Pensions Bill [H.L.]

HL Deb 14 March 1995 vol 562 cc800-42

Consideration of amendments on Report resumed.

Lord Stallard moved Amendment No. 190:

Before Clause 114, insert the following new clause:

("Retirement pension: absence from Great Britain .—(1) The Secretary of State shall prepare and lay before Parliament, before the expiry of a period of six months beginning with the date on which this Act receives Royal Assent, a report on—

1. (a) the numbers, age and economic circumstances of persons absent from Great Britain who, but for the provisions of section 113(1) (a) of the Social Security Contributions and Benefits Act 1992, would be eligible under that Act for a retirement pension of any category or graduated retirement benefit (including any increase of the amount payable in respect of any such retirement pension for adult and child dependants); and
2. (b) the implications for persons mentioned in paragraph (a) above of the establishment of reciprocal pensions and benefits arrangements between Great Britain and the government of the country in which such persons are resident.

(2) Unless either House of Parliament resolves, in the light of the report mentioned in subsection (1), that this section should no longer apply, the Secretary of State shall, before the expiry of a period of one year, beginning with the date on which this Act receives Royal Assent, by order make regulations to disapply, in whole or in part, the application of section 113(1) (a) of the Social Security Contributions and Benefits Act 1992 in respect of a retirement pension of any category or graduated retirement benefit (including any increase of the amount payable in respect of any such retirement pension for adult and child dependants).

(3) An order under subsection (2) shall be subject to approval by resolution of each House of Parliament.").

The noble Lord said: My Lords, I move the above amendment in a slightly different atmosphere to that which prevailed earlier in the afternoon. However, I hope that the small presence in the Chamber will not make too much difference. I expect that noble Lords are all hiding somewhere or still having dinner. I do not intend to make a long statement because I believe that I have made two or three already and many people, both inside and outside the House, are now beginning to latch on to the fact that there is an injustice here. Indeed, it is another one of those injustices about which we heard so much this afternoon.

People are beginning to understand that there is an injustice. Something is wrong where people who qualified for a pension in exactly the same way as I did, after 44 years of paying Class 1 stamps on a contribution card, are now not able to receive the increases that I and many people receive every year.

It is a question of the three main principles that we have argued about throughout the proceedings. First, there is the statutory right which has been accepted by the Government and by previous government Ministers as being correct. Secondly, there are the reciprocal agreements which have already been accepted and which operate in 33 different countries. Again, that is an accepted principle, so such pensions can be paid to some pensioners who live abroad provided that there is a reciprocal arrangement in existence. That takes care of the argument that it is an impossible request; indeed, it can be done. Thirdly, because it is an entitlement, we certainly do not accept the argument that it would cost too much. You cannot argue that for one case when the opposite takes effect in those cases where reciprocal agreements apply. If there are 33 or 34 reciprocal agreements where pensioners receive all increases and then you say, "We cannot give those pensioners the same treatment because it would cost too much", that is an argument against itself. Therefore, we do not accept it.

We heard this afternoon about former servicemen and pensioners. We have here a very similar case. A great many of the people whom I have been discussing for many years now served this country as servicemen, as taxpayers and, in the past two or three years, as overseas electors. Indeed, I imagine that both major parties at present are canvassing for the support of such people, who are the same pensioners in those same countries, for the forthcoming general election. Therefore, they are good enough to vote and good enough to serve in the forces, and so on; but, when it comes to their pension entitlement, it is said that because they live in those Commonwealth countries they are not entitled to it because there is no reciprocal agreement and the Government do not intend to have one. We say that that is wrong for many reasons. It is an injustice, it is immoral and it is almost a deceit to say that we will have reciprocal agreements with others but not with those countries.

I tend to agree with the noble Lord, Lord Brookes, who spoke about conscience this afternoon. Again, we are discussing a conscience issue; indeed, it affects people's consciences. They cannot believe that there are people living in America and others living only a few minutes away in Canada and that, on one side of that divide, people receive the full pension while, on the other side, they receive the pension that was frozen when they left this country, which is usually under £10.

Twenty thousand pensioners live in those conditions in Canada with a pension that is under £10, although, as I said, they have the required qualifications for a full pension. It is wrong. The noble Lord, Lord Boyd-Carpenter, echoed the sentiments expressed in our recent debates by saying that, if there is to be a time to change the system, this year would be the time: the 50th anniversary of the end of the last war is a perfectly good time—if time is needed—to put such injustices right. We are discussing one of them. I believe that it should be given the same kind of priority as some of the other matters. That is why I have changed the form of the amendment from the usual kind in the hope that the Government will accept it as being a more constructive proposition.

In the first part of my amendment, I simply ask for a report to be produced to give us all the information on the subject. We have been bedevilled over the years by various statistics from different sources that never seemed to match as regards numbers, costs or anything else. I am asking for a report that would put that situation right. Once we know the size of the problem, how many people are involved and where they are, we shall then know the implications of applying a reciprocal agreement to those people.

No one has ever explained to me why we cannot come to a reciprocal arrangement with, for example, Canada as, indeed, we have done with America, or with Australia in the same way as we have done with Israel, Cyprus, Greece or Spain. No one has ever been able to tell me why we cannot do so. Therefore, I must ask: what would be the effects of reciprocal pensions and benefit arrangements between the UK Government and the government of the country in which such persons are resident? It is no good saying that those countries do not want to do so because most of the Commonwealth countries have asked for such arrangements. They would be quite happy to sit down and negotiate.

The second part of my amendment would require the Government, in the event of the production of a report being agreed to, to come forward 12 months thereafter with regulations that would take care of the section in the Social Security Contributions and Benefits Act 1992 which, at present, excludes such pensioners from receiving increases in their benefits. My proposition is fairly simple. There is time to consider and implement it. Indeed, there are ways and possibilities as to how it would be implemented when the time comes and as regards the wording of the regulations, and so on. However, it would give us a little more scope and would take care of the "knockabout stuff" that we usually have. I hope that the Minister will put forward a more positive approach in his response to what is really an injustice that the Government continue to support; indeed, he has never given us a proper reason for the Government's refusal to come to some reciprocal agreement. I beg to move.

Baroness Seear

My Lords, I should like briefly to support the amendment so ably moved by the noble Lord, Lord Stallard. It is quite an irrational position. The burden is on the Government to establish why there is any justification for a pensioner who is in exactly the same position in every other respect who lives one side of the American border receiving an increase in his pension while another person, who is in all ways identical, but lives on the Canadian side, does not. It is an irrationality which surely demands an explanation.

The only explanation that I have heard so far from the Government Benches is that it would cost a little more money. Well, that is at least an argument—if you accept it. However, it does not meet any of the other arguments about the irrationality and the injustice of dealing with the matter in such a way. The noble Lord, Lord Stallard, has put forward his proposition in a form which surely makes it easy for the Minister to accept. It does not commit the Minister to anything: it would merely provide the House with more information with the prospect, on the basis of that information, that we could then go ahead to reach a logical and justifiable settlement for what has been a nagging problem for a great many years.

Baroness Turner of Camden

My Lords, this amendment is different from the previous amendments on the same subject in that it recognises to some extent the force of the Government's argument that, where pension increases are paid, reciprocal agreements exist. One hopes that the report envisaged in the amendment will give further impetus to the search for reciprocal agreements. If they really could not be obtained, the fallback position would apply which would mean that the position of these pensioners would then be safeguarded in the way that my noble friend suggests. It seems to me that this different approach warrants a rather different response from the Government. On that basis, we on this side of the House on the Front Bench support the amendment.

Lord Shaughnessy

My Lords, I hope I may join in the discussion for a moment. As a Canadian it seems to me an affront to those who live in Canada as expatriate British citizens that they have been discriminated against in this way for so long. It is not a happy situation since outside the old Commonwealth a citizen of Windsor, Ontario gets a pension of something like £10 a week, while another British expatriate citizen in Detroit gets a pension of £95 a week. There must be something wrong with that.

Lord Mackay of Ardbrecknish

My Lords, your Lordships will, I am sure, recall the comprehensive and thorough debate in Committee on Amendment No. 183 which sought to entitle pensioners abroad to the same amount of retirement pension as if they had resided in Great Britain. The noble Lord, Lord Stallard, put his measure to the vote on that occasion and he did not win. I must congratulate him on the ingenious device he has deployed to return to the subject at Report stage. However, no amount of dressing-up can get away from the simple fact—which I put before the Chamber at Committee stage—that the cost of this proposal is £235 million, which is a £¼ billion, give or take a few million.

I am not in the least surprised that the noble Baroness, Lady Seear, on behalf of the Liberal Democrats, can happily clock up another £¼ billion. I must put her on my list of people whose expenditure commitments I add up as we go through the days and weeks. A quarter of a billion pounds is a lot of money. I believe I detected the noble Baroness, Lady Turner, adding the Labour Party's voice to the expenditure of £¼ billion. On a very quick estimation, that makes a promise of enormous extra expenditure by the next Labour Government, if we ever have one. However, I believe the greater the expenditure that party promises, the more the electorate might see through the new Labour Party. I have now reached an expenditure figure of £335 million for the day so far, and I still have a little calculation to make as regards one of the Divisions.

However, I thought we agreed in Committee on my proposition, which is as follows. If I had £¼ billion more from the Treasury to spend, I am sorry to inform the noble Lord, Lord Stallard, that I could find many other cases in the social security field which I consider would have a greater priority on the British taxpayers' money than the one we have before us, however it is disguised. I see the noble Lord, Lord Monkswell, rising. He wishes to add more money to these promises. I am happy to give way.

Lord Monkswell

My Lords, far from seeking to add money to the noble Lord's calculations, I wish to ask him a question. Is the calculation which he or his department has made in terms of the cost of this amendment a gross or a net figure? Is the saving in terms of, for example, expenditure on the National Health Service that would be incurred if these people were resident in this country included in the equation? What estimate have the Government made of the net effect of this proposal in years to come? I use the example of someone who retires in the next year or two. He may decide either to stay in this country or to go abroad. If the pension continues to be paid and is uprated in line with the UK figures, that pensioner will cause a drain on the Exchequer in a number of other areas apart from pensions. But if that pensioner is abroad, that drain, particularly in terms of the National Health Service, will not exist. The fundamental question concerns whether the Minister is talking about gross figures or net figures.

8.45 p.m.

Lord Mackay of Ardbrecknish

My Lords, as I think I explained at the Committee stage, I am talking about gross figures because it is very difficult to subtract the figure the noble Lord mentioned. But before he thinks he has scored a bull point, he must remember that, if he is looking for net figures, he also has to take account of the tax which these people are no longer paying to the British Exchequer as British taxpayers, but which they are paying in Australia, New Zealand or wherever else they live. Therefore I do not think he has scored too great a point. I say that just in case he thinks he has scored a point. The simple fact of the matter is that the provision would add £¼ billion to the pensions bill in this country. I reiterate that I believe that in the unlikely event of Treasury staff phoning me tomorrow morning and offering me an extra £¼ billion to spend, I would have far better causes inside the social security budget in this country on which to spend that money rather than go down the road we are discussing.

I turn to the amendment before us. The numbers of people receiving frozen pensions are well known. We also know their ages. However, the noble Lord seeks to place an impossible burden on the Secretary of State in asking him to report on their economic circumstances. The following statistics make it abundantly clear why that would simply not be possible. We pay our pensions at frozen rates to some 400,000 people in almost 150 countries worldwide. It is simply not possible to hazard a guess at the economic circumstances of people with widely varying amounts of British pensions, to say nothing of their other income, living in countries such as, not only Australia and Canada, but also Pakistan, Kenya, Brazil or even Saudi Arabia.

It would also be impracticable to attempt to prepare a report on the implications for these pensioners if the United Kingdom were to establish reciprocal agreements on pensions and other benefits with the governments of the countries where our pensioners live. It would not be possible to conclude such arrangements with the many countries which do not have a social security system with which to reciprocate. Other systems may be so different as to make reciprocity impracticable, while others may have a very limited range of benefits. Some countries may simply be unwilling to negotiate with the United Kingdom. In short, the duty which the noble Lord seeks to place on my right honourable friend the Secretary of State is neither reasonable nor practicable.

