Lords Sitting of 24 June 1999

Preamble
The House met at three of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Bristol.): The LORD CHANCELLOR on the Woolsack.

Teachers: Recruitment
Lord Dormand of Easington Lord Dormand of Easington asked Her Majesty's Government:
Whether an assessment has been made of the success or otherwise of their campaign for the recruitment of more teachers.
Lord Hunt of Kings Heath: My Lords, we have a range of successful strategies to boost recruitment to teaching, including the £5,000 incentives for new maths and science teachers, which have brought a substantial increase in applications, and the Teacher Training Agency's current advertising campaign. The recent quinquennial review of the Teacher Training Agency has recommended that the TTA makes recruitment the top priority for the next phase of its work.
Lord Dormand of Easington: My Lords, I thank my noble friend for that helpful reply. The advertising campaign to which he refers, with the theme of "No one forgets a successful teacher" is worthy, but is my noble friend aware that it needs to be associated with better salaries and good long-term projects? What evidence is there that the "golden hello" payments are being successful and, perhaps more importantly, what are the Government doing with regard to research into the attitudes of fifth and sixth-formers and undergraduates towards teaching?
Lord Hunt of Kings Heath: My Lords, my noble friend has raised an important point. I believe that the advertising campaign was successful. Certainly the information line run by the TTA has had 10,000 extra inquiries. While it is early days there is certainly evidence that compared with this time last year we have received considerably more applications from maths and science students who wish to undertake a PGCE. I am not aware of any research that is being undertaken on this matter but I shall take that point back to my ministerial colleagues. I believe that we are creating a virtuous circle; namely, the higher the standards of teaching in schools, the more pupils in schools will think that teaching is a good career for them. In addition, the Green Paper contains proposals to improve the career structure of teachers.
Lord Tope: My Lords, what success has been achieved in recruiting older people with experience in commerce and industry into the teaching profession? Is the noble Lord aware that when such people qualify as teachers they find it virtually impossible to obtain a full-time permanent post in a school, for no apparent
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reason other than age? Are the Government concerned about this problem and, if so, what do they propose to do about it?
Lord Hunt of Kings Heath: My Lords, the noble Lord has raised an important issue. I am sure that every Member of this House would be very much opposed to any ageist policy in education or elsewhere. On 14th June we published a code of practice on age diversity in employment which makes specific mention of the teaching profession. As part of our efforts to boost better recruitment of teachers, a new scheme aims to recruit 600 new mature maths and science teachers. It is interesting to note that the scheme will match them to on-the-job training in schools. The TTA has awarded a contract to a company called Timeplan to implement that scheme.
The Earl of Lauderdale: My Lords, is recruitment inhibited by the clamour for payment by results? How does recruitment of modern language teachers compare with recruitment of maths and science teachers?
Lord Hunt of Kings Heath: My Lords, I do not think there is any suggestion that this is simply a case of crude payment by results. The proposals in the Green Paper seek to reward teachers who perform well in schools but they are measured against careful criteria and a careful assessment process. Certainly there has been concern about the reduction in the number of people coming forward to train to be modern language teachers. We shall keep that situation under close review to see whether any special measures need to be taken. But in addition, in order to attract able people to the teaching profession it is essential to reinforce the message of success which we see in many schools and among many teachers, and to implement the proposals in the Green Paper which seek to reward those people adequately.
Lord Ewing of Kirkford: My Lords, is my noble friend aware that, just as no one forgets a successful teacher—as my noble friend Lord Dormand of Easington said—equally, no teacher forgets a successful pupil? I can report modestly that my primary school teacher wrote me a letter once a month until the day she died at the age of 96.
Lord Hunt of Kings Heath: My Lords, I suppose the question to ask is, what did she say?
Baroness Seccombe: My Lords, can the Minister tell the House what success the Government have had in getting rid of inadequate teachers? How many have been dismissed by use of the fast-track procedure?
Lord Hunt of Kings Heath: My Lords, I am not aware of the figures but I shall certainly write to the noble Baroness. As regards failing teachers and failing schools, we cannot afford to sweep failure under the

