HL Deb 06 July 1999 vol 603 cc811-68

House again in Committee on Schedule 3.

Lord Astor of Hever moved, as an amendment to Amendment No. 58, Amendment No. 58C: Line 35, leave out from ("marriage") to second ("the") in line 36

The noble Lord said: Amendment No. 58C covers one of the Opposition's main concerns about the Government's proposals. They have made much of their claim that pension sharing would be a one-off, clean break between two parties in a divorce. However, as they stand, the Government's proposals leave it open for there to be a subsequent application after the initial divorce order is made. We believe that it is utterly inappropriate for a party with a pension that may be subject to a sharing order to be unclear at the time of divorce whether a subsequent order may be made against them.

The amendment is designed to ensure that there is only one opportunity for a pension-sharing order to be made. We have based this on the principle that it cannot be right for there to be an opportunity for a retrospective application after a divorce settlement. The principle of equity is fundamental, it is alleged, to the Government's proposals. We do not, therefore, believe that it is equitable for there to be the possibility of sharing to take place, except in response to an application being made before the divorce order.

In the other place at Committee stage, the Under-Secretary of State said that this amendment was too prescriptive in that it set a time-frame in which it might not be possible for a party to initiate a pension sharing order. The specific instances he cited were serious illness or domestic violence. Perhaps a way of preserving our principle of opposing retrospective applications could be addressed by instituting a time limit after which retrospective applications may not be made.

I should be grateful if the noble Baroness could indicate whether she shares our fundamental concern here and what moves the Government may take to allay it in a practical context. I beg to move.

Baroness Hollis of Heigham

As we have heard, the amendment seeks to change those provisions in the Bill which specify when a court in England and Wales can make a pension sharing order.

Under the Matrimonial Causes Act 1973, decisions about financial arrangements are often—indeed, I was assured in the majority of cases—not reached until after divorce. A pension is just one of the assets which are to be dealt with on divorce and it is therefore necessary to enable pension sharing orders to be made to the same timetable.

The new Section 24B of the Matrimonial Causes Act 1973 is entirely consistent with the existing provisions of that Act, relating to when the court may make other types of ancillary relief orders.

Under the 1973 Act, a divorcing couple are not required to settle their financial arrangements before they get divorced. It is fairly common for those arrangements to be settled after divorce. I do not believe that it would be right to remove the additional flexibility that pension sharing will bring in a large number of cases. For example, it would require that financial arrangements, which would otherwise not have been dealt with until after the divorce had been completed, would have to be completed before the divorce in order to meet the qualifications of only one part of the assets—the pension. I hope that on the basis that all we are doing is protecting the existing situation under the Matrimonial Causes Act and the flexibility that people have, the noble Lord will withdraw his amendment.

Lord Astor of Hever

I thank the Minister for that clarification. I understand the point she makes about flexibility and we will carefully study in Hansard what she said. In the meantime, I beg leave to withdraw the amendment.

Amendment No. 58C, as an amendment to Amendment No. 58, by leave, withdrawn.

Lord Astor of Hever moved, as an amendment to Amendment No. 58, Amendment No. 58D: Line 44, after ("a") insert ("previous")

The noble Lord said: I wish to speak to Amendments Nos. 58D to 58H. This is an area where the Opposition has serious reservations about the Government's proposals. The principle of our amendments is straightforward. It allows the sharing of a pension asset on only one occasion for the scheme participant. The purpose is to ensure that, in an age where, sadly, divorce is becoming ever more prevalent, there will not be the possibility of a further sharing of the asset when an individual remarries after the pension sharing order has been made.

In the other place at Committee stage the Government accepted the principle that if a pension was reduced by earmarking, it should not be subject to subsequent splits. The possibility of discrimination between the first and any subsequent spouses was accepted.

If an asset is split repeatedly on divorce, there is the real danger that an individual may be left with a pension that is utterly inadequate for their retirement. Indeed, given the Government's miserly proposed changes to the topping up of the scheme participant's pension after sharing, this is another serious blow to the institution of marriage.

The Government have stated that they do not believe that pension sharing will impact a couple's decision to marry. However, Malcolm Wicks, Labour Member for Croydon North in the other place and a member of the Social Security Select Committee, said that pension splitting could financially disadvantage men who had already divorced once and then started a new relationship. He said: The fear of having to share their already diminished pension rights with another woman, should a second marriage end in divorce, may make them feel it is not worth marrying again. A man who has had half his pension fund taken away at divorce and who is living with another woman may find she wants to marry him but his accountant may advise him against it". The matter of apportionment of a pension will clearly be for the courts to decide. It tends normally to be the case, though, that jurisprudence evolves through repeated practice. The courts may well determine that, if a pension sharing order is appropriate in principle, the amount apportioned for a scheme participant should be the same in each case of divorce. Therefore, in the case of a subsequent marriage and divorce this could be overwhelmingly detrimental to a person's retirement planning, and particularly unfair where the individual may not be the cause of the divorce.

We are concerned with the diminution of the pension asset which, if repeatedly reduced, would mean some individuals losing all incentive to save for their retirement. Repeated pension sharing orders might render the asset almost worthless. The strength of our amendment is that not only does it address this problem but it is also transparent. A second or third spouse would know that the asset had been previously shared prior to the marriage. This is the only sensible course to pursue if the Government are serious about equitable treatment of scheme participants in an age of ever-increasing divorce rates.

The Opposition appreciate that this is a complex and emotive subject. Pensions were never designed to be split. But we are concerned that the supposed principle of equity under which pension sharing is being introduced is seriously compromised by the possibility of multiple sharing of a single pension asset. It is with that serious reservation in mind that I look forward to some reassurance from the Minister. I beg to move.

Lord Goodhart

Certainly, I understand the idea behind the amendment just moved by the noble Lord, Lord Astor of Hever, which addresses a problem. However, in principle I find it difficult to support the amendment as it stands because it produces a number of anomalies. Let us say that a young man has started his pension at 25, marries and is divorced by the age of 30. For the rest of his life any increase in that pension will be completely immunised against a claim by a second wife who may have been married to him for a quarter of a century. There is an anomaly as between the person who continues with the same pension and someone who moves jobs and starts another good occupational pension scheme with a new employer. That will not be immunised, whereas the old one will be.

I believe that the right way to deal with this undoubted problem is through the courts. I hope that one of the factors that the courts will take into account when deciding how to split a pension is how much of it was earned while the couple were married or living together. Therefore, if there was a second relatively brief and unsuccessful marriage the wife would not normally expect to get away with a significant proportion of the pension fund built up before the marriage began. But it seems to me that this obvious problem should be dealt with through the discretion of the courts rather than by writing this provision on to the face of the Bill.

8.45 p.m.

The Earl of Clanwilliam

I take the points raised by the noble Lord, Lord Goodhart, in two senses. First, I agree with my noble friend that the word "previous" is important in this context. It means that the pension at the time of divorce will be stopped and halved, or whatever fraction is appropriate, and those proportions will continue. Therefore, it does not matter whether either party takes out a subsequent pension. In this amendment the word "previous" refers to the particular pension and the state of its accumulation at the time of divorce.

Secondly, the noble Lord, Lord Goodhart, referred to the role of the judge. This is related to my earlier remarks in relation to new Section 40A(4). The judge dictates how the assets should be broken up; it is he who is in a position to ameliorate the situation and is aware of all the assets of the two parties. Therefore, he can ameliorate the situation by agreement, not by the arbitrary system as proposed in the schedule. Therefore, I support my noble friend Lord Astor and urge the Minister to use new Section 40A(4) and allow the judge to make the disposition in this matter.

Baroness Hollis of Heigham

I thought that the noble Lord, Lord Goodharl, had fully answered all the points made by the noble Lord, Lord Astor, and that I did not need to reply. I believe that he did it splendidly. As for the observations of the noble Earl, it seems to me that the substance of his remarks, which is to leave it the courts to decide the matter, is against the push of his noble friend's amendment. I was not quite sure from where he was coming in those circumstances.

The Earl of Clanwilliam

In this context I speak for myself and am not privy to all of the wishes of the party that I support in this matter.

Baroness Hollis of Heigham

I am not surprised by the independence of mind of the noble Earl—the Committee is aware of that—but the fact that the push of his argument appears to be in a rather different direction from the conclusion of his speech. I was puzzled by the fact that all of the noble Earl's arguments appeared to be against the case put by his noble friend but he ended up supporting him.

The amendment moved by the noble Lord, Lord Astor, relates to the combinations in which earmarking and pension sharing orders may co-exist in relation to a pension arrangement or shareable state scheme rights. Amendment No. 58H seeks to restrict the powers of the courts in England and Wales to make pension-sharing orders. It attempts to prevent a pension-sharing order being made in relation to a pension arrangement which has already been the subject of a similar order, i.e. a second bite. The Bill already prevents a former spouse benefiting from a pension share in relation to a particular pension arrangement and then returning to court to seek a second pension share in respect of that arrangement. This amendment seems to be intended to prevent pension sharing by order by second or subsequent former spouses.

I have two main problems with the amendment. First, it would make it more difficult for the court to help the couple achieve a clean break. The second former spouse would still be able to seek an earmarking order and gain access to the member's spouse's pension through that route. The member spouse could be in the strange position of being able to achieve a clean break from a first spouse but not a second to whom he was linked by an earmarking arrangement.

Secondly, this amendment would limit the member spouse's scope for negotiation. Member spouses might prefer to see their pensions divided for a second time to achieve that clean break, especially if they wish to marry again or perhaps because they would rather keep some other asset untouched. As the noble Lord, Lord Goodhart, said, it may be that the first share of the pension is very small because the marriage has lasted for only a year or two years and the substantial asset has been built up during the second marriage. Therefore, it would be unreasonable to expect that the only assets to go into the matrimonial financial pot would be, say, the home and other savings, but one would be required to exclude the pension whether or not the couple wished it. Overall, this amendment would limit the court's ability to make a fair financial settlement in England and Wales by removing an option which could be of significant benefit to divorcing couples.

The other amendments fall broadly into two parts. Amendments Nos. 58D to 58G also seek to prevent a pension-sharing order being made in relation to a pension arrangement or state scheme rights that have already been shared as part of a previous divorce or nullity settlement. Presumably, the aim is to protect the value of the pension for the member. Yet the result would be to deprive subsequent spouses of the benefit of pension sharing. It is not apparent that any similar restraint is sought in relation to agreements, as opposed to court orders to pension share. Amendments Nos. 59 and 60 seek to prohibit earmarking where a pension has been shared.

I now turn to these amendments in greater detail. Amendments Nos. 58D to 58G would deprive second or subsequent spouses of the possibility of sharing the member's pension on divorce and limit the options available to secure future financial settlements. A pension may very well be the most valuable asset. Some pensions will be of sufficient value to warrant being shared in more than one divorce settlement. We would not, therefore, wish to restrict the number of times a pension arrangement or shareable state scheme rights are capable of being shared in relation to different marriages.

Amendments Nos. 58E and 58G seek to remove the words "in relation to the marriage" from various provisions in the Bill. These words are included in the Bill to prevent a spouse or former spouse from obtaining more than one share of the member's pension arrangements or state scheme rights. But we do not want to prevent a subsequent spouse from being able to share the member's pension arrangement, for the reasons I have given.

Amendments Nos. 59 and 60 seek to limit the power of the court in connection with earmarking orders relating to lump sums. Under the amendments, the power of the court to make such an order would not be exercisable if the pension arrangement in question were subject to a pension-sharing order or had already been the subject of a pension-sharing order or agreement. The amendments presumably seek to protect the value of the member spouse's pension fund. If adopted, they would, in the Government's view, unreasonably limit the options available to the court to assist a subsequent spouse.

The amendments would remove a flexibility that we consider necessary. It will not be used in all cases and I have no doubt that the courts will consider carefully the sort of circumstances that noble Lords have raised. That is why the courts are explicitly required under existing matrimonial law to have regard to all the circumstances of the case, including income, earning capacity, property and other resources that each of the parties is likely to have in the foreseeable future. The amendments would unreasonably restrict the capacity of the courts and the couple to make the most appropriate financial arrangements, and I hope, therefore, that the noble Lord will seek to withdraw his amendment.

Lord Astor of Hever

I am grateful to the Minister for that detailed explanation of why the Government will not accept the amendment. The noble Lord, Lord Goodhart, made two points. The first was that he would find it difficult to support the amendment because of the anomalies, and I accept that that is a good point. Secondly, he suggested that the courts should be the body to take into account the amount of earnings while the spouses were living together.

I accept that pensions on subsequent marriages could be a valuable asset, as the Minister has just said, but in most instances we feel that that will not be the case.

Baroness Hollis of Heigham

I do not normally seek to intervene in the noble Lord's speeches, but I wish to point out that the average age for divorce is early 30s. A subsequent marriage could last a long time and that is the point I was trying to make. It is often the second marriage that has jointly invested in the pension that is in the husband's name.

Lord Astor of Hever

I understand that, but it was my understanding that despite Oscar Wilde's description of second marriage as a triumph of hope over experience, second marriages tend to last less long than first marriages. Our feeling is that one cannot split a crumb and pensions were never designed to be split. We also feel that the second or third spouse knows the score when she marries. In my case, my second wife knew exactly what she was taking on, for better or for worse.

I am sorry that the Minister is not more sympathetic to our amendments. We will read Hansard carefully, but in the meantime I beg leave to withdraw the amendment.

Amendment No. 58D, as an amendment to Amendment No. 58, by leave, withdrawn.

[Amendments Nos. 58E to 58H, as amendments to Amendment No. 58, not moved.]

Lord Astor of Hever moved, as an amendment to Amendment No. 58, Amendment No. 58J: Line 60, at end insert— ("() No pension sharing order shall be made which is materially contrary to the interests of any child of the family.")

The noble Lord said: The amendment is designed to probe the Government's intentions and their commitment to the interests of children from first or subsequent marriages. Those interests appear to have been wholly ignored and excluded from the provisions of pension-sharing arrangements. It is essential that the courts, before they decide whether there should be pension sharing or a pension split, should consider whether that would disadvantage any child.

There can be no doubt that divorce is an exceptionally traumatic experience for all concerned. That is most true for children. Individuals who are normally reasonable and rational can, on divorce, become the antithesis.

The intention is not to add another complicated dimension to protracted legal negotiations but to ensure that there is a fundamental commitment to the interests of children; that is, that no pension-sharing order may be made that is materially contrary to their financial well-being.

We accept that the protection of children's interests on divorce is not primarily accounted for by pension legislation but rather by divorce legislation. The Under-Secretary of State in the other place made it clear that the Matrimonial Causes Act 1973 states that the first consideration will be given to the welfare of a child of the family who is under the age of 18. Lawyers could argue that, in relation to pension sharing, the Bill as it stands contains no reference to children and so there is no reason why they should be taken into account in a pension-sharing order. No legal instrument currently exists in pension sharing to protect the interests of children.

The amendment would compel the financial arrangement to be made with full recognition of the present and future circumstances of the child, to avoid potential conflicts. It is vital, as a matter of principle, that children are explicitly recognised in pension sharing, given the potential for a substantial change in the allocation of capital and revenues within the family. Furthermore, there is a growing tendency towards serial marriages, and therefore, an increase in the number of children who are likely to be directly affected by the fact that one parent's source of income is a pension. Do the Government, therefore, intend to make it possible for the courts to make pension-sharing orders that take full account of the interests of children? The Law Society has specifically asked me to seek clarification on this point.