The noble Lord seeks to impose a further duty on both Houses to reconsider the whole question of frozen pensions again in the light of the report. That would not be possible, of course, if no such report is published because a meaningful report would be impossible to produce. Furthermore, this House has already rejected an amendment to unfreeze pensions. If a similar amendment were to meet the same fate in the other place, it would be totally unreasonable to expect both Houses to revisit the issue as soon as within 12 months from when this Bill is passed.

We discussed this matter at some length in Committee. The Chamber came to a conclusion. I congratulate the noble Lord on the ingenious way in which he has returned to this issue, but I believe that the suggestion he has made about a report is totally impracticable. It is, of course, simply a vehicle to allow the subject to be aired again—I am well aware of that—but I think the important point is the matter of principle that I have mentioned, the sum of money involved and the other ways in which we could use that amount of money if we were to take it from the British taxpayer. I could go on about the need to control our social security budget for the benefit of all taxpayers and of our economy, but I shall spare the House and the noble Lord a lecture on that particular subject—

Noble Lords

Oh!

Lord Mackay of Ardbrecknish

My Lords, I shall spare the House that lecture much as I am being tempted to go down that road by those in a sedentary position. I have nothing to add to the point that I made in Committee, and nothing that I have heard this evening persuades me otherwise. While I congratulate the noble Lord on a clever amendment, I hope that he will withdraw it.

Lord Stallard

My Lords, I thank the noble Lord for his kind remarks about the amendment. It would have been better had he answered it or even discussed it. I am not asking for the kind of report to which he referred. I am asking for a very limited report. It relates only to those people who are eligible under the Act for a retirement pension of any category. That would reduce the numbers he mentioned.

I gather that the relevant statistics are already available on computers in the various countries. It is merely a question of getting them together and publishing them in one report. It is not as far fetched as the noble Lord would have us believe, involving millions of clerks sitting down with pen and ink and big ledgers to collate the statistics. They are all on computer and could be taken up.

The number of pensioners in some of the countries the noble Lord mentioned are no more than 10, 12 or 15. In one country I believe there are only two pensioners. Therefore, it is not the major task that he says it is.

The biggest task is in the Commonwealth countries, where pensioners are entitled to more consideration. Certainly the statistics for those Commonwealth countries are available. Details of the economic circumstances of their populations are compiled in those countries in the same way as we collect details of the economic circumstances of our own population. In England we always seem to imagine that everybody else lives in the dark ages and we are far in advance of everyone. I can tell the noble Lord that in those countries they are just as advanced, and in some cases they are more advanced than we are in the collation of these vital statistics. The Minister did not reply to that point, or certainly not adequately.

The Minister never mentioned reciprocal arrangements. He said that some countries would not want such an arrangement. We can do nothing about it if they do not want it. Those countries are entitled to say that. I say that there are countries which would welcome such an arrangement, in the same way as America, Finland, Greece, and a total of some 33 countries. We have accepted their willingness to enter into a reciprocal arrangement and have done so. Nobody can understand why we refuse to make such an arrangement for Commonwealth citizens, to whom many of us are indebted for so much.

I shall not go on any longer. I cannot accept the Minister's response. I know that I may stand to win by 12 votes to nine, but I should like to test the views of the House.

8.52 p.m.

On Question, Whether the said amendment (No. 190) shall be agreed to?

Their Lordships divided: Contents, 22; Not-Contents, 85.

Division No. 5
CONTENTS
Addington, L.	Howie of Troon, L.
Airedale, L.	Macaulay of Bragar, L.
Carmichael of Kelvingrove, L.	Mar and Kellie, E.
Cocks of Hartcliffe, L.	McCarthy, L.
David, B.	Monkswell, L. [Teller.]
Dean of Beswick, L.	Pearson of Rannoch, L.
Donoughue, L.	Rodgers of Quarry Bank, L.
Elis-Thomas, L.	Seear, B. [Teller.]
Hamwee, B.	Shaughnessy, L.

Stallard, L.	Tordoff, L.
Thomson of Monifieth, L.	Turner of Camden, B.

NOT-CONTENTS
Acton, L.	Howe, E.
Addison, V.	Inglewood, L. [Teller.]
Aldington, L.	Jenkin of Roding, L.
Allenby of Megiddo, V.	Kimball, L.
Annaly, L.	Kingsland, L.
Astor, V.	Leigh, L.
Barber, L.	Lindsay, E.
Blaker, L.	Lindsey and Abingdon, E.
Blatch, B.	Long, V.
Boardman, L.	Lucas, L.
Borthwick, L.	Lyell, L.
Boyd-Carpenter, L.	Mackay of Ardbrecknish, L.
Braine of Wheatley, L.	Mackay of Clashfern, L. [Lord Chancellor.]
Bridges, L.
Brookes, L.	Macleod of Borve, B.
Brougham and Vaux, L.	Marlesford, L.
Buckinghamshire, E.	McColl of Dulwich, L.
Butterfield, L.	McConnell, L.
Butterworth, L.	Miller of Hendon, B.
Carlisle of Bucklow, L.	Monteagle of Brandon, L.
Carnegy of Lour, B.	Moyne, L.
Carnock, L.	Norrie, L.
Cavendish of Furness, L.
Chalker of Wallasey, B.	Northesk, E.
Clanwilliam, E.	Park of Monmouth, B.
Coleraine, L.	Parkinson, L.
Courtown, E.	Peyton of Yeovil, L.
Cranborne, V. [Lord Privy Seal.]	Pym,L.
	Rankdllour, L.
Crathorne, L.	Renfrew of Kaimsthorn, L.
Cumberlege, B.	Renton, L.
Dean of Harptree, L.	Rodger of Earlsferry, L.
Dixon-Smith, L.	Seccombe, B.
Dundonald, E.	Shaw of Northstead, L.
Eden of Winton, L.	Stewartby, L.
Erroll of Hale, L.	Stodart of Leaston, L.
Gisborough, L.	Strange, B.
Glenarthur, L.	Strathclyde, L. [Teller.]
Goschen, V.	Thomas of Gwydir, L.
Hacking, L.	Trumpington, B.
Harmsworth, L.	Ullswater, V.
Hayhoe, L.	Whitelaw, V.
Henley, L.	Wynford, L.
HolmPatrick, L.	Young, B.

Resolved in the negative, and amendment disagreed to accordingly.

9p.m.

Schedule 4 [Equalisation]:

Baroness Hollis of Heigham moved Amendment No. 191:

Page 108, leave out from beginning of line 11 to end of line 40 on page 110 and insert:

("(1) From the date of commencement of this Act, any person shall be entitled to be treated as having attained pensionable age at any time between the dates upon which they attain the age of 60 and 70.").

The noble Baroness said: My Lords, Amendment No. 191 encompasses the Labour Party's position on the flexible decade of retirement. Until 20 or 30 years ago, men worked full time until they were 65, whereupon they stopped work and moved smoothly on to their pension, which would support them and their wives. They moved smoothly from work to pension. That world has gone. People's working lives are becoming more uncertain, more precarious, more casualised and shorter. Forty per cent, of people experienced unemployment in the past five years, and as many expect to do so again. Those in work find the steady full-time job dissolving like wet sand under their feet. Their jobs are becoming casualised; they are put on temporary contracts—just as the Government have put people on to contracts of 51 weeks at a time to avoid providing statutory employment rights. I have to say that that is a pretty disgraceful activity. Others see their work fragmented into part-time fractions. Still others, especially if unskilled or in poor health, find that after the age of 55 or 60 they never again find another job.

All the government arguments which were advanced at Committee stage, about the ratio of working age to pensioners founder on one simple fact: that what matters is not the ratio of people of working age to pensioners, but the number of workers to those of pension age. If people are not in work, whatever their age, they are likely to be on benefit of some kind. I hope that the Minister will respond to that point.

Pushing up the pension age will do nothing to alter the so-called dependency ratio unless those people denied pensions are in work; and increasingly they will not be. And why not? The whole of the Government's argument founders on that simple fact. The trend across Europe shows that people, especially men in manual jobs, are leaving the workforce earlier and earlier. They are not wanted in the labour market. In the scramble for jobs, unskilled men in late middle age and with uncertain health lose out on the one hand to the young and fit men with more skills, perhaps with a family to support, and on the other to women who, as second earners, are often willing to work part time for very low pay, at rates of £1.50 or £2 an hour. Those rates are not a living wage but such people can do so because their wage is the second income of the family.

At the very time that the relatively poor men are leaving the labour market earlier—that is happening across Europe —the Government are retaining the pension age at 65 and are pushing up the women's pension age to join it. Instead of most families stopping work one day and drawing a pension the next, they will experience a twilight gap of at least five years when they are neither in work nor eligible to claim their pension. A few in that gap will have decent occupational pensions. For the remainder, the gap will still have to be spanned by benefit—invalidity benefit, unemployment benefit, income support, call it what one will as long as, in the Government's eyes, one does not call it a pension.

And why, my Lords? It is because the Government are obsessed with an inappropriate concept of a dependency ratio which takes no account of unemployment, no account of women's capacity to work longer than the part-time hours they work at present, and no account of the country's potential with investment for economic growth. It ignores the fact that by 2020 the UK will have one of the best support ratios in Europe and one of the cheapest.

Hence the amendment, which takes account of all those considerations. It proposes a flexible decade of retirement with a pivotal age of 63. Such an amendment has three great advantages. First, it is cost neutral. It costs no more than the present system and may even generate modest savings. Secondly, it is fair between men and women.

Thirdly, it is flexible because it allows men and women to choose when to retire and not to have an arbitrary year before which they cannot retire imposed on them by government. The choice is in their hands. They may be comfortably off with a good occupational pension and happy to draw a reduced state pension. If they or their partner are in deteriorating health or if they have demanding caring responsibilities for an elderly parent, they, too, would welcome that choice. But equally the choice, as now, would remain to work past the fulcrum year of 63. The choice will be theirs, not the Treasury's, not the Minister's, and not that of the noble Lord, Lord Mackay. It will be made according to their health, family responsibilities, financial situation and work prospects. And why not, my Lords?

The provision is cost neutral and actuarially neutral. I am confident that a flexible decade is what most people would like and welcome. With a pivotal age of 63 we can afford it. It permits a much smoother progression between work and retirement. It empowers people to make their own choice of when to retire. I beg to move.

Baroness Turner of Camden

My Lords, I support the amendment. It is an important issue. The amendment proposes that we should proceed towards the desirable objective of equalising state pension ages as between men and women via a flexible decade of retirement. The idea that we attempt to promote is that men and women should be able to retire at any time between the ages of 60 and 70 and should be able to make a choice based on personal circumstances and, of course, as a result of negotiations with the employer as to when they should retire.

As my noble friend Lady Hollis said, there has in this concept to be a pivotal age—an age at which full state pension becomes payable. I believe that that should be 63. We have chosen that age because it is cost neutral. That would have a number of benefits. In the first place it would reduce the number of years a man would have to work before he became entitled to the state pension. Women, although having to work longer than now, would not have to work until 65—which is the Government's current idea.

Of course, that was not always the Government's position. In 1989—it is one of the reasons why I attempt to intervene in the debate—I was a Member of your Lordships' committee which produced a report entitled Equal Treatment for Men and Women in Pensions and other Benefits. It was our job then to look at the draft European directive completing the implementation of the principle of equal treatment for men and women in statutory and occupational social security schemes. Naturally, equalisation of pension ages in the state scheme received a great deal of consideration from us at the time.

We took evidence from a wide range of organisations, including the CBI, the TUC and also the DSS and the Minister. It is true that the TUC position was then, as it is now, that there should be equalisation at the age of 60. The CBI, however, was very sympathetic to the whole idea of the flexible decade of retirement. The evidence submitted by the CBI explored a number of options, but concluded: After careful consideration, CBI members are in no doubt that the fourth option, that of flexible retirement with common pension entitlement for men and women, is the approach which should be pursued. Provided appropriate transitional arrangements are adopted, such an approach should eliminate the differential treatment between men and women, without generating significant additional costs and without adversely affecting reasonable expectations of individuals. It will also provide the flexibility essential to the future well-being of the economy". The CBI also submitted in its evidence a number of proposals as to the way in which the new arrangements could be phased in.

