§ 3.7 p.m.
§ The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham)
My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
§ Moved, That the House do now again resolve itself into Committee.—(Baroness Hollis of Heigham.)
§ On Question, Motion agreed to.
§ House in Committee accordingly.
§ [The CHAIRMAN OF COMMITTEES in the Chair.]
§ Clause 11 [Effect of bankruptcy on pension rights: approved arrangements]:
§ Lord Higgins moved Amendment No. 38:
Page 12, line 22, at end insert—
("(5A) No pension rights of any person shall however vest in his trustee of bankruptcy if they were acquired or secured during a period when the arrangement was approved.")
§ The noble Lord said: In moving Amendment No. 38, I should like to speak also to Amendments Nos. 39 and 40 which are consequential. Before we discuss the highly emotive issues of war widows' pensions or the higher reaches of pensions policy which are reflected in the amendments tabled by the noble Baroness, Lady Castle of Blackburn, there are one or two rather technical amendments whereby we seek to establish the Government's position.
§ As Clause 11 stands, our understanding is that it could have retrospective effect. The whole concept of retrospection has always been a difficult one and many different definitions of retrospection have been put forward. As I understand the position, if the Inland Revenue were to decide to disapprove a pension scheme, that could have a retrospective effect as regards the protection of those assets from the trustee in bankruptcy being removed. Although we understand the reasons why the Government think that it is appropriate to change the situation with regard to future arrangements, we believe that there is some danger of retrospection here.
§ This matter was debated on 16th March in a Standing Committee of another place, where it was suggested that the matter could be solved by an exercise of ministerial discretion so far as concerns protecting the assets in the circumstances I have described. That would not seem to be a very satisfactory arrangement. It is less watertight 726 than if it were on the face of the Bill. But these are complicated matters and it would be helpful for the Committee to have an explanation of them from the Government. I beg to move.
§ Lord McIntosh of Haringey
The measures in Clause 11 of the Bill will protect a person's rights in a tax-approved pension scheme in the event of their bankruptcy. The same amendments were raised in Committee in another place. Before I go on to discuss them, perhaps it will be helpful if I give an outline of how the measures will work.
When a person becomes bankrupt his or her assets are generally taken over by the trustee in bankruptcy. However the current treatment of people's pension rights on bankruptcy is inconsistent. Pension rights in occupational pension schemes are usually safeguarded, whereas rights in personal pensions are at risk of falling into the hands of the trustee in bankruptcy. It is common ground that that is unfair. Not only that, it acts against one of the major principles of our programme of welfare reform; that is, security in retirement.
Clause 11 of the Bill provides that on bankruptcy an individual's rights in a tax-approved pension scheme will be protected from the trustee in bankruptcy by virtue of being excluded from the bankrupt's estate. I understand this was supported by Conservative Members in another place. This new statutory protection will not, however, extend to pension rights held in unapproved pension arrangements. Such arrangements are usually used by the very well off to top up an approved pension arrangement. As I am sure the noble Lord will agree, it would be inappropriate to apply the automatic protection provided by these new measures to such arrangements.
Perhaps I may now turn to the individual amendments and the clear case made out for them by the noble Lord. He is concerned about the position of people in an approved pension scheme which has had its tax approval withdrawn and that people lose protection for rights accrued while the scheme was approved. I share the noble Lord's concern about innocent members of a pension scheme being inadvertently penalised. However, for two reasons, I hope to be able to reassure him that this will not happen.
First, tax approval for pension schemes is not withdrawn unless there are very good grounds for doing so and is done rarely. I shall let the noble Lord have the figures for the number of cases in which it occurs. Tax approval is withdrawn only if a scheme is in breach of the Inland Revenue requirements. If it comes to the Inland Revenue's attention that a scheme is in breach in a particular area, the Inland Revenue will write to the scheme about the matter. The pension scheme is then given every opportunity to put the matter right, with assistance and advice if needed. Withdrawal of approval is a major step; in every case the final decision is taken only after consideration at a senior level.
When considering withdrawal of approval, the Inland Revenue pays particular attention to the interests of members of the scheme who have not been involved in any irregularity. They are allowed to transfer their rights 727 to another approved pension scheme. Of course, if they do so, their pensions rights will continue to receive the automatic protections provided by Clause 11.
In any one year, the Inland Revenue withdraws approval from about 75 pension schemes. The overwhelming majority of those schemes are what are known as small self-administered schemes, set up for the benefit of company directors. In practice, the schemes tend to have only two or three members, all of whom are trustees. Unlike other pension schemes, small self-administered schemes are allowed to use scheme assets to secure loans to the employer or to invest directly in the employer, up to a single limit of 50 per cent of the scheme's assets. I am sure that the noble Lord can see the scope for that kind of scheme falling short of the Inland Revenue requirements.
Secondly, there is an additional safeguard, which some noble Lords might regard as a belt and braces approach. Clause 12 gives the court the power to exclude an individual's pension rights in an unapproved scheme from his or her estate on bankruptcy. This will give the same protection from creditors as if they were rights under an approved scheme. The grounds for the court's consideration will be that the rights in the unapproved pension scheme represent the individual's only, or only significant, pension provision. That is a safety net provision for those who have made pension provision only via an unapproved arrangement. It will also apply in those cases where tax approval is withdrawn from a scheme and—although it would be highly unusual—the individual in question decides not to transfer his or her rights to another scheme.
The noble Lord asked me whether this was not retrospective legislation. The treatment of pension rights under Clause 11 is determined by the reference to the true tax status of the scheme at the time of the bankruptcy order, not the date on which tax approval was withdrawn from the scheme. So it is not retrospective legislation but legislation which addresses the circumstances of the case. With that reassurance, I hope that the noble Lord will feel able to withdraw his amendment.
§ 3.15 p.m.