Baroness Hollis of Heigham

I thank the noble Lord for moving his amendment so clearly. I emphasise that the Government are committed to the welfare of children. However, I am not sure that pensions legislation is the appropriate time to make that point, any more than if we were considering legislation on children we should consider access to pension rights.

The amendment seeks to guarantee that children whose parents divorce should not suffer materially if a pension sharing order is carried out. I hope that I can persuade the Committee that it is not necessary.

The current divorce law, set out in the Matrimonial Causes Act 1973, already requires the courts to give first consideration to the welfare of a child of the family when deciding how to exercise their powers. The courts already treat the welfare of children as a priority in drawing up any divorce settlement. Pension sharing, where it is used, will just be another element in the settlement. It is simply a further means of helping the court in its efforts to achieve a fair outcome in all circumstances of the case—circumstances which are always unique and often very difficult.

As such, pension sharing is covered by the existing requirement in the Matrimonial Causes Act 1973. I am not aware of any concerns about that legislation, and I do not know of any case in which it has failed to provide adequate protection for children. Therefore, I do not believe that it is necessary to add further provisions especially for pension sharing.

The proposed reforms of the Child Support Agency, announced to the House in a Statement on Thursday, support the one-stop shop approach to the financial aspects of divorce proceedings by allowing the maintenance for the child to be part of the overall financial settlement, including spousal maintenance, matrimonial property and pension rights. Lawyers determining the child maintenance element will do so, of course, in the shadow of the child support formula which will protect the child, given that a party who is dissatisfied with the court's settlement may after a year, on two months' notice, go back to the CSA, which will collect the CSA rare. What matters is the income flow for a dependent child in the first family from the non-resident parent. We think that that is best done through broader-based child support maintenance rather than the earmarking of a pension. The point is particularly relevant to the self-employed whose income may be far greater than any potential pension pot.

I understand the sentiments underlying the amendment. Protecting the interests of children of the family is, and should remain, the first consideration of the courts. But we believe that they are already doing that. We think that the position of children will be further protected through the proposed reforms of the CSA. We do not believe that the amendment would add anything to the satisfactory safeguards already in force. We have no reason to believe that the current situation is unsatisfactory. Therefore, I invite the noble Lord to withdraw the amendment.

9 p.m.

Lord Astor of Hever

I am grateful to the Minister for that explanation. The noble Baroness mentioned the Matrimonial Causes Act 1973 to which I referred. We were looking for a greater protection of children. However, I understand the points she made. We shall consider the points made about the CSA. In the meantime, I beg leave to withdraw the amendment.

Amendment No. 58J, as an amendment to Amendment No. 58, by leave, withdrawn.

Lord Astor of Hever moved, as an amendment to Amendment No. 58, Amendment No. 58K: Line 103, after ("order") insert ("following an appeal")

The noble Lord said: This is a probing amendment designed to ascertain whether the provisions of Section 3l(4D) inserted by paragraph 6(4) of Schedule 3 to the Bill are designed to deal with appeals or with any variations more widely. I look forward to the Minister's clarification. I beg to move.

Baroness Hollis of Heigham

The amendment seeks to change those provisions in new Schedule 3 to the Bill which deal with the variation of pension sharing orders before they become effective. Amendment No. 58K would limit the application of a stay period to a pension-sharing order which had been varied on appeal, but not if it had been varied other than on appeal. Our proposals allow for a stay period to apply in both situations. There may understandably be some confusion on the issue and it may be helpful if I set out the circumstances in which it is possible to vary a pension sharing order other than on appeal.

As noble Lords will be aware, appeals can be made against the principle that a pension-sharing order should be made; or against the content of the order. But it is also possible for an application to be made to vary an order. Such an application does not question whether it was right for a pension sharing order to be made, but seeks to vary its terms.

A court might agree to a variation, for example, where other assets came to light after the order had been made but before it became effective. A pension sharing order might also be varied if the circumstances of one or other of the parties to the marriage changed significantly before the divorce was made absolute, perhaps as a result of severe illness.

In those cases, the pension-sharing order, as varied, would take effect immediately so long as the decree absolute had been granted. This would remove the opportunity for either the member spouse or former spouse to challenge the terms of the variation. We believe that it is appropriate for there to be a stay period in the case of variations as well as when the variation arises as a result of an appeal.

I hope that on the basis of that explanation, the noble Lord will be able to withdraw his amendment.

Lord Astor of Hever

I thank the Minister for that explanation. It is a technical point and it is helpful that the Minister has set out the position so clearly. We shall consider with our advisers the points she makes. In the meantime, I beg leave to withdraw the amendment.

Amendment No. 58K, as an amendment to Amendment No. 58, by leave, withdrawn.

On Question, Amendment No. 58 agreed to.

Schedule 3, as amended, agreed to.

Clause 20 agreed to.

Clause 21 agreed to.

Schedule 4 [Amendments of sections 25B to 25D of the Matrimonial Causes Act 1973]:

The Deputy Chairman of Committees (Baroness Lockwood)

In calling Amendment No. 58L, I have to point out that if this amendment is agreed to, I cannot call Amendments Nos. 59 or 60 under the pre-emption rule.

Lord Astor of Hever moved Amendment No. 58L: Page 100, leave out lines 22 to 27

The noble Lord said: In moving the amendment, I speak also to Amendments Nos. 70B, 70C and 70D. These are also probing amendments to clarify the Government's position on allowing earmarking orders affecting lump sum death benefits even though a pension sharing order was being made in respect of the same member.

Currently the Bill prevents a pension sharing order being made at the same time as an earmarking order in respect of the same member and the same scheme. Thus the former spouse would have the choice of either a pension-sharing order or an earmarking order. As regards retirement benefits, that is reasonable, but there are circumstances where the former spouse would want an earmarking order in respect of the lump sum death benefit in addition to a pension sharing order. A typical case might be where the member had not been in the pension scheme for very long so that the value of his accrued benefits was not large, and therefore the value of the pension-sharing order to the former spouse would not be large. The lump sum death-in-service benefit for such a member could be much larger than the value of his accrued pension benefits, and a pension sharing order would not apply to the lump sum death benefit.

On the other hand, an earmarking order can apply to the lump sum death benefit as well as the pension and/or lump sum which the member will receive on retirement. Will the Government amend the Bill to allow an earmarking order relating to a lump sum death benefit to be made at the same time as a pension-sharing order in respect of the same scheme? I beg to move.

Baroness Hollis of Heigham

As we have heard from the noble Lord, the aim of these amendments is to permit a spouse to benefit from a pension sharing order and a lump sum death benefit earmarking order at the same time in relation to a single pension arrangement.

Amendment No. 58L would amend paragraph 2 of Schedule 4 to the Bill. That paragraph will insert a new restriction into Section 25C of the Matrimonial Causes Act 1973. This restriction will prevent the court in England and Wales from making a lump sum death benefit earmarking order under Section 25C of the Matrimonial Causes Act 1973 if the pension arrangement against which the earmarking order was to be made was either already the subject of a pension sharing order in relation to the marriage or had already been shared between the parties to the marriage. I should add that the Bill does not prevent the court making a lump sum death benefit earmarking order in favour of a second spouse if the pension arrangement in question has been shared by a first spouse. Amendments Nos. 70B to 70D would permit pension sharing by agreement of a pension arrangement that has already been the subject of a lump sum death benefit earmarking order.

I think the problem with the amendments is that they will devalue the benefits of pension sharing. We want to encourage "clean breaks" but we accept that, in some cases, earmarking will be fairer and the choice of the couples concerned. We consider that it is reasonable to ask spouses to choose between earmarking and sharing in relation to a single pension arrangement. Permitting both in relation to the same pension arrangement—but to different bits of it—and the same marriage will only encourage complication and expense.

I believe that the Bill strikes a balance between the clean break implicit in pension sharing and the continuing relationship inevitably intertwined with earmarking orders. The amendments would give a spouse the opportunity to pull in these contrary directions at once. I do not think that would be sensible, and I therefore hope that the noble Lord will feel able to withdraw his amendment.

Lord Astor of Hever

I thank the Minister for clarifying that point. I am pleased that the Government are keeping open the earmarking alternative. These are complicated issues and I would like to take advice on the matter. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 59 and 60 not moved.]

Baroness Hollis of Heigham moved Amendment No. 61:

Page 100, line 31, leave out ("22A or")

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendments Nos. 62 to 67:

Page 100, line 48, leave out from ("arrangement",") to end of line 49

Page 101, line 4, leave out ("22A or")

Page 101, line 20, after first ("of') insert ("any of')

Page 101, line 20, leave out ("any of sections 22A to 24D above") and insert ("this Part of this Act")

Page 101, line 41, leave out ("22A or")

Page 102, line 29, leave out ("21(2A)") and insert ("21A(1)")

On Question, amendments agreed to.

Schedule 4, as amended, agreed to.

Clause 22 [Extension to overseas divorces etc.]:

Baroness Hollis of Heigham moved Amendment No. 68:

Page 26, line 18, leave out ("22A or")

On Question, amendment agreed to.

Clause 22, as amended, agreed to.

Baroness Hollis of Heigham moved Amendment No. 69:

After Clause 22, insert the following new clause—


(" .—(1) If any amendment by the Family Law Act 1996 of Part II or IV of the Matrimonial Causes Act 1973 comes into force before the day on which any provision of this Part comes into force, the Lord Chancellor may by order make such consequential amendment of that provision as he thinks fit.

(2) No order under this section may be made unless a draft of the order has been laid before and approved by resolution of each House of Parliament.")

On Question, amendment agreed to.

Clause 23 [Scope of mechanism]:

Lord Goodhart moved Amendment No. 70:

Page 27, line 2, at end insert— ("() An order under this section shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.")

The noble Lord said: I can deal with this amendment briefly because it has been accepted by the Government. Clause 23(1) says: Pension sharing is available under this Chapter in relation to a person's shareable rights under any pension arrangement other than an excepted public service pension scheme". Clause 23(3) says: For the purposes of subsection (1), a public service pension scheme is excepted if it is specified by order made by such Minister of the Crown or government department as may be designated by the Treasury as having responsibility for the scheme". Under the scheme of delegated legislation in the Bill, the order under Clause 23(3) at present does not require either the affirmative or negative procedure and can simply be made without notice by a Minister of the Crown.

The explanation given by the Government for not requiring a statutory instrument with either the affirmative or negative procedure was that the exception was intended to apply only to a small number of cases. It applied in particular to the pensions provided by statute for the Lord Chancellor, the Speaker of the House of Commons and a few other cases where, if there were pension sharing, it was impossible to calculate the pension debit on an actuarial basis because the pensions became payable not on reaching a particular age but on expiration of the office to which they were attached.

If the provision were as limited as that on the face of the Bill, there might have been a justification for saying that the matter could be left to an order without any parliamentary procedure. However, as drafted, Clause 23(3) could apply a good deal more widely and would give a Minister of the Crown the power to accept any public service pension scheme. That was pointed out by the Delegated Powers and Deregulation Committee which recommended that the negative procedure should be used in the case of any order made under this subsection.

I therefore tabled an amendment to that effect. The Government have accepted the proposition and have tabled Amendment No. 143B. In those circumstances, I shall in due course be happy to withdraw my amendment. I beg to move.

9.15 p.m.

Lord Higgins

The Committee will be grateful to the noble Lord, Lord Goodhart, for tabling the amendment. It arises from the points made by the Delegated Powers and Deregulation Committee and has been the subject of correspondence. The committee suggested that Clause 23 had considerable power; indeed, the issue of pension sharing generally is of considerable importance. Therefore, the Committee might wish to consider whether the Bill should be amended to provide parliamentary control of this power, at least by negative procedure.

In a slip of the tongue, the noble Lord, Lord Goodhart, said "by" negative procedure. I believe that in practice it is said "at least by" negative procedure. Nonetheless, Amendment No. 142B is designed to meet the point and we are prepared to settle for negative procedure in this case. I hope that the Minister will therefore press ahead with her amendment with enthusiasm.

Baroness Hollis of Heigham

I cannot resist such an invitation. I can be brief. Clause 23 sets out the scope of the pension sharing mechanism. Pension sharing is available in relation to a person's shareable rights tinder any arrangement other than an excepted public service scheme.

Subsection (3) provides that a public service scheme is excepted if it is specified by order made by such Minister of the Crown or government department as may be designated by the Treasury as having responsibility for the scheme.

During the debate in Committee in another place, the Government stated clearly that they intended to use this power only to except the three schemes covering the great offices of state—currently, the Prime Minister, Speaker and Lord Chancellor—and in due course the First Minister and the Presiding Officer of the Scottish Parliament.

The difficulty with the pension schemes of these great offices of state is that the pension comes into payment immediately the postholder leaves office, regardless of the period of office. Since the date of leaving office can only normally be guessed at, that makes it virtually impossible to value the pension rights accurately. However, we have made clear our intention that the pension rights of all other public servants should be available for pension sharing.

Nonetheless, we accept that this power is wide and agree with the recommendation of the Delegated Powers and Deregulation Committee that its use should be subject to parliamentary scrutiny. I am pleased to say that that is why we have brought forward Amendment No. 143B to Clause 78. This amendment will ensure that the use of the power to except public service schemes from pension sharing will be subject to parliamentary scrutiny through the negative procedure. We believe that Clause 78, which generally deals with provisions for making regulations or orders under the Act, is the best place for such an amendment.

We are all agreed on this issue—I hope that the noble Lords, Lord Higgins and Lord Goodhart, and I speak for the Committee—and I hope that noble Lords will be content to withdraw their amendment and accept Amendment No. 143B.

Lord Goodhart

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Astor of Hever moved Amendment No. 70A:

Page 27, line 2, at end insert— ("(4) The provisions in this Chapter override any provision of a pension arrangement to which they apply to the extent that the provisions of this Chapter conflict with them.")

The noble Lord said: This probing amendment is intended to provide clarity. The insurance industry has argued that the provisions in Part IV must be wholly overriding, that is, applied directly to schemes without the need to amend scheme rules. This was done for the Pensions Act 1995. An announcement from the Government had led us to believe that it would be the case with these provisions, but certain provisions such as those in Clause 28 which amend the Pension Schemes Act 1993 in respect of safeguarded rights have not been made overriding. This will cause unnecessary and burdensome complications for pension scheme trustees, who will be left to make technically difficult amendments to a very large number of schemes.

The burden in time will be large. The insurance industry tells me that it will need at least 15 months from seeing the detailed requirements, which will be set out in regulations, to implementation of the provisions on pension sharing, if the legislation is wholly overriding. If it is not, a much longer period will be needed.

I should be grateful if the Minister could confirm that Part IV will be wholly overriding, so that the trustees do not have to face the unnecessary burden and complication of changing the rules of a very large number of schemes. I beg to move.

Baroness Hollis of Heigham

The amendment calls for the pension sharing legislation to override any conflicting provision in the rules of pension arrangements. Industry representatives have called for this in the past, and officials have discussed the issues with them and their legal advisers.

We understand why it would help speed up the implementation of pension sharing if pension schemes did not have to make lots of individual amendments to scheme rules before the start date for pension sharing, so we have framed the Bill in a way which makes the provisions overriding whenever it makes sense to do so. But there are some areas where that blanket approach would not make sense. These are where schemes have discretion to carry out their responsibilities in the way that suits them best.