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carpet. While the failures are a small proportion in terms of the overall numbers of teachers and schools, it is essential that we tackle those with decisiveness.
Lord Pearson of Rannoch: My Lords, can the Minister tell the House of any progress that has been made with people who were somewhat disparagingly referred to as "Mum's Army"; in other words, parents with good A-levels and good degrees whose children have grown up and who, with perhaps the very minimum of teacher training, might be available to teach in our schools?
Lord Hunt of Kings Heath: My Lords, we are keen to see teaching assistants and classroom assistants coming into schools. We have plans for a further 20,000 over the next three to four years. Their whole purpose is to enable teachers to focus much more on classroom teaching.
Lord Dormand of Easington: My Lords, I am not suggesting for a moment that the Government are complacent in this matter, but does my noble friend appreciate that there is still a mountain to climb in the recruitment of teachers? I was a wee bit disappointed to hear that no research is being carried out in this area into the views of fifth and sixth-formers and undergraduates, because what we really want to know is why young people are not going into teaching. Until we find that out we shall not make much progress.
Lord Hunt of Kings Heath: My Lords, I said to my noble friend that I would reflect on his suggestion. However, I repeat what I said earlier: the clear way to attract more high calibre people into teaching is to ensure that there is a proper career structure, with adequate reward for such people. That is exactly what the Government's Green Paper is all about.

Parliamentary Groups
3.10 p.m.
Viscount Waverley Viscount Waverley asked Her Majesty's Government:
Whether they will consider a greater role for and effectiveness of country-specific and regional all-party parliamentary groups.
The Parliamentary Under-Secretary of State, Foreign and Commonwealth Office (Baroness Symons of Vernham Dean): My Lords, the Government recognise the valuable role that country-specific all-party parliamentary groups can play in the development of bilateral relations between the United Kingdom and the country concerned. The Government also appreciate that individual Members of both Houses of Parliament participate in those groups on a voluntary basis, applaud their commitment to the
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development of our overseas relations, and stand ready to offer support and advice to these groups as and when needed.
Viscount Waverley: My Lords, the haphazard and ineffective manner in which a large number of groups conduct themselves is, in my view, a lost opportunity. Would it not be better, while retaining the independent nature of the groups, to have properly documented minutes, scrutiny of official policy, possibly in support of the over-stretched Foreign Affairs Select Committee, to address the inadequacy of influence, knowledge-gathering and understanding?
Baroness Symons of Vernham Dean: My Lords, the noble Viscount said that the committees are organised on a haphazard basis. However, it is for the members of the committees to organise their business. On occasions when my colleagues in the Foreign and Commonwealth Office have offered particular advice or support, it has been their experience that that was thought to be interference with the committees. Her Majesty's Government are reticent to offer some kind of blueprint in the way suggested by the noble Viscount. The suggestions he made may be very helpful to individual committees; so far as concerns the FAC, I suggest that he makes his suggestions to the chairman of that committee, Mr Anderson.
Baroness Rawlings: My Lords, given that the Inter-Parliamentary Union is devoted to the cause of resolving disputes by peaceful means and to promoting the ideals of democratic government, does the Minister think that there are further ways in which her department can complement and build on its work and that of the all-party country groups, especially now in the Balkans?
Baroness Symons of Vernham Dean: My Lords, as I am sure the noble Baroness is aware, the IPU and the CPA offer some modest support to the all-party parliamentary groups. As I indicated in my initial response, we stand ready to give advice and support when we are asked so to do. Naturally, given that on occasions our advice has not always been tremendously welcomed, Her Majesty's Government are rather concerned about offering a blueprint for a way forward. The suggestions made by the House might be made more directly to the officers of the 73 all-party parliamentary groups, who may themselves be very happy to pick up the suggestions.

