HL Deb 02 April 1996 vol 571 cc199-211

6.25 p.m.

The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish) rose to move, That the draft order laid before the House on 13th March be approved [14th Report from the Joint Committee].

The noble Lord said: My Lords, in moving the order, I shall speak to the other two orders on the Order Paper.

When SERPS was introduced in 1978, the government of the time recognised that some employers already provided good quality pension schemes—good quality meaning offering defined benefits based on salary, as indeed did SERPS. Those that could show they offered benefits as good as those in SERPS—the guaranteed minimum pension or GMP test—were rewarded for continuing to do so by giving employers and employees in such schemes the right to pay a reduced rate of national insurance contributions. Thus the contracted-out rebate was born.

If I may continue the history lesson for a little longer, the present Government saw the potential further to encourage pension provision by the private sector through allowing money purchase schemes run by employers to contract out and by giving employees with no occupational pension the opportunity to provide for themselves through appropriate personal pensions. The rebate given as an incentive to these schemes from 1988 opened up new options for individuals and employers at the same time as averting a major public spending crisis in the next century, when the burden of pay-as-you-go funding for SERPS was set to fall on a much smaller working age population.

We have continued to take initiatives to strengthen private sector pension provision, and the Pensions Act 1995 was a major exercise in improving the security of pension schemes. We also took the opportunity to make the system of contracting out more attractive.

This brings me to the recent past. The complexity of administration of GMPs for contracted-out salary related schemes, the implications of the Barber case and the unsuitability of the flat rate rebate for money purchase arrangements led us to overhaul the contracting-out arrangements.

We responded to complaints of complexity by breaking the current links between state and private second tier provision. For salary related schemes, we introduced a new test of overall scheme quality that threw off the tortuous complexities of the GMP system; and we designed a system of age-related rebates for those contracting out on a money purchase basis specifically tailored to meet the needs of this type of pension provision.

This brings me to the orders that are on the table before us today. My right honourable friend the Secretary of State has a statutory duty to review the contracting-out terms at least every five years. In this case we have reviewed after four in order to implement the Pensions Act reforms from 6th April 1997.

The current rebate was set in 1993. At that time the uncertainties surrounding the Barber case led us to consider the value of GMP accruals over the following three years only; we subsequently allowed that rebate to continue until reviewed under the provisions of the Pensions Act 1995.

The independent Government Actuary issued a consultation document in August last year. He took account of the responses to that document in preparing his report to the Secretary of State. The Secretary of State has taken account of his advice in preparing his own proposals, which were laid before the House together with the three orders and the Government Actuary's report on 13th March.

This setting of the rebate is a technical actuarial matter, but I shall do my best to unravel some of the mysteries that lie behind these orders in my explanation. I will take the contracted-out salary related (COSR) rebate order first, and then the other two orders, each of which have similar considerations.

The current rebate is based on the cost to salary related schemes of providing a guaranteed minimum pension and at the last review was set at 4.8 per cent. Of this 1.8 per cent. goes to employees and 3 per cent. to the employer.

The new rebate is calculated on a different basis—the cost of providing benefits of an actuarial value equivalent to the SERPS given up. This makes the COSR rebate higher than it would have been if reviewed again under the previous system, as it must reflect the greater liabilities now undertaken by schemes which contract out—for example, inflation proofing.

The Government Actuary took account of these and other reforms to the contracting-out system from 1997 along with the changes in SERPS provision and up-to-date actuarial assumptions. He reached the conclusion that the appropriate rebate for COSR schemes would be 4.6 per cent. from April 1997. My right honourable friend Peter Lilley considered his advice and decided to set the rebate at that level. We propose that 1.6 per cent. should go to the employee; as now 3 per cent. will go to the employer.

Currently some 10 million people are members of salary-related schemes and these form a key element of pension provision in the UK. We remain committed to the widest possible choice of pension provision and believe our proposals will ensure a sound basis for their continuing operation and development.