Let me give a couple of examples. One option open to the Government was to make it an overriding requirement that a scheme responsible for discharging its liability for a pension credit should be required to offer the former spouse pension rights within the scheme. However, private schemes wanted the freedom to choose whether or not to have former spouse members. Similarly, the Government could have made it an overriding requirement for schemes to offer former spouse members a package of benefits that mirrors the benefits available to deferred members.

Again, the pension industry argued persuasively that schemes should have the flexibility to make up their own minds on these matters. Indeed, we shall be debating a later amendment designed to ensure that schemes which decide to offer internal transfers have the freedom to design a package of benefits for former spouses that suits them best.

If schemes want to have a choice on matters relating to pension sharing, such as the former spouse's package or charging for administrative costs, it follows that the legislation cannot be wholly overriding. It cannot be had both ways.

We think the Bill as drafted strikes the right balance. As in the Pension Schemes Act 1993 and the Pensions Act 1995, some matters are overriding and others are not. Each provision has to be considered individually and decided on its own merits.

The noble Lord pressed me in particular on whether the whole of Part IV would be overriding, like the Pensions Act 1995, as he put it. Certain parts of that Act were overriding—Part I, for instance. However, others were not. In particular, none of the new contracting out provisions which came into force in 1997 was overriding. We intend that the safeguarded rights requirements in Clause 32 shall in general terms reflect those already in place for contracted out schemes which have accrued since 6th April 1997. The schemes will have to confirm that they satisfy the contracting out requirement in order to hold a contracting out certificate. Any scheme opting to hold safeguarded rights will be required to provide assurances to the Inland Revenue that the safeguarded rights requirements are met. The contracting out provisions are not overriding, since they permit schemes to make choices about how to satisfy the requirement, and it is for scheme rules to specify which of the available choices have been exercised by the scheme. Similar provisions will apply to safeguarded rights, and scheme rules will need to explain which of the options are available to those members entitled to safeguarded rights.

However, where provisions in Part IV are analogous with provisions in the Pensions Act 1995, or, indeed, the Pension Schemes Act 1993, which are overriding, for consistency with the existing legislation we have made those provisions in the Bill overriding as well. So, for example, Clause 33, which inserts a new Part IVA into the Pensions Scheme Act 1993, is overriding since it is broadly analogous with the existing Part IV of the 1993 Act, which is also overriding legislation. Similarly, part of Clause 34 imposes requirements on schemes winding up that are analogous with provisions in Part I of the Pensions Act 1995 which, as I mentioned earlier, are also overriding.

Therefore, I realise that these are complex matters. Essentially, we are mirroring existing practice. I hope that on the basis of what I have said in an attempt fully to answer the noble Lord's point about Part IV, he will feel able to withdraw his amendment.

Lord Astor of Hever

I thank the Minister for that very full answer. I am extremely grateful to her for pointing out that parts of the Pensions Act 1995 were not overriding. I am also grateful to her for pointing out that schemes will have to confirm that they satisfy the contracting-out requirements to hold the contracting-out certificate. That is an important point.

We shall need to study carefully what the Minister said and confer with our advisers. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 23 agreed to.

Clause 24 [Activation of pension sharing]:

[Amendments Nos. 70B to 70D not moved.]

Clause 24 agreed to.

Clause 25 [Creation of pension debits and credits]:

Lord Astor of Hever moved Amendment No. 70E:

Page 29, line 36, at end insert— ("() Subsections (2) and (3) above shall not prevent the court from assessing the percentage or amount to be transferred on the basis of the past service reserve, if in the circumstances of the case the court considers this to be appropriate.")

The noble Lord said: The purpose of this amendment is to give the courts some flexibility about the method of valuation used when looking at pension sharing. At the moment, the Bill provides that only the cash equivalent transfer value—CETV—can be used to calculate the value of a pension. The Law Society is concerned that that may not yield an accurate result. Therefore, the courts should have discretion to use other methods of valuation in certain cases. That is most likely to be needed when the person who has built up the pension is nearing retirement, has a high salary and the pension concerned is substantial.

CETV is a widely used and well understood means of valuing pensions. For example, it is used if an employee changes jobs and wishes to transfer his pension from his old to his new employer. In the vast majority of cases, using the CETV as a basis of pension sharing will produce a fair result.

However, in some cases, particularly where there is a large pension or a long marriage, using CETV may result in the pension being undervalued. For a personal pension, the CETV is the surrender value and not the fund 'value. Surrender values can sometimes be as low as one-fifth of the fund value and can sometimes be nothing at all. We wish the courts to have the power, where appropriate, to use an alternative method of valuing pensions, such as the past service reserve, where it appears that CETV may not generate a fair result. We do not believe that alternative methods of valuation would be used frequently. Therefore, will the Government consider giving the courts the power, wherever appropriate, and where serious anomalies could arise in the rigid use of the standard CETV, to use an alternative method of valuing pensions? I beg to move.

9.30 p.m.

Lord Goodhart

On the last occasion I was critical of the amendment moved by the noble Lord, Lord Astor of Hever. On this occasion, I express my support in principle for it. However, I can see certain problems with it. In particular, it could lead to an increase in the cost of matrimonial litigation if one has to retain experts to argue the question as to which method of calculation is appropriate in any particular situation. Nevertheless, it is well established that there are cases in which the cash equivalent valuation might work unfairly. In such cases it would be appropriate to use one of the other recognised methods of evaluation of pension rights as the basis for the order for pension-sharing. I shall be interested to hear the Minister's response.

Baroness Berners

I support this amendment moved by my noble friend Lord Astor of Hever. I repeat his question. Will the Government consider giving the courts the power, wherever appropriate, to use an alternate method of valuing pensions? What guarantee can the Minister offer that the courts will have sufficient expertise to know when it is appropriate?

Baroness Hollis of Heigham

I have some sympathy with this amendment. I am aware that the Social Security Select Committee was thinking along the same lines when it published its report on pensions on divorce in October 1998. The committee recommended at paragraph 47 of its report that the court should be given a limited discretion to cater for circumstances where serious anomalies would arise from the rigid use of a standard cash equivalent transfer valuation, a CETV of pension rights.

The Government have, of course, made it clear in the Explanatory Notes to the Bill that they intend to use the regulation-making power in Clause 26 to require pension rights to be valued for pension-sharing purposes by the tried and trusted CETV methodology. In contrast, Amendment No. 70E and the Select Committee both argue for the courts to be given discretion to depart from the CETV method.

Despite that difference in approach, the Government have some sympathy with the amendment. I believe that we all readily accept that the CETV method is not perfect. But after very serious consideration we have concluded that it is the least worse method available to us. More than that, it is probably the only valuation method that is fair to employers, pension schemes and other scheme members.

It is worth perhaps saying a few words in defence of CETV which has had something of a dark press tonight. I hope that I shall be on safe ground if I quote from the evidence of Mr Martin Slack who appeared before the Social Security Select Committee, on behalf of the Institute of Actuaries and the Faculty of Actuaries on 22nd July last year. He said: The CETV is a value of the benefits to which a member would have been entitled had he ceased to be in service at that point. So the fact that the CETV is valued as the leading service benefit means it is valuing a less valuable benefit than if the member stayed all the way through to retirement. I think that is the only way one can proceed because one does not know what the person's salary increases would have been had they stayed, nor whether or not they would have retired earlier, whereas the leaving service benefit is a factual benefit at the time and is the only one you can get hold of". That is why the Government believe that it is right to use the CETV for pension-sharing purposes. There is no way of knowing when the member may leave the scheme early because of a change of job or early retirement. So it would not be fair to schemes or employers that fund the balance of costs, to place a higher value on the pension rights to be shared than the value that has actually accrued. That would require schemes or employers to meet additional costs as a result of divorce. That would be unacceptable. It would also enable some former spouses to be treated more favourably than other scheme members who transfer pension rights out of the scheme. That too cannot be justified.

The CETV must, therefore, remain the basis for any division of pension assets. However, we accept that there are some circumstances—for example, certain schemes with fast accrual where people typically retire early—where the simple application of the CETV could be inappropriate. As we said in response to the Select Committee, we believe that, in such cases, the courts will have an adequate remedy to hand in that they could increase the share of the member's CETV to be transferred to the former spouse. So, for example, the court, in considering all the circumstances of the case, including perhaps a past service reserve valuation of the rights of a member of a salary-related scheme, may decide to transfer, say, 80 per cent of the normal CETV to the former spouse rather than 60 per cent. To make the Government's policy intention absolutely clear, it would not in any circumstances be possible to require a pension scheme or arrangement to pay more than 100 per cent of the CETV.

I hope that I have said sufficient to persuade the noble Lord that there is, in practice, much common ground between us. Our intention is that legislation will permit the court to take account of additional evidence when determining the percentage of the CETV to be shared. The difference between us is that we do not think it would be right to allow more than 100 per cent of the normal CETV to be shared. For that reason, the Government cannot accept the amendment.

Lord Astor of Hever

I thank the Minister for that reply. I am grateful to the noble Lord, Lord Goodhart, for his support. He made a valid point about the extra cost.

The Minister started by saying that the Government had sympathy with our amendment, but she then destroyed my hopes by saying that there was little common ground between us. We want to consider carefully the points that she has made. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 25 agreed to.

Clause 26 [Cash equivalents]:

Lord Astor of Hever moved Amendment No. 70F:

Page 30, line 22, at end insert ("(including medical evidence)")

The noble Lord said: I rise to speak to Amendment No. 70F. This is a probing amendment to establish whether underwriters will be allowed to follow normal practice which would include taking into account medical evidence.

Pension benefits have to be valued on divorce, just as other assets, such as the home, have to valued, in order for them to be appropriately shared. When the valuation of pension benefits is that of a pension in payment, the crucial aspect of a fair valuation of the benefits—fair to the beneficiaries and other scheme members—is an assessment of the health as well as the age of the beneficiaries. Medical evidence in the form of information from a GP or other medical practitioner may be needed to inform the assessment and a medical examination may be necessary.

How to value the pension rights will be prescribed by regulations. In broad terms, the regulations will prescribe that the valuation should be done in accordance with the guidance of the Institute and Faculty of Actuaries on calculating the CETV. However, we believe that in primary legislation it should be made clear that pension providers may receive medical evidence of the beneficiary's health in order properly to value the pension benefits.

The nature of pensions is such that there are few circumstances when the whole pension benefit has to have a value placed on it. Pension sharing is one instance. Early retirement is an already established instance. Will the Minister confirm that underwriters will be able to use all relevant information on which they rely in assessing risk, such as medical evidence when they value pension assets on divorce? I beg to move.

Baroness Hollis of Heigham

My Lords, I welcome the opportunity to debate the issues raised by Amendment No. 70F. We have made it clear throughout our extensive consultations on pension sharing that we want to ensure that all pension rights can be shared, including pensions in payment.

We have taken a power in Clause 26 to enable us to deal in regulations with the technical issue of the calculation of the cash equivalent of pension rights. We recognise that, in relation to pensions in payment, we are to some extent entering new territory, since it is not currently possible for pensioner members to transfer the cash equivalent of their pensions out of the scheme.

However, there is no real difficulty in principle in extending cash equivalent transfer values to pensions in payment cases. At the scheme level, the actuarial assumptions involved will take account of the fact that some people will live longer than average and others will live less long. However, at the individual level, the health of the individual becomes much more important. For example, if the member is in very poor health, the absence of medical evidence may result in a significant over-estimate in the valuation of the pension assets.

The Government accept that pension sharing must be based on a fair valuation of pension rights and clearly that may not be possible if pertinent medical evidence is not available to the scheme in pensions in payment cases. The use of such information is well established elsewhere, especially in areas such as insurance, where it is important for organisations to be able to assess accurately the risks they are taking on.

I understand the noble Lord's concern that there might be scope for people to abuse the system if schemes were prevented from obtaining medical evidence. That is why we have indicated throughout our consultation that we do not intend to prevent schemes from requesting medical evidence before implementing pension-sharing orders in pensions in payment cases, where schemes feel there may be a risk of abuse.

That is why, as I mentioned earlier, we have taken a power which could be used to deal with these matters in regulations. That power might be used to enable a person responsible for implementing a pension sharing order to obtain appropriate medical evidence.

Preparatory work on the regulations is underway and my officials are actively engaged in discussions with the pensions industry on this matter. One of the main concerns that I have asked officials to address is whether requirements in respect of medical evidence would be compatible with the European Convention on Human Rights. We do, of course, need to be satisfied that any future regulations will be reasonable and sound in all respects, including the Convention angle. Meanwhile, I hope that the noble Lord will agree that this matter is one which could properly be dealt with in secondary legislation, and agree to withdraw the amendment.

Lord Astor of Hever

I thank the Minister for that full reply and indeed for acknowledging that medical evidence may need to be accepted where it is needed. I am also happy to hear that the Minister's officials are in discussion with the insurance industry. In the light of that good news, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 26 agrees to.

Clause 27 [Reduction of benefit]:

Lord Astor of Hever moved Amendment No. 71:

Page 31, line 3, at end insert— ("() Following an award against a scheme member of one or more pension debit orders, the scheme member shall be entitled, within permitted contribution limits, to rebuild the pension rights foregone as a result of the order or orders.")

The noble Lord said: This is a probing amendment to clarify that scheme members will be allowed to rebuild their pensions following one or more debit orders. Will the Minister confirm that current tax rules will be amended, so that this is possible? Will the Minister also confirm that this will be done under the Finance Bill if it is not dealt with in this Bill? I beg to move.

The Earl of Clanwilliam

It is only right that, if someone suffers a debit through no fault of his own, he should be allowed to reinstate that debit so that his pension accumulation does not suffer.

9.45 p.m.

Baroness Hollis of Heigham

Amendment No. 71 is a major amendment intended to enable a member of an occupational pension scheme whose pension has been shared to rebuild the pension rights transferred to the former spouse when permitted within the permitted contribution limits. However, as I am sure Members of the Committee will be aware, the Government have already gone a considerable way to meeting the concerns that have been expressed with the easement that they announced in the other place. Essentially, that easement allows moderate earners—that is, people earning up to £22,650 a year—fully to rebuild within permitted contribution limits.

The amendment seeks to go further than the easement announced by allowing all members of occupational schemes, irrespective of their earnings, to ignore the pension share when rebuilding their pension rights up to the maximum permitted under Inland Revenue rules; in other words, everyone would be free to rebuild within the 15 per cent annual employee contribution limit.

It is important to be clear about the scale of the problem that this amendment seeks to address. First, the easement we have announced will cover the majority of occupational pension scheme members and target help on those who most need it. Of those who remain with earnings above £22,650, the statistics suggest that more than half of them will be under the age of 35 at the time of divorce, with ample time to rebuild within Inland Revenue limits or to save for their retirement in other ways. Originally, our best estimate of the proportion of scheme members who would be partly or wholly constrained by the tax limits from rebuilding their pensions was between 5 per cent and 10 per cent But the easements announced in the other place would reduce that number by half; that is to say, to between 2.5 per cent and 5 per cent of this group.

If our estimate of around 25,000 pension sharing cases affecting occupational pensions per annum is proved right, that means that between 600 and 1,250 people only—perhaps 750 or 1,000—would be affected each year and not all of those would have the resources, or be willing, to rebuild their pensions fully, even if the tax constraints were removed. Therefore, in reality, we are concerned at most with a few hundred people.

The Government are not persuaded that it would be right to create special rules for this small group of people. We have chosen to link the rules that will enable a pension share to be ignored, for tax purposes, to the rules for people changing jobs. We are building on arrangements that have long been in place. We have avoided creating special tax rules for divorcing couples. To introduce special tax rules for a few hundred people, as argued for in the amendment, could be seen to be unfair and as positive discrimination in favour of this particular group.