§ Lord Higgins
The Committee will be grateful to the Minister for his comprehensive reply. As he rightly points out, there is much common ground in relation to these rather unusual schemes. I was a little concerned when the Minister said that the change takes place at the date of the bankruptcy order rather than the date when the scheme is disapproved. Is it the case that the contributions which have already been made before the date when the scheme is disapproved will not be adversely affected by the subsequent events and the subsequent fact that the scheme is no longer approved by the Inland Revenue?
§ Lord McIntosh of Haringey
The clause has effect only in relation to the pension rights of a person who is made bankrupt after the commencement of the clause. So in that sense it is certainly not retrospective. In so far as the clause bites—in other words, someone is made bankrupt after the commencement of the clause—all the 728 other protections, such as a transfer to an approved scheme or the belt and braces protection of Clause 12, will apply.
§ Lord Higgins
I am grateful to the Minister. On the basis of what he said, I beg leave to withdraw the amendment. He has also covered very largely the contents of Clauses 11 and 12.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 39 and 40 not moved.]
§ Clause 11 agreed to.
§ Clauses 12 to 16 agreed to.
§ Clause 17 [Compensating occupational pension schemes]:
§ On Question, Whether Clause 17 shall stand part of the Bill?
§ Baroness Buscombe
Having reviewed Clause 17 in some detail and having received representations from a number of organisations on it, I should be grateful if the Minister could give some indication of the Government's thinking behind the clause. It is our understanding that the clause extends the eligibility for compensation under the pension compensation provisions in the Pensions Act 1995, through the Pensions Compensation Board. In addition, it increases the maximum amount of compensation that can be paid to a scheme if the assets are lost through theft or fraud and if the employer is insolvent.
However, it also creates a distinction between scheme members; that is, it distinguishes between those who are already in receipt of a pension and retired, together with those who are within 10 years of retirement age—all of whom will enjoy 100 per cent protection against losses through theft, fraud and if the employer is insolvent—and those who are working and more than 10 years from retirement, who will, in turn, have 90 per cent protection.
In theory the differential seems laudable; it fully protects those who will not have the opportunity to rebuild their provision. However, in practice, surety to offer 100 per cent protection—that is, complete protection—thereby negates any need or duty at all on the part of the beneficiary to ensure that the scheme is being properly run. I make this point with particular regard to those beneficiaries who are managers and trustees and therefore should be accountable in their fiduciary responsibility.
We further suggest that this clause, as I understand it, is inconsistent with other parts of the Bill. It appears entirely to relieve managers and trustees of a scheme for the benefit of a retired person or one within 10 years of pensionable age, of their responsibility, if that scheme ends up being underfunded. Perhaps I may explain what I mean by inconsistent. It is, we understand, the Government's intention to make pension provision fairer, which includes being tough on those who do not carry out their responsibilities properly. For example, Clause 10 of the Bill, which deals with late payments by employers, refers to the possible civil or criminal consequences of late payment.
729 In contrast, is a manager or trustee of a pension fund to be entirely protected while an employer should, in the event of late payment, be subject to the full force of the law? Again, I should be grateful if the Minister could give us an indication as to the Government's thinking behind the clause and what the Government hope to achieve in practical terms by the inclusion of the clause. I beg to move.
§ Lord McIntosh of Haringey
I am grateful to the noble Baroness for explaining her difficulties with Clause 17. I hope that I shall be able to reassure her. Clause 17 is virtually entirely benign. When I say "virtually" I mean that my only hesitation is because it includes a somewhat greater demand on the compensation fund which is paid for by all schemes.
Clause 17 improves access to the compensation provisions. It does not take away any compensation provisions from anyone. It also increases the maximum amount of compensation that can be paid to a scheme if assets are lost through theft or fraud and the employer is insolvent. It means that all scheme members will receive a higher proportion of their pension entitlement than under the existing provisions.
At present, the value of the assets of a scheme must have been reduced to less than 90 per cent of its liabilities before a claim for compensation can be made. A compensation payment at present cannot restore the fund above the level required to meet 90 per cent of its liabilities, calculated using the minimum funding valuation method.
But this does not mean that all members will at present receive 90 per cent of their pension benefits. The first priority is to maintain pensions that are already in payment. This means that younger members in a scheme with a high number of pensioners could lose a large proportion of their benefits, in order to make up the compensation payment to those who are already pensioners.
Our proposals recognise that this is unfair. Under Clause 17, compensation will be paid to restore a scheme's assets to meet 100 per cent of its liabilities for older scheme members. That means that more money will be available in the scheme to compensate people who are below pension age if their pension fund is lost through theft or fraud. The calculation will also include an expense allowance to take account of the cost of winding up the scheme, and 90 per cent of the value of liabilities in respect of younger members. Overall these younger scheme members will receive more than under the current system. It is not the scheme which gets compensation; it is the trustees on behalf of the members of the scheme. Therefore, those who have committed any theft or fraud do not receive any benefit from it.
I believe that, on reflection, the noble Baroness will agree that no members of the scheme lose out through the provisions in Clause 17. Those who are most in need—existing pensioners—will get 100 per cent 730 compensation, as they would have done, but that will not be at the expense of younger members of the scheme. I commend the clause to the Committee.
§ Baroness Buscombe
I am grateful to the Minister for that full explanation. I do not suggest that members would lose out. All I suggest is that we must be careful when it comes to ensuring that fiduciary responsibility remains with those who are responsible for running the scheme. I thank the Minister. I take note of what has been said and shall read it in Hansard.
§ Clause 17 agreed to.
§ Clause 18 agreed to.
§ Baroness Fookes moved Amendment No. 41:
§ After Clause 18, insert the following new clause—
§ WAR PENSIONS FOR WIDOWS: ENTITLEMENT
§ (" .—(1) In determining whether a pension is payable to a person as a widow under any of the enactments in subsection (2), no account may be taken of the fact that the widow has remarried or is living together as husband and wife with a person of the opposite sex.