I turn now to the proposed age-related rebates for those who contract out into appropriate personal pensions and contracted-out money purchase schemes. Those who contract out of SERPS at present in either of these two ways receive the same flat rate rebate as those in salary-related schemes, except that those aged 30 or over with a personal pension receive an additional 1 per cent. A flat-rate rebate does not suit the needs of older people with personal pensions, as the initial investment has to be higher to match the state pension forgone the nearer a person gets to retirement. This extra amount recognises the need for the rebate to be higher for such people.

We have said for some time that age-related rebates are the next logical step. The orders before us relating to COMPS (contracted out money purpose schemes) and personal pensions set out for each the respective age-related rebates for each the next five years, starting in April 1997. The COMPS rebates will range in the first year from 3.1 per cent. of relevant earnings for the youngest members to a maximum of 9 per cent. They will be available partly as a flat-rate 3.1 per cent. deduction from national insurance contributions; this deduction will be split, with 1.6 per cent. for employees and 1.5 per cent. going to the employer. Any additional age-related payment up to the total ceiling of 9 per cent. will be paid directly to the scheme by the Department of Social Security at the end of the tax year.

The rebates for personal pensions will, as at present, be paid directly to the member's scheme at the end of each tax year. The rates will vary in the first instance from 3.4 per cent. for the youngest members to a maximum of 9 per cent. We have capped both types of age-related rebate at 9 per cent. rather than allow rebates at much higher levels for older scheme members during the early years of the scheme. But we have nevertheless ensured that the great majority of those already with appropriate personal pensions should be best advised to remain with them both now and in the future. By imposing a 9 per cent. cap we have been mindful of restraining the cost to the taxpayer of all this too.

We have also sought value for money in deciding on the level of expenses and charges of pension providers to be used in calculating these age-related rebates. Necessary and reasonable charges and expenses of providers and the correct amount to be invested on behalf of the member are both crucial in calculating appropriate levels of rebate. In deciding this we have taken the Government Actuary's advice on what were the charges of the more efficient providers. This again reflects our aim to be fair to pension holders, pension providers and taxpayers alike.

I firmly maintain that we have in these orders successfully achieved those intentions in setting the age-related rebates at a level that should ensure that those who have contracted out through money purchase or personal pension schemes will find it worth their while to continue to do so.

I hope I have been able to shed sufficient light on these three orders to show your Lordships why we are confident that these measures will help us to meet our commitment to maintaining and, where possible, increasing levels of contracting out, without unduly burdening the public purse. The cost to the taxpayer in the first year of the new rebate will be £7.7 billion in terms of revenue forgone by the National Insurance Fund. However, by 2020 we expect annual savings to the National Insurance Fund in SERPS expenditure to outweigh the annual revenue then forgone on the rebate. By 2030 we anticipate savings nearly double the costs and by 2050 savings some three times greater than costs. That represents a major burden which we have lifted from future generations.

Thanks to the success of our policies up until now, over three-quarters of employees have already opted out of SERPS into non-state schemes of one kind or another, where their money is invested to pay for their pensions when they retire. In the meantime the money strengthens the economy by injecting long-term savings. The total value of investment in British pension funds is nearly £600 billion. As your Lordships have heard me say before, that is not just more than any other country in Europe but more than all the other member states put together. The OECD suggests that the UK may be able to repay its national debt and start to accumulate assets by 2030, leaving us better placed than almost any other country to meet the challenges of global competition in the next century.

Our proposals build on these undoubted strengths. Continuing to make available as wide a choice as possible of contracting-out routes, they are based firmly on the continuing partnership between the state and the private sector. Giving maximum scope for individuals to provide for their future, they meet the needs of taxpayers present and future. Our proposals underpin the almost uniquely strong position of the UK in meeting the challenges of the 21st century. I commend the orders to the House. I beg to move.

Moved, That the draft order laid before the House on 13th March be approved [14th Report from the Joint Committee]—(Lord Mackay of Ardbrecknish.)