I can assure Members of that Committee that, because of the numbers involved, the Government do not seek to resist the amendment on grounds of cost—

Lord Astor of Hever

Can the Minister say why she is so certain that this will affect only a few hundred people?

Baroness Hollis of Heigham

Yes. I am sorry; I tried to cover this. We believe that something like 25,000 pension sharing orders will affect occupational pension schemes. Within that, we know that the average age of divorce is under 35, which means that people usually have 30 years of working life to rebuild their pension. We also know that under 5 per cent—indeed, between 2.5 per cent and 5 per cent—already have no head space within which to do so. Putting all of that together and excluding those people who cannot afford to rebuild because they are only just above the £22,000 threshold, our figures suggest that we are talking about only a few hundred people who might wish to rebuild their scheme but are prevented from doing so by virtue of the fact that they have no head space within which to do so. That is the basis for our figures.

Given that explanation, I emphasise that it is not a question of finance because the cost would only be about £1 million a year annually, although that would build up thereafter. It is primarily a matter of principle. However, I have to say that we cannot ignore the risk that a concession to divorcing couples would create pressure for special treatment for other groups, which could involve a significant loss of tax revenue.

I should also add that the amendment makes no direct reference to finance legislation, although it seeks to influence the tax approval arrangements for pension sharing. I do not believe that it would be appropriate to amend the Bill in a way that would bring it into conflict with the tax arrangements for pension-sharing that have been agreed in the other place.

I recognise that the amendment addresses one of the major concerns that has emerged since we published the draft Bill in the summer of 1998. The Government have listened to those concerns and the distance between us has reduced, so to speak, by more than half. However, we have not been persuaded that it would be right to take the extra step required by the amendment. Nevertheless, we shall continue to listen carefully to representations on the issue and to keep the matter under review. With that assurance, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Astor of Hever

Does that mean that the Government might return with an amendment of their own on Report?

Baroness Hollis of Heigham

No, it certainly does not. All I am saying is that any such figure—I refer to the figure I have given of £22,650—is obviously one that the Chancellor would want to keep under review, as he does all other figures in terms of income related benefits, upper earnings limit, lower earnings limit, tax thresholds and the like. I meant no more than that.

Lord Astor of Hever

I am grateful to the Minister for her reply. I accept that the easement announcement that was made in the other place will be of some help. This amendment constitutes a major point, as the Minister said. We shall want to consider carefully what she said and possibly return to it on Report. In the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 27 agreed to.

Clause 28 [Effect on contracted-out rights]:

Baroness Hollis of Heigham moved Amendment No. 71A:

Page 31, line 42, leave out ("rights under the scheme become") and insert ("right to the pension becomes")

The noble Baroness said: These government amendments, Amendments Nos. 71A to 71D, make a number of minor drafting changes to Clause 28, which deals with the effect of a pension debit on contracted-out rights. It may assist the Committee if I remind it that contracted-out rights are those rights built up by people who have opted out of SERPS and have an occupational pension or personal pension that replaces SERPS.

It has been suggested by some pension experts that the current draft of the clause does not accurately reflect the policy intention and its relationship with Clause 27 is unclear. We have given careful consideration to their concerns and as a result have decided to introduce these government amendments to clarify the policy intention.

Clause 27 provides for effect to be given to a pension debit by reducing a member's pension rights by the appropriate percentage. Clause 28 complements this by providing for the reduction of the member's contracted-out rights, along with any other rights shared, by the appropriate percentage.

Amendments Nos. 71A to 71D are designed to iron out any potential inconsistency between Clause 28 and Clause 27. In particular, Amendment No. 71C is intended to make it absolutely clear that a scheme is only obliged, in relation to the guaranteed minimum pension, or GMP as it is usually known, to provide a GMP which has been reduced as a consequence of the pension debit, rather than the full GMP.

This is a group of technical amendments that addresses the concerns expressed by some expert commentators on Clause 28 of the Bill. I beg to move.

Lord Astor of Hever

I am grateful to the Minister for that explanation. I understand that these are technical amendments to tidy up the wording. We shall want to read carefully what she has said, but as things stand we shall not oppose the amendments.

The Earl of Clanwilliam

Does it not appear that the provision in Clause 27 would answer the problem raised by the noble Baroness in Clause 28?

Baroness Hollis of Heigham

I am not sure that I take the noble Earl's point.

The Earl of Clanwilliam

Does not the provision in Clause 27 which would allow members to rebuild their pension rights solve the problem that is addressed by Amendment No. 71C?

Baroness Hollis of Heigham

I am looking for guidance on this. I am not sure whether the noble Earl is correct. I think that I had better write to him to follow up his point in detail.

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendments Nos. 71B to 71D:

Page 31, line 44, leave out ("shall be") and insert ("is, subject to subsection (1A),")

Page 31, line 45, at end insert— ("(1A) Where the earner is in pensionable service under the scheme on the day on which the order or provision on which the pension debit depends takes effect, his guaranteed minimum in relation to the scheme is reduced by an amount equal to the appropriate percentage of the corresponding qualifying benefit. (1B) For the purposes of subsection (1A), the corresponding qualifying benefit is the guaranteed minimum taken for the purpose of calculating the cash equivalent by reference to which the amount of the pension debit is determined.")

Page 32, line 1, leave out ("subsection (1)") and insert ("this section")

On Question, amendments agreed to.

Clause 28, as amended, agreed to.

Clauses 29 and 30 agreed to.

Clause 31 [Mode of discharge of liability]:

Lord Astor of Hever moved Amendment No. 72:

Page 33, line 40, leave out subsection (1)

The noble Lord said: I rise to move Amendment No. 72 and to speak to Schedule 5 stand part.

The means by which trustees may discharge their liabilities towards a former spouse must be unambiguous and effective. Funded schemes can choose whether or not to provide the pension share within the scheme or externally. Can the Minister confirm that if a scheme transfers out of a pension scheme under the default option—in other words, without the former spouse's consent—and if a trustee has acted reasonably in the circumstances, the trustee will be given a valid discharge by the legislation? I beg to move.

Baroness Hollis of Heigham

Yes. The answer, very simply, is that the trustee will be given a valid discharge.

Lord Astor of Hever

I thank the Minister for that very satisfactory answer. In the light of that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 31 agreed to.

Schedule 5 [Pension credits: mode of discharge]:

Lord Astor of Hever moved Amendment No. 72A:

Page 105, line 2, at end insert (", and (c) they are to be discharged by the trustees or managers of the scheme in a manner which they deem appropriate")

The noble Lord said: I rise to move Amendment No. 72A. We have some concerns about the benefits to which former spouses will be entitled as the result of an internal transfer. Mast schemes will probably wish to mirror preferred pensioner benefits, but some may not. It is important to ensure that schemes can provide a package of benefits for the former spouse if an internal transfer is chosen. The overriding principle must be that of equivalent value, with a cash equivalent proportion ordered or agreed. We seek the Government's clarification on this point. I beg to move.

Baroness Hollis of Heigham

Amendment No. 72A seeks to amend Schedule 5, which is concerned with the way in which a pension scheme or arrangement can discharge its liability for a pension credit. The pension credit is the share of the pension scheme member's pension that passes to the former spouse.

One of the ways in which a pension scheme can discharge its liability for a pension credit is by conferring "appropriate rights" under that scheme on the former spouse. In layman's terms, one could perhaps simply call that an "internal transfer" of the rights that have been shared as they stay within the scheme from which the pension credit was derived.

Paragraph 5 of Schedule 5 defines what is meant by "appropriate rights". As currently drafted, it includes two provisions which are designed to safeguard the interests of the former spouse. First, the rights must be conferred from, and including, the day on which the pension sharing order takes effect. The second safeguard is that the value of the rights conferred must be equal in value to the amount of the pension credit.

Amendment No. 72A seeks to impose a third condition which would enable the trustees or managers of the scheme to discharge their liability by conferring rights in the scheme in a manner in which they deem appropriate.

The noble Lord has explained that this is a probing amendment to tease out the extent to which the Government believe that the trustees or managers should be free to design the package of benefits to the former spouse. I am happy to reassure the Committee that that is indeed our intention. With one exception, which I shall explain in a moment, we want schemes that offer "internal transfers" to be able to choose the arrangements that suit them best. The key safeguard, already enshrined in paragraph 5 of Schedule 5, is that the value of the package of benefits offered must be equal in value to the pension credit.

However, as I have just mentioned, there is one exception, and that relates to pension credits derived from contracted-out rights, which are called "safeguarded rights" in the Bill. As the Committee will be aware, the Pension Schemes Act 1993 and the regulations made under it impose extra conditions on contracted-out rights. To give a simple example, protected rights built up in a personal pension to replace SERPS rights cannot be used to provide a pension before age 60 and cannot be commuted to a tax-free lump sum.

The Government believe it is right that where part of the pension credit is derived from protected rights, that part of the pension credit—the safeguarded rights part—should be subject to similar restrictions. So, for example, if the former spouse becomes a member of the same personal pension scheme as her ex-spouse, she too should not be able to draw a pension from her safeguarded rights until age 60 and, like her ex-husband, should not be able to take a tax-free lump sum from that part of her personal pension fund. Imposing similar restrictions on the safeguarded rights is fair to both parties, protects the interests of the taxpayer and will ensure that those rights continue to be used for the purpose for which they are intended: to provide a secure income in retirement.

To conclude, with the exception of some restrictions in respect of safeguarded rights to be set out in regulations, schemes will be free to offer the package of benefits that best suits them. It is not the intention that schemes will be required to offer former spouses benefits that mirror those offered to early leavers. So the amendment is unnecessary.

I hope that I have clarified the Government's intention sufficiently to persuade the noble Lord to withdraw his amendment.

10 p.m.

Lord Astor of Hever

I asked for clarification, and the Minister has answered fully the points that I made. I am glad to have the assurance that she gave. In the light of that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 5 agreed to.

Clauses 32 to 45 agreed to.

Clause 46 [Effect of state scheme pension debits and credits]:

Lord Higgins moved Amendment No. 73:

Page 51, line 17, leave out subsection (1)

The noble Lord said: We have already had an extensive debate on the various arrangements for pension sharing, to which my noble friend Lord Astor of Hever has given a considerable amount of intensive study. We now turn to a part of the Bill dealing with a particular aspect of pension sharing; namely, the sharing of state scheme rights.

One well understands that in regard to divorce and pension sharing the accumulated rights of individuals in, for example, a particular occupational scheme or a personal pension scheme may be allocated in the ways that we have discussed. But even more complex considerations arise in regard to the sharing of state scheme benefits.

We could appropriately have tabled amendments to leave out Clause 43 or Clause 44. However, it seemed to us that Clause 46 might be an appropriate one on which to have a rather general debate on the way in which a married couple's assets in the state scheme might reasonably be divided between them in the event of divorce. This is effectively a paving amendment so far as discussion of Schedule 6 is concerned.

Schedule 6 contains a series of provisions on the effect of so-called state scheme pension debits and credits. That appears to be a method that the Government have in mind to allocate the various entitlements that either member of a married couple may have. Having studied Clause 46 and Schedule 6, I am far from clear how the arrangement will proceed.

It would seem that, so far as category A retirement pensions are concerned, there will be reductions in the additional pension and, similarly, between the two parties involved there will be a reduction in the shared additional pension. I am not clear why there is an additional pension. Perhaps the Minister will explain, first, why that is the case and, secondly, why the pension should be reduced so far as pension sharing is concerned.

The considerations which arise in the case of the state scheme are different from those which arise otherwise. Both individuals concerned may have contributed towards the state pension scheme, although in a number of cases that may not be true. Perhaps the man will have a scheme and his wife may have a related pension, particularly with, for example, widow's benefits, although that is not relevant in the present context. Since this is a complex area, it would be helpful if the noble Baroness could spell out the way in which she foresees the rights in the state scheme being divided and why there should be additional pensions on the one hand and reductions in them on the other.

One could have raised the matter on the earlier clauses in this part, but it seemed to us an appropriate point at which to raise these important issues. I beg to move.

Baroness Fookes

Can the Minister say what happens with the spouse who has been divorced and has the credit in the pension sharing arrangements? What happens if she dies either before retirement age or soon after? Is the credit then lost for ever to the spouse who gave the credit in the first place? Presumably his pension, whether it is state or occupational, will be less than it would have been by virtue of the pension sharing arrangement. I should be grateful if the Minister could deal with that. It may be in the document somewhere, but I have not been able to find it.

Baroness Hollis of Heigham

Amendment No. 73 removes subsection (1) of Clause 46 which gives effect to Schedule 6—an essential component of our pension sharing proposals which provide for the sharing of SERPS rights. Schedule 6 inserts four new sections into the Contributions and Benefits Act 1992.

Lord Higgins

Did I understand the noble Baroness to mention SERPS rights?

Baroness Hollis of Heigham

Yes. In particular, paragraph 2 covers how and when an additional pension should be reduced when a person's SERPS rights become subject to a pension debit. That is what we are talking about, SERPS and the additional pension. Paragraph 3 of Schedule 3 covers how and when a person will become entitled to a shared additional pension and whether a shared additional pension can subsequently become subject to a pension sharing order or provision.

The effect of Amendment No. 73 would be to prevent pension sharing of SERPS. Yet the Government believe it is both right and fair that SERPS rights, just like other second pension rights built up in occupational and personal pension schemes, should fall within the scope of pension sharing.

Perhaps I may widen the subject. When we were debating pension sharing on divorce during the passage of the 1995 Act, and then subsequently when the Green Paper came through from the previous Government, I remember the noble Lord, Lord Mackay, the predecessor of the noble Lord, Lord Higgins, being emphatic. He was determined not to go ahead with any scheme which denied the capacity to pension share SERPS. We always expected that the sharing of SERPS would be that much more complicated than a funded scheme where there is a CETP and a straightforward package.

We believe it is right to apply it to SERPS. It is a basic right underpinning pension sharing that there should be no built-in bias for or against any one type of scheme. The decision whether or not it is appropriate for any particular pension to be shared will depend on the individual circumstances of that case and must rest with the courts.

The noble Lord, Lord Higgins, pressed us on why SERPS should be shared when the wife might have her own pension rights. The courts or the divorcing parties will take account of all the assets, including any pension rights that she might have, whether state or private.

The noble Baroness, Lady Fookes, asked what would happen if the former spouse acquired a pension share as part of a divorce settlement and then died. She asked whether that pension share would revert back to the spouse. I will write to the noble Baroness if I have got it wrong, but my understanding of the policy is that that pension share would be part of her assets which would have been taken by her, for example, in lieu of part of the matrimonial home. Just as if she died but the matrimonial home or part of it or some savings had been made over to her, it would not revert to the former spouse unless she so willed it. It would go to her next of kin or her dependants in the usual way. Unless I have been misinformed, in which case I shall write to the noble Baroness, it would be perverse to hold that something that had been traded in lieu of other more tangible assets should revert back to a former spouse. With those points, I hope that the noble Lord, Lord Higgins, will feel able to withdraw his amendment.

Lord Higgins

I had somewhat misunderstood the scope of this particular schedule. As the noble Baroness has rightly pointed out—now I understand it rather better—the schedule is concerned with SERPS. The sidenote, which is not part of the Bill, refers to "Reduction of additional pension". Effectively, that is a reference to SERF'S, if I understand it correctly. If that is so, I am not entirely clear why that is being reduced. I had thought initially that this schedule referred to the basic state pension, but the noble Baroness indicated that that is not so. However, one would have thought that the basic state pension was among the various pensions that might reasonably be shared.