Not only the CBI, but also the House of Commons Select Committee on Social Security recommended, in its 1982 report on Age of Retirement, that there should be flexible retirement based on a notional common pension age of 63 for both men and women. It is worth recalling that the Government's own Green Paper in 1985 referred to the idea of a flexible decade as being a particularly attractive one, and certainly at that time the impression was widely around that the Government were favourably disposed towards that notion.

Clearly it has its attractions. In the first place, not all employments are the same or make the same demands— particularly physical demands—upon employees. Everyone who has experience of the world of work knows that some people can hardly wait to retire, while others look upon the prospect with something like dread. Although the rate of possible pension after retirement is a factor—people with good pension expectations are more likely to want to retire earlier than others (and we should be working towards a situation in which people do not dread retirement because of a rapid possible descent into poverty)—there are other considerations. There is a social element in work. Even in employment that does not, to an outsider, appear particularly rewarding, there is the presence of fellow workers with whom the individual may have developed close ties and friendships. Many people approaching retirement do not want to lose those connections. That is one reason why counselling for retirement and pre-retirement courses— encouraged and provided by many good employers—have an important role to play.

But, as my noble friend has already said, there has to be an element of individual choice. There are many occupations where the physical labour involved is such that individuals should be encouraged to retire earlier on health grounds and the pension provision available should be such as to make that an acceptable proposition. One can think of a number of industries where that might apply—mining is an obvious example, or an industry like deep sea fishing, where I understand the industrial injury statistics are particularly high.

On the other hand, there are jobs which involve a high degree of expertise and commitment where the individual may be perfectly capable of carrying on and making a contribution for some time after what we now regard as normal retirement age.

Those were all considerations which weighed with the committee of your Lordships' House which reported in 1989. We strongly recommended that equalisation should be through a decade of retirement between the ages of 60 and 70 and that the pivotal age should be 63 for both sexes. We were advised that it would be cost-neutral. We were well aware of the cost involved in equalising at the age of 60, as was recommended by the TUC.

We believed that we were recommending what would represent an improvement for everyone, with a fair system which treated people as individuals, capable of and willing to exercise a choice. We were also heartened by the fact that, judging by the CBI's evidence which was put to us in great detail, after much consultation with CBI member firms, there would be no opposition from employers. Indeed, it appeared to us that employers would welcome it and would be willing to participate in its introduction.

I do not think that circumstances have changed greatly since we made our report. The conclusions are still relevant and important and I therefore have great pleasure in supporting the amendment.

9.15 p.m.

Lord Mackay of Ardbrecknish

My Lords, as the noble Baronesses have explained, this amendment would introduce a flexible decade of retirement. As the noble Baroness, Lady Turner, pointed out, it is one of the options which the Government considered carefully during the period of consultation on the state pension age. We decided that it would not be in the interests of current or future pensioners and workers to have a flexible decade of retirement. The expression of course is not correct: most people can choose when to retire. What is really meant by the amendment is a flexible decade for starting to draw the state retirement pension, but that phrase, while a little more exact, is a little less elegant.

Perhaps I may begin by describing what a flexible decade of retirement will look like. People would choose the age at which they would draw their state pension. The earlier they did so the lower the level of pension they would have for the rest of their lives. That is because the level of pension that they would receive would be set actuarially. The additional years during which the pension is drawn will be paid for by a permanent reduction in pension.

There are two key features to a flexible scheme: the age at which it starts, and the pension level in the first year. The amendment provides the former only: age 60. To set the level in the first year, we shall also need to fix the age at which the full rate of pension can be drawn. This is normally called the pivotal age. The higher the pivotal age, the lower the level of pension in the first year. The noble Baroness in her amendment does not specify the pivotal age. However, I did not have to wait until she spoke this evening, because in the Observer her honourable friend Mr. Donald Dewar—

Baroness Hollis of Heigham

My Lords, perhaps the Minister will be kind enough to give way. All of this was discussed at Committee stage when the Minister was glad to be told where our pivotal age had been set.

I am sorry that he has had to be reminded between Committee stage and Report stage by newspaper cuttings.

Lord Mackay of Ardbrecknish

My Lords, I am sorry that I have stung the noble Lady to the Dispatch Box. My point is that the pivotal age of 63 does not figure in the amendment before us. I am just trying to be helpful to those of your Lordships (if there are any) who were not here at Committee stage when the pivotal age of 63 was discussed. It is to be 63 so far as the Labour Party is concerned. It does not have to be 63; it can be 60, which is equalisation by another name. I should remind your Lordships as part of the present discussion that equalisation at 60 will cost £13 billion more of public expenditure by 2030 than the Government's proposal, which is 65.

If the noble Baroness will contain herself, as I have to do during her speeches, I can come to the point. I am just trying to lay the groundwork for the Government's decision on this matter. Unless the noble Baroness is trying to hurry to a vote, I am not entirely sure why she is trying to move me along on this subject. The last vote was all right, and a few more of those will redress the balance.

I am trying to deal with the actuarial position. I take the pivotal age of 63. If one pivoted the present pension arrangements at 63, the actuarial reduction would mean that a person retiring at 60 would receive £46 per week, as opposed to a retirement pension of £57.60. What I find odd about the noble Baroness's espousal of this cause is that she always appears to tell us how poor everybody is in retirement. Her proposition will tempt more people to retire when their pension will be less than the current state retirement pension. It may be as low as £46 a week. That £46 a week—up-rated perhaps—will go on for the rest of their lives. When they come to 65, or whatever is another magic age, they will not suddenly be up-rated as if they have retired at that age. They will carry on with that rebated lower pension for the rest of their lives.

Those people who were tempted to take advantage of this age of flexibility will need to augment their retirement income with income-related benefits or other pensions. It seems to me that women, for whom the noble Baroness continually flies the flag, will be at a particular disadvantage. Many will retire at the same age as they do now (60) but at a lower rate of pension. It will also mean a higher start-up cost. For example, the first year cost of a scheme with a pivotal age of 63 introduced overnight is likely to be about £5 billion.

Two other OECD countries have flexible retirement schemes: Belgium and Sweden. A number of others have early retirement benefits, but these are normally limited to those in ill-health or the long term unemployed. Some are subsidised by employers. These schemes do not offer flexibility to individuals who wish to plan an early retirement as they have restrictions of entitlement similar to our own benefits, such as incapacity benefit, industrial injuries benefit and unemployment benefit.

The limited experience of flexible schemes in these countries demonstrates some of the points that I have made. In 1991 Belgium introduced a flexible retirement age. The majority of people now appear to retire at the earliest possible opportunity. That has led to a rapid increase in pensions expenditure, obviously a rapid increase in the number of pensioners and an increasing number of pensioners who retire on less than the full retirement pension.

Baroness Hollis of Heigham

My Lords, I thank the noble Lord for giving way. I take the point about people in Belgium retiring at the earliest point to draw retirement pensions. But the Minister was, as we would expect, fastidious in his choice of words. He did not indicate that those people were leaving work to retire. His description could very easily apply to a situation in which people were currently unemployed and therefore chose to re-label themselves as "retired" at the earliest possible age. All the evidence is that in most of Europe people are leaving work even earlier than in the United Kingdom. I suspect that my description of Belgium may very well be accurate.

Lord Mackay of Ardbrecknish

My Lords, the noble Baroness paints the usual picture that her party paints; namely, that almost everybody in this country is unemployed. The simple fact is that when I last saw the unemployment figures they were 8.5 per cent, for the United Kingdom and falling, unlike most of our friends in the rest of the European Community. So I do not think that her argument is a good one. I want to see as many people as possible carry on working. That is important for reasons that I have certainly mentioned in earlier speeches: what is called the support ratio, which is the number of people of working age as opposed to the number of pensioners.

The present pensioner system offers a flexible half decade of retirement. The Government propose to maintain and enhance that flexibility. Anyone who defers retirement beyond the new state pension age of 65 will be entitled to an increment for each successive year. That increment will be increased to 10.4 per cent, per year as against the present 7.5 per cent. No limit will be set on the number of years that a pensioner can defer beyond 65. In effect, that is a flexible decade and more, starting at 65.

As I hope to have shown, a flexible decade of retirement does not deliver the benefits that its supporters believe. Perhaps I may just point out that the argument about support ratios is still important. It is very important to the future of our country that we do not burden the working population with costs, especially in the social security budget, which, frankly, they and the economy are unable to sustain.

I have read out the figures before in Committee. I make no apology for doing so again. If we do not move on this issue, the number of people of working age will fall from the year 2010 to 36.2 million; the year 2030 to 33.7 million; and by the year 2050 to 32 million. Correspondingly, the number of people of pension age in the year 2010 will be 11.7 million; in 2020 it will be 13.5 million; in 2030 it will be 15.8 million; and in 2040 it will be 16.3 million.

The proposal in the Bill will decrease the number of people above state pension age in, for example, the year 2030 from 15.8 million to 13.7 million and will increase the number of people of working age from 33.7 million to 35.8 million. With regard to the support ratios, the ratio of the number of people of working age per pensioner, which is set to go down if we do nothing to 2.12, will go up to 2.6 and 2.4 in the years 2030 and 2050.

Perhaps I can answer the noble Lord's question without him intervening. Of course, that is the present situation against 65. The problem with the flexible age of retirement is that it is very difficult to predict exactly when people will take the pensions, except for the point that I made about the experience in two quite small countries. That was quite limited experience, where there is much evidence that people have taken their pensions at the earliest possible moment. Thus, the situation may move closer towards a retirement at 60 than in fact the so-called pivot at 63.

Lord Monkswell

My Lords, I thank the Minister for giving way. He did not in fact guess correctly the question that I intended to ask. My question to him is: what estimate for the rate of unemployment was considered by the Government when they deduced their figures for the support ratios? Obviously, if there is an unemployment rate of 10 per cent. or 15 per cent., the figures are rather different from those with an unemployment rate, which it is to be hoped we would achieve under a Labour Government in the future, of between 1 and 2 per cent.

Lord Mackay of Ardbrecknish

My Lords, that is a nice promise. A Labour Government will have 1 or 2 per cent, unemployment. The noble Lord picks 10 or 15 per cent, as the norm, supposedly, under this Government. I have to tell him that the current rate of unemployment is 8.4 per cent, or 8.5 per cent.—one figure is for Scotland and the other is for the UK—and falling. Most of our European friends have higher rates of unemployment, including those countries which have been blessed with the wisdom of socialist governments, who, I have no doubt, the noble Lord and his friends consider to be their blood brothers in some way or other.

We believe that we have unemployment on a downward trend. We believe that, with a properly run economy—we are getting it that way with a lot of inward investment coming in and exports booming—unemployment is set to fall further. I cannot predict other than that the trend would reverse if the party opposite took over and started to put up the costs of employing people and of producing goods and made this country less competitive. Perhaps I am being diverted and should come back to the question at hand.

Baroness Hollis of Heigham

My Lords, the noble Lord thinks that there is a vote coming up and that he has to filibuster.

Lord Mackay of Ardbrecknish

My Lords, I do not think there is a vote coming up. I suspect that there are not enough members of the party opposite who really believe in this scheme of 63 and a flexible decade in order to muster a decent vote on the subject. Further down in the same Observer article, Mr. John Edmonds, the general secretary of the GMB union, who I understand is a significant supporter of the party opposite, said: The party policy at conference is for a retirement age of 60. The party policy is straightforward and clear. I don't want any change in the party policy". Given the way the policy of the party opposite changes so regularly—every other day it seems to me—I think that poor Mr. Edmonds has a shock coming.

I shall pray in aid another Labour Party document. Perhaps it was not a Labour Party document. It is only a Labour Party document when the party wants to agree with it. I refer to the interesting report of the Commission on Social Justice. It came to the conclusion that 65 was the right age. With that, if not with anything else in the document, I completely agree.

Baroness Turner of Camden

My Lords, does the noble Lord understand that I was not referring to Labour Party policy particularly but to a document produced by your Lordships' Select Committee in 1988–89? It was an all-party document which made a strong recommendation for a flexible decade of retirement. It was a very distinguished committee. Not only was I a member of it but it was chaired by the noble Lord, Lord Allen of Abbeydale, a noble Lord with considerable experience in these areas.