Baroness Hollis of Heigham

My Lords, we thank the Minister for explaining the regulations to us. They show that personal pensions remain a bad deal for so many people that the Government are artificially having to make them more attractive by bribing existing and potential personal pension holders with more of our—the taxpayers'—money to keep them.

We all want people to hold a second-tier pension. It is the only way of ensuring and enjoying an old age above the margin of poverty. We all accept that a good occupational pension is the most desirable of second pensions. For those on lower incomes, SERPS may provide the same kind of security; or it would have done if, since 1979, the Government had not progressively raided it, both to save government money and to make private pensions artificially and comparatively more attractive. In consequence, under this Government we have seen SERPS cut from the best 20 years to 40 years, every year but five, as well as an annual rather than an end-of-scheme valuation. Together, those have almost halved the value of SERPS. Even so, SERPS remains appropriate for people on relatively low incomes in secure occupations without an occupational pension. However, in future SERPS may have to be made more secure against government raiding.

The third option has always been personal pensions. Again, no one disputes that they meet a real need in the market, for the better off, for those who are self-employed and for those who are highly mobile. In other words, they are for those who do not have a conventional employer and have to or can afford to dispense with the employer's contribution. Had that niche market been addressed and had personal pensions been properly regulated, there need have been no problem with either approved personal pensions or the right to recycle the standard SERPS rebate. Instead, we have seen hungry, commission-only salesmen whose companies have willingly turned a blind eye to dubious practices.

A similarly blind eye from an indulgent Government has put us in the following situation. First, we have seen the marketing of approved personal pensions to the wrong people: those on low incomes who were persuaded out of good occupational schemes and out of SERPS, to their disadvantage. Secondly, as a consequence, those APP providers have been found to be so inefficient that even the best providers top-slice at least 15 per cent. in charges and the inefficient double or nearly treble that in some cases. Thirdly, some two-thirds of those holding APPs only, and merely, recycle their rebate. Many are in and out of work and cannot keep up regular premiums. Therefore, sadly, many people will find that APPs will not float them off poverty in old age.

Therefore, finally, the Government have realised, as pension holders themselves are realising, that for many it would be financially prudent to rejoin SERPS because of the poor deal that they get from APPs. As the Government are anxious that SERPS should not become an ambulance to casualties of private pensions, they are throwing additional rebates at APPs, not because APPs and their providers are good providers of pensions but because they are bad; not because they are efficient but because they have proved inefficient; not because people want to remain in them but precisely because people may not. Consequently, the taxpayer is having to contribute some £300 million, we suspect, this year to bribe people with their own money to stay in schemes which would otherwise probably damage their financial health.

Let me spell out those points a little further. First, personal pensions (APPs) have been sold to the wrong people. Those with personal pensions may be worse off if their income is low—say, below £10,000 a year; if they are too old to benefit because the pension does not have time to accrue; if they cannot maintain regular contributions; if they are in and out of work; or if they are women, who tend to get lower private pensions for the same level of contributions or annuity rates. As my honourable friend Mr. Denham made clear in another place, every one of those fears has materialised. We find that something like 3.6 million people—60 per cent. of all personal pension holders in 1993–94—had less than £10,000 a year in average income. For women holding personal pensions the average income was £6,300. We also find that nearly half a million of the holders are over 45. In addition, since 1987–88, nearly half of those who bought personal pensions have failed to make regular contributions each year since.

In consequence, if APPs are funded merely by recycling this rebate, they will be insufficient to take people out of poverty. We fear that that may apply to something like two-thirds of those holding such pensions. As we found when we discussed the Pensions Bill last year, the best advice was that unless people can afford to make voluntary contributions over and above a rebate taking them up to something like 15 per cent., it will not be sufficient to provide for their old age. By definition, those who are poorest, those who are often unemployed and women with interrupted work, are least likely to make voluntary contributions and least likely to benefit from APPs in their old age, and may still need income support.