Baroness Hollis of Heigham

At the moment, a widow acquires rights to the basic state pension through her husband's national insurance. 'That pension is acquired through his rights rather than any of her own. It is not an additional pension in the same way as SERPS.

Lord Higgins

I well understand that it is not an additional pension, but the point I make—which may reflect my lack of comprehension in this particular matter—is that, according to my understanding, among the pensions that may be shared is an entitlement to the basic state pension As the noble Baroness rightly points out, it may be that the wife is entitled to a form of pension as a result of the husband having contributed. Therefore, if there is a divorce it seems appropriate for that to be shared in some sense.

One curious feature of the state pension scheme is that a husband may get a wife's pension although he has not contributed any more than a single individual. That was a basic curiosity in the original Beveridge scheme. If, as the Minister has explained, this schedule is concerned solely with SERPS, I am not clear where the provisions in regard to the basic state pension appear in the Bill. If one is to include SERPS, surely one includes the basic state pension as well.

Baroness Hollis of Heigham

I am slightly baffled by the noble Lord's remarks. Pension sharing applies to those pensions other than the basic state pension, whether it is SERPS, occupational pensions, private pensions and, in due course, stakeholder pensions. Those pensions are part of the matrimonial assets that go into the pot to be shared in the divorce. The state basic pension is not available in the same way. If the husband died the widow would inherit those pension rights and they would continue. The same applies to pension sharing. The widow will keep her own rights irrespective of what happens to her after the divorce. The state pension is secure in her own right, whether she is widowed or divorced, and is not subject to pension sharing; in other words, she reverts essentially to being a single person.

Lord Higgins

I believe that I understand what the noble Baroness says. However, the husband gets a larger pension than the wife. If there is to be an equitable split, I am not quite sure why some adjustment is not made in that respect. Am I right in thinking that there is no provision whatever in the legislation now before us as far as concerns the basic state pension?

In order to speed up matters, perhaps I may turn to another relevant point. Clearly, we are here to legislate for the long term. It is intended that these provisions shall continue in perpetuity.

However, the debates that we had earlier referred to the fact that SERPS will be abolished and a second state pension will be introduced. What is the Government's thinking and will the schedule cover that point in the future? We are talking about a five-year time-scale, but I presume that the Government intend to legislate for the next 20 years or so.

10.15 p.m.

Baroness Hollis of Heigham

Very simply, it is the Government's intention that pension sharing should apply to all second pensions, including state second pensions. Even though they are unfunded like SERPS, they have an asset value. Stakeholder pensions, which are funded like other money-purchase schemes, will also be included. With the state single pension, the issue of pension sharing does not arise, because following divorce the spouses revert to the status of single persons.

Lord Higgins

I am now beginning to see the position more clearly and I hope that I am right in thinking that the Bill contains no provision as far as the state pension is concerned.

Baroness Hollis of Heigham

There does not need to be at this stage, because the state second pension does not exist. As and when legislation is introduced to set up the state second pension, it will contain appropriate clauses to cover the point if the Bill does not do so. The noble Lord pressed me on the Government's policy intent, which is that pension sharing should apply to all second-tier pensions, because they are part of the matrimonial domestic property of the family and both parties have contributed to it.

Lord Higgins

I am grateful to the Minister for clarifying that point which I clearly had not fully understood before. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 46 agreed to.

Schedule 6 agreed to.

Clauses 47 and 48 agreed to.

Lord Higgins moved Amendment No. 73A:

Before Clause 49, insert the following new clause—


(" .—(1) The Secretary of State shall by regulations establish a scheme to compensate persons who are widowed after 5th April 2000 and who have not been able to make alternative provision to make good the reduction in the additional pension then payable to them as a result of the enactment of section 19 of the Social Security Act 1986, because of the provision of inadequate or misleading information by the Department of Social Security.

(2) If no regulations are made under subsection (1) before 5th April 2000 then the Contributions and Benefits Act shall be amended in accordance with subsections (3) and (4).

(3) The following provisions shall cease to have effect—

  1. (a) section 39(3);
  2. (b) section 48C(3);
  3. (c) section 51(3);
  4. (d) in Schedule 5, paragraphs 4(3), 5A(3) and 6(4).

(4) The following words shall be omitted—

  1. (a) in sections 48A(4)(b) and 48B(2)(b), "half of",
  2. (b) in paragraph 5(2) of Schedule 5, "Where the husband dies before 6th April 2000",
  3. (c) in paragraph 6(3) of that Schedule, "but before 6th April 2000".

(5) Regulations under this section shall be contained in a statutory instrument which shall be laid in draft before, and subject to approval by resolution of, each House of Parliament.")

The noble Lord said: We change gear rapidly now from a series of amendments on pension sharing, which were very complex, to Amendment No. 73A on the issue of SERPS, which has attracted much public attention.

The history of the matter is well rehearsed: way back in 1986, the then Government decided that it would not be appropriate to continue the arrangement whereby the widow of a person with an entitlement to SERPS continued to receive the full amount. Effectively, it was suggested that there should be a cut in the widows' pension. That was of course a matter of great controversy at the time, although I understand that the Government do not propose to change that arrangement.

Remarkably, the further problem has arisen that the arrangements that were announced in 1986—this is a non-partisan point—seem not to have been implemented. Consequently, several individuals were under the wrong impression as to how much pension their widows would receive.

In addition, the situation of wrong information being provided to people has continued almost to the present day. I understand that as late as April the department was still misinforming individuals as to the true situation. That has given rise to a great deal of concern. An individual will not have made the arrangements he might otherwise have made had he realised the position with regard to his wife's pension if she became widowed.

The Government have made a number of announcements on the issue. The first reaction of the noble Baroness in this House was to say that she was taking legal advice. One presumes that that has taken place. It would be helpful if we could know the advice that the Government received. It is a matter of considerable importance. A number of difficult legal issues arise.

Similarly, Age Concern has referred a case to the parliamentary ombudsman, who announced on 29th March that he would investigate whether there was a case of maladministration to be held against the DSS. He said that he would report in good time before the change came into effect in April 2000.

One of the causes of concern is the length of time it appears to take to make decisions. Without criticising the parliamentary ombudsman, it would be appropriate for him to take account of the fact that we are debating this Bill and that it is a matter of grave concern. To say that he will take from June 1999 to April 2000 to reach a decision when all the facts can be ascertained in a much shorter time does not seem an appropriate time-scale. While the legislation is going through, it is possible for the House to express a view on the appropriate solution—I stress again that I do not make a partisan point—to a difficult situation where individuals are in danger. Clearly some have suffered because of the wrong information received.

There is the difficulty of establishing whether an individual has asked for this information and has received the wrong information by telephone, or more simply by correspondence. One would hope that the ombudsman could refer to that. Leaving the ombudsman issue to one side, one would have thought it appropriate for the Government to express a view in advance of the Bill becoming law. I understand that Mr Stephen Timms, the Minister in another place, confirmed that compensation is to be paid to anyone who can establish that he or she received advice that did not reflect the change from April 2000 and as a result acted to his or her detriment. Clearly there are two problems in establishing it. First, individuals have to demonstrate that they were misinformed. It would be helpful to know from the Government what record is kept of telephone conversations on these matters in the context of our other debates about the computer. I understand that records are kept of telephone conversations between individuals and the department. Secondly, in the context of Mr Timms' remarks, it would be necessary for the individual to show that as a result he acted to his detriment; or, more accurately, did not act and as a result suffered.

We are clear that if those two conditions can be fulfilled—that an individual can demonstrate that he was misinformed and suffered as a result—it is already established, and recorded clearly in Hansard of 8th March 1999, that that is the Government's intention. The Government have presumably given a great deal of thought to these matters. As in the case of the passported benefits in relation to the Tax Credits Act 1999, which is now on the statute book, there has been a great deal of interdepartmental discussion—not least between the Department of Social Security and the Treasury because the financial consequences may be considerable. The noble Baroness said on 4th May that the DSS was considering delaying the change. Is that still in the Government's mind and, if so, over what sort of time scale?

My amendment seeks to suggest that we should treat this as a matter of urgency and that the position with regard to compensation should be established before we conclude our consideration of the Bill. This is obviously a preliminary debate—we have Report and Third Reading stages to come—and we must consider at what stage it might be appropriate to press these matters to a Division.

It is a matter of concern, and we realise that the Government must consider it carefully. However, it does not seem to us at all unreasonable that we should ask the Government to make a decision while the House has an opportunity to take a view on what it thinks would be an appropriate response on behalf of the individuals concerned.

Lord Rix

As be noble Lord, Lord Higgins, said, the Minister of State, Stephen Timms, has made a number of promises in another place about a compensation scheme for widows and widowers who were not informed of the prospective reduction in SERPS. I believe that telephone calls to the Benefits Agency are recorded and kept for a maximum of six months.

This amendment seeks to place such a compensation scheme clearly on the face of the Bill. I welcome that, and I thus offer my support to the noble Lord. Unfortunately, the phrase "how long is a piece of string?" keeps entering my mind in regard to such compensation. My Amendments Nos. 91A and 92A are more specific in this area. However, I will withhold any further comments about them until later. I, therefore, support the noble Lord, Lord Higgins, in whatever decision and direction he may take.

Earl Russell

This amendment is very similar to Amendment No. 91A standing in the name of the noble Lord, Lord Rix. However, it is a good deal less sweeping than our Amendment No. 92D, which we shall come to later. If the noble Lord, Lord Higgins, should be minded to press the matter to a Division at a later stage, we will remember that half a loaf is better than no bread—indeed, it may be a good deal more than half a loaf.

At least the facts of the matter are reasonably clearly agreed as they were set out by the Minister on 4th. May and on other occasions. It is agreed that a change was introduced by the Social Security Act 1986 and that the change was not communicated adequately to those who would suffer from it. It is also agreed that that remained true until at least this April.

The last time we discussed this issue, the Minister said that she had not yet discovered why the misinformation was disseminated. If she has now made that discovery, I will listen with interest. The crucial point that the noble Lord, Lord Higgins, made clear is that, as a result of the misleading information, a great many people have done what they otherwise would not have done and—more importantly—have not done what they otherwise would have done. In fact, many people have not made provision for their spouse's widowhood, which they most undoubtedly would have made had they known what the law was.

Knowing the law relating to social security is extremely difficult. Except for the present Minister, who is extraordinary in this respect, there are few of us, even Ministers, who outside the Chamber taken by surprise would know exactly what the law on social security was. So if Ministers do not know, how can we expect husbands making ordinary provision for their ordinary families to know when they have been told otherwise by people whose business it is to give them honest information? Outside public life, that would give rise to a strong claim to compensation.

The Minister knows that I am not inclined to make anything of the point that the country party has turned into the court and Treasury party. That happens all the time. However, I believed that Mrs Beckett's remark, I advise anyone who is married to a man who is lingering on 5th April 2000 quickly to shove a pillow over his face because it will halve the pension entitlement if the husband dies on the following day", was perhaps taking the freedom of opposition to a rather extreme extent. The legal position would be interesting were anyone to take that advice—

Baroness Hollis of Heigham

I think that she would enjoy parliamentary immunity!

Earl Russell

That is just what I was about to say, but I was about to add that the pleading of parliamentary privilege might tend to bring that doctrine into discredit and might lead to as much political loss as legal gain. I believe that prudent Ministers do not let it come to that point.

In the past, the Minister has made distinctly encouraging noises on the subject. I have heard them and I have been distinctly encouraged. But distinctly encouraging noises and legally binding commitments where the Treasury is in the wings are not the same things. The Division Bell concentrates the mind wonderfully. The noble Lord, Lord Higgins, has allowed a stay of execution. We await developments.

10.30 p.m.

Baroness Fookes

I welcome the amendment in the name of my noble friend as a first stab at dealing with what I regard as a serious problem. It is intolerable that a department of state should allow the situation to occur. As the noble Earl said, it is difficult for ordinary people to understand the law and they rely on what they are told by officials of the state.

However, I am concerned about the necessity for proof because I suspect that in many cases it will not be forthcoming. That does not make the problem of the person involved any the less. Indeed, I should think it would be even more frustrating if he knew that compensation was available but remained beyond his reach because he was unable to offer sufficient proof. I should have thought that a more drastic solution was called for, even to the point of deferring the operation of the scheme. I await the Minister's reply with interest.

Baroness Hollis of Heigham

Never has an amendment tonight been awaited with such interest. I suspect that never shall I disappoint so many people at once on one amendment. It relates to the provisions reducing inherited SERPS for widows and widowers similar to those put forward in another place. It is not dissimilar in principle to the issues raised in your Lordships' House at Question Time.

The proposed new clause would prevent implementation of the changes to inherited SERPS unless the Government have introduced a compensation scheme by 5th April 2000. The noble Earl, Lord Russell, the noble Lord, Lord Rix, and others make an alternative suggestion later.

The changes to inherited SERPS were introduced by the previous government 13 years ago. The stated intention was to bring SERPS into line with occupational pensions, where it is the norm to inherit half of the scheme, and so to ensure a level playing field between occupational schemes and state provision.

The implementation date for the changes, which apply to widows and widowers above state pension age and widows below state pension age, was set for the year 2000, 14 years after the original legislation. This should have given people who might be affected plenty of time to alter their financial arrangements.

It is common ground that those changes were not well handled by the previous administration. The noble Baroness, Lady Fookes, talked about the present situation being intolerable. What was intolerable was the situation that the Government inherited. The noble Lord, Lord Higgins, says that if the Government do not come up with a satisfactory answer he will press the amendment to a Division. That is a bit rich, coming from the party which created this horrendous mess in the first place, and with huge costs that we seek now to address.

Earl Russell

Speaking for a party not involved in this, I wish to say that we know this Committee is amply populated with pots and kettles. Need we waste time saying so?

Baroness Hollis of Heigham

I rather think so, because the pressure is on the Government to solve a multi-billion-pound problem which we have inherited and which we only registered as a problem towards the end of last year. Yet we are being pressed, when over the past 14 years the previous administration failed to take action or do what they should have done.

I take the point made by the noble Earl, Lord Russell, who is not in the major Opposition party or the Government, but the Government are being put on the defensive, to produce a solution involving multi-billions which was created by the previous administration, who are quick to criticise us for not coming up with a solution and very slow to apologise either to the Committee or to people at large for the mess they created, the failure to publicise and the inadequacy, therefore, of people's subsequent financial arrangements.

I was not seeking to make party political points, but it would well behove the Opposition, who in government introduced this change—that is their privilege—and then failed to publicise it, and continued to give misleading information for nearly 14 years, to take some responsibility for their actions, instead of seeking to turn the matter around on this Government for having failed to respond quickly to what an ombudsman may or may not currently be contemplating.

It is unwise, imprudent, ungenerous and unfortunate of the noble Lord, Lord Higgins, to try to turn the issue into one of this Government's incompetence, as opposed to his Government's maladministration.

Earl Russell

In the light of the fact that the misinformation has gone on under both parties, the remarks of the noble Baroness, the Minister, remind me of the marginal rubric in the UN delegate's notes: "Weak point. Shout."

Baroness Hollis of Heigham

On the contrary, the previous administration introduced this change, and therefore had a responsibility for publicising it. We did not, and we did not know that it had not been publicised. There is a total difference in our situation, and I am surprised that the noble Earl, Lord Russell, does not accept that there is a difference—and a qualitative difference—between us.