§ (2) The enactments referred to in subsection (1) are—
- (a) the Naval, Military and Air Forces Etc. (Disablement and Death) Service Pensions Order 1983, and any order re-enacting the provisions of that order,
- (b) the Personal Injuries (Civilians) Scheme 1983, and any subsequent scheme made under the Personal Injuries (Emergency Provisions) Act 1939,
- (c) any scheme made under the Pensions (Navy, Army. Air Force and Mercantile Marine) Act 1939 or the Polish Resettlement Act 1947 applying the provisions of any such order as is referred to in paragraph (a),
- (d) the order made under section 1(5) of the Ulster Defence Regiment Act 1969 concerning pensions and other grants in respect of disablement or death due to service in the Ulster Defence Regiment.")
§ The noble Baroness said: In the unavoidable absence of the noble Baroness, Lady Strange, I was asked to move the amendment which stands in her name, that of my noble friend Lady Gardner and myself. It is a somewhat daunting prospect to stand in the shoes of the noble Baroness, Lady Strange, because she is well known as a doughty champion and supporter of war widows. I hope that I can do justice to her sentiments in the matter.
§ The general thrust of the amendment is to ensure that a war widow who remarries or lives as the wife of someone to whom she is not married should not lose her entitlement to a war pension. It is felt that in other pension schemes this is not happening. It therefore seems particularly unjust that it should happen in the case of a woman who loses her husband as a result of war.
§ However, I appreciate that this is a complex matter. As I understand it, war widows receive their pension from two entirely different sources. They are entirely different schemes administered by two entirely different departments of state. One is the Ministry of Defence, where it is effectively an occupational pension; the other is the DSS, where it is an indication of the loss widows have suffered as a result of war.731
§ I appreciate, therefore, that what I seek may go beyond the scope of the Bill, but I hope that at the least we could open up the whole subject and get things moving in at any rate one department, if not the other. If I sound a little dubious, it is because, having been a Member of Parliament, I have had dealings with the MoD in the past. The department is extraordinarily stiff-necked when it comes to any matter of benefits. The tendency seems to be to give less rather than more, if that is possible. Maybe it has the Treasury standing behind it—that I would not know. All I know is that it is a great job to get it to move, but I realise that this Bill may not be the appropriate place to force that movement.
§ Nevertheless, an important principle is at stake. I am therefore pleased to move the amendment on behalf of the noble Baroness, Lady Strange, whom, incidentally, I still prefer to regard as my noble friend. She believes that the number of people who might be affected, if this came into operation, would be in the order of 2,700 war widows. That does not count any who may subsequently become widows as a result of any other conflicts in which we may be involved. It is not likely that all 2,700 would remarry. However, the principle is important and therefore I have pleasure in moving the amendment. I beg to move.
§ Lord Morris of Manchester
I am grateful to the noble Baroness, Lady Strange, for facilitating this important debate by tabling Amendment No. 41, and also to the noble Baroness, Lady Fookes, for moving it with such clarity. The noble Baroness, Lady Strange, is held in the highest regard by war widows, and rightly so. At Second Reading, she said that she knew my noble friend Lady Hollis would argue that,this Bill does not affect war widows".—[Official Report, 10/6/99; col. 1626.]For her part, the noble Baroness, Lady Strange, said that she believed there to be a connection. To make doubly sure, she tabled her amendment. It addresses what Jenny Green, writing for the War Widows Association of Great Britain, described as the "iniquity" of treating war widows who remarry less favourably than they would be treated if their pensions were paid under other schemes.
In the report of his team's review of the Armed Forces' manpower, career and remuneration arrangements, Sir Michael Bett recommended that spouses' attributable pensions should be awarded for life and not withdrawn on remarriage in line with what had become standard private sector occupational pension scheme practice. The Goode report had previously made the same recommendation. Today that recommendation is even more relevant, since the award of spouses' pensions for life has now also been introduced into a major public service pension scheme; namely, that for local government officers.
I speak as the former chairman for 14 years of the managing trustees of the parliamentary contributory pension scheme and of the House of Commons Members' Fund. It is accepted in the parliamentary scheme that remarriage should not cost a widow her pension. I am sure there will be noble Lords on both sides of this House who think that war and service widows are as deserving of treatment no less favourable 732 than that of those for whose pensions I used to be responsible in chairing the parliamentary contributory pension fund.
Of all the duties that it falls to Parliament to discharge, none is of more compelling priority than our bounden duty to act justly to men and women who were prepared to lay down their lives for this country and to the dependants of those who did so. That is the case for urgent consideration of the anomaly to which the noble Baroness, Lady Fookes, has drawn our attention and which has been criticised so strongly by Jenny Green and the War Widows Association. I am sure my noble friend, who battled long and hard for war widows in opposition in close alliance with the noble Baroness, Lady Strange, will want to reply as helpfully as she can to this debate.
§ 3.30 p.m.
Lord Campbell of Croy
I merely raise a point for clarification. In proposing the new clause, my noble friend spoke about those who are widows as the result of war, and about the possibility of another war. My understanding is that he expression "war widows" covers a whole further range—that is to say, the widows of servicemen who have died in peacetime on Armed Forces duty in this country. A figure of 2,700 was mentioned. My estimate is that well over half would have been in that category and not involved in any way in a war. That does not make them any the less deserving of the intention behind this clause. The media and the public are sometimes unintentionally misled by that term, and also by the expression "war pensioners". I know from my own experience, and from research with the help of officials, that more than half of those who are termed "war pensioners" have never been anywhere near a war; their disabilities have usually been caused by firing their own weapons on ranges in this country in peacetime. But again, they deserve a pension.
As I have said, the terms "war pensioner" and "war widow" are misleading. "War pensioner" ought to be replaced by "Armed Forces disability pensioner". Then, the matter would be clearer. I sympathise entirely with the purpose of the new clause. It is merely a question of being clear about the group to whom we are referring. I hope that the noble Baroness, Lady Hollis, will confirm what I have said.