This situation has been made worse by charges. It would be bad enough, pensions having been sold to the wrong people, if APPs were efficiently provided. But the record has been disastrous. According to the Government Actuary, the typical figures (not the most efficient provider, but not the least efficient either: presumably the median) suggest that, on an income of £10,000 with the SERPS rebate being recycled, between a quarter and one-third of the money saved is being top-sliced in charges if a person is around 40 with 25 years to go to statutory pension age. We should remember that the average income for women is only £6,300; and for someone on £7,000, charges can take anything from 25 per cent. (the more efficient) to 40 per cent. or more of the payments at the age of 40. Some will do better, some will do worse, according to age, gender, income and provider. But in all cases where we are dealing with incomes under £10,000 we are likely to see at least a quarter of the savings top-sliced, and nearly half of the savings top-sliced in costs. For those who put in simply a single premium or an intermittent premium, the whole of that will be taken out in charges. It is a straight gift to the commission-hungry salesman and to the company, and nothing remains in the bank.

How many people on an income of £7,000 a year would have entered into a personal pension plan at the age of 40 had they appreciated that in some cases 40 per cent. of what they were recycling or saving was being wiped out in charges? It is worse still, compared to SERPS. For someone in SERPS who is unemployed for a year and cannot make a contribution, or whose earnings fall below the income threshold for two and three years, nonetheless the existing contributions are fully protected. They are ring-fenced, and people are not charged. But for those in a personal pension scheme, fees continue to be charged per year to manage a pre-existing asset whether or not additional contributions are made. So each and every year people see their capital being top-sliced, top-sliced and top-sliced in fees. They see it diminishing, as they stand there looking for work, steadily depleting what has been built up.

As for women, they are hit three times over by the Government's personal pension schemes. First, they are more likely to have low earnings—as I say, the average is £6,300. Secondly, their income is more likely to be interrupted as a result of work patterns and family responsibilities, while charges nonetheless continue to top-slice what they have put away. Thirdly, women will receive a lower pay-out because, unlike SERPS, where the same is received whether a person is male or female because there are no actuarial considerations involved, in APPs the payment will be less. So women are hurt because they are more likely to have lower incomes, because the charges continue when they are not so likely to be in work and because at the end of the day they will receive a lower sum. These are the people the Government have encouraged the personal pension providers to take into portable personal pensions. It has been an absolute disaster.

This means that, as the Government have belatedly woken up to the fact, if such people are not to rejoin SERPS the Government have to increase the attractiveness of staying with the personal pension by increasing the rebates that can be recycled to fund it. In other words, in a desperate effort to keep personal pensions afloat, the Government are having to pay for the management costs and charges of inefficient providers so that more of the rebate stays as savings and less is grabbed by the company. That might be fine—except that they are doing it with our money, the taxpayers' money: £300 million of it. So far the Government have spent over a billion pounds of our money to persuade low earners to leave SERPS, even though, alas, many will remain in poverty.

The Government have got themselves into the most awful mess. We see their pensions policy unravelling before our eyes. They are having to throw additional money at the problem. (This is one area where the Government clearly think that the problem is solved by throwing money at it.) But it will not be solved. Although additional money is being provided, it will still not be enough—nor can it be—to remedy the plight of those who are with the worst providers. Even with the additional rebates they will still find themselves facing poverty in old age—all to avoid a return to SERFS which this additional rebate may not postpone.

So we have a government pensions policy, first, to cut the value of the state pension relative to earnings from 22 per cent. value in 1979 to 14 per cent. today; secondly, we have seen the Government chop away at SERPS, which would otherwise, in 2040, have been worth £173 and will now be worth only some £107 under the Tories; thirdly, to encourage private provision at all cost. It is now clear that that cost is considerable.

At considerable cost to the taxpayer, we have ended up with a scheme that pays to the poorest more taxpayers' money to take them out of SERFS into APPs, while still almost certainly having to give them additional money when they reach pension age because a recycled APP will not float them off income support. What a waste of taxpayers' money and their money. And what a desperate situation for those who will see their savings whittled away by the false promises of government and the false prospectuses of providers. It is a sad and sorry story.