We are well aware that this matter was not handled well, and we are very concerned that people have been worried about the reduction and the misleading information that some have received. But the costs of delaying or phasing in the change are substantial. To give an example, the cumulative cost of delaying the reduction would be more than £5.5 billion by 2010, and there would be a continuing cost of around £1 billion a year for some time after that. Those are the sorts of sums we are talking about.

If one were starting afresh with that sort of money to put into pensions, it is not immediately obvious that the pressure point one would seek to address would be to bring a SERPS 50 per cent pension up to 100 per cent for widows. To reverse the change, or to introduce an open-ended compensation scheme—the noble Baroness, Lady Fookes, was absolutely right about that; it would be an open-ended compensation scheme—would have the same early effect, but with a bill for expenditure in the future that would continue to increase.

There is a very real issue of proof. The noble Lord, Lord Rix, asked me about telephone calls. No record is kept of telephone calls, any more than a record is normally kept of conversations at the desk. Paper records are kept for about six months. But if someone assented that he had received that misleading advice, I suspect it may well be the case that the Government would have to prove that he had not, rather than the contrary, because there would be no evidence to counterbalance it.

Lord Rix

That happened to me. I made two telephone calls—one in 1992, just before my heart operation and one in July of last year, during the currency of this Government. I received misleading information from the Benefits Agency in Newcastle. It appears that I have no means of proving that. But the Minister now seems to be saying that the Benefits Agency would have to prove that it had not received the call, rather than the other way round. I assure the Minister that I did make the call; otherwise I should not have entered into the SERPS debate in the first place.

Baroness Hollis of Heigham

I accept entirely that the noble Lord, Lord Rix, did indeed make those calls. I was using that as an example to show how difficult it would be to meet the standard of proof suggested by the noble Baroness, Lady Fookes.

At present, no one has suffered any financial loss as a result of those changes because they do not take effect until April 2000. The Government, including the Minister of State, have made it clear on several occasions that they will consider claims for compensation from individuals who have received incorrect information and have subsequently either acted to their detriment or failed to act to their benefit.

As I said, we are considering which of those two routes is the better to follow or whether there is a third route which we have not yet explored. Several different responses have been given this evening and a variety of other suggestions has been made. But reversing the change, opting to defer it or giving full compensation to people who claim, whether there is evidence or not, that they have been affected or given misleading advice, would produce significant and heavy costs. We cannot take that decision lightly. We are considering the matter carefully and we shall make an announcement in due course. It is no good the noble Lord being indignant with me about bringing information to the Committee. The Government have to make a choice on this extremely expensive issue which involves billions of pounds. The Government will not be rushed into making that decision in order to fit in with the timetable of this or any other Bill. We must do what we believe is right and prudent. We shall make an announcement in due course. On that basis, I ask the noble Lord to withdraw his amendment.

Lord Higgins

I did not move this amendment in any way in a partisan spirit. I accept fully that there have been problems with regard to misinformation both under the previous government and under the present Government. It is important that we should debate this matter in that way.

There are two issues: the first is the original change way back in 1986; and the second is the question of bad information being given to individuals who, had they had the right information, might have made different decisions and who have suffered as a result of the bad information they have received.

Lord Rix

I speak from personal experience. Sometimes those bad decisions were taken at the time when it was the law of the land. When I went as secretary-general to Mencap, where pay was not exactly over-generous, I decided to take an early pension. But I did that because at that time, the law of the land said that I would received SERPS and that if I died, my widow would also receive full SERPS. In other words, I took a pension many years before I should have done so on the understanding, as the law was at that time, that my widow would receive a full pension. I took that decision then.

Therefore, it is quite clear that those of us who paid in from 1978 to 1986 were doing so when the law of the land said that our widows would receive full SERPS. I am totally at a loss to understand how the noble Lord's government could overturn that in 1986 or how it could be supported by the present Government at this time. It seems to be a simple matter of contract which is completely overridden by retrospective statute. At the moment a mutual company is in the courts facing a bill for £1.1 billion for trying to argue against the need to pay terminal bonuses which it had contracted to make on certain life pensions. If the court finds against the life company, it will be in exactly the same position as would be this and the previous government if they too found themselves in court today.

Earl Russell

Is the noble Lord, Lord Rix, telling us that this Whitehall farce is not as funny as some others that he can remember?

Lord Rix

Taken as a plot for a Whitehall farce, it might have been seen as totally unacceptable.

10.45 p.m.

Lord Higgins

I am not going down that particular route. There are two issues. The first relates to the initial decision and the second to the wrong information which, it is abundantly clear, was given both under the previous government and the present one. As regards the initial decision, that was debated at the time and Parliament took a view on it. A period of 14 years elapsed before that decision came into effect.

The basic point which the noble Lord, Lord Rix, made in the first part of his intervention a moment ago relates to that decision. His particular amendment is rightly to be discussed separately from this one because he seeks to raise issues other than those I am dealing with now. The noble Baroness will correct me if I am wrong, but my understanding is that the Government are in no way proposing to reverse at this stage the decision taken in 1986 as regards basic policy.

The second issue is the action which people failed to take, as the noble Earl pointed out, when receiving wrong information. There again, one must accept that that has happened under both governments. Ultimately, Ministers are held responsible. I leave unasked—I do not expect an answer—what happened to the officials who were responsible. Presumably, in many instances they have retired.

But having discovered that mistakes have been made both by this and the previous government, the question remains as to what it is right to do about it. Clearly, because the deadline is rapidly approaching and is only a matter of a few months away, it is important that a decision should be reached so that people know where they stand.

There are various solutions as regards compensation. The proposal put forward in the amendment tabled by the Liberal Democrats, which it is more appropriate to discuss separately, will be very expensive whereas the cost of my amendment is not clear because we do not know what the Government have in mind.

I put this point in the tone I used for my opening remarks. I do not believe that it is unreasonable to say that if as much information as we are going to receive is now available, Ministers should make up their minds as quickly as possible. My amendment seeks to encourage them to do so. As regards previous amendments to the Tax Credits Bill, the noble Baroness viewed with scepticism my attempts to encourage her to make rapid decisions. There is no reason why a decision should be delayed beyond the date I have suggested in my amendment. The sanction suggested is perhaps not entirely appropriate. We can turn to that at a later stage.

I turn to the question of the records. I am somewhat surprised by what the Minister has said about telephone calls. She will recall that with regard to the problems that arose with the payment of pensions and the breakdown of the department's computer, a number of people telephoned the department. My understanding is that in those circumstances a record is kept of such telephone calls. Am I wrong in recollecting that that is so?

In situations where there is clearly a record in writing, perhaps the department keeps the letters for only six months, but it is likely that those who received letters may have retained letters written more than six months ago. I pay tribute to the fact that the Government in another place, and the Minister in this House, have indicated that they propose to do something about this matter. They are not proposing to say, "Bad luck, that is the end of the matter". They intend to devise a system of compensation. However, I do not understand why there is a problem in devising such a system within a reasonable time-scale, at any rate before 5th April, which is the limit set in the amendment.

As the noble Earl, Lord Russell, pointed out, there are difficulties here. Whether people receive a full widow's pension or half a widow's pension will depend arbitrarily on the exact date. That matter would not raise particular problems if they have had 14 years to prepare for such an event, but if not, it will raise problems.

With regard to Amendment No. 73A, the amendment in the name of the noble Lord, Lord Rix, or that tabled by the Liberal Democrat Benches, I hope that it will be possible to press the Government to make a decision that is acceptable to the House. If this is not resolved before the Bill passes, the danger is that the House will not have an opportunity to express a view on what is clearly a highly unsatisfactory situation, on which I make no partisan point. However, we ought to try to resolve it within a reasonable time-scale.

I was hoping that we might have some further response from the Minister. If not, I shall reserve the right to return to this at a later stage. We shall consider the reply given by the Minister, but it seems that simply to say, "Wait and see", when the House will not be in a position to take a view opposite to or different from that of the Government would not be a satisfactory position. Somewhat reluctantly, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 49 [Bereavement payments]:

Lord Higgins moved Amendment No. 74:

Page 54, line 16, after ("day") insert ("or a bereaved person aged between 60 and 64 when the spouse died")

The noble Lord said: We have already outlined the problem that has arisen in this case. In Amendment No. 74, we are seeking to suggest that those in this unsatisfactory situation may be in a more difficult position if the person who is bereaved and who expects to receive a pension is, so to speak, up against a deadline. I hope that the Minister can give a sympathetic answer. I beg to move.

Lord Addington

I want to add the support of these Benches to the noble Lords physically on my left.

Lord Rix

Venturing into the detail of this part of the Bill is for me, as an amateur in these matters, rather like a boy scout with a first aid badge attempting brain surgery. But I wish to speak to the bereavement payments as a whole in the amendments before us.

Like other Members of the Committee, I welcome the fact that widowers will now receive bereavement benefits. But as I said at Second Reading, I am at a loss to understand why this reform, which was necessary to meet the principle of equal treatment of men and women, should also mean that widows will lose £500 million a year by the year 2020. It is a case of giving a little with one hand and taking away a lot with the other.

I am convinced by the arguments for extending the new £2,000 bereavement payment to people above state pension age, including women aged 60 to 64. The logic, such as it is, seems to me that, as the old payment was not paid to pensioners, therefore the new one will not be paid either. But as Age Concern and others pointed out, older people have the same needs on bereavement as people aged under pension age without dependent children.

To me, such a decision sits oddly with the Government's aim of targeting benefits to those who need them, unless there is evidence, which I have yet to see, that those over pension age are, as a group, less needy than those under pension age. In general, nothing will be paid to any pensioners when they suffer bereavement. I am therefore sympathetic to the aims of those amendments which extend the eligibility of the bereavement payment. In particular, there is a strong case for extending eligibility to women aged 60 to 64, at least until the state pension is equalised between 2010 and 2020.

I welcome the fact that bereavement payment has been doubled. Its value should now be protected so that it does not wither on the vine. But, in spite of this seemingly generous gesture, I am still concerned that women widowed in the future are liable to be short-changed. For example, as we have just heard, they might lose half of their late husband's. SERPS, and will not receive the additional bereavement tax allowance from April 2000. If we are building for the future, as I am sure is the intention, I am certain that those yet to be bereaved deserve greater fairness and greater security.

Baroness Amos

Amendment No. 74 is aimed at extending eligibiLty for the bereavement payment. It would allow people widowed between the ages of 60 and 64, at any time before or after the new scheme comes into force, to claim the £2000 bereavement payment.

I should first make it clear that the clause will extend existing policy and allow men aged 60 to 64 widowed after the new scheme starts to claim bereavement payment. And when the pension ages of men and women are equalised at 65, women in this age group will also qualify.

The group that the noble Lord intends to help—widows aged 60 to 64—are pensioners. But bereavement benefits, like the widow's benefits they are replacing, are there to provide a measure of compensation from the national insurance scheme for men and women who have lost a spouse while still of working age.

The noble Lord, Lord Rix, talked of the Government's commitment to targeting benefits to those who need them most. Other measures are in place to provide that support for pensioners and this Government have done much to build on that. In discussions this evening we have already talked about the minimum income guarantee. Our proposals are based on a clear set of principles and our reforms focus help from the state where and when it is needed most. We are spending £140 million more in the first year to ensure that this happens from the start.

The amendment would appear to allow retrospective claims from any widower aged between 60 and 64 when his wife died. That might mean, for example, giving the lump sum payment to an 80-year old man widowed 20 years ago. I should remind Members of the Committee that the bereavement payment, like the current widow's payment, is intended to be paid immediately on bereavement. The principle is that it helps with immediate costs at the time of greatest need. Offering the benefit retrospectively to people whose need for immediate support has passed would undermine that principle.

Under the new bereavement payment that we are introducing, each year thousands of men will receive a benefit that they could never claim before; thousands of women will get double the amount they would get at present. The amendment would weaken the principles that underpin our reforms. On that basis, I hope that the noble Lord will feel able to withdraw the amendment.

Lord Higgins

I believe that the Committee will be grateful to the noble Baroness, Lady Amos, for clarifying the position with regard to this particular amendment. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

11 p.m.

Lord Addington moved Amendment No. 75:

Page 54, line 21, leave out ("and") and insert ("or () that the person was of pensionable age and in receipt of income support; and").

The noble Lord said: I intend to take the most direct approach possible on this amendment. If a person, no matter what his age may be, is on income support, he is receiving benefit to bring his income up to an acceptable level. Thus the logic behind the amendment is that, if that person is bereaved and there is a benefit available for covering the costs of bereavement, surely there is a case for making that payment available to someone who is on such a level of income that he is in need of income support.

I hope that we shall receive, shall we say, a warmer reception for this amendment than we have received for many of the other amendments that we have moved so far this evening. I beg to move.

Baroness Amos

The noble Lord's amendment appears to be aimed at extending eligibility for the bereavement payment to widows and widowers of pensionable age who are receiving income support. Although I understand the noble Lord's concerns, I am afraid that I shall disappoint him. I believe that this amendment is the wrong way to address such concerns. It goes against a principle that has been at the heart of the widows' benefit scheme since it was devised by Beveridge. Widows' benefits have always been an insurance against unexpected death in working life. They are not compensation for the inevitable fact that all of us will die. They are, and always have been, intended for people of working age; and this will continue under our proposals.

The purpose of the bereavement benefit, as with the widow's payment it will replace, is to provide immediate help to those of working age in meeting unexpected costs which arise on bereavement. We recognise the great importance of having swift, non-means-tested help at such a time. That is why we have doubled the value of the payment. Of course, pensioners also need support and we are fully committed to that aim. On bereavement, the social fund is available to help the poorest pensioners—and others—with funeral expenses.

I could go into some of the detail of the Government's other achievements with respect to pensioners but, bearing in mind the lateness of the hour, I shall not, unless noble Lords wish me to do so. However well intentioned, the amendment would undermine the fundamental principles of our reforms. On that basis, I ask the noble Lord to withdraw it.

Lord Addington

When we receive a response which states that the amendment would not fit into the Beveridge scheme, I always feel that we should perhaps have moved slightly further on than that. The noble Baroness also referred to "unexpected death". I cannot help thinking that people are living rather longer than they did when Beveridge was devising his scheme. Therefore, the example of not fitting into the existing scheme is something that we should be looking at rather more thoroughly than is the case at the moment. I heard the noble Baroness's answer and reserve my position to return to this subject at a later stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 76:

Page 54, line 24, at end insert ("or was making voluntary contributions")

The noble Lord said: In moving this amendment, I shall speak also to Amendment No. 82. The amendment refers to the qualifications for bereavement payments which appear in Clause 49. That clause contains various provisions. For example, the proposed new Section 36(1) states that, A person whose spouse dies on or after the appointed day shall be entitled to a bereavement payment", if the person concerned satisfies various conditions. The proposed new Section 36(1)(b) provides entitlement to bereavement payments if, the spouse satisfied the contribution condition for a bereavement payment specified in Schedule 3, Part I, paragraph 4". We suggest that bereavement payments should also be made if the people concerned have been making voluntary contributions. The noble Baroness, Lady Amos, has already been helpful in setting out the provisions of this clause. However, it seems to me that voluntary contributions might also be a reasonable qualification for entitlement to a bereavement payment. We would appreciate her comments on that. I beg to move.