§ Earl Russell
On behalf of my noble friend Lord Goodhart, who is detained in a meeting of the Freedom of Information Committee, and for my own part, I strongly support the amendment. Wearing my other hat, in the course of research I have had the experience of reading the wills of innumerable 17th century gentlemen. One after another, they made settlements on their wives, "on condition that she shall live sole, chaste and unmarried". I know that in the course of doing research one must sit on one's emotions, but one does not stop having them. Every time I read those words, I am struck with the reflex, "What an impertinence!". I use the word "impertinence" in both its abusive and its technical sense. Once the man is dead, it is simply none of his business. If it were his business, he might well hope that the woman would be privileged to find happiness, as one hopes, for a second time.
733 If that were not enough, the world has changed. Our perceptions have changed. Support for a widow is not a badge of ownership. It is not a dog collar and lead. It is a recognition of her having put a share into the running of a household. Therefore, support is owed to the woman in justice and equity because of what she has done during the period of the marriage, regardless of what she may see fit to do thereafter.
The case of war widows is of particular importance. The point made by the noble Lord, Lord Morris of Manchester, about "war widowers" is also well taken and will be supported by the European Convention on Human Rights. I do not think that any woman's consent to her husband going off and risking his life in war is happily given. It may be freely given; and it is our national fortune sometimes that it is. But for it to be given happily is extremely rare. That that consent should be given is nationally vital. If there is not an adequate arrangement for the support of the widow, that consent will be rather harder to come by. It is to our national benefit.
Finally, in this, as in child support and many other issues, there is a Treasury interest to be considered. If the Treasury considers its own interest with proper enlightenment—that is a considerable proviso—we might find, for once, that the Treasury is on the side of the angels—because a widow not properly supported by the Treasury will inevitably become dependent on income support. We know that that is not what the Minister wants, and we do not want it either.
§ Lord Higgins
As so often in this House, one speaks with diffidence on certain issues because of the long-standing commitment of other Members of this place. In opening the debate, my noble friend Lady Fookes referred to the work done by the noble Baroness, Lady Strange, in regard to war widows. That is of considerable significance.
As has rightly been pointed out, there are two separate types of pension. There is the pension administered by the DSS, and there is that administered by the Ministry of Defence. I listened with interest to the remarks of the noble Earl, Lord Russell, regarding the position of the Treasury. Its record on war widows over the years has been somewhat varied.
The crucial point that underlies these amendments is remarriage. In effect, if in present circumstances someone remarries the Treasury gains as a result because the pension that it has previously paid will cease. Therefore, it would be helpful if the Government made a general statement about their policy with regard to pensions and remarriage. The ramifications go a good deal wider than war widows, of whatever type. As my noble friend Lord Campbell pointed out, from time to time that definition can cover people in rather different circumstances. What is the position of the Government in regard to pensions and remarriage?
In the course of the debate it was said that the normal practice in regard to occupational pensions was that if someone remarried she retained the pension. That slightly surprises me. My impression is that, while that 734 may be true of a number of occupational pension schemes, in a considerable number of cases where a widow remarries she loses that pension. The same applies to different kinds of pension.
There is also the complication that nowadays the status of marriage is supplemented—that is not the right word—by those who live as husband and wife without being formally married, as the amendment suggests. The amendment seeks to cover both circumstances. In many other areas the Treasury, Inland Revenue and so on carry out extensive investigations to determine the exact position. I am not at all clear whether, if a war widow has not formally remarried but is living in a relationship, which is described in the amendment as "husband and wife", she loses the pension. Perhaps the Minister can clarify that particular point.
This matter gives rise to a broad issue of policy, and it would be of assistance to know the attitude of the Government with regard to remarriage and the definition of those circumstances in which a war widow's pension may be withdrawn. More broadly, I would have thought it undesirable from the point of view of public policy to create a situation in which effectively there is a deterrence to marriage. As the noble Earl pointed out, someone who has been widowed may want to remarry but the financial disadvantages can be substantial.
A further problem may arise if, having remarried, she is widowed a second time. It may be that the second husband, in contrast to the first, has little or no pension rights. Therefore, if she decides to remarry not only does she lose her own pension but if her new husband is older than herself, as may well be the case, she may suffer a considerable disadvantage in later life in that she has neither her own pension nor a pension of any great significance from her second husband. I believe that the Committee would be assisted if the Minister could set the whole of this issue in the broader context of remarriage and pensions.
§ 3.45 p.m.
§ Baroness Hollis of Heigham
I shall try. Like other Members of the Committee, I pay tribute to the work of the War Widows Association, with which I have worked closely over the past couple of years as both a Minister and in opposition. The association has always been eloquent, reasoned, consensual and persuasive in its arguments. A good deal of Treasury stiffening is required to resist a number of amendments for which the association argues. The noble Baroness, Lady Fookes, who moved the amendment on behalf of the noble Baroness, Lady Strange, referred to the latter as "my noble friend". I am sorry that the noble Baroness cannot be here. I, too, hope that outside the Chamber, particularly when it comes to espousing widows' causes, we are indeed her friend and she ours.
We all accept, as movingly described by the noble Earl, Lord Russell, that the change in status from marriage to widowhood, especially war widowhood, is not easy. It is traumatic if one's husband is a serviceman and every day one lives with the fear of widowhood, particularly when, as now, so many of our Armed Forces are deployed in the Balkans. I have met many 735 widows who have been helped by the War Widows Association and are extraordinarily grateful for the generosity, warmth, concern and support of that body, which understands the trauma and can help people through it. The association is also tireless in fighting for improvements in the various pension schemes which make provision for servicemen's widows, on whose behalf my noble friend Lord Morris has always been a powerful advocate.