Lord Mackay of Ardbrecknish

My Lords, all committees of your Lordships' House are distinguished. Clearly, the noble Baroness, Lady Turner, is putting them a cut above—perhaps a considerable cut above —the Commission on Social Justice. I might agree with her about that because she is praying in aid a committee of your Lordships' House against the Commission on Social Justice.

This has been a difficult but interesting and important debate on what conclusion we should come to on equalising pensions. There are a number of proposals about and there have been for some time. As I mentioned at the beginning of my speech, we looked seriously at all the propositions in front of us, including the flexible decade of retirement. We have concluded, for some of the reasons I have given this evening and for some of the reasons I gave—dare I threaten your Lordships—at even greater length during the Committee stage, that the proper proposal to go for is a common retirement age at 65. Attempts were made in Committee and have now been made at Report stage to persuade me to change my mind. However, the logic of our position is backed up very clearly by the same move taking place all over the world. Most of our friends in the European Community and most of our competitor countries around the world are moving their retirement pension age up, to 65 and indeed in some cases beyond.

One cannot be oblivious to what is happening in the rest of the world. The Government's decision is a right and sensible one. While a flexible retirement age, with a pivot at 63, has its attractions, it has some serious downsides, not just for the economy but for the individual who may be tempted to retire at 60 with a much reduced pension upon which he or she would have to live for the rest of his or her life. I should have thought that that would be a subject that would interest the noble Baroness, Lady Hollis of Heigham.

Having heard the debate, and having explored the issues, I hope that the noble Baroness will withdraw the amendment. But if we must have a vote on it, I am confident that my noble friends will support me.

9.30 p.m.

Baroness Hollis of Heigham

My Lords, that must be the first confident statement the Minister has made today. I concede that were we to have a vote his noble friends would probably support him. The Minister failed to address the two substantive points that I sought to make. Despite a newly alert and invigorated Minister, we had, I am afraid, the same tired old arguments about tempting people to retire at 60; we would all retire young; and what is happening in Europe.

We were trying to make two basic points on this side of the House. Whether the Minister acknowledges this or not, there is a gap now between when people leave the labour market and when they will draw their pension. The Government's actions are making that gap wider. The Social Justice Commission, which the Minister is fond of praying in aid when it suits him, noted that 59 per cent, of men between the ages of 55 and 64 are now not in work. That is the majority of men. Some have retired with an occupational pension. They have to live on something. Nothing the Minister said seemed to recognise the world in which we now are as opposed to the world we were in when the Tory Government inherited from the Labour Government a half-way decent pensions policy which they have now warped and deformed by their changes to SERPS and subsequent changes to unemployment policy, such as record counting.

That world has changed. We have seen men in manual employment leaving work earlier; more and more jobs fragmented into part-time jobs; and an increasing casualisation of the labour market. The Minister did not say one word to connect the world of pensions to the world of work. I am amazed. I should have thought that by now the Minister would have appreciated that pensions carry into old age the life chances, the affluence of support and the opportunities one has experienced in work. As they are shrinking in work, there are further problems to be addressed with regard to pension age. The Minister offered no recognition of that at all. He gave us just the tired old stuff about dependency rates for the third and fourth time around the roundabout.

I wish that the Minister could sometimes strengthen the depth of his briefing and take on board what is happening in the world of work to see how that maps on with the increasing insecurities and uncertainties of the pension world that we are facing. At the very time the world of work is becoming precarious, the Minister is trying to make the world of pensions more harsh and rigid. That is absurd. He must intellectually start calibrating those two things otherwise—I am sure he will not mind me saying this—he is failing to put the message of an appropriate task for social security to his department and to his colleagues.

The first point relates to the gap that now exists between the world of work and the world of pensions about which the Minister said not one word, as though the speeches made by my noble friend Lady Turner and myself had never been heard by him. I am sure of course that that was not the case.

The second point that the Minister did not acknowledge was that the difference between our position and his is choice. On the one hand, the Minister knocks a flexible decade, because many people might retire at 60. He says that we are tempting them, as though he, the Minister, knows what is in other people's best interests rather than trusting them to make an informed choice for themselves. Then he went on to say that they have half a decade of flexible retirement at the other end. In other words, on the one hand he is conceding flexibility when it suits his case, but he rejects it when it suits the fortunes of the people on the ground.

Lord Mackay of Ardbrecknish

My Lords, I am grateful to the noble Baroness for giving way. In the half decade of flexible retirement that I mentioned, the pensioner starts off with a full retirement pension. That would not be the case in the flexible decade of the noble Baroness.

Baroness Hollis of Heigham

My Lords, I entirely accept that. It is the same pot of money being redistributed over a lifetime in different proportions according to which point one wishes to take it. Actuarially it ought to be neutral whether one takes it at 65 or 62; it is the same pot of money spread over. People make that choice. The difference between us is that the Minister will make the choice for us. The Labour Party position is that people should be able to make their own informed choice as to whether they take a lower sum earlier or a larger sum later according to their circumstances.

Why should the Minister tell people what to do? Why does he know best what most suits the 2 million to 3 million families who approach retirement each year? How can he know? Their health, their family circumstances, the type of job they do, the age differential between spouses, the income and affluence they already enjoy will all inform their choice. Why, when we see around us a world of work becoming increasingly flexible and uncertain, will the Minister not only not seek to smooth that situation at the point of pensions, but will produce a harsh rigidity of his own which takes no account of people's choice?

The position that the Minister is adopting—this is not a personal comment because the Minister is not an arrogant man—is one of supreme and lofty arrogance: that the Minister, and behind him the Treasury, knows best when people should retire from work and be eligible to draw pensions, even though the world of work is changing around them. I find it sad that not one word of what the Minister said tonight engages with the real world outside of working pensioners. But, as the Minister so percipiently diagnosed, we shall not be seeking to press the amendment to a vote tonight. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Gould of Potternewton moved Amendment No. 192:

Page 113, line 12, leave out ("2000") and insert ("2010").

The noble Baroness said: In moving Amendment No. 192, I shall speak also to Amendment No. 193. These amendments are minimal and therefore I shall be brief. However, they are important to the people they affect.

The purpose of the amendments is to introduce a transition period of 10 years with a reduction in survivors' entitlement to the additional pension on the death of the spouse. Under the current proposal, if a man dies on 5th April 2000, his widow will receive a 100 per cent, entitlement to the additional pension. But if he dies one day later, that entitlement is cut in half.

To phase in the reduction over a 10-year period between 5th April 2000 and 6th April 2010 would remove the huge difference in entitlement caused by the delay of death by one day. It could be as much as £3,000 per annum, and would certainly have the effect of driving women into claiming income support with the extra cost to the Government that that would involve.

We consider that at a time of great stress the knowledge that an exact date of death will make such a large difference to an entitlement will place an additional emotional strain on the family of a terminally ill person. It is insensitive as well as being unfair. Reluctantly we are willing to accept the cutting entitlement. But to help alleviate possible suffering we would argue that it should be phased in in small steps over a 10-year period. The cost of phasing it in in that way will be relatively small. The full reduction will only be delayed; it will occur and will result in savings.

We hope that the Government will feel able to accept the delay and, in the name of compassion, accept the spirit of the amendment and draft a mechanism to enable it to happen. I beg to move.

Lord Mackay of Ardbrecknish

My Lords, as the noble Baroness explained, these amendments seek to introduce a phased reduction in the amount of additional pension which a person inherits on the death of their spouse. As the legislation stands the amount of additional pension inherited by a surviving spouse is one half where the death occurs on or after 6th April 2000. Under the amendment the amount inherited reduces from 100 per cent, in steps of 5 per cent, per year to reach 50 per cent, in the year 2010.

The reduction in the amount of additional pension which is inheritable from April 2000 was introduced by the Social Security Act 1986. The change had two purposes. It was part of the package of measures designed to bring spiralling expenditure on the state earnings related pension scheme under control. And it was designed to bring state provision into line with occupational pension scheme provision.

As noble Lords will be aware, the state earnings-related pension scheme offers a second tier pension to those who are not members of an occupational or personal pension scheme either by choice or circumstance. The provision of full survivors' benefits, as opposed to the half which is the norm in occupational schemes, is the main area of disparity between state and private pension provision. I am sure that noble Lords will agree that an alignment of survivors' benefits is quite justified.

This reduction and alignment in the amount of additional pension which can be inherited will not come as a surprise. As I said earlier, it was announced and legislated for in 1986. I am sure that noble Lords will agree that 14 years is a more than adequate lead-in period. To ask, as the noble Baroness does, for a further 10 years of phasing seems to be stretching this issue out just that little too long. Of course we accepted in 1986, and we have accepted since, that this is a sudden drop—and without phasing of course it is a sudden drop—but 14 years seems to us more than enough notice to give people who may be affected when the year 2000 comes. With that explanation of where the Government stands, I hope that the noble Baroness will withdraw her amendment.

Baroness Gould of Potternewton

My Lords, I thank the Minister for his reply. I take the point about alignment, but that takes no account of the reduced earnings opportunities of women who do not always have the occupational pension scheme or private pension scheme that many men have. That has been ignored. There is also the question of awareness of the change. My understanding is that there is little awareness of it and that this measure is still going to come as a great shock to many people when it happens.

There is no doubt that a change of this magnitude from one day to the next will lead to considerable unfairness and stress on the families involved. I regret that the Minister has not had the compassion to make this minor but important concession. With regret I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 193 to 195 not moved.]

Clause 120 [New requirements for contracted-out schemes, other than money purchase schemes]:

The Earl of Buckinghamshire moved Amendment No. 196:

Page 71, line 9, after ("subsection") insert ("(2A) or").

The noble Earl said: My Lords, with the leave of the House, in moving this amendment, I shall speak to Amendments Nos. 198 and 202. The purpose of this group of amendments is to enable those contracted out schemes which wish to do so to have the opportunity to continue to use the guaranteed minimum pension test for periods of pensionable service after 1997 instead of being required to pass the new requisite benefits test.

The Bill proposes that the present guaranteed minimum test should cease to apply for periods of pensionable service after April 1997, and that schemes should only be able to contract out if they pass the new requisite benefits test outlined in Clause 120. One of the difficulties of which noble Lords will be aware with this proposal is that it would give rise to difficulties for scheme administrators who would need to run two systems side by side for at least 40 years after April 1997 until no scheme members were left in active employment who had periods of pensionable service before that date. Another difficulty is that the resulting complexities will make it even harder than is at present the case for an existing member to comprehend exactly how his benefits are to be calculated.

If the new requisite benefits test was a straightforward simple test, these problems might not matter too much. However, it is clear from the description of the reference scheme in the Bill and the consultation documents which have been issued, that it is likely to be far from straightforward. For example, it would include salary definitions that will not necessarily conform to those used by the scheme. Some schemes might therefore find that they could not be certain of passing the requisite benefits test in respect of all their members; for example, those with high earnings but low basic pay. They may therefore need to build in the requisite benefits as a minimum test applied to each individual member in much the same way as the guaranteed minimum pension but, of course, using the new method of calculation prescribed for the reference scheme. One method of calculation would apply to pre-1977 benefits and another to post-1977 benefits for each member.

If the use of the guaranteed minimum pension test were to continue to be permitted for post-1977 service, as I propose, a modification would be needed in connection with the pension increases which schemes would have to provide on guaranteed minimum pensions accruing after April 1977. My amendment provides for those increases to be at 5 per cent, instead of 3 per cent, if the increase in the cost of living exceeds 5 per cent. In my view, that change is unlikely to cause great administrative problems to contracted out schemes since it is, in principle, the same kind of change as they had to cope with in 1988 when contracted-out schemes were required to start to provide increases on the guaranteed minimum pension at the 3 per cent, level.

Finally, my amendments provide that the anti-franking provisions should not apply to guaranteed minimum pensions accruing after April 1977. These provisions are of labyrinthine complexity and I believe that few people understand them fully. They do not sit easily with the concepts underlying contracting out, which have taken a broader brush approach. I hope that my proposal that the anti-franking provisions should be faded out will be acceptable.

In conclusion, my amendments would open up an important opportunity for schemes to avoid administrative complexity, help to prevent the position from becoming even harder for the member to understand and reduce the danger of contracting back into SERFS with its likely adverse financial impact. I beg to move.

9.45 p.m.