Baroness Amos

The purpose of these amendments is to allow a widow or widower to qualify for the new bereavement benefits by virtue of voluntary contributions. The actual effect of the amendments would be to secure entitlement to bereavement benefits by payment of any voluntary contribution. I am not sure from what the noble Lord said by way of introduction that that was the intention behind this amendment.

Contribution conditions for the bereavement payment are no different to those which apply to the current widows' benefit scheme. We intend simply to carry them over to the new bereavement benefits. As far as voluntary or Class 3 contributions are concerned, it is already possible for them to count as paid contributions. Therefore a person may improve his or her contribution record by paying Class 3 contributions and so protect his or her right to a basic retirement pension or bereavement benefit for a spouse. These voluntary contributions may be paid up to six years after the relevant year, or longer in exceptional cases. Furthermore, a widow or widower can pay Class 3 contributions towards his or her late spouse's contribution record for the purpose of gaining bereavement benefits.

I can therefore assure the Committee that voluntary contributions will count for bereavement benefit purposes either if the late spouse has paid voluntary contributions to protect the benefit rights of his or her partner or if the partner seeks to make up the record to gain benefit rights. I hope that the noble Lord will be reassured by my explanation and will feel able to withdraw the amendment.

Lord Higgins

I am grateful for the explanation given by the noble Baroness. I am not quite clear whether she proposes to accept the amendment or whether she is simply saying that it is unnecessary.

Baroness Amos

I am saying that the noble Lord's amendment is unnecessary.

Lord Higgins

In that case there seems little point in pressing it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Earl Russell moved Amendment No. 77:

Page 54, leave out lines 25 to 28

The noble Earl said: This amendment seeks to leave out some words from the Bill. I will, if I may, read those words as that makes the point as clearly as it can be made. The words are as follows: A bereavement payment shall not be payable to a person if that person and a person of the opposite sex to whom that person was not married were living together as husband and wife at the time of the spouse's death". That restricts the bereavement payment to those who had been through a ceremony of marriage. The purpose of this amendment is to extend it to those couples who are, in the words of the Bill, living together as husband and wife", without having gone through a ceremony of marriage.

Those words are quite sufficiently restrictive. The status of cohabiting is clearly known to social security law and has been so since the National Assistance Act 1948. I am grateful to the noble and learned Lord now on the Woolsack for helping to clarify these points during debates on the Family Law Act 1996. So there is no danger of uncertainty if this amendment were adopted; it is perfectly clear what my amendment means.

I do not understand—particularly in this day and age—why the Government have seen fit to introduce this restriction. Most of us know from our own social experience—if not from reading, then from statistics, from Social Trends or other more academic sources—that many couples who live together without a ceremony of marriage are just as much regular, established couples as any others we know. There is no clear outward difference, except in the ceremony.

Why should those who have not gone through a ceremony—which, however much it may concern some people from a religious point of view, is not a matter of great secular concern—be penalised in this way? I cannot see that the state has an interest in what is basically a matter of religious concern. It is a matter in which some degree of separation of Church and state seems to be perfectly legitimate.

It is also a point which may be of electoral concern. We are told by Social Trends that 20 per cent of couples who live regularly together are cohabiting without marriage. My own experience, from looking at the names on the electoral register when I was canvassing in the last election, is very much in line with Social Trends' findings. For once in a blue moon, my sample must have been not untypical.

If the Bill is left in its present form the Government are saying to large numbers of potential voters, "You are not getting anything from us. You will have to look elsewhere". Purely in political terms—quite apart from any question of justice—that is extremely unwise advice for a government to give to the voters. There is no case in justice why cohabiting couples should not receive a bereavement payment; there is no case in terms of sheer political expediency for taking this line. It is out of line with the developments which are rapidly taking place. I do not see why the Government have taken up the position they have. It is a quite unnecessary restriction.

I hope that they will see fit to change it. When advice has ultimately reached the Minister—by what the noble Lord, Lord Newton of Braintree, once described as "that curious process of osmosis by which information reaches Ministers in this House"—she may be able to do something about it. Obviously this is not the kind of question on which one wishes to divide the House at this time of night; on the other hand, it is a serious question of principle; it is a question about what is the purpose of the state; it is a question about equality; it is a question about non-discrimination; and it is a question of sheer human need. I very much hope that the amendment will be taken seriously and will be successful. I beg to move.

Baroness Amos

Our intention with bereavement benefits is to continue, as now, to base entitlement only on legal marriage between couples at the time of death and for entitlement to end when a person remarries or lives with another person as husband or wife.

We believe that a scheme based on marriage is right for two primary reasons. First, marriage is the basis, the cornerstone, of the contributory benefits system. This applies not only to this benefit but to others—for example, to war widows, to public sector pensions and to many other benefits. Secondly, marriage provides a straightforward method of deciding whether benefits should be paid. It would be far more difficult and intrusive to administer and police the benefits if they were extended to unmarried couples.

Our intention is to provide the new support on bereavement in as direct and simple a way as we can. We have as far as possible maintained the current conditions of entitlement while extending the benefits to widowers. So, as with widow's benefit, entitlement to the new benefits will be based on legal marriage.

The noble Earl, Lord Russell, raised a number of wide-ranging points with respect to issues of principle and equality. These are general issues which I am sure this place will continue to debate. However, on the basis of my comments about the cornerstone of the contributory benefits system, I hope that the noble Earl will feel able to withdraw his amendment.

11.15 p.m.

Earl Russell

I understand what the Minister says: that the provision is based on current conditions of entitlement. That is not a matter of dispute between us. I also accept that marriage has been, as the Minister put it, a cornerstone of the contributory principle. But the Government, and not least the Prime Minister, tell us almost daily how much the world has changed since Beveridge. This is one of the ways in which the world has changed most. The status of cohabiting couples is quite different now from what it was in 1948. One can now include one's unmarried partner in one's Who's Who entry. I can think of plenty more symbols of that change. I shall not bother to produce them at this time of night.

The Minister then falls back on the argument that this proposal would make it much more difficult to police the benefit. But in all other social security law cohabiting and marriage are taken as being of equal status. It is one of the principal ways in which social security law differs from the law in regard to other ministries. We came up against this issue over and over again in debates on the Family Law Bill. If the Department of Social Security can manage it for practically every other benefit under the sun, I do not see why it cannot manage it for this one. Bringing this provision back in this form, in this day and age, is a thoroughly retrograde step, and one for which, whether it concerns the Government or not, they will lose a considerable number of votes—and rightly so.

I do not intend to divide the House at this time of night. Therefore I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 49 agreed to.

Clause 50 [New allowances for bereaved spouses]:

[Amendments Nos. 78 to 82 not moved.]

Baroness Crawley moved Amendment No. 82A:

Page 56, line 16, leave out ("pensionable age") and insert ("age 60, if the bereaved spouse is a woman, or age 65, if the bereaved spouse is a man,")

The noble Baroness said: This amendment stands also in the names of my noble friend Lady Lockwood and other noble Lords. I shall speak also to Amendments Nos. 86 and 89 in this group.

Amendment No. 82A is a probing amendment. It seeks clarification of the Government's thinking in this area. I know that my noble friend the Minister is only too aware of the financial problems that face very many women in Britain in their old age. Women face inequality in pay structures and have a history of low pay and interrupted, dislocated working lives. That is especially true of women with children.

While I am aware of the Government's important initiatives to reverse the sorry saga of women's pay inequality—for example, through the introduction of the national minimum wage and the working families' tax credit—the reality remains that women face an unequal struggle in their older years, despite the international legal obligations of equality in pension rights.

Amendments Nos. 86 and 89 reflect what I believe is the experience of bereavement. We all need look no further than our own families to know that bereavement has its own uniquely difficult timetable. People's reaction to the trauma and pain of bereavement depends on individual circumstances, but those of us who have suffered or observed the bereavement of a surviving spouse at close quarters know that it takes at least a year to feel any sense of normality returning to one's life. Physically, mentally, emotionally, a year makes sense.

That is why those Members of the Committee who put their names to Amendments Nos. 86 and 89 believe that 52 weeks is a far more appropriate time-scale for the period of a bereavement allowance than the 26 weeks in the Bill. Therefore, I hope that the Minister will give positive consideration to the two amendments. I beg to move.

Baroness Pitkeathley

I support the amendment on the grounds that it is unreasonable to expect someone to be able to adjust to the trauma of bereavement in only six months. Almost everyone who has suffered a bereavement understands that the year's anniversary is a turning point. That applies to the practicalities of learning to cope in a different way of life, especially for older women who have not been used to dealing with the practicalities of finance, household matters and so on. It also applies most particularly to the emotional trauma. I hope that the Minister will be able to support the spirit of the amendment.

Lord Rix

I too am concerned at the effect of Clause 50 which brings in the new bereavement allowance. I do not think the clause has had the attention it deserves because it hides the abolition of the contributory widow's pension. There are therefore a number of amendments on the Marshalled List which I support and which would improve a bad clause. As with Clause 49, I welcome the fact that the allowance will be paid to men as a result of the European Court case.

My main objection is that this is worse than salami slicing. A contributory benefit is being hacked and chopped at with a vengeance. The widow's pension is being replaced with a time-limited benefit of just six months. That change drives a coach and horses through the contributory principle. What about the millions of men who have been contributing to national insurance, some voluntarily, in the expectation that their widow will get a widow's pension? From 2001 many will not and they will never know what they should have received. As I said at Second Reading: Widows seem to be something of an easy target. They do not know when they will be bereaved and they probably will not know what they could have expected under the old dispensation".—[Official Report, 10/6/99; col. 1601.] The Government have made much play of their commitment to women's issues, and I wonder whether the Minister's conscience has been pricked by the negative impact on the future income of many bereaved women, in particular those without dependent children. Women already have lower incomes than men. This measure simply makes matters worse.

It is a similar argument to the one which we will debate when it comes to my amendment on SERPS for widows. It may, I fear, yet end up with the Government in the European Court of Human Rights challenged on the legitimacy of cutting back on benefits to which people have already contributed.

One final point: if the Government are determined to enact Clause 50, I believe that at a minimum they must extend the allowance from six months. It is absurd to think that six months is long enough to cope with the effects of bereavement. As Age Concern has noted, the representations on this point made by them and all others on the consultation paper. Support in Bereavement, have apparently been entirely ignored. No one, except the Minister and her officials, seems to think that six months is long enough. I therefore support the amendments that seek to extend the duration of the allowance, as well as the earlier amendments to include those people who have made voluntary contributions.

I should add that I am pleased that additional safeguards have been included for those bereaved with dependent children, but they can be seen as mere crumbs of comfort for far larger numbers of sorrowing widows.

Baroness Turner of Camden

Amendment No. 84 in my name has been grouped with this set of amendments. The Committee will recall that on many occasions, most recently on Second Reading, I have spoken against the intention to remove widows' benefits that hitherto have been paid on a contributory basis. I understand that this is known as "modernising" widows' benefits. The Government's reason for incorporating this provision in the Bill is the need to equalise widows' and widowers' benefits so that widowers are entitled to benefits when their partners die. The modernisation consists of removing entitlement to benefits from widows over the age of 45 with no children or those who are no longer entitled to the widowed mother's allowance. Instead, both widows and widowers will receive a bereavement allowance for six months only, plus an increase in the basic lump sum of £1,000 to £2,000, which incidentally I welcome. In addition, the SERPS addition is to disappear.

This provision represents a significant transfer of benefit support from women to men. Childless widowers over the age of 45 will gain but childless women who are widowed after 45 will lose. They will lose more than 19 years' benefit and all the additional pension that their husbands paid for through national insurance contributions. Women with children who are widowed at an early age will be particularly badly hit. A woman with small children widowed in her 20s or 30s will probably cease to be eligible for the widowed mother's allowance, now to be the widowed parents allowance, in her late 40s or early 50s.

Currently, the benefits system recognises that someone in those circumstances will find it difficult to enter or remain in employment while the children are young, and she may well find it difficult to get a job when they leave education. The provision in the Bill means that someone in these circumstances, who has perhaps been out of the labour market for 20 years, must sign on for jobseekers allowance at an age when other women are preparing for retirement.

When these issues have been raised previously the Government's case has been put to the House very ably by my noble friend the Minister. However, she knows that do not accept it. It is my belief that those who frame these policies think that things have changed for women far more than they have. It is true that many more career opportunities are now open to women than 30 or 40 years ago, but one has only to look at any gathering of professional or senior executive personnel to see at once that women still constitute a tiny minority of the better paid. Nicola Horlick is so exceptional that she is a constant news item.

The EOC report contains the not unsurprising information that women still on average earn 76 per cent of male earnings. A woman who has spent a large amount of time bringing up a family—this is still a socially desirable thing to do—is not likely to find matters easy in a highly competitive labour market when she is widowed. There is also the fairly common situation in which a woman will have spent much time caring for a sick or disabled husband before he eventually dies. The opportunity that she has had to update her skills and qualify for outside employment is likely to be minimal.

There is also the argument that nowadays a number of women benefit from generous occupational pension provision. I must tell the Committee that, based on some experience of negotiating these matters, most ordinary schemes, unless they are of the top-hat variety for very senior staff, are based on the assumption that there will be state benefit in addition. The same is true of survivors' benefits, which are rarely more than one half of the original pension, again on the assumption that there will be a state benefit entitlement. Even with the better final salary-type schemes, few people nowadays manage to qualify for the Inland Revenue limit. Therefore, while private occupational pension provision may be adequate for most people, it rarely qualifies even now as generous.

The Government further believe that to equalise widows' and widowers' benefits on the existing basis would be too costly. I question that. The widow's benefit is paid on contributions paid by the husband. It is intended to pay the widower on the basis of contributions by the deceased wife. In the light of current circumstances, since women have a more interrupted work pattern than most men, the entitlement of widowers is likely to be less and, therefore, equalisation will not be quite so expensive.

I return to my main theme. This is a contributory benefit. If we are to depart entirely from the social insurance concept with which we have lived since Beveridge and return to the days of means testing, and ultimately to the concept of the deserving and undeserving poor, there should be a proper debate about it. It should not be done in the fashion proposed in the Bill—a snip here and a snip there in the hope that no one will appreciate what is happening. If this contributory benefit goes, what will happen to others? This is not acceptable.

My amendment seeks to maintain the system as it is. It may not be very well worded, but that is what it is about. I hope that my noble friend the Minister can be persuaded to reconsider what is proposed. As I am sure she is aware, the provisions in the Bill are opposed not only by the Widows' Advisory Trust, of which I am a trustee—one would expect it to oppose them—but by the Trades Union Congress. Doubts have also been expressed by the Child Poverty Action Group and the National Association of Citizens' Advice Bureaux. I await my noble friend's response with interest.

11.30 p.m.

Earl Russell

The Government's proposals are the downside of equality, the argument being that if one believes in equality, both sexes after a bereavement should be equally required actively to seek work. I can understand the logic of that, but I also understand, and feel considerable sympathy for, the argument of the noble Baroness, Lady Turner of Camden. I am not sure that equality has yet gone that far.

There is also a problem, as there was with the SERPS amendments, of legitimate expectation. Many people have made provision for their spouses on the assumption that there would be a continuing widow's pension. If that is to change, people should have notice of it in good time so that they can make provision in advance to leave their spouses sufficiently well provided for when the time comes. The notice period contained in the Bill will not do that.

I am also worried about another issue. I had hoped to table a further amendment, but it has not yet been drafted. I hope that it will be ready on Report. At the moment, we have considerable age discrimination in employment. The effect of cutting the bereavement allowance to six months will be that after that people will be expected actively to seek work.