This amendment is an example of the improvements sought by the association. It seeks to provide a war widow's pension from government funds during the lifetime of a war widow regardless of the particular family circumstances following remarriage. In effect, it would introduce government-funded tax-free supplements to the incomes of the second families of war widows which do not take into account the income levels enjoyed by those families. As it stands, the amendment refers to the DSS war widow's pension. The fundamental principle of that pension is that it compensates the widow for the loss of financial maintenance by a husband who has died as a result of service. It is not an occupational pension.
In response to the noble Baroness, Lady Fookes, I cannot comment on the position of the Ministry of Defence. But a pension that is paid by the DSS as a result of widowhood stops when the individual ceases to be a widow. Therefore, in so far as it affects the DSS the Government cannot accept the amendment. Should a war widow be unfortunate enough to become widowed again, or a second marriage ends in divorce, she is eligible to have her war widow's pension reinstated. That amendment to the Pensions Act 1995 was fought for by many in this Chamber, led by the Cross-Benchers. That principle was established for the DSS scheme and therefore applies also to the MoD scheme. The department took on board the decision of this Chamber that a war widow should be able to resume a war widow's DSS pension, and therefore it also applies to the occupational pension. My understanding is that the War Widows Association did not seek to amend the DSS war widows' scheme—it wrote to us to that effect—but to probe the situation with regard to the MoD"s occupational pension scheme, even though, technically, that is perhaps slightly beyond the scope of this Bill.
Cessation of widows' pensions on remarriage, with discretion to restore on second widowhood, is a feature of most public service pensions. I was pressed by the noble Lord, Lord Higgins, about how widespread was the ability of a widow to retain an occupational pension on remarriage. The position differs from scheme to scheme. It is much more likely to apply in the private sector. My information is that in the public sector it ceases on remarriage or cohabitation—which are treated as the same—in the police service, the fire service, the National Health Service, the Civil Service, unless an additional premium is paid, and for MPs, but not for local government, where the position has recently changed, or universities. The vast majority of public sector schemes do not allow an individual to continue to retain an occupational pension once she ceases to be a 736 widow. But the world is changing: the local government scheme has recently changed and others may follow suit.
My honourable friend the Minister of State for the Armed Forces announced last September that the Armed Forces pension scheme would be the subject of a major review. We expect recommendations to emerge around the turn of the year and to be the subject of public consultation. These points and others will be taken up in that review. I have no doubt that the War Widows Association will contribute to that consultation, and I shall draw this debate to the attention of my colleagues in the Ministry of Defence. Their work will examine widows' pensions, including the question of whether they should continue to be withdrawn on remarriage.
Given that the original intent of the amendment was to probe the Government's thinking on MoD pensions and whether we were reviewing the situation, I can assure the Committee that we are. The amendment was not originally intended to apply to the Department of Social Security, although the DSS tends to follow movement elsewhere. At the moment, it is separate. I hope that in the light of the explanation and assurances I have given, the noble Baroness, Lady Strange, will feel able to withdraw the amendment.
Lord Campbell of Croy
I wonder whether the Minister could clarify whether the group we are discussing—war widows—covers those widows whose husbands were servicemen on duty when they died, but who were not involved in a war. For example, if a husband fell off a ladder on duty in barracks in Britain in peacetime, his widow rightly deserves a generous pension. As I understand it, she is automatically classified as a "war widow".
The issue is important because, fortunately, we have not had a major war involving many battle casualties since Korea, nearly 50 years ago. Therefore, there are far more service widows whose husbands have died during peacetime activities. They are the ones whose numbers matter now and are more likely to be of an age to remarry.
§ Earl Russell
Before the Minister replies to the noble Lord, Lord Campbell, will she bear in mind in defining "peacetime" the declining frequency of the declaration of war and the increasing use of the Army, as we saw the day before yesterday, in circumstances involving civil disturbance?
§ Baroness Hollis of Heigham
The noble Lord and the noble Earl are both right. It is true that most war pensions are received not because of service in the Falklands or in Northern Ireland, but because of injuries incurred in training, ranging from sports injuries to noise-induced hearing loss, associated with not having protective clothing during weapons training. Pensions may also be paid as a result of accidents, such as those involving jeeps.
In so far as a war injury has occurred for a serviceman or a war pension has been paid to a service widow, if the injury occurred because the serviceman was in service at the time, the pension is paid. The noble Lord, Lord Campbell, is right. 737 The noble Earl, Lord Russell, is also right. It is not easy to make a clean distinction between war and peace when so many of the demands made on today's Army relate to peacekeeping. Much of the Army's activities involve keeping the peace, and any injury or death incurred is properly covered by the arrangements.
§ Baroness Fookes
I am grateful to the Minister for the generous tribute she paid to my noble friend Lady Strange and to the work of the War Widows Association. I am sure that my noble friend will be delighted to learn about the review that is to take place within the Ministry of Defence, and no doubt she will wish to give her trenchant views to that body.
I would not dare to second-guess what my noble friend might do subsequently in the Bill, but for the time being, I am happy to beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 42 to 44 had been withdrawn from the Marshalled List.]
§ 4 p.m.
§ Baroness Castle of Blackburn moved Amendment No. 44A:
§ After Clause 18, insert the following new clause—
§ CONTRIBUTIONS TO SERPS
§ (" .—(1) Contributors or prospective contributors to a pension scheme, whether an occupational pension scheme or stakeholder pension or a personal pension shall be given the option of contributing to the State Earnings Related Pension Scheme as enacted in the Social Security Pensions Act 1975 or to such modification of it as may be prescribed.
§ (2) To enable prospective contributors in exercising this option the Secretary of State shall publish comparative tables of the contributions required to produce specified benefits in each case including the charges levied on the contributions or on the accumulated fund in each case and the portability of each pension.")
§ The noble Baroness said: The purpose of the amendment is clear: it is to give all people a genuine choice between the various options of pension provision that are open to them and will be open to them under the Government's policies. In seeking to give people that choice, I include the provision of SERPS, with which the Committee is by now familiar.