Earl Russell

My Lords, every time I hear the word "SERPS" I start feeling a bit like Laocoon. It is not a simple creation; it tends to mirror the mind of its creator whose worst enemy would never have described him as simple minded.

I shall not follow the Minister and the noble Baroness into a long argument about contracting out. I have heard that argument in this House at least 10 times before and it tends to grow in the telling. In any case, as I understand it, it is not directly relevant to the orders before the House today. Those orders are simply a matter of fixing rates according to the recommendations of the Government Actuary.

I do not propose to make a complaint about the Government taking the advice of the Government Actuary. I will ask the Minister about one thing that he said in his speech. In the contracting-out money purchase order, he said what I suspected on looking at the figures as set out in the order; that is, that the Government have decided to treat the rate of 9 per cent. as a cap. I understand the Minister's argument for having a cap, without at present passing judgment on it. What I want to know is why he fixed that rate at 9 per cent. Why not 8 per cent? Why not 10 per cent.? Maybe there is an answer; maybe there is not; but if there is one I would be interested to hear it.

Also, somebody should draw attention to the report of the Joint Committee on Statutory Instruments, to which, as usual, we owe a great deal. It noticed a drafting error in the primary legislation on which the salary related contracting-out scheme is based. The wording of the section left out the words "or (b)". The effect of that was to make it apply only to the employee's share of the rebate and not to the employer's share. The committee believes that it was clearly the intention of Parliament to refer to both percentages and thinks that it should be treated as a manifest mistake on the face of the Act. I should like to hear the Minister's comments on that.

I do not mean to make a meal out of this matter at the moment because the rebate percentage for employers has not, in any event, been altered. It does not affect the vires of the order. But if the mistake, as is alleged, has been made, at some stage before we leave things set in stone for too long, there should be a miscellaneous provisions Bill in which this question could be addressed. I do not know whether the Minister has anything to say on that. Mistakes happen to all of us; one does not make a meal of them but they need to be put right.

I agree that in 1995 the security of personal pension funds was improved. I am not sure that it was improved enough. There is probably still a good deal to do in that area. Indeed, we have not even done all that was set out in the Goode Report, a subject to which we must return and give our attention. It should be clear that there is an employee trustee and a pensioner trustee and the other trustees should not have the power to dismiss them. There should not be schemes which are open only to directors and to which other people cannot get access. There should also be, before and not after we experience another scandal, a really effective compensation fund so that the next time we have a Maxwell—and it will happen again because sin goes on—we have equipment ready to deal with it rather than having to look at emergency provisions.

With those few remarks I shall not detain the House on what are themselves, however great the arguments behind them, quite small orders.

Lord Mackay of Ardbrecknish

My Lords, I am grateful to the noble Baroness and to the noble Earl, Lord Russell, for their welcome, at least to those parts of the orders with which they agree. I do not believe that there was too much disagreement on COSRs; the disagreement from the noble Baroness came from the order on COMPS and perhaps in particular from the order on personal pensions.

I shall deal with the technical point, though it is equally a serious point, raised by the noble Earl in relation to the observation of the Joint Committee on Statutory Instruments that there was an error in the Pensions Act. As is so often the case, the noble Earl is quite right about that. I am surprised that he did not spot the error in the original Act but I suppose he was not actually dealing with the original Act for his party and that excuses him. However, it does not excuse the rest of us who took part in the passage of that Act. I fear that there was a mistake and nobody spotted it. I should like to blame the word processor and perhaps that is where I shall stand.

What happened, without going into detail, was that the important words "and (b)" were omitted from the Act when they should have been included. The Joint Committee on Statutory Instruments rightly points out that if we take the whole of the section together, it is clear that it should refer to (a) and (b); (a) being the employee's share and (b) being the employer's share. The joint committee accepted that that was the meaning of the Act and that we should work on that basis.

The noble Earl asks whether we will take the opportunity to correct that error at the earliest opportunity. In fact we do not need to do that. The specific part of the Act where the error occurs is relative to the transitional position. As we stand here this evening, this is the transitional position and after this the error effectively disappears for subsequent reviews under the Pensions Act. I am happy to tell the noble Baroness therefore that at least we do not need another Pensions Bill to correct this error.