Lord Mackay of Ardbrecknish

My Lords, I find this a complicated group of amendments. Perhaps it would help the House and my noble friend if I were to pick my way carefully through them. I almost feel like saying that if anybody does not understand this explanation, I shall read it again slowly. As I have said, this is a complex matter.

Amendment No. 196 affects subsection (3) of Clause 120 which introduces new subsections (2A) and (2B) into Section 9 of the Pension Schemes Act 1993. The effect of this amendment is to amend Section 9(2) of the Pension Schemes Act so that, after the principal appointed day, contracted-out salary-related schemes can choose whether to contract out either on the current GMP basis or through the new scheme-based quality test.

Amendments Nos. 198 and 202 appear to be based on the assumption that Amendment No. 196 will be accepted and that contracting out via the GMP system would continue to be an option for the future.

Perhaps I may address first the principal amendment, Amendment No. 196, and explain why we are not prepared to agree to it. I shall then say something about the other two amendments. Many employers have criticised the current system for its complexity, a criticism which was repeated in the PLRC report and by the deregulation task force.

Giving contracted-out salary-related schemes a choice in the method of contracting-out would complicate future arrangements. Employers opting to retain the GMP system would not benefit from the simpler administration introduced through the new contracting-out test. Of course, it would be for individual employers to decide, but, frankly, I would be amazed if many employers were to decide to continue to operate them.

We discussed yesterday the difficulties which the Barber ruling has created for GMPs. GMPs are linked to the state pension age and SERFS, hence they are unequal. Unequal GMPs make it very awkward for pension schemes to achieve equal treatment in their schemes. Our proposed new contracting-out arrangements, under which GMPs are to be abolished and replaced for the future by a test of overall scheme quality, will make it easier for schemes to achieve equal treatment. Schemes will be free to do so in a way which best suits them within the limitations imposed by existing European law.

My noble friend's amendment also has implications for contracted-out rebate. In future the rebate will be based on the value of SERPS forgone rather than the cost of providing a GMP. Therefore, this amendment by itself would result in employers and employees who chose to contract out on the GMP basis being over-compensated for contracting out of SERPS. The only workable solution would be to have two rebates, one based on the cost of GMPs and the other based on the value of SERPS forgone. I do not believe that anyone would welcome a complication of that kind.

Such dual arrangements would also have serious implications for the operational effectiveness of the contributions agency, adding to government costs of administration. This would inevitably complicate the requirements placed on schemes and employers; for example, in transfers between different types of pension provision.

The Government have listened carefully to all the criticisms of the complexity of the current contracting-out arrangements, in particular following the Barber ruling. We consulted widely on proposals for change and the overwhelming preference was for the abolition of the GMP and its replacement by an overall test of scheme quality. The Government have listened and acted, and I am somewhat surprised that there seems now to be a view, though I doubt widely shared, that GMPs are not so bad after all.

I turn to Amendment No. 198, which would come into play if Amendment No. 196 were agreed. It would remove the protection of the anti-franking provisions in respect of any guaranteed minimum pensions which accrued after the principal appointed day. It will not be possible for benefits accrued under the proposed new contracting-out arrangements to be franked. The pension will be considered as one element rather than being split into two separate components. But it is still our intention that the anti-franking requirements should apply in respect of GMPs which have already accrued.

I cannot recommend this amendment to the House for two reasons. First, if GMPs were to continue we would not wish to see a reduction in the degree of protection given to early leavers by removing the anti-franking requirements. Secondly, and more fundamentally, if GMPs were not to continue, the amendment would have no effect whatever.

Finally, I turn to Amendment No. 202. If GMPs were to continue to accrue after the new arrangements come into force, my noble friend would of course be right to want to ensure that those future GMPs would be indexed by the retail prices index up to a maximum of 5 per cent, in line with the requirement on occupational pensions generally.

However, my noble friend's amendment is worded in such a way that it applies both to past and future GMP accruals. The amendment therefore has the potential to add significantly to employers' costs. This is because the contracting-out rebate paid in respect of past GMP accruals assumed a rate of indexation of the GMP up to a maximum of 3 per cent., not 5 per cent. We believe that the present arrangements for increasing GMPs are about right. They strike the appropriate balance between what is affordable and protection against inflation.

My noble friend may be anxious about how different indexation rates would impact on the contracting-out rebate for salary-related schemes and may believe that, if pre-1997 GMP accruals were not to be subject to the same degree of inflation-proofing, considerable difficulties would arise in setting that rebate at the appropriate rate. I believe that I can assure him on that score. The contracting-out rebate is set, usually for a period of five years, following a review of contracting-out terms by the Government Actuary. Under present arrangements, the rebate is based on the cost to schemes of providing GMPs. Currently it assumes that schemes are required to index the GMP by the RPI up to 3 per cent. The cost of meeting that future liability is therefore taken into account when setting the current rebate. If, however, subsequently, the contracting-out terms were altered retrospectively by requiring schemes to index the GMP up to a maximum of 5 per cent., schemes would have been inadequately compensated for this additional liability.

I am sorry for speaking at length on complicated arrangements. However, their complication makes it difficult to speak briefly. I hope that I have explained the position and the reason why we cannot accept the amendment. I have also explained why, as always, we are trying to get the right balance between the employers and the potential pensioners.

The Earl of Buckinghamshire

My Lords, I thank the Minister for his very clear explanation as to why the amendments should not be accepted by your Lordships. It is just as well for both of us that we do not have to answer supplementary questions on the little test which has been set for us this evening. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Lucas moved Amendment No. 197:

Page 71, line 11, leave out ("24") and insert ("23").

The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 209 and 210. Amendment No. 210 repeals Section 24 of the Pension Schemes Act 1993 and amends Section 25 of that Act.

Section 24 requires the Occupational Pensions Board to be satisfied that the resources of contracted-out salary related schemes are sufficient. It will not be needed when the board disappears and the provisions in this Bill which introduce new funding requirements for schemes come into effect.

Section 25 deals with discretionary requirements. The amendment repeals those subsections that give the Occupational Pensions Board powers to impose conditions about investments and resources on contracted-out and formerly contracted-out salary related schemes and to require steps to be taken to increase resources. The remainder of Section 25 is amended to enable the Secretary of State to monitor the security and sufficiency of scheme resources in respect of guaranteed minimum pensions during the transitional period before the minimum solvency requirement is fully implemented.

Amendments Nos. 197 and 209 remove references to the repealed Section 24 in other parts of the Bill. I beg to move.

On Question, amendment agreed to.

[Amendment No. 198 not moved.]

Lord Lucas moved Amendment No. 199:

Page 71, line 19, leave out from ("12A") to end of line 21.

The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 200 and 201. To contract-out in future, salary related schemes must satisfy a number of conditions which are set out in Clause 120. Amendment No. 200 clarifies the wording relating to employer-related investments.

Subsection 9(2B) (a) of the Pension Schemes Act 1993, as amended by this Bill, provides for the Secretary of State to be satisfied that the scheme complies with the statutory standard, subject to its modification in regulations for prescribed cases. A similar modification power is needed for the provision in subsection 9(2B) (b) which relates to the requirements on employer-related investments set out in Clause 33. This is because there are some schemes to which Clause 33 does not apply. They will mainly be certain types of overseas schemes which fall outside OPRA's remit because they are outside the jurisdiction of UK law. Regulations will need to specify that they may not invest more than a prescribed limit in employer-related investments if they wish to contract out. Amendments Nos. 199 and 201 effect that addition in an aesthetically satisfactory way. I beg to move.

On Question, amendment agreed to.

Lord Lucas moved Amendments Nos. 200 and 201:

Page 71, line 22, leave out lines 22 to 24 and insert:

("(b) restrictions imposed under section 33 of the Pensions Act 1995 (restriction on employer-related investments) apply to the scheme and the scheme complies with those restrictions").

Page 71, line 31, at end insert:

("(2C) Regulations may modify subsection (2B) (a) and (b) in their application to occupational pension schemes falling within a prescribed class or description.".").

On Question, amendments agreed to.

[Amendments Nos. 202 and 203 not moved.]

Clause 121 [State scheme contributions and rebates]:

Lord Haskel moved Amendment No. 204:

Page 77, line 5, at end insert:

("() The reference in subsection (2) to a period of tax years (not exceeding five) is a reference to a period of tax years in relation to which an order has effect under section 42B(2).").

The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 205 to 207 and 220 to 222.

I am sure that the Minister will have no problem with the amendments, and therefore he can start looking cheerful. They are about giving choice and relieving burdens on the taxpayer. Indeed, they are matters about which the Minister has shown great enthusiasm during the past two days. They are also about creating a level playing field.

Amendments Nos. 206 and 207 provide that the same age-related rebates should be paid to appropriate personal pensions as are paid to contracted out money purchase schemes. At present, there are higher rebates for personal pensions than for money purchase schemes. In Committee, the Government gave three arguments in favour of the latter. First, they argued that it is essential to make allowance for a reasonable level of expenses as, otherwise, it would not be best advice to contract out of SERFS into a personal pension. Secondly, it was argued that personal pensions relieve a burden on the workforce of the future by reducing expenditure on SERPS. The third argument was that personal pensions play a vital role in extending the pensions choice.

Perhaps I may respond to each of those arguments in turn. It is now well understood that personal pensions are expensive. Estimates vary; but the typical level of expense ranges from 15 per cent, to 30 per cent, of contributions. Whatever the expense, it is significantly higher than the equivalent money purchase occupational scheme where a technical level of expense is less than 10 per cent. There is no dispute about that as the difference has been made clear in the table in Appendix C of the report by the Government Actuary.

In cash terms, the cost of the higher rebate for personal pensions which is suggested by the Government Actuary means that personal pension providers will be subsidised to something like £300 million per year. It needs to be emphasised that that money will not go towards higher benefits but simply as a subvention to the companies which sell the personal pensions.

The need for that subsidy dents the claim that personal pensions offer a much better deal. If an extra expense allowance for personal pensions is so important, it suggests that the choice is not as obviously in favour of contracting out as the industry often suggests. Indeed, given the greater security and certainty of SERPS benefits, it suggests that few people should actually be advised to take out an approved personal pension. The Government are always anxious to save taxpayers' money, especially when used as subsidy. Here we have the opportunity save about £300 million and thereby create a level playing field.

The second argument used in Committee was that approved personal pensions relieved a burden on the workforce of the future by reducing expenditure on SERPS. But, in doing so, they are placing even greater burdens on current workers because of the need to subsidise personal pensions. Thus, in the period from 1988 to 1993 £10 billion of rebate was paid out to personal pensions, while only saving prospective SERPS benefits that had a current value of some £4 billion. As a result, they are imposing a greater increase on the current rate of national insurance contributions than the reductions achieved in the next century through lower SERPS benefits. That net cost to the National Insurance Fund by approved personal pensions of £6 billion over that period represents, in large part, a subsidy to the higher expenses of personal pension providers. Here again, why not remove the subsidy and create a level playing field?

The third reason given by the Minister in Committee was that approved personal pensions play a vital role in extending choice. Of course they do; but the choice is distorted by the subsidies. By all means have choice, but let someone who chooses an appropriate personal pension bear the cost of that choice and not expect to have it paid by national insurance contributions at large.

I hope the Minister will be consistent and accept this argument. Yesterday when we were debating the funding of OPRA the Minister said that those who benefit from OPRA should pay for it instead of the cost being paid out of general taxation. To be consistent, the same argument should be applied here. Remove the subsidies paid by the taxpayer to personal pensions and then provide true choice based on a level playing field.

There are other elements of the level playing field in this group of amendments. Clause 121 sets out the rules for contracting out and reduced national insurance contributions and rebates. Not only could there be two different contracting out rates, but these rates could run in different five-year periods. This would make it difficult to judge how level the playing field is, and therefore it would be far more logical and practical to ensure that the five-year periods run concurrently for COMPS and personal pensions. Amendments Nos. 204 and 205 do this. Then a direct comparison can be made. The Minister may consider that in practice the rates will be set to run at the same time, and the rebates can alter as they are subject to affirmative resolution procedure. If that is the case, why does not the Bill say so?