§ The Government's policy is to phase out SERPS gradually as an option and in the mean time to encourage contributors to adopt other forms of pension. The Minister has made it clear in previous discussions that she considers SERPS provision inferior to the Government's state second pension, for example, for certain categories of income groups. I urge the Committee to accept that the merits of SERPS have been sufficiently recorded by a wide range of people, including Members of the Government, for it to be wrong to remove it as an option for those who wish to choose it. We need to give people a genuine choice.
§ The merits of SERPS have frequently been pointed out. It is a defined pension, so people know what they will get when they have contributed. It is a pension that is paid as of right and it is inflation proofed, which does 738 not apply to every scheme offered as an alternative. SERPS is also completely portable. We have a highly flexible labour market, but SERPS can be moved with no difficulty at all from one job to another because employees are still members of the same fund—the National Insurance Fund. It has also been acknowledged on all sides that the administrative expenses of SERPS are lower than those of any other pension scheme. So why phase it out?
§ The Minister has advanced two arguments against the continuation of SERPS. The first is that it is earnings related. I was surprised to hear the Government use that argument. Has it suddenly become a crime for a pension scheme to be earnings related? If so, what are the Government doing introducing a stakeholder pension scheme, which will be earnings related? Why suddenly applaud the merits of flat-rate pensions?
§ The second argument that the Minister has advanced is that SERPS does least for those who earn the least. Of course, that is true of any earnings-related scheme, although the scale of income involved may be different. One cannot have an earnings-related scheme that equally benefits people regardless of their income. The Government must make up their mind. If relating pensions to earnings is a crime, they should drop that from the stakeholder pension scheme or from the state second pension. Of course, the Minister will tell me that that is exactly what the Government will do with the second state pension. As the stakeholder pension emerges more strongly into the limelight, the Government will make the SSP a flat rate. That, they say, will do far more for those on the lowest incomes.
§ I am the first to admit that one of the best bits in the Government's policy provision which they have set out is the decision to "credit in" some of the lowest income groups as though they were earning £9,000 a year. So those on £3,000 or £4,000 a year will be treated as though they are earning £9,000 a year. Wonderful! I welcome that. After all, £3,000 or £4,000 a year is about a quarter of the average national earnings. So they will be credited into half average national earnings. It is not exactly the dawn of a great affluent millennium, but it is an improvement on the present situation.
§ I ask the Government this question. If that is their concern, why do they not inject that provision into SERPS to add to its many other qualities which I have enumerated and which the Government have time and again accepted? I tell noble Lords why. It is because, without a word of explanation to any of us, the Government have gone overboard for funded pension schemes—pay-as-you-go schemes—although it is by definition impossible to have a defined pension if one has a funded scheme. That is a choice that people should be given.
§ All I ask is for choice. I do not ask for the abolition of any of the Government's proposed alternatives. I am suspending my judgment with bated breath until we know more about the stakeholder pension, the details of which at present are blissfully obscure. I am a fair minded woman. I am willing to hold back any bombshell of destruction on the stakeholder pension until I know what it involves.739
§ All I ask the Government to do is to allow people to choose. I though: that this Government believed in choice. Let it remain among the range of options. But of course if people are to make a real choice, they must have the information to enable them to do so. We are all being made dizzy by the Minister's brilliant spin statistics. She is brilliant at it, is she not? But penetrate the glossy magazines and try to find verification of the claims that are made. I shall expand on that point on the next amendment.
§ In this amendment we ask the Government to have the courage not to put before the people of this country glossy generalisations but precise information to enable the people of this country to make a free choice. Is that not what democracy is about? They need to know. There must be a comparison. No doubt you are much cleverer than I am on this, but I do not know whether any of you can tell me in precise terms to what degree, if at all, the alternatives will be inflation proof; or exactly what the charges will be. We have had a discussion about that; we shall return to it. It is apparently still a matter of argument with those whom the Government are trying to entice to introduce stakeholder pensions. But these matters can profoundly affect the reliability of the pension which people draw at the end of their contributory period. We ask for comparative tables. What will people get for how many contributions in each case?
§ Over personal pension schemes, we discovered that when it came to their final pension contributors were losing £1 out of every £4 that they had carefully saved. We are told, "We shall not repeat that on the stakeholder pension, or anything else". But the Government have not spelt out by exactly how much each person's final pension will be reduced by the charges that have been levied.
§ Again we have the question of portability. I know that the Government are appreciative of the importance of that. They tell us about the flexible labour market in which we live, and how we have to adjust, and so on. But let people choose between the absolute portability which SERPS offers, as Eagle Star, has pointed out, and the as yet undefined and unequal portability of other schemes.
§ I ask the Government to do a very reasonable thing. I ask them to say, "Yes, we acknowledge the strengths of SERPS as everyone else has done. We shall not try to force people out of a state second pension into their earnings related stakeholder pension. State pensions will be flat rate, and we shall then deliver blessings to the very poor". I should hate to feel that this Government, with all their worthwhile ambitions to raise workers and incomes out of poverty, should be visualising that over the next half century there might be people living on £3,000 or £4,000 a year. I hope that our minimum income policy will have done something; if it is not doing something it should be increased. No one in this country should have to earn a living to the tune of £3,000 to £4,000 a year. Instead of tailoring our pensions provision to the existence of pay poverty, we should proudly declare, just as we have clone about child 740 poverty—and we all welcome it—that this Government are determined to abolish pay poverty; and let who will squeal.
§ I ask the Government: please consider very carefully the need for choice; and the need for that choice to be informed. We do not want any mis-selling of government alternatives through lack of information; and I am sure that this Minister will rise to the challenge that I throw down at her. I beg to move.
§ Earl Russell
It is a delight to listen to the noble Baroness, Lady Castle of Blackburn. When she tells us that we are all so much more intelligent than she, she says exactly what Einstein said to the postgraduate—and she deserves to be believed just about as much. I first listened to the noble Baroness 41 years ago, I think, and her ability as a speaker has done nothing but improve since then.