Lord Chancellor: Judicial Functions
3.13 p.m.
Lord Patten Lord Patten asked Her Majesty's Government:
Whether they intend to bring forward proposals to abolish the judicial functions of the office of Lord Chancellor.
The Lord Chancellor (Lord Irvine of Lairg): My Lords, the Government do not intend to bring forward

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any proposals to abolish the judicial functions of the office of Lord Chancellor. The value of the office, with all the authority within government which it carries, is that it both upholds judicial independence and mediates between the executive and the judiciary when occasion for controversy arises. The Lord Chancellor is able to perform that function both because of his seniority in Cabinet and because he is head of the judiciary and sits as such from time to time in the chair, on important appeals.
Lord Patten: My Lords, I am very grateful to the noble and learned Lord the Lord Chancellor for that Answer. I hope that he will accept that I respect both the office of Lord Chancellor and himself. I hope that he will also understand that as someone who is both politically and constitutionally a Conservative, I sometimes believe that it is necessary in the interests of respecting institutions to promote organic and sensible change and to conserve respect for those institutions in that way. Therefore, does not the noble and learned Lord the Lord Chancellor recognise, as a Minister who is turning his reforming zeal upon this House and turning out so many of my hereditary colleagues, that he may well wish to turn some of that reforming zeal upon himself and the holders of his own office and seek to thoroughly modernise the office of Lord Chancellor, which is unique in the known world in combining legal duties, duties of a senior government Minister, making laws, and sitting in judgment upon people who are before the court under those laws?
The Lord Chancellor: My Lords, the fact that some things or institutions call for modernisation does not mean that every one does. As the noble Lord has described himself as one who has affection for tradition, he may be interested to know that the evidence to the Wakeham Commission on House of Lords Reform by the Judges' Council, which represents the whole judiciary of the High Court and the Court of Appeal, is,
"that the Lord Chancellor's dual position as head of the judiciary and a Cabinet Minister with responsibility for the administration of justice, should not be affected by the outcome of House of Lords reform".
Lord Strabolgi: My Lords, perhaps I may ask my noble and learned friend whether the Question of the noble Lord, Lord Patten, is not based on a false premise, as in this country we do not apply strictly the doctrine of the separation of powers. Has not this pragmatic development brought distinct advantages?
The Lord Chancellor: My Lords, I agree with my noble friend. Those who advance the argument which lies behind the Question proceed on the basis that the doctrine of the separation of powers between the legislature, the executive and the judiciary either does or should apply strictly in this country. It does not. We fashion our constitutional arrangements pragmatically. If we applied the doctrine of the separation of powers
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strictly, no Cabinet Minister would ever sit in a House of Parliament, as in the United States of America. But in Britain, all Cabinet Ministers do, and rightly.
Viscount Cranborne: My Lords, will the noble and learned Lord the Lord Chancellor accept my congratulations, which arise from his Answer to my noble friend? It is with the greatest of pleasure that I, for one, welcome him to the ranks of the High Tories.
The Lord Chancellor: My Lords, I am a member of the ranks of the rationalists.
Lord Borrie: My Lords, does my noble and learned friend agree with me that at least since the beginning of the century the presence of the Lord Chancellor in the judicial proceedings of the House of Lords has been of added value, particularly in the fields of public law, public administration and judicial review? Does he further agree that given that in the latter part of this century far fewer Law Lords have had experience of politics, it is now of even greater value for the Lord Chancellor to be willing to sit on judicial proceedings than may once have been the case?
The Lord Chancellor: My Lords, I agree with all of that.
Viscount Bridgeman: My Lords, does not the noble and learned Lord accept that, as a result of the Human Rights Act and the devolution legislation, the political pressure on the Judicial Committee, of which the Lord Chancellor is a member, will increase?
The Lord Chancellor: My Lords, there are two parts to a proper answer to that question. First, the occasions for controversy between the judiciary and the executive may increase as a result of the implementation of the Human Rights Act and the role of the judiciary in settling disputes under the devolutionary settlements. It is all the more important, therefore, that there should be a strong Lord Chancellor to mediate, to act as a buffer, between the judiciary and the executive. Secondly, the implementation of the Human Rights Act involves only a change of degree and not of kind. The judges in the House of Lords and elsewhere have traditionally handed down judgments which have a strong politically controversial dimension. Your Lordships should think of the landmark cases on civil liberties, trade union immunities, citizens' rights in time of war, natural justice, freedom of expression and the whole modern development of judicial review. The Human Rights Act does not make a difference of kind, only a difference of degree.
Lord Renton: My Lords, does the noble and learned Lord agree that it is a great advantage to have at least one Cabinet Minister responsible for achieving co-operation between the Government, the legislature and the judiciary and that that has been achieved by