Another element of a level playing field is dealt with in Clauses 142, 143 and 144. The Government intend to apply limited price indexation to protected rights elements of appropriate policies only. Why should this not be applied to all pension schemes, whether occupational or personal? Applying it to one type of scheme not only tilts the playing fiéld, but it makes it more difficult for individuals purchasing pensions to make a sensible, long-term choice. I would have thought that all pensions should be liable to indexation so that people .are not tempted by what appears to be the cheaper product because there is no guarantee that the final pension will be as good as the indexed one.

Amendments Nos. 220 and 221 make this a level playing field by applying indexation to all pensions. Amendment No. 222 brings all these arguments in this group of amendments together and permits earners to choose their own appropriate personal pension scheme on a level playing field without any distortions. I beg to move.

Lord Mackay of Ardbrecknish

My Lords, these amendments, as the noble Lord, Lord Haskel, has carefully explained, deal with various aspects of personal pensions. I believe it would be for everyone's convenience—certainly for mine—if I take them in order. I hope that that way I shall deal with them all and the points that the noble Lord has raised. I shall start with Amendments Nos. 204 and 205. These are about national insurance rebates for personal pensions and occupational money purchase schemes which are contracted out of the state scheme. The amendments seek to align the periods for which the rebates are set.

The Bill provides for the reviews and the orders setting the levels of rebate for personal pensions and occupational money purchase schemes to be completely independent. That includes the year in which the reviews and orders are to be carried out. It also includes the duration of the orders, subject to a maximum of five years. Normally the rebate reviews for personal pensions and occupational money purchase schemes will be carried out simultaneously and the orders made will have the same durations. However, the differences between these two types of pension provision may mean that it makes sense to make orders of differing durations. But I can assure your Lordships that such action is not envisaged at present.

There are two other important points worth noting here. First, when the Government Actuary carries out a review of the rebate, there is normally a full consultation exercise. This gives any interested party an opportunity to comment on the rebate, including the most sensible duration for the rebate order. Secondly, the system of age-related rebates will mean that the rebate rates will change every year anyway. This is because the rebate is designed to replace SERFS, which is still maturing. So the rebate rate needed for any given age group one year will be different from that needed the next.

The orders setting the rates of age-related rebates will set out separate levels of rebate for each of the years which they cover. So even if the orders for personal pensions and money purchase occupational schemes were made in different years, it would actually make no difference to the administration of schemes, since new rates of rebate will have to be implemented every year in any case.

The rebate reviews for personal pensions and occupational money purchase schemes are separate because these types of pension provision are separate and have different needs. I suggest that there is no point in linking the orders setting the rebate in the manner proposed by the noble Lord.

I now turn to Amendments Nos. 206 and 207. These amendments are also concerned with the contracted out rebates for personal and occupational money purchase pension schemes. In this case the amendments seek to have the same level of rebates for both types of scheme. The Government believe that there needs to be different levels of rebate. We have already discussed this subject in Committee, and I can do no better than rehearse the arguments I used then, as no doubt the noble Lord, Lord Haskel, would expect.

There are two reasons why the rates for occupational schemes are likely to be lower than those for personal pensions. First, the different types of scheme have different levels of expenses. Occupational schemes relate to a particular employment. Therefore, they would generally be expected to incur lower expenses due to economies of scale. While each member of an occupational money purchase scheme has his or her own fund, all members work for the same employer. Their contributions can be collected from the same payroll and so on.

Personal pensions are entirely individualised and can thus be expected to incur greater expenses. The rebates need to reflect that. The Government Actuary will be asked, in advising on the levels of age-related rebates, to make allowance for the reasonable costs and charges of the more efficient personal pension providers.

Secondly, for administrative reasons, members of money purchase occupational schemes and their employers will receive part of the rebate during the course of the tax year as a reduction in national insurance contributions. The balance will be paid after the end of the tax year. For personal pensions, the whole rebate will be paid after the end of the tax year. This means a loss of investment return on the rebate in respect of this later payment. That will be taken into account in calculating the rates.

The net effect of these differences is that the rebate for occupational schemes is expected to be at a lower rate than that for appropriate personal pension schemes. I must stress that we are not proposing preferential terms for personal pensions. The rebate is intended simply to be the amount required to be invested now to replace the future SERFS given up by contracting out. If the rebate is too low to do that, it will generally not make sense to contract out through that route.

If the amendments were accepted personal pensions would be likely to get a lower rebate. It could well be too low to replace the SERFS given up. Most personal pension holders would then be best advised to return to SERFS, as I suspect was the noble Lord's intention. A personal pension is, of course, the only alternative to SERFS for many people, so there would be a reduction in choice. Moreover, it is important to lift the burden of high SERFS expenditure in the next century. Our ability to do that would be jeopardised if, as a result of these amendments, the rebate were set so low that personal pensions were not worth while for most people.

I turn now to Amendments Nos. 220 and 221. These affect Clause 142, which requires annual increases in the rate of pensions from protected rights in an appropriate personal pension. I assume that these amendments seek to extend the provisions to all of the pension derived from a personal pension.

It is a regrettable fact that many people still do not make adequate provision for their retirement. That is a position that we all wish to change. But even where such provision is made, even quite low inflation can erode the value of a pension over time. People are now living longer and spend more time drawing their pensions. I believe that indexation is necessary to help maintain an adequate income stream, protected against possible inflation, throughout retirement. It is right and sensible to apply this indexation to the protected rights in an appropriate personal pension because such schemes replace SERFS, which is itself indexed.

However, we have to recognise that in other circumstances there is a large element of personal choice. Where individuals are not members of an occupational scheme, they are not compelled to save for their retirement. We do not want to deter them from setting aside adequate provision. It is possible that a requirement to index such optional arrangements might have such an effect. The requirement would inevitably mean a lower starting rate of pension, for any given size of personal pension fund. People could well be put off by this.

There is nothing to stop a person having the whole of his personal pension uprated annually if that is his choice. But we do not think it right to make that compulsory, as this amendment would do. Deterring individuals from setting aside adequate provision for retirement is not in anyone's interests. Finally, your Lordships will be pleased to hear me say that I turn to Amendment No. 222. This seeks to extend the circumstances in which the department can refuse to accept the earner's choice of appropriate personal pension scheme. It would include instances where the department considers that it would not be in the earner's best interests to join the scheme for whatever reason. That would mean that my department's officials would be called upon to make complex judgments about the likely returns of the appropriate personal pension plan. They would need to have regard to factors such as the individual's age and earnings, the provider's charges and investment returns, and the levels of additional contributions which would be made.

In short, the amendment proposes that my staff should assume the role of financial advisers and undertake a function that they have neither the training nor the authority to tackle. Giving such advice is tightly regulated under the Financial Services Act and can be carried out only by authorised persons. However, I totally agree that people who invest in personal pensions must be able to rely on the highest standards of expert advice from those authorised advisers. They must be able to have confidence that the regulatory framework will protect their interests.

I am glad to say that the Securities and Investments Board, the chief investments regulator, has taken a series of steps to act as an effective watchdog of the standards of professionalism of those who sell personal pensions. These include the requirement for financial advisers to disclose the amount of commission they stand to gain from recommending a particular product; the use of a mandatory transfer value analysis; and the "reason why" letter which explains why a particular product has been recommended.

SIB has also taken steps to ensure that those who are found to have lost out as a result of bad advice in the past will receive appropriate redress. With effective regulation, people making decisions about whether to buy a personal pension can have confidence in the quality of the advice they receive. I do not believe that it would be right to place that responsibility on the officials of the contributions agency.

I have gone into some detail on the amendments because I believe that each amendment is important; it addresses a slightly different issue. I hope that while I may not have entirely satisfied the noble Lord, Lord Haskel, I have at least allayed some of his fears and explained why the Government have included the detail that they have in the Bill and why we are not keen on his amendments.

10.15 p.m.

The Earl of Buckinghamshire

My Lords, before the noble Lord, Lord Haskel, responds, I had put my name to Amendment No. 220. I may have missed some reference in the Minister's reply on indexation and free standing additional voluntary contributions as regards personal pensions. If the choice as to whether or not they should have indexation is to be given to free standing additional voluntary contributions in personal pensions, I fail to understand why the same choice is not given to additional voluntary contributions within occupational pension schemes. The same arguments apply. I look forward to hearing my noble friend's reply.

Lord Mackay of Ardbrecknish

My Lords, my noble friend has caught me rather late at night, not paying the close attention to his argument that I ought to have done. If he will allow me—since I do not normally do so, perhaps the House will forgive me— perhaps I may take refuge in sending him a letter.

Lord Haskel

My Lords, I shall take a leaf out of the Minister's book and take refuge by saying that I shall study carefully what he said. These are complicated amendments. I am most grateful to the Minister for going into such detail in his response. I still do not quite understand why he does not take this opportunity to save money and reduce the subsidies to the personal pension schemes. I suspect it is because the Minister wants people to take out personal pension schemes. However, I shall study what he said in detail in Hansard tomorrow and meanwhile I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 205 not moved.]

Clause 122 [Minimum contributions towards appropriate personal pension schemes]:

[Amendments Nos. 206 and 207 not moved.]

Lord Haskel moved Amendment No. 208:

After Clause 128, insert the following new clause:

Limitation

(" . In the Limitation Act 1980, after section 4A there is inserted—

"Special time limit far actions in respect of personal pensions, etc.

4B. An action founded on a claim that a person has suffered loss as a consequence of leaving an occupational pension scheme and becoming a member of a personal pension scheme under the Pension Schemes Act 1993 may not be brought after the expiration of six years from the date on which the person became aware of his loss, but the right of action in such a case shall not be barred by any failure to obtain information as to whether a loss has been suffered which is attributable to the failure of another person to provide such information.".").

The noble Lord said: My Lords, this amendment tries to calm the fears of those who are victims of the mis-selling of personal pensions, about which the Minister told us a few minutes ago. Your Lordships will remember the scandal of those in the pensions industry who sold personal pensions on the basis of "best commission" instead of on the basis of "best advice", as they were required to do. As the Minister told us, the SIB is now trying to rectify the position by reviewing pensions sold in that manner. If there has been any mis-selling, there must be financial compensation.

The exercise is expected to be expensive for many insurance companies and independent financial intermediaries. If there has been mis-selling, the insurance companies can probably afford to pay the compensation, but many intermediaries may not. Because of that, there is a suspicion that some intermediaries will simply drag their feet, in the hope that eventually claims will be barred by the usual time limit of six years for bringing a case to court.

The SIB has two years to carry out its review and the six years do not start until there is "reasonable knowledge". However, there is some concern that the reasonable knowledge could be construed to start when the publicity came out and people should have started to act then instead of waiting to be contacted. That may encourage those who have mis-sold pensions to drag their feet. The amendment will render that meaningless, avoid any doubt and clarify the position. I beg to move.

Lord Mackay of Ardbrecknish

My Lords, as the noble Lord said, the amendment affects people who have suffered loss as a result of being advised to transfer from an occupational pension scheme into a personal pension scheme. Its aim is to allow them to bring an action in respect of that loss after the expiry of the six-year time limit imposed by the Limitation Act 1980. This would apply in cases where a third person has failed to give them information about whether a loss had been suffered.

The Securities and Investments Board, the chief investments regulator, last year issued guidance on mis-selling of personal pensions to people in occupational pension schemes. This covered how to recognise mis-selling and how to calculate redress where due. It specified cases for automatic review, together with a timetable for carrying out the task.

That means that those people concerned who fall within the priority groups identified by the SIB will have their cases looked at again to see whether they have suffered loss as a result of bad advice. The priority groups are those who have started to draw their pensions; men aged 55 or more and women aged 50 or more at the time of the transfer; and those who have died. People who are not in the priority group but have transferred into a personal pension can also ask to have their cases looked at again. Where loss is found to have resulted from bad advice, whoever is responsible for giving that advice will have to offer appropriate redress. This may mean reinstatement into the occupational scheme where that is possible, or a top-up of the personal pension plan.