As things stand, if a woman is widowed at 50 and she has been the sort of wife who has stayed at home looking after children and keeping the house, she will have no qualifications or recent work experience. She will not find it easy to get work, and the numbers in receipt of income support will increase. The statistics will not look good and people will start to ask questions of the Government.

I know that a code of practice has been issued on age discrimination, but it has not yet made much difference. Before any change to the bereavement allowance comes into force, we need to have in place proper legislation with teeth against age discrimination in employment. Beyond that considerable problem, I see all the arguments between equality and positive discrimination running round in a circle. Those arguments are a revolving door and governments never quite get the provision right.

Amendment No. 86 would extend the six-month period to a year. That is a simple and straightforward amendment to which the noble Baroness, Lady Pitkeathley, spoke movingly. We on these Benches will undoubtedly support that amendment. We need further amendments, not all of which have been tabled. We need one to defer the commencement of the clause and one that requires a commencement condition of legislation on age discrimination in employment. I would be happy to discuss with other interested parties what other safeguards we need.

I accept the principle in the abstract of what the Government are doing, but I do not think that we are yet ready for it. We have not had enough notice, and I do not think that we have adequate safeguards. So I hope that between now and Report stage there will be a little more thinking. We need it.

Lord Higgins

Concern has been expressed in all parts of the Chamber about the Government's proposals. The Government propose to extend benefits to widowers as a result of the case which was brought in the European Court of Human Rights. However, the hand of the Treasury was immediately seen. It was felt that somehow the money must be clawed back. The noble Baroness, Lady Turner, referred to it being snipped here and snipped there. It gives cause for concern. Amendments have been tabled from different parts of the Chamber ranging from extending the period from 26 weeks to a year. Amendment No. 88 extends it to two years.

The idea that a reasonable adjustment can be made by a bereaved person within 26 weeks is not reasonable. One must hope that the Government will think again on these matters.

At the other end of the scale, the amendment in the name of the noble Baroness, Lady Turner, extends the period up to pensionable age. It seeks to restore the previous position.

We all have to consider carefully between now and Report stage the right answer. However, it is clear from the whole Committee that what the Government propose is not the right answer. I hope that we shall have a reply from the Minister now. If not, we shall need to return to the matter at Report stage. The Committee should express a view on what is appropriate in these circumstances.

Baroness Hollis of Heigham

As Amendment No. 82A is a probing amendment, I shall briefly explain why the clause is drafted using "pensionable age" rather than "age 60 for women and age 65 for men". I should first make it clear that Clause 50 will allow men and women aged between 45 and pensionable age when they are widowed to claim bereavement allowance. Pensionable age is now defined in the Pensions Act 1995 which, as I am sure noble Lords are aware, is the legislation which will phase in equal pension ages for men and women. That is why it is drafted in the way that it is. The other amendments before us make three different proposals dealing with the length of time for paying the new bereavement allowance. Amendments Nos. 86 and 89, tabled by my noble friends behind me, suggest that the benefit should be paid for a year instead of six months. Amendments Nos. 85 and 88 propose a period of two years. But I should like to start with the first amendments on the list, Amendments Nos. 83, 84 and 87.

These amendments would, as we have heard, remove the time limit from bereavement allowance completely. In effect it would be the status quo. Our reforms, as set out in this Bill, focus help from the state where and when it is most needed, while helping those who can support themselves to do so. For example, we are spending an extra £140 million in the first year, to meet real need. Around 40,000 new widows and 15,000 new widowers each year will gain from the new bereavement payment—which at £2,000 will be double the existing widow's payment.

We are meeting the needs of families, by providing a weekly benefit for both widows and widowers with dependent children—the widowed parent's allowance will have the same entitlement conditions and be paid at the same rate as the existing widowed mother's allowance but will be available equally to mothers and fathers. In other words, the bereavement payment doubles the lump sum from £1,000 to £2,000 and extends it to men. The widowed parent's allowance has the same entitlement conditions as the widowed mother's allowance but also extends it to men. Both of those, I should have thought, are to be widely welcomed around the Chamber.

We shall be giving extra help to those who are aged 55 or over at the start of the new arrangements and who are widowed in the first five years after the changes are implemented. That is part of my response to the points made by the noble Earl, Lord Russell, about giving people notice. We are indeed having a five-year transitional arrangement in which widows will be able to claim income-related help without signing on for work or being expected to be available for it. There will also be a special premium in income-related benefits to help ensure that their income will remain at the level of the six months' bereavement allowance.

However, the core of the difference between us is not the bereavement payment—everyone welcomes the fact that it is to double. It is not the widowed parent's allowance that will replace the widowed mother's allowance, because everyone welcomes the extension of that benefit to men as well as women. The core of the debate is the six-month bereavement allowance.

The first amendments with which I am dealing would extend continuing support for widows in the form of the bereavement allowance until pension age, regardless of their circumstances or income. I believe that there is a generational shift that perhaps we have not all grasped entirely. Today, as many women are in work as men, 98 per cent of married women have had a job and 70 per cent of married women are in work while married. Increasingly, it is easier for women to find work than for men and women have no dependants. So why do we expect men, as widowers, to be in the labour market, available for jobseeker's allowance and actively seeking work? Why do we assume that men must find their own way in the harsh world outside but that women—who are as likely now to be in work as men and who are at least as likely as men to find it easy to work, particularly when they become older—are somehow dependent, are unable to make their way in the world and must seek certain privileges?

A woman nowadays may have a generous occupational pensian as a result of her husband's death and is therefore in no financial need. She may be in work—possibly earning an adequate salary or better—and she may have no dependent children. Why should that woman, simply because she is a woman, receive a widow's pension from age 52, 55 or whatever until retirement age? I do not understand why that should be the case.

That was the situation in Beveridge's day—of course it was—because women performed essentially unwaged work in the home. Nowadays, there are many women in the labour market earning over the national minimum wage and acquiring their own benefits in their own right. They find it at least as easy as men to get into work and, for the most part, they are widowed while they are in work. Why should such women be treated differently from any man in a similar situation? I do not understand that thinking, which I suggest—with all respect and courtesy—belongs to a different generation. That is not the experience of today's generation or of today's women.

When widows' benefits were introduced, widowers were not included in the system because it was assumed that they would return to work after the loss of their wife. I cannot accept that the situation for men has deteriorated to the extent that they, too, now need a benefit for life. It is also clear that the situation has improved for women, and it is much more likely that they will be in employment.

The noble Earl, Lord Russell, said that a woman would have to "go into work". I gently suggest that she is already in work and that bereavement happened to her while she was in work. As soon as she is ready—be it in a month, two months, three months or six months—she will want to return to work. Work is not a new activity for her: she has been doing it for the past 20, 30 or 40 years. It is just that, somehow, our social security system has not caught up, largely because it was shaped in the days when women did not go out to work. We must reform that system in ways that are fair to men and women alike and which also reflect the world in which we live.

I shall give another example. In the age group covered by bereavement allowance—between 45 and pension age—it is assumed that the widower will be in work and will find it easy to work and the widow will not. Is that not the assumption that lies behind the views expressed this evening? That is simply not true. Of those aged between 45 and retirement age—which, admittedly, is five years later for men at present—there are more widows in work than widowers: 54 per cent of widows and 53 per cent of widowers are in work. Far from women needing support and being dependent, more of them are in the labour market and they have a better standing in the labour market than men. Yet we appear to be saying, like the Victorians, that women are clinging to their husbands like weeds upon a wall. I believe that that is no longer the case.

In the light of that, we believe that the provision of a benefit for life, regardless of circumstances—whether the woman has a pension, a salary or dependent children—can no longer be justified. We believe that we should help at three particular points. The first is immediately on bereavement when there are costs and unexpected stress and hardship. Hence, the payment of £2,000. The second point of stress is where there are children to be supported. The third point of stress is a six-month period when the widow is getting her act back together and deciding how to spend the rest of her life.

We identify those three points of stress, but we are not saying that a woman who has been in work, has been bereaved and can return to work more easily than a widower should none the less have a widow's pension automatically, as of right, irrespective of financial need, irrespective of whether she has dependants and irrespective of her circumstances just because she is a woman and therefore a widow and therefore needs more protection than a man. I do not believe that that is right. I believe that the world has changed and that we should not provide such protection as though widows are dependent and cannot make their own way.

I turn to the other two sets of amendments which would extend the period of time for widows and widowers to receive bereavement allowance. Those of the noble Lord, Lord Higgins, propose a two-year period while my noble friends behind me suggest one year. Unlike the previous amendments, Amendments Nos. 83 and 84, these proposals acknowledge the principles behind the Government's reform. They merely challenge whether six months is the appropriate time as opposed to one or two years.

As I said, we believe that the current system does not distinguish between those who need continuing help and those who do not. Those who are earning a decent living or have a large occupational pension or life insurance see the greatest benefit and the poorest widows see the least: 35,000 widows see nothing of their widow's benefit because they immediately lose income support; and widowers receive no help at all.

The amendments accept this. They recognise that it is no longer appropriate to pay a life-long benefit to widows and widows without dependent children regardless of their circumstances. So the argument here is not so much on the basic principles, but on where the line should be drawn.

The Government are sensitive to the needs of those people who have recently become bereaved. We believe that six months is about right. We believe that it balances sensitivity to the needs of recently bereaved people with a recognition that after a period of readjustment people can, for the most part, return to the job they were holding. The length of that transitional period was something we considered very carefully when we first drew up our proposals.

We believe that the six months is about right. However, I have listened to the debate and was moved in particular by the speech made by my noble friend Lady Crawley. We shall reflect on what has been said tonight and consider the matter.

It is important to recognise that we are doubling the bereavement payment. It is important to recognise that we are extending the bereaved parent's allowance to men and women alike. As regards the six-month bereavement allowance, we shall consider whether the period is right. Men and women should be treated alike because today they are equally likely to be in work—indeed, she more likely than he. They will have equal access to the labour market and will equally have built up their benefit contributions.

That is the world in which we now live and why we are making these long-overdue changes. We are meeting the need where it lies at the immediate point. The basic amendments which would retain the present situation, even when the world in which those pensions were shaped has been transformed around us, is no longer viable. Therefore, I hope that my noble friend will feel able to withdraw the amendment.

Earl Russell

I should like to congratulate the Minister on that speech. It is one of the best I have heard her make. The pride and egalitarianism behind it reminds me vividly of my noble friend Lady Seear at her best.

I understand and admire that emotion. Its annunciation is a major step towards the achievement of equality and I am pleased to hear it for that reason as well as for its rhetorical and intellectual quality. But it is not quite the whole story.

I hear what the Minister says about there being more widows than widowers in work. I also hear what the noble Baroness, Lady Turner of Camden, says about statistics on equal pay. Those are both facts. We need to put these together before we have any sort of coherent figure.

I take the point of the reproach to me by the Minister about the woman not being in work and going out to work. I understand that this is no longer the normal picture. I accept that, and I welcome it. But I think all of us, including the noble Baroness, would agree that there still are in the whole country many such people who have not yet come into the cultural change in which the noble Baroness has been quite rightly rejoicing.

So the question between us here comes down to one of timing. There I think there are some real issues. The pace of change, especially when it is a major cultural change of this sort, and the legislative steamroller driving it, is something on which we need some thought. I hope it is right that it should be a male voice saying this and a female voice resisting it. I think that is a good thing.

I am extremely grateful to the Minister for her promise to think about this again. I would be happy to take part in any discussions, formal, informal or otherwise, that may take place, and I await the results with a great deal of interest.

Baroness Turner of Camden

I am sure that my noble friend the Minister will not be surprised to hear that I disagree very profoundly with a number of the statements that she made. I was not speaking against equality. On the contrary, I am in favour of equalising the benefits. What I am not in favour of is taking benefits away in order to equalise, which is what is happening here. I suggested that it would not cost an awful lot to equalise on the basis of my amendment.

I do not agree that things have changed as much as my noble friend apparently thinks they have. I gave a number of instances of low pay and the disparity in male and female earnings which still exists. I also drew attention to the fact that many women before they are widowed have spent time out of the workforce, often looking after disabled or ill husbands. That is a very common experience.

It seems to me that a number of the points I made were not taken proper account of. There is also the very strong point that this is a contributory benefit, as I said earlier, and husbands contribute in the belief that if anything happens to them their wives will benefit. I disagree with its simply being removed as yet another snip away at the system of social insurance, which we have lived with for a long time and which I support.

Of course, it is not my intention to press the amendment to a vote this evening, but I shall consider carefully what has been said, because I certainly intend to return to it on Report.

Baroness Crawley

I thank the Minister for her reply. I agree with the noble Earl, Lord Russell, that my noble friend is indeed a great and robust champion of equality, and always has been. I particularly appreciate the sympathetic way in which she said she could perhaps look again at our amendment. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 83 to 89 not moved.]

Lord Higgins moved Amendment No. 90:

Page 57, leave out lines 26 to 32

The noble Lord said: The amendment would effectively remove subsection (5). This is an extraordinarily precise provision, suggesting that the weekly rate of bereavement allowance payable to a person who is under the age of 55 at the time of the spouse's death should be reduced by 7 per cent multiplied by the number of years by which that person's age at that time was less than 55 and, even more precisely, any fraction of a year being counted as a year". It is curious that subsection (5) states that the allowance shall be, reduced by 7 per cent. of what it would be apart from this subsection". I simply do not understand how that provision is expected to work. I beg to move.

Baroness Amos

The age-related scale which this amendment world remove is a longstanding arrangement. It was first introduced in 1971. Those who are aged 55 on bereavement, subject to the entitlement conditions being rnet, receive the full rate of widows' pension. Those aged between 45 and 54 on bereavement receive a percentage of the full rate. That follows a principle that has long underpinned the widows' benefit scheme. Those who are widowed later on in life have less opportunity to build up their own provision for retirement. Therefore, they may need more financial help than those widowed at a younger age.

We have considered the options carefully and believe that, for a number of reasons, it is right to carry over that arrangement to the new bereavement allowance. It is likely that it will be more difficult for those in the older age groups to adjust and the age-related scale provides extra help for them to do so.

Bereavement allowance will give them the breathing space they need before supporting themselves through occupational pensions and other income before returning to work. Of course, we are not expecting them to do it alone. For those younger widows and widowers who are not in work, our welfare-to-work programme offers a comprehensive range of help and support, including advice on employment, training and benefits which will help them to return to, or seek, work.

Our reforms focus help from the state where and when it is most needed, while helping those who can support themselves to do so. I do not believe that this amendment is consistent with those aims and I urge the noble Lord to withdraw it.

Lord Higgins

I understand the longstanding tapering arrangement to which the noble Baroness referred. I am not clear why subsection (5) includes the words, of what it would be apart from this subsection".

Baroness Amos

Subsection (2) provides for the weekly rate of bereavement allowance. Subsection (5) applies to bereavement allowance the rules which relate the amount of benefit to the age of the claimant when the spouse dies. The full rate of benefit is reduced by 7 per cent for each year that the claimant is aged under 55 at the date of bereavement. I should be happy to write to the noble Lord with examples of how that would work.

Lord Higgins

I still do not understand why it says, of what it would be apart from this subsection". That seems to me to be inconsistent. Perhaps the Minister, in writing, will spell that out to me in some detail. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 91 not moved.]

Clause 50 agreed to.

Baroness Amos

I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

House adjourned at two minutes before midnight.