to the noble Lord that the booklet published in January 1994 makes quite clear at page 4 that, if in the future you no longer want the DSS to contribute to your personal pension, ask your personal pension provider for Form A PP2, which I believe was the form to which the noble Lord referred. That form is to be completed and sent to the address on the form.

That is why my right honourable friend the Chancellor directed the Securities and Investments Board to prepare rules to give greater transparency to personal pension charges and commissions. In future, illustrations of personal pension benefits must reflect the actual charges levied by a provider so that investors can compare the cost of different products. And anyone selling personal pensions must reveal to potential investors how much they stand to gain in commission by making a sale. We believe that effective disclosure of charges and commissions is the best way to protect consumers from overpriced products and the dangers of biased advice. I hope that that will go some way towards meeting the concerns of the noble Baroness, Lady Seear.

In addition, as I made quite clear, my right honourable friend the Secretary of State for Social Security has also published three new guides, one of which I referred to, providing information to people who are thinking about, or have just started, a personal pension. These guides advise people to assess all their options before finally choosing a pension and to take expert advice. I can also advise that we have a special telephone ordering service which has been set up so that people can order their own copy. We have also published guidance for employers who want to give advice to employees about pensions. That new guidance for employees sets out some straightforward do's and dont's to help employers assist their staff to make more informed decisions about pensions.

Lord Eatwell

My Lords, will the noble Lord accept that we on this side of the House regard all this remedial action as very worth while; but will he explain why it is being taken now, six years after the introduction of the scheme, when so many respectable bodies—for instance, the Consumers' Association and the CBI— argue that that information should have been available in 1988? If it had been available then, the serious losses which we discussed this evening would not have been suffered by so many pensioners.

Lord Henley

My Lords, as I said, we regret those losses and they are unfortunate. That is why we set out what the noble Lord referred to as the remedial action. I do not believe that such mis-selling as has happened was to the extent that the noble Lord claimed. I do not believe that it was as extensive as the noble Lord will claim. I do not believe that it was possible to predict that there might be that degree of mis-selling.

In the main, I believe, and I repeat what I said earlier, that those 5 million personal pension investors, plus the 3 million over and above, who are not necessarily contracted out of SERPS, have gained from taking out their personal pensions. I think that we have seen dramatic growth in the entire pensions world. We have also seen the number of those in company schemes, in occupational schemes, remain static at round about 11 million. In other words, the 5 million plus the 3 million on top are a growth in the number who have taken out pensions. I think that they have all positively benefited from it.

Baroness Turner of Camden

My Lords, is the Minister aware that the KPMG analysis, which is very detailed, says that overall some 83 per cent. of files of the cases reviewed were classified as unsatisfactory and lacking in evidence of compliance or unsatisfactory and suspect? I think that that is a quite desperate piece of evidence against the selling of personal private pensions to people already in pension schemes.

Lord Henley

My Lords, I go back to what I quoted, what the chairman of the SIB said. First, he indicated that there was no evidence of systematic non-compliance with rules covering the sale of schemes used in place of SERPS; no evidence of systematic non-compliance. Nevertheless, he said that it would be conducting a review of those sales in due course. As in the case of pension transfers, if the SIB finds evidence of bad advice—and I think that it should be a matter for the SIB—and mis-selling of appropriate personal pensions, obviously the Government would expect those firms responsible for that bad advice to provide a suitable remedy.

I am not taking any more interventions. I intend to end now. I have been speaking for some 24 minutes and I feel that I have taken quite enough in the way of interventions.

We believe that the benefits of our strategy are clear. Through greater flexibility we have encouraged a healthy and, more important, diverse pensions industry. Through wider choice we have encouraged more people to plan for their own retirement income. The end result has been an increased reserve of funded pensions providing a flow of investment for industry today and affordable security for individuals in the future.

8.13 p.m.

Lord Jay

My Lords, I cordially thank all those who have spoken in the debate this evening. The quality of the speeches has fully made up for any paucity in the audience. I wish to say, first, to the noble Baroness, Lady Seear, that I think that she not only did not hear my speech but she also misunderstood it.

Baroness Seear

My Lords, that would be a remarkable feat: to misunderstand something that I had not heard. My capacity for misunderstanding things is considerable, but it does not go to that length.

Lord Jay

My Lords, the noble Baroness misun-derstood in this respect. She appeared to think that I and others on this side of the House wished to abolish occupational personal pensions altogether. Not at all. I have always believed and still believe that one may have a basic state pension on which people can rely and in addition to that allow individuals to join personal pension schemes and become members of occupational schemes. So there is a considerable consensus between the noble Baroness and myself.

I would only comment on the speech of my noble friend Lord Eatwell that I fully endorse the strong language which he used in the course of it. The only reason I did not use it is not that I did not think it justified but because of natural bias towards moderation.

In commenting on the Minister's speech I would only say that in the first case the fallacy of his figures relating to the terrible burden ahead is that they are all based on the assumption that the retiring age remains at 65. That is a fallacy. The retiring age must rise as length of life and fitness to work also rise.

Lord Henley

My Lords, if the noble Lord will accept an intervention at this stage, it is important to get this on the record. I accept that there is probably a need for the retirement age in due course to creep up. What has been happening over the past few years, as people have become richer and richer, is that they tend to retire much earlier than they used to. Whether one can reverse that trend is a difficult question. If the noble Lord is offering the support of his party for increasing the retirement age, I shall be interested to know. But I heard no commitments of that kind from his noble friends on the Front Bench.

Lord Jay

My Lords, the reason why the retirement age has been falling is that the Government's economic policies have caused such heavy unemployment. That we intend to alter. The noble Lord filled his speech with a great deal of information. If I heard him aright, he did not answer some of the most crucial questions. He told us that 5 million opted out of SERPS, but he did not answer my question as to what proportion of those were worse off as a result. If he is not prepared to give a figure, I think we must naturally accept the almost universal figure given in the financial press that about half of them were worse off as a result.

I understood from the Minister that the Government are considering the Goode Report. If I heard him aright, they propose to adopt many of the proposals made. What I think the past five years have shown is that, although we ought to have personal pensions, it is clear that if we do they ought to be regulated far more efficiently than they have been in the past. I understand that in spirit that is what the Minister meant.

Lord Henley

My Lords, again the noble Lord will not mind me intervening. He would not expect any major announcements on Goode to be made by a junior Minister from a different department in a debate of this nature. What I simply said—and this did not imply any total acceptance of Goode, or total rejection of Goode, or anything; I made no commitment whatsoever other than that my right honourable friend will be publishing a White Paper shortly. The noble Lord will have to wait for that. I would rather he did not put any interpretation into what I said and my words.

Lord Jay

My Lords, at least we have discovered that there will be a White Paper shortly. Perhaps the Minister can tell us how shortly. I presume that the White Paper will require legislation, because if there is to be really effective regulation, there must be legislation to back it. Therefore, my parting comment to the Minister is that we shall watch things extremely carefully and come back again if he does not give a more convincing answer than he has given tonight. I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.