I must admit that, when I begin to think about SERPS, I start feeling like Laocoon. I will not make a speech about SERPS now because I think that the Minister is about to do that. It is possible that we might agree with some of the Minister's comments; I will listen to him and find out.
I will take up just one thing that the noble Baroness said. She gave us a very ruthless either/or about the earnings-related principle: either it is a good thing or it is not. I do not think that it is quite that simple. The earnings-related principle is a bit like driving at 70 miles an hour: it is perfectly all right on an open road, but in a dense crowd it carries risks. I think that such a distinction is legitimate.
I want to address the last part of the first paragraph of the noble Baroness's amendment, which says,as enacted in the Social Security Pensions Act 1975 or to such modification of it as may be prescribed".I am sure that the Minister knows exactly what I will say about those words. I appreciate that, in order to get things on to the agenda and the Order Paper of the House, one includes open-ended statements of that sort. However, that paragraph says that the Secretary of State may do whatever he or she likes.
The noble Baroness has been Secretary of State, and I am sure that she understands that Secretaries of State should not be led into temptation. These open-ended powers mean that, were this matter to be put to the vote on some future occasion, we would be authorising absolutely anything. If there is any question of the measure being put to the vote—perhaps later in our proceedings—I hope that that paragraph will no longer be included.
§ Lord Higgins
Listening to the persuasive speech of the noble Baroness, I begin to wonder how I have disagreed with her so much for so long. As the noble Earl pointed out, the noble Baroness's eloquence has, if anything, improved over the years. Certainly what we have heard this afternoon could reasonably be described as vintage Castle.
The noble Baroness made a rather persuasive speech and I disagreed with only one part of it. She suggested at one stage that one could not have a funded final salary 741 scheme, whereas several occupational schemes are like that. However, they have a very different structure from SERPS. The noble Baroness complained about spin doctors and I began to wonder whether she had been engaged in a little spin doctoring herself. An article in The Independent on Sunday and the front page of yesterday's edition of The Times carried headlines such as "Blair facing defeat over leftover pensions". Members of Labour's influential National Policy Forum are to force a vote on the party's policy on pensions, and I am not sure about the outcome of those deliberations.
The noble Baroness made the point about keeping options open. In their document Partnership in Pensions, the Government spend a considerable amount of time spelling out the many advantages of SERPS—which were recapitulated by the noble Baroness in her opening remarks. For example, the Government point out the low administrative costs involved—and that is an important issue. The noble Baroness rightly pointed to the issues of portability and inflation proofing.
In their paper Partnership in Pensions the Government go to considerable lengths to say that they will substitute for SERPS a state second pension—although the extent to which that state second pension will have the advantages that the noble Baroness outlined for SERPS remains extremely uncertain. In particular, the Government do not propose to introduce the state second pension in one step; they propose to delay it for some considerable time. In the meantime, SERPS will presumably continue as it is.
The noble Baroness made the crucial point that, if the Government intend to introduce a state second pension—which may, in its own right, be desirable—and if they intend to introduce stakeholder pensions, they have not explained why the option of SERPS should not remain open to those who wish to continue with that arrangement. I do not know that we have really had an explanation, but no doubt the Minister will give us one this evening.
Another important point made in the opening speech is that it is crucial that people are able to evaluate one pension option against another. If one were to do that, SERPS is clearly more advantageous in a number of areas. The argument that this is an earnings-related pension is, as has already been pointed out, not a reasonable argument for its abandonment—not least because the stakeholder pension will clearly be in the same position.
The Committee requires a reasoned argument as to why SERPS should not be advanced as a continuing option for those who wish to make the kind of provision with the advantages that SERPS offers—which were outlined clearly by the noble Baroness, Lady Castle of Blackburn.
§ 4.15 p.m.
§ Lord McIntosh of Haringey
My noble friend Lady Castle is notoriously resistant to flattery—indeed, she is scornful of it, as television interviewers have found to their cost on many occasions. However, she is entitled to recognition, and she must be recognised for 742 the fact that her legislation of 1978 introduced a wonderful scheme. I was as angry as she and many other Members were when it was cut and diminished in its effectiveness and its justice by the Conservative government in 1986. I feel as angry about that now as I did at the time—I shall never get over it.
The then Conservative government changed the scheme from an entitlement based on the best 20 years of working life to an average over the whole of working life—from 25 per cent to 20 per cent. of reckonable earnings. That was immensely damaging. To the extent that my noble friend defends what she introduced originally, I agree entirely with her comments.
However, what we propose is better than returning to the 1978 version of SERPS. My noble friend's amendment would give individuals the choice of contributing to the state earnings-related pension scheme as originally enacted in 1975. This would be an additional choice available alongside the Government's proposal for the state second pension and existing contracting-out arrangements. It seems to me that my noble friend is suggesting another form of concurrent pension scheme membership—an issue on which we had much debate when we considered the proposal for stakeholder pensions.
As to what I think are the secondary issues of the complexity of the scheme and choice, I must stress that such a system would be extremely complex for the state and for pension providers to operate. It would also be difficult for individuals to understand. It would be costly both to the state and to individual contributors. It would mean double provision by the state: the state would provide two separate second-tier pension arrangements—SERPS and the state second pension—and the facility to contract out would remain so that rebates would be payable. That is not the best way to encourage saving for old age, and the cost implications for the state would be enormous. It will come as no surprise that individuals opting for this choice would have to pay a much higher level of contribution than that proposed under the new state second pension arrangements. SERPS was significantly more costly than the state second pension will be.
For those, I admit, secondary reasons, we are not attracted to the idea of opening up another choice or of going back to the original SERPS before it was diminished by the Conservative amendments to it.