Baroness Hollis of Heigham

My Lords, if the Minister is prepared to make the same sort of concession as his noble friend Lord Lucas made to my noble friend Lord Dubs, I would welcome such a Bill.

Lord Mackay of Ardbrecknish

My Lords, the noble Baroness should not push her luck too far.

The noble Earl asked how the figure of 9 per cent. for the cap was arrived at. Essentially, the setting of the cap at this level means that most current appropriate personal pensions holders are able to maintain their plans until retirement without imposing excessive cost on public funds. A balance therefore had to be selected between trying to make sure that people were encouraged to stay in their personal pension schemes as they got older and making sure also that one was not putting too much money across from the national insurance contribution fund to personal pension holders. As the noble Earl will note, over time, as each year progresses, fewer years—if I may describe them like that—at the top end down to the 9 per cent. are capped. In time, five years and then another five years as each quinquennium progresses, the 9 per cent. would drop off if governments maintained the same kind of arrangements into the future. That is the reason we selected 9 per cent.

The noble Earl went a bit further than the provisions before us by addressing the protections in the Pensions Act for pension schemes against people like Robert Maxwell. There is already a compensation fund. As I have described before—I will take a second to do it again as the noble Earl raises the matter and it is important—the defences operate at a number of levels. There is a compensation fund if all else fails and there has been distinct cheating. Also, OPRA will be there; indeed, it has just been set up with the chairman, chief executive and members appointed. Duties have been placed on auditors and scheme professionals to blow the whistle to OPRA if they see anything irregular occurring in the fund, as can members of the scheme or trustees if they feel that there is something wrong or something has not been properly done. They, too, can blow the whistle by reporting the scheme to OPRA and OPRA will then investigate. The employer trustees are another line of defence, as is the minimum funding requirement. We believe that, taken together, the OPRA schemes and, more importantly, the pensioners and prospective pensioners have better protection than they had before the Act and before Goode.

I turn to some of the points raised by the noble Baroness, Lady Hollis, who seemed to say that the Government's pension policy was "unravelling before our eyes". The Opposition's pension policy is not even ravelling, let alone unravelling. We are still waiting for it. I am not too sure if, in the midst of the attack on personal pensions, I got the flavour of the fact that Mr. Chris Smith, when he announces the Opposition's pension policy, may well say that they intend to abolish personal pensions. It will be interesting to know whether that is the kind of commitment I can rightly assume emerges from the noble Baroness's clear dislike of personal pensions.

Baroness Hollis of Heigham

My Lords, the Minister, I am sure not deliberately, misstates my position. It was not a clear dislike of personal pensions. I made it very clear that there is a niche in the market for personal pensions—for those who are better off, for those who are mobile and for those who are self-employed. My criticism of personal pensions—I am delighted to spend another 10 minutes repeating it if the Minister does not recall what I said—is that the Government have encouraged them to be targeted at people who could not afford them, that personal pensions for them would not float them off poverty and that too heavy a slice of those personal pensions was going in charges—up to 40 per cent. of people's savings.

Lord Mackay of Ardbrecknish

My Lords, I have lifted a little corner of the veil over the Opposition's pensions policy—they do not dislike personal pensions. That was not the flavour that came over to me, but I am happy to accept that and to accept the Opposition into the same group as those of us who believe that personal pensions have an appropriate part to play in pension provision for all our people.

The noble Baroness made a number of points about the personal pension scheme. She attacked our rebates on a number of grounds. The decision as to whether the pension is a good buy depends on a lot of circumstances and not, if I may say to the noble Baroness, just on the level of income the person has at that time. We are keen to encourage people to contribute as best they can to their pension. There is no firm evidence that so-called rebate-only personal pensions are unsuitable for specific types of employees. Neither low earnings nor time out of the employment market necessarily mean that their final personal pension will not be as high as the SERPS they would have received if they had stayed in SERPS. Quite often the effect of charges on a pension fund is more than outweighed by the investment performance. For example, pension funds over the past 15 years have managed a real rate of growth per year of nearly 10 per cent. and providers' charges vary too. If people have a personal pension, even if it starts off by being a rebate-only one, at least they have the vehicle into which they can put additional contributions if they are able to do so at any time in their working life. Therefore they are on their way to providing a better pension provision than just remaining with SERPS.