By requiring firms to review past business, SIB has sought to remove the need for individual investors to spend time and money on legal proceedings. Where investors nevertheless seek to pursue their claims through the courts, I understand the noble Lord's anxieties about time barring. But I believe that these are misplaced. Under the Latent Damage Act 1986, investors have three years from the date on which they receive the relevant facts in which to bring a claim. The review timetable set down by SIB should therefore mean that there are few, if any, cases where time barring is an issue. If such cases should arise, SIB and the other regulators will consider whether further action is necessary to protect investors. The Personal Investment Authority said on 22nd February that firms should complete reviews in all circumstances where they had reason to believe that a relevant limitation period might be about to expire. If such a period was exceeded, an investor would still be entitled to lodge a complaint with the ombudsman. I understand that the ombudsman would be likely to exercise his discretion in favour of investors whose rights had become time barred because of delays engendered by the review process itself.

The Government's first priority in financial services regulation remains investor protection. The action taken by SIB and the PIA is an example of how the regulators can act to ensure that people are properly protected.

I hope that with my explanation of how we envisage that the procedures will work, together with my assurance that there are safeguards—in case anybody decides to drag this out—the noble Lord will appreciate that his amendment is unnecessary and will withdraw it. I am, however, glad to have the opportunity to place on record again exactly those procedures which have been set out to deal with this problem.

Lord Haskel

My Lords, I thank the Minister for his reassurance. I am sure that people who have any doubt about whether their claims can be time-barred will be gratified by his reply. In view of the very strong reassurance that he has given, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 5 [Amendments relating-to Part III]:

Lord Lucas moved Amendments Nos. 209 and 210:

Page 121, leave out lines 12 and 13.

Page 123, line 7, leave out paragraph 16 and insert:

(". Section 24 (sufficiency of resources) is repealed.

. In section 25 (conditions as to investments, etc.)—

1. (a) subsections (1) and (3) are repealed, and
2. (b) for subsection (2) there is substituted—

"(2) A salary related contracted-out scheme must, in relation to any earner's service before the principal appointed day, comply with any requirements prescribed for the purpose of securing that—

1. (a) the Secretary of State is kept informed about any matters affecting the security of the minimum pensions guaranteed under the scheme, and
2. (b) the resources of the scheme are brought to and are maintained at a level satisfactory to the Secretary of State.".").

The noble Lord said: My Lords, I spoke to Amendments Nos. 209 and 210 together with Amendment No. 197. I beg to move both amendments en bloc.

On Question, amendments agreed to.

Lord Lucas moved Amendment No. 211:

Page 125, leave out lines 20 to 22 and insert:

("() in subsection (1)—

1. (i) paragraph (a) is omitted,
2. (ii) in paragraph (b), for "that section" there is substituted "section 58", and
3. (iii) paragraph (c) is omitted,

() subsection (2) is omitted,

() in subsection (3)—

() paragraph (a) is omitted,").

The noble Lord said: My Lords, I beg to move Amendment No. 211. Some noble Lords may feel that this amendment comes perilously close to painting the lily or gilding refined gold. Its sole effect is to beautify the drafting of government amendments made at Committee stage.

On Question, amendment agreed to.

Lord Lucas moved Amendment No. 212:

Page 125, line 32, at end insert:

(". In section 84(5), paragraph (b) and the preceding "or" are omitted.").

The noble Lord said: My Lords, I beg to move Amendment No. 212. The provision in the Bill to dissolve the Occupational Pensions Board has caused us to look again at the power which allows the board to approve a scheme's alternative revaluation arrangements. This power has never been used, nor is it needed.

On Question, amendment agreed to.

Lord Lucas moved Amendment No. 213:

Page 127, line 17, at end insert:

("() in paragraph 4(3), for the words from "does not cease" to the end there is substituted "which, apart from the regulations, would not be contracted-out employment is treated as contracted-out employment where any benefits provided under the scheme are attributable to a period when the scheme was contracted-out".").

The noble Lord said: My Lords, I beg to move Amendment No. 213. Paragraph 4(3) of Schedule 2 to the Pension Schemes Act 1993 allows an individual to remain contracted out on those occasions where temporarily his service does not qualify him for a guaranteed minimum pension. An example of this would be a period of unpaid maternity leave where national insurance contributions would not be payable for that period. Consequently, contracted-out benefits would not accrue. The amendment extends this provision to service after the principal appointed day.

On Question, amendment agreed to.

10.30 p.m.

Lord Lucas moved Amendment No. 214:

Page 127, line 26, leave out paragraph 60.

The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 181. I beg to move.

On Question, amendment agreed to.

Clause 135 [Breach of regulations under the Pension Schemes Act 1993]:

Lord Lucas moved Amendments Nos. 215 to 217:

Page 87, line 36, at end insert:

("(4A) Where—

1. (a) apart from this subsection, a penalty under subsection (4) is recoverable from a body corporate or Scottish partnership by reason of any act or omission of the body or partnership as a trustee of a trust scheme, and
2. (b) the act or omission was done with the consent or connivance of, or is attributable to any neglect on the part of, any persons mentioned in subsection (4B),

such a penalty is recoverable from each of those persons who consented to or connived in the act or omission or to whose neglect the act or omission was attributable.

(4B) The persons referred to in subsection (4A) (b)—

1. (a) in relation to a body corporate, are—
   1. (i) any director, manager, secretary, or other similar officer of the body, or a person purporting to act in any such capacity, and
   2. (ii) where the affairs of a body corporate are managed by its members, any member in connection with his functions of management, and
2. (b) in relation to a Scottish partnership, are the partners.

(4C) Where the Regulatory Authority requires any person to pay a penalty by virtue of subsection (4A), they may not also require the body corporate, or Scottish partnership, in question to pay a penalty in respect of the same act or omission.").

Page 87, line 39, at end insert:

("() Where by reason of the contravention of any provision contained in regulations made, or having effect as if made, under this Act—

1. (a) a person is convicted of an offence under this Act, or
2. (b) a person pays a penalty under subsection (4),

then, in respect of that contravention, he shall not, in a case within paragraph (a), be liable to pay such a penalty or, in a case within paragraph (b), be convicted of such an offence.").

Page 87, line 41, at end insert ("and "Scottish partnership" means a partnership constituted under the law of Scotland.").

The noble Lord said: My Lords, I spoke to Amendment No. 215 with Amendment No. 19, to Amendment No. 216 with Amendment No. 177 and to Amendment No. 217 with Amendment No. 19. I beg to move these amendments en bloc.

On Question, amendments agreed to.

Lord Lucas moved Amendment No. 218:

Page 88, line 12, at end insert:

("() In section 186 of that Act (Parliamentary control of orders and regulations), in subsection (3), after paragraph (c) there is inserted "or

(d) regulations made by virtue of section 168(2)".").

The noble Lord said: My Lords, in moving this amendment I shall speak at the same time to Amendment No. 229.

These amendments ensure that regulations made under the provisions of the Pension Schemes Act 1993 and under Part I of the Pensions Bill that provide for a breach of duty to be a criminal offence by virtue of Clauses 135 and 105 respectively must be subject to the affirmative procedure. These amendments take account of the concerns expressed by the Select Committee on the Scrutiny of Delegated Powers and concerns voiced in this House during Committee stage by the noble Baronesses, Lady Hollis and Lady Seear, and the noble and learned Lord, Lord Simon of Glaisdale, about the provisions that allow criminal offences to be created in secondary legislation.

In introducing these amendments we have balanced, I hope to the House's satisfaction, the need to have the flexibility to create criminal offences in regulations with the need to ensure that Parliament is able to give proper consideration to any that are created in this way.

It should be noted that the regulations made under the provisions of the Pension Schemes Act 1993 that already contain criminal penalties for failure to comply have been included under these amendments. I beg to move.

Baroness Seear

My Lords, I should like briefly to say that we appreciate the fact that the Government have taken note of the representations that have been made and we are glad to accept the amendment.

On Question, amendment agreed to.

Clause 137 [Jurisdiction of Pensions Ombudsman]:

The Earl of Buckinghamshire moved Amendment No. 219:

Page 90, line 15, after ("proceedings),") insert ("after subsection (4) there is inserted—

"(4A) On any application to the court by any party to an investigation or by the Pensions Ombudsman the court may order that the case be transferred to the court if it is a case which the court considers is more fit to be adjudicated on by the court)."; and").

The noble Earl said: My Lords, this amendment surrounds the role of the pensions ombudsman and the interaction with the courts. There are certain disputes which can be satisfactorily resolved by the ombudsman process and others, involving potentially complex issues and large sums of money, that would normally be better dealt with by the courts. The issue is made more acute by the extension of the ombudsman's jurisdiction, both under the Bill and as a result of the current ombudsman's recent policy decision not to rule out consideration of cases concerning the disposal of scheme surplus, the exercise of trustees' discretion or the validity of actuarial calculations, especially as to transfer values.

In its 1989 report, Protecting Pensions: Safeguarding Benefits in a Changing Environment, the Occupational Pensions Board recommended the establishment of a pension tribunal to deal with not only individual grievances but also disputes between different trustee bodies and disputes between trustee bodies and other organisations. In the event, a pensions ombudsman dealing only with individual grievances was set up with subsequent recourse to the courts restricted to points of law. The jurisdiction of the ombudsman has now been extended to that which the Occupational Pensions Board originally envisaged for a pensions tribunal.

This amendment would allow the ombudsman to continue as an inexpensive and informal one-stop forum for addressing straightforward individual grievances but open up recourse to the courts where more complex issues are involved. It would avoid the cost associated with a pension tribunal, to which my noble friend may well object. I beg to move.

Lord Mackay of Ardbrecknish

My Lords, this amendment seeks to allow either party involved in an investigation by the pensions ombudsman to approach the court to seek the transfer of the case from the ombudsman to the court.

The office of pensions ombudsman was created in 1990 to provide a low cost, efficient and effective alternative to the courts for the resolution of disputes and disagreements. It has provided individual scheme members with a route by which their concerns may be addressed without the need for expensive and time-consuming litigation. Building on the PLRC's recommendations, we announced in the White Paper that the ombudsman's jurisdiction would be extended to include disputes between trustees and employers; and between trustees of different schemes. The Bill makes provision for this.

Disagreements between trustees and employers and between trustees of different schemes can often result in lengthy and costly litigation. We believe it sensible that, as an alternative to action in the courts, the ombudsman should be given the power to consider such cases. This will offer schemes the opportunity, which their members already enjoy, to have disputes resolved effectively and speedily, without the costs associated with litigation.

We think it right that the expertise and experience which the pensions ombudsman has clearly demonstrated, and which was recognised by the Pension Law Review Committee, should now be available for the resolution of a wider range of pension disputes.

The current arrangements allow for considerable flexibility which will not be affected by the change in jurisdiction that we propose. They provide a number of routes by which cases can be handled by the courts if that is more appropriate. First, it is open to trustees of a pension scheme to apply to the court for directions if they wish to seek guidance on the appropriate course of action on a particular issue. They may do this at any time, whether or not a case is already before the pensions ombudsman.

Secondly, the pensions ombudsman considers each case for investigation on its merits and has discretion as to whether or not to accept a case. If the matter is one which he feels is more appropriate for the courts, he may decline to conduct an investigation. He may also, if he wishes, refer cases to the courts to determine questions of law. If court proceedings have already begun before the case is referred to him, he is precluded from conducting an investigation.

Thirdly, should the ombudsman accept a case for investigation, either party to the dispute retains the right to go to court at any time if they feel it appropriate. And the court would handle the case unless the other party to the dispute makes an application to the court to "stay" the proceedings—that is, asks the court to take no action until the ombudsman has completed his investigation.

If such an application is made the court is required, under Section 148 of the Pension Schemes Act 1993, to consider whether there is sufficient reason why the ombudsman should not handle the case. The court will, effectively, be considering whether the matter in dispute is one which it is appropriate for the ombudsman to consider. That, I think, goes to the heart of my noble friend's concern.

We believe that the provisions already in place are sufficiently flexible to allow cases to be considered by the most appropriate body, be that the courts or the ombudsman. As things stand, it is for the courts to decide matters of appropriate jurisdiction and that, I believe, is what my noble friend is hoping to achieve.

We accept that it may not be appropriate for the ombudsman to investigate all referrals made to him. Indeed, we intend that certain matters should be specifically excluded from the ombudsman's jurisdiction and be the sole responsibility of OPRA. These are matters where the authority's enforcement powers are more likely to be effective in securing compliance with the legislation than the ombudsman, whose role is one of adjudicator rather than regulator; for example, cases involving payment from surplus to an employer, failure to meet the minimum solvency requirement, failure to comply with audit requirements, and procedures for the appointment of member nominated trustees and the scheme actuary.