However, there is a much more important reason. It is that what we are proposing is a better solution particularly for those most in need. The Government's approach is to build a modern and affordable pensions system which will ensure that everyone has the opportunity to achieve a decent income in retirement. We are committed to helping those in most need, which is why we are reforming SERPS and introducing a state second pension which targets help at those on low incomes in a way that SERPS never did. My noble friend Lady Castle acknowledged that under our proposals any employee with earnings below £9,000 will receive a pension as though he or she were earning £9,000, provided that he first earned over the lower earnings limit.
743 The provision relates not only to those who are earning in the ordinary sense. Carers and long-term disabled people with broken work records will also receive flat rate credits to the state second pension, which for many will be worth far more than the original best 20 years provision in SERPS; not just better than SERF'S is now, but better than SERFS even as it was when my noble friend introduced it.
Those earning up to £9,000 and who have contributed for a full working life will be about £50 a week better off under the state second pension. Those earning between £9,000 and £18,000 a year will receive a more modest increase. Those earning more than £18,000 will not receive an increase.
That is targeting with a vengeance. It is using the available resources far more for those in need than would ever be provided under the SERPS scheme. My answer to those who ask why we do not provide the extra choice is not only technical in that it would be confusing and unnecessary to have an extra choice, but that the choice would not be real or valuable to those most in need about whom those of us on this side of the committee are most concerned.
Together with our proposal for stakeholder pensions, this more accurately reflects the current labour market conditions and can therefore go much further in achieving security and decency of pro vision in old age in a way that SERPS—even 1998 SERPS—can no longer do.
My noble friend made a number of points which I want to answer. She said that our pensions are not inflation-proof. All occupational and personal pensions accrued since April 1997 are inflation proof in line with prices up to a cap of 5 per cent, which is well above the current inflation rates. All contracted-out pensions are inflation-proof. As regards choice, the Government never tried to tell individuals which form of pensions vehicle was best for them. We believed that they should be given the right advice so that they can make the right choices. But the decision is a matter for individuals and their independent financial advisers. We are committed to offering choice, but not a choice which would be too complex in the way she suggested.
My noble friend said that our policy is to phase out SERPS. On the contrary, SERPS will be improved by giving more help to the low paid, to carers and to the long-term disabled with broken work records. In stage two of the state second pension, benefits will be flat rate, but no one will be forced to join a privately funded pension. In other words, there is a place for flat-rate pensions and there is a place for earnings-related pensions. That choice will be different for different people.
My noble friend asked about the rules for the state second pension on revaluation and indexation. Earnings on pensions which have accrued will be revalued in line with average earnings up to the point of retirement. When state second pensions are awarded and in payment they will be indexed in line with prices.
My noble friend complained about the lack of information. The Government are working on a range of proposals which will enable individuals to gain a better 744 idea of their prospective rights. We intend to introduce a combined annual statement of their overall provision which is clear and easy to understand.
The second part of my noble friend's amendment deals with the suggestion that the Secretary of State should publish tables to help individuals choose if they want to make contributions to the state scheme. I acknowledge that that sounds sensible, but in fact it is riddled with difficulties. We would have to collect the information. We would have to establish from every pension administrator or provider the specific level of contribution required to produce a certain level of benefit, which would be a huge burden on business. The information would quickly become out of date, and it would be unreliable in money purchase arrangements because the level of the fund depends crucially on market performance. In salary-related schemes, it would be more difficult because of the redistributive nature of the provision and the fact that pension levels depend of the level of salary and not on the level of contribution.
I as much as anyone in the Chamber appreciate and sympathise with the motivation behind the amendment. I hope that I have been able to convince my noble friend that what we are producing builds on the original SERPS and produces something which is better for those most in need. To go back to SERPS as an alternative at this time would be regressive rather than progressive in taxation terms.
§ Lord Higgins
I listened with great interest to what the Minister said and want to make a couple of points. He spoke of the 1998 SERPS; that is, the existing situation. Will he clarify the position of those in that scheme as the second state pension is gradually introduced? A number of people will want to stay in SERPS. At what stage will they be deprived of that option and what will be the situation of those who have not yet retired and those who have already retired?
Secondly, what will be the cost of the proposed arrangements for a state second pension—leaving on one side the issue of discounting the future value—compared with the cost of continuing SERPS in its present form?
§ Lord McIntosh of Haringey
The answer to the noble Lord's first question is that when a state second pension is implemented SERPS will end in the sense that no further pension will be accrued under it. However, pension rights already accrued under SERPS will be protected and paid in full. Therefore, any individual who works and contributes to both SERPS and the state second pension will receive a second pension based on both schemes on retirement.
As regards costs, the table is complicated and I do not have the ability to explain it at this Dispatch Box. Some of it is almost three-dimensional. Will the noble Lord allow me to write to him and place a copy in the Library of the House?
§ Lord Higgins
Yes, of course. I would be happy to do that. On the noble Lord's first point, am I to 745 understand that effectively SERPS will become what one might call a paid-up pension and that the whole operation ceases at that point?
§ Lord McIntosh of Haringey
Yes. No further pension will be accrued under SERPS when the S2P comes in, which is not until April 2002.
§ Baroness Castle of Blackburn
The silence of large sections of the Committee on this issue just shows how complicated the whole pensions field is.
It has interested me, hearing Lord McIntosh's reply to me, to see how obscure and difficult the Government find telling the facts. May I on this point please ask Lord McIntosh if he will send me a copy of the relative costs that he is going to give to Lord Higgins? I would be delighted. If he can give them in a letter, for heaven's sake why can he not give them to the people at large? That is what I am asking; I am asking that everybody should be able to make these comparisons, and of course they cannot. I do not think even the Ministers can, or at least they will not.
I am not going to pursue the argument at this stage. It would be an abuse of the kindness of the Committee to make this a one-woman debate. I will therefore withdraw my amendment at this stage, unsatisfied as I am, and return to the matter later.
§ Amendment, by leave, withdrawn.
§ Moved accordingly, and, on Question, Motion agreed to.
§ House resumed.