Personal pension charges do indeed vary and, as the noble Earl, Lord Russell, mentioned, since January 1995 changes have been made. Providers have been required to set out their charges in their promotional literature and in the key feature documents issued at the time of sale. Indeed, a PIA recent report said there was some evidence that companies are charging less and that they are improving what they pay if a policy is surrendered early or transferred. Our publicity advice clearly advises potential investors in personal pensions to shop around by talking to an independent financial adviser or several advisers tied to individual companies. We are sure that that is the way to explore what is on offer.

With regard to where the expenses have been pitched, we have made allowance for reasonable costs and charges of the more efficient personal pension providers. We have not incorporated any allowance for flat rate charges. We have not taken the average. We have looked at the more efficient personal pension providers when we have come to the conclusion about how much the expenses part of the rebate should be.

It was said that the age-related rebates are just another example of a bribe to keep people out of SERPS. At present appropriate personal pensions become less attractive for contracting out of SERPS as people get older simply because there is less time for the investment to gather interest and to grow the nearer one gets to retirement age. These age-related rebates will ensure that most of those who are already contributing to an appropriate personal pension will continue to do so for the rest of their working lives. It also gives younger people the same kind of personal choice.

Personal pensions play a part in the spectrum of pension provision that we on this side of the House, and I think most people, want to see available. Not everyone works in a company where there is an occupational pension scheme—either a salary related scheme or a money purchase scheme. Indeed, personal pensions are a sensible way for those people to consider putting aside money for their retirement. We are all keen to see that. Even the party opposite appreciates the need for second pension provision. We have a clear policy on how we proceed to that and APPs form an important part of it. In order to get to the position where an increasing number of people have second pension provision, these rebates are very important—the rebates to salary-related schemes, the rebates to money purchase schemes and the rebates to appropriate personal pension schemes.

As I said at the beginning, we are looking forward to the unveiling of the pensions policy of the party opposite. I think I know now that it is not entirely opposed to personal pensions. I think I know from an article I read in a newspaper that it is not keen on carrying on with SERPS. An article in The Times of 29th February by Mr. Chris Smith stated that, Serps depends on the benevolence of each younger generation to meet the cost of its elders' pensions". The article went on to say that it will always be liable to raids from some future Mr. Lilley who will cut the benefits once again.

The noble Baroness complained loudly about the changes we made to SERPS provision in 1985. Without those changes, by the middle of the next century SERPS would be costing the taxpayers of that time an extra £30 billion at 1985 prices. It is one thing to expect the next generation to look after you; it is another thing to saddle them with costs that are so huge that they will no longer be prepared to accept the burden. That is why we made those changes in 1985 and 1986. SERPS had not been properly worked out when it came to considering the burden which it would impose on future generations in the middle of the next century and when it came to the £30 billion cost that would be imposed at that time. We had to throttle back that expense, frankly, in the interest of those people who would come to retirement at that time and the working generation who would be expected to shoulder that burden.

In conclusion, we believe that the rebates will reinforce and continue the excellent policy we have in this country. We have a pensions policy of which we should be proud and on which we should be building. It should not be attacked in the negative way in which the noble Baroness attacked it in her speech. We should be proud when we consider what our colleagues in Europe have. They must look with envy at the kind of pension provision we have—£600 billion and 10 million of our people in salary-related schemes or COMPS and another 5 or 6 million in personal pensions. We ought to be pleased about that. We ought to be extremely pleased for future generations that we are making these sensible provisions today. These orders are part and parcel of the sensible provisions for people in retirement tomorrow. I commend them to your Lordships.

On Question, Motion agreed to.