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Lord Chancellors over the years? Does he further agree that if change is not necessary, it is necessary not to change?
The Lord Chancellor: My Lords, I agree with that and do not cast myself in some Burkean role as a High Tory in doing so. I believe in improving our traditions while we transmit them; but if our traditions have got it just about right, in leaving them as they are.
Lord Brightman: My Lords, on a lighter note, will the noble and learned Lord the Lord Chancellor allow me to remind him that there is still in the Royal Courts of Justice a court which is called The Lord Chancellor's Court? In my youth, the Lord Chancellor would come to that court and take his seat for a few moments at the beginning of the legal year. Will the noble and learned Lord consider reviving that happy custom?
The Lord Chancellor: My Lords, I shall certainly consider it. It is an attractive and beguiling possibility. I shall look at it with care when my workload diminishes.

European Monetary Union
3.21 p.m.
Baroness Young Baroness Young asked Her Majesty's Government:
Whether they would intend any British entry to the European single currency to be irrevocable.
Lord McIntosh of Haringey: My Lords, any country which chooses to enter EMU does so on the basis that it is an irrevocable step. The treaty contains no legal basis for a member state withdrawing from EMU. That is why we are determined that any decision on UK membership of EMU must be based on a thorough assessment of the national economic interest, and would need to be agreed by government, Parliament and the British people.
Baroness Young: My Lords, I thank the noble Lord for that very clear statement that any joining of EMU would be irrevocable. Does he not agree on the importance now of having a statement which sets out clearly not just the economic but the political advantages and disadvantages so that the British people will know what the facts are, if called on to decide in a referendum?
Lord McIntosh of Haringey: My Lords, our policy is to prepare in this Parliament in order to create a genuine option to decide whether to join early in the next Parliament. It is when we have a genuine option before us that it is appropriate to make a definitive assessment of the matters to which the noble Baroness referred.
Lord Shore of Stepney: My Lords, if a decision to join would be, to use the Minister's word, irrevocable, surely that adds an order of gravity to the decision itself.
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Is it not time that the Government stopped pretending that this matter is even primarily an economic decision but rather a constitutional and political decision of the first importance? How can the Government go on pretending that it is not when virtually every other government in Europe—certainly those who have joined EMU—have made it plain that for them it is a major stepping stone towards the goal of a European Union leading to a United States of Europe?
Lord McIntosh of Haringey: My Lords, I agree with my noble friend that this is a matter of very great gravity. However, the Government have made their position on the constitutional question and on the economic question very clear. We have taken the view that, although there are important constitutional considerations, those considerations would not rule out membership of EMU if the balance of economic advantage for this country were in favour of our membership. That is why we have set economic criteria and that is why, although we continue to consider the constitutional issues, in the end it is on economic criteria that a decision will be made.
Lord Ezra: My Lords, does the noble Lord agree that, when the time is right for us to join EMU, our overriding objective should be to work towards its continuing success based on our considerable experience in the conduct of monetary affairs?
Lord McIntosh of Haringey: My Lords, I am sure the noble Lord is right to say that we could at that time make a great contribution to the success of European monetary union.
Lord Mackay of Ardbrecknish: My Lords, I wonder whether the noble Lord can help me with his original reply. Is he aware of what Senor Romano Prodi, the Prime Minister of Italy who took Italy into EMU and currently the Commission's president-designate, said in Italy on 21st June? He stated:
"If we"—
that is Italy—
"continue to have costs that diverge from other European countries, it will be more difficult to remain in the euro".
Can the noble Lord say what construction one can put on that sentence other than that membership of the euro is not irrevocable?
Lord McIntosh of Haringey: My Lords, Mr Prodi himself put another construction on his remarks. He was speaking during a video conference to Italy's Chemical Industry Association. He did indeed make the remarks to which the noble Lord referred. He said, because he was trying to gee up Italian industry, that,
"instead of an opportunity, the euro could become our downfall if radical choices are not made. We must be absolutely virtuous".
But he clarified his remarks afterwards by saying:
"My remarks only moved the market because they were reported in a very ambiguous and wrong way".