I hope that I have reassured my noble friend that the current arrangements and our proposals for the future are sufficiently flexible to meet his concerns. As I have explained, both the existing arrangements and the proposed future arrangements allow full access to the courts where appropriate. On the basis of that explanation I hope that my noble friend will feel able to withdraw his amendment.

The Earl of Buckinghamshire

My Lords, I thank my noble friend the Minister for his clear and reassuring reply. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 142 [Annual increase in rate of personal pension]:

[Amendment No. 220 not moved.]

Clause 143 [Section 142: supplementary]:

[Amendment No. 221 not moved.]

Clause 144 [Power to reject notice choosing appropriate personal pension scheme].

[Amendment No. 222 not moved.]

Clause 145 [Levy]:

[Amendment No. 223 not moved.]

Lord Lucas moved Amendment No. 224:

Page 94, line 14, at end insert:

("() Regulations made by virtue of subsection (1)—

1. (a) in determining the amount of any levy in respect of the Regulatory Authority, must take account (among other things) of any amounts paid to the Secretary of State under section 168(4) of this Act or section 9 of the Pensions Act 1995, and
2. (b) in determining the amount of expenditure in respect of which any levy is to be imposed, may take one year with another and, accordingly, may have regard to expenditure estimated to be incurred in current or future periods and to actual expenditure incurred in previous periods (including periods ending before the coming into force of this subsection).").

The noble Lord said: My Lords, subsection (a) ensures that civil penalties imposed by the authority must be taken into account when determining any levy.

Rather than give the authority direct control of income from fines, we have provided for those amounts to be taken into account when the levy is set by the Secretary of State. The Bill provides for levy receipts and fines to be paid to the Consolidated Fund because the Secretary of State will control the authority's funding and it will have to agree its budgetary requirements with him. That will ensure that the authority's expenditure is subject to the full public accounting procedures and value-for-money scrutinies. To pay fines directly to the authority would place the money raised outside that system of control. Also, if the authority is allowed to bolster its budgets by increasing the number and size of the penalties it imposes, there would be a clear danger of jeopardising the authority's objectivity.

In Committee, the noble Baroness, Lady Turner, the noble Lord, Lord Ezra, and my noble friend Lord Buckinghamshire expressed considerable interest in the use which would be made of money received as a result of civil penalties imposed by the regulatory authority. At the time we explained that they would go to defray the costs of the authority. That intention is now placed beyond all doubt by the explicit provision introduced by this amendment.

With regard to subsection (b), when setting the rates of the levy for any year, it will be necessary to estimate the costs that will be incurred during that year.

Once the accounts of each organisation have been finalised, the total expenditure actually incurred will be compared with those estimates and with levy income. Any shortfall, or excess, will then be taken into account in setting future levies. That will ensure that all amounts collected by the levy will be used for the purposes laid down and surpluses will not simply disappear into the Consolidated Fund. I beg to move.

On Question, amendment agreed to.

Baroness Young moved Amendment No. 225:

After Clause 145, insert the following new clause:

("Pensions on divorce, etc

.—(l),In the Matrimonial Causes Act 1973, after section 25A there is inserted—

"Pensions.

25B.—(1) The matters to which the court is to have regard under section 25(2) above include—

1. (a) in the case of paragraph (a), any benefits under a pension scheme which a party to the marriage has or is likely to have in the foreseeable future, and
2. (b) in the case of paragraph (h), any benefits under a pension scheme which, by reason of the dissolution or annulment of the marriage, a party to the marriage will lose the chance of acquiring.

(2) In any proceedings for a financial provision order under section 23 above in a case where a party to the marriage has, or is likely to have in the foreseeable future, any benefit under a pension scheme, the court shall, in addition to considering any other matter which it is required to consider apart from this subsection, consider—

1. (a) whether, having regard to any matter to which it is required to have regard in the proceedings by virtue of subsection (1) above, such an order (whether deferred or not) should be made, and
2. (b) where the court determines to make such an order, how the terms of the order should be affected, having regard to any such matter."

and, in section 25(2) (h) of that Act (loss of chance to acquire benefits), "(for example, a pension)" is omitted.

(2) Nothing in the provisions mentioned in subsection (3) applies to a court exercising its powers under section 23 of the Matrimonial Causes Act 1973 (financial provision in connection with divorce proceedings, etc.) in respect of any benefits under a pension scheme which a party to the marriage has or is likely to have in the forseeable future.

(3) The provisions referred to in subsection (2) are—

1. (a) section 203(1) and (2) of the Army Act 1955, 203(1) and (2) of the Air Force Act 1955, 128G(1) and (2) of the Naval Discipline Act 1957 or 159(4) of the Pension Schemes Act 1993 (which prevent assignment, or orders being made restraining a person from receiving anything which he is prevented from assigning),
2. (b) section 82 of this Act,
3. (c) any provision of any enactment (whether passed or made before or after this Act is passed) corresponding to any of the enactments mentioned in paragraphs (a) and (b), and
4. (d) any provision of the scheme in question.").

The noble Baroness said: My Lords, it seems a considerable time since we debated this matter. I should like to say just two things. First, I again thank my noble and learned friend the Lord Chancellor for his help in this matter, and my noble friend the Minister. I am grateful to them for their help and sympathetic understanding. I should like to say on behalf of my noble friend Lady Elles, who is unable to be here today, that she supports the amendment. I know that she is pleased, as am I and I am sure everyone in the House is, that the Government have accepted this principle. I beg to move.

Baroness Hollis of Heigham moved as an amendment to Amendment No. 225, Amendment No. 226:

After Clause 145, line 27, at end insert:

("(1A) Where the court determines to make an order under this section, such an order may bind a person who is not a party to the marriage but who is, or is likely to be in the foreseeable future, liable to pay any benefit under a pension scheme to a party to the marriage.").

The noble Baroness said: My Lords, we are not sure whether this amendment is providing belt and braces, given Amendment No. 175. It may be valuable to have an alternative phrasing which the Bill team can clear up later. I ask the House to support the amendment in the spirit of Amendment No. 175. I beg to move.

Lord Mackay of Ardbrecknish

My Lords, I am prepared to accept the amendment. We shall sort out the wording between the two amendments.

Baroness Hollis of Heigham

My Lords, I am grateful to the Minister.

On Question, Amendment No. 226, as an amendment to Amendment No. 225, agreed to.

On Question, Amendment No. 225, as amended, agreed to.

Clause 148 [Amendments consequential on Part IV]:

Lord Lucas moved Amendment No. 227:

Page 95, line 39, leave out ("amendments consequential on this Part") and insert ("general minor and consequential amendments").

On Question, amendment agreed to.

Schedule 6 [Amendments relating to Part IV]:

Lord Lucas moved Amendment No. 228:

Page 129, line 32, at end insert:

(".—(1) Schedule 9 (transitory modifications) is amended as follows.

(2) In paragraph 1—

1. (a) in sub-paragraph (1), sub-paragraphs (ii) to (v) are omitted,
2. (b) in sub-paragraph (3) (a) (i), for "provisions mentioned in paragraphs (i) to (v)" there is substituted "provision mentioned in paragraph (i)", and
3. (c) sub-paragraph (5) is omitted.

(3) Paragraphs 3 and 4 are omitted.").

On Question, amendment agreed to.

Clause 151 [Parliamentary control of orders and regulations]:

Lord Lucas moved Amendment No. 229:

Page 96, line 40, leave out from ("contains") to ("must") in line 41 and insert ("any regulations made by virtue of—

() section 56(4),

() section 70(6), or

() section 105(1)").

On Question, amendment agreed to.

[Amendment No. 230 not moved.]

Schedule 7 [Repeals]:

Lord Lucas moved Amendment No. 231:

Page 129, column 3, line 43, leave out ("84(6)") and insert ("84(10)").

The noble Lord said: My Lords, in moving Amendment No. 231 I shall speak also to Amendments Nos. 232 to 236 and 238 to 246. These amendments are designed to bring the contents of Schedule 7 into line with the amendments made to the Bill in Committee. I beg to move.

On Question, amendment agreed to.

Lord Lucas moved Amendments Nos. 232 to 246:

Page 130, column 3, leave out lines 6 and 7 and insert: ("In section 110, subsections (2) to (4).

	("In section 110,
	subsections (2) to (4).
	Section 112.
	Section 114.").

Page 130, column 3, line 16, at end insert:

("Section 144.").

Page 130, column 3, line 21, leave out ("and subsection (6)") and insert (", paragraph (d) and the preceding "or", and subsections (6) and (7)").

Page 130, column 3, leave out line 24.

Page 130, column 3, line 28, leave out ("the first "104(8)"").

Page 130, column 3, leave out line 36.

Page 130, line 39, at end insert:

("1988 c. 1.

The Income and Corporation Taxes Act 1988.

In section 187, in subsection (2), the definition of "pensionable age",").

Page 130, column 3, line 42, at end insert:

(" In Schedule 3, in paragraph 5(7) (a), "(or at least 20 of them, if that is less than half.").

Page 131, line 11, at end insert:

("1992 c. 5.

The Social Security Administration Act 1992.

In Schedule 4, the entries in Part I relating to the Occupational Pensions Board.").

Page 131, line 19, at end insert:

("1993 c. 8.

The Judicial Pensions and Retirement Act 1993.

In section 13(9), in the definition of "personal pension scheme", "by the Occupational Pensions Board".").

Page 131, column 3, line 20, at end insert:

("In section 9(3), "22 and".").

>

Page 131, column 3, leave out lines 41 to 43 and insert:

	("In section 45, subsection (2) and, in subsection (3), paragraph (d).
	In section 55, subsection (1) and subsections (3) to (6).
	In section 56, subsection (1), in subsection (2), the words following "the prescribed period", and subsection (3).
	In section 58, subsections (1) to (3), (5) and (6). Section 59.
	In section 60, subsections (1) to (3) and (6) to (10).
	In section 62, subsection (2).
	In section 63, in subsection (1), paragraphs (a) and (c), subsection (2), in subsection (3), paragraph (a) and the words following sub-paragraph (ii), and subsection (4). Sections 64 to 66.
	In section 84, in subsection (5), paragraph (b) and die preceding "or". Sections 133 to 135.").

Page 132, column 3, leave out line 20 and insert:

("In section 177, in subsection (3) (b) (ii), the words from "sections 55" to premiums)", and in subsection (7), paragraph (b).").

Page 132, column 3, leave out lines 42 to 44 and insert:

	("5, in sub-paragraph (1), "or the Board" and "or, as the case may be, the Board", in sub-paragraph (3), "in relation to state scheme premiums" and paragraph (b), and sub-paragraph (5).
	In Schedule 6, paragraph 11.")

Page 132, column 3, leave out lines 48 and 49 and insert:

PART IV

MISCELLANEOUS AND GENERAL

CHAPTER SHORT TITLE EXTENT OF REPEAL

1971 c. 56. The Pensions Increase Act 1971 In section 3, in subsection (2) (c), "is a woman who".

1993 c. 48. The Pension Schemes Act 1993 Sections 136 to 143.

In section 149, in subsection (3), at the end of paragraph (a), "and".

In section 164(1) (b) (i), the words from "136" to "143".

In section 166(5), the words from "136" to "143".

Section 172(1) (b).

In section 177, in subsection (3) (b) (i), the words from "136" to "143".

In section 178, in paragraph (b), the words from "136" to "143".

In section 181, in subsection (3), the words from "136" to "143".

In section 183, in subsection (1), the words from "136" to "143".

In Schedule 9, in paragraph 1, in sub-paragraph (1), sub-paragraphs (ii) to (v), and sub-paragraph (5), and paragraphs 3 and 4.

The repeal in me Pensions Increase Act 1971 has effect in accordance with section 156 of this Act.").

On Question, amendments agreed to.

Clause 156 [Commencement]:

Baroness Young moved Amendment No. 247:

Page 97, line 25, at end insert:

("() Section (Pensions on divorce, etc.) shall come into force on such day as the Lord Chancellor may by order made by statutory instrument appoint.").

On Question, amendment agreed to.

House adjourned at a quarter before eleven o'clock.