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I think that Mr Prodi knows the position about membership of EMU as well as we do.
Lord Stoddart of Swindon: My Lords, is my noble friend aware that he made an extremely important statement when he answered the Question? Is he further aware that what he did was to drive a coach and horses through the basic principle of our constitution that one Parliament cannot bind its successor?
Lord McIntosh of Haringey: My Lords, I had no intention of making an extremely important statement, either in my original Answer or in any subsequent answer. I am reflecting government policy, which has not changed for a considerable period.
Lord Stoddart of Swindon: My Lords, will my noble friend answer the question?
Lord Marsh: My Lords, was not the real reason for Senor Prodi's statement a perfectly honest recognition that the governments currently in euroland will, as they have done in the past, break and ignore the rules whenever it suits their national interests? That is what worried the 400 or more business men and women who met yesterday for the Business For Sterling conference. They were worried specifically about that degree of instability.
Lord McIntosh of Haringey: My Lords, I have no direct knowledge of the conference to which the noble Lord referred. I was not present, as no doubt he was. But I certainly reject his assertion that other countries in the European monetary union are constantly seeking to evade the convergence criteria. What was remarkable about the first half of last year was the way in which there was genuine convergence which made it possible for those 11 countries to agree to go into European monetary union and to set a rate of exchange for it.
Lord Jenkin of Roding: My Lords, does not the Minister's original reply underline the truth of the proposition that, far from being a building block on the way to building an effective European Union, a unified currency has to be the last brick in the edifice, if we ever get that far? The line now being taken by the organisation New Europe is a great deal more realistic than that taken by those like the noble Lord, Lord Shore, who believe that we should never go anywhere along that road, or those like the Government who think that we should join as soon as possible.
Lord McIntosh of Haringey: My Lords, far be it from me to seek to adjudicate between the various bodies that are setting themselves up, such as those referred to by the noble Lord, Lord Marsh, and that referred to by the noble Lord, Lord Jenkin, to express perfectly legitimate views about monetary union. The Government have made their position entirely clear. Nothing I have said has departed from that position.
Lord Bruce of Donington: My Lords, my noble friend has made an important constitutional
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announcement this afternoon concerning what is irrevocable and what is not. At the same time, will he agree that no Parliament can bind its successor?
Lord McIntosh of Haringey: My Lords, I have made no important constitutional announcement. I have simply reiterated what has been the constitutional position and the view of Her Majesty's Government over a considerable period of time. My noble friend is entitled to his constitutional views, just as my noble friend Lord Stoddart is. He challenged me for not answering his second question. I did not do so because I thought I had rejected the premise on which that question was based. I do so now again.
Lord Pearson of Rannoch: My Lords, in that case, will the Minister tell the House whether the House of Commons and this Parliament would be capable of taking the United Kingdom out of EMU if ever it had once been so foolish as to join?
Lord McIntosh of Haringey: My Lords, I reject the words, "so foolish", used by the noble Lord. Clearly, if the Government, Parliament and the people of this country decide to enter EMU, they will be doing so on the basis of long-term advantage, not short-term considerations.
Lord Haskel: My Lords, does my noble friend agree that it is best to leave this decision until it suits our economic interest, and not to attempt to make decisions now on matters of principle?
Lord McIntosh of Haringey: My Lords, that has indeed been the Government's position for a considerable period of time. We reject the views both of those who believe it is necessary to enter now, regardless of other considerations, and those who believe that it would never be possible or necessary for us to enter.

HFC Bank Bill
3.31 p.m.
Read a third time, and passed.

Business of the House: Prevention of Terrorism (Temporary Provisions) Act 1989
The Lord Privy Seal (Baroness Jay of Paddington): My Lords, I beg to move the Motion standing in my name on the Order Paper.
It may be helpful in moving this Motion to say to the House that the agreement of the usual channels has been sought and achieved to take this important piece of delegated legislation today, even though the Joint Committee has not yet reported on it. The order is necessary given the defects in legislation reported to the House by my noble friend Lord Williams of Mostyn in

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repeating the Statement yesterday. I hope that in these unusual circumstances the House will approve the business Motion that is before it.
Moved, That Standing Order 70 (Affirmative Instruments) be dispensed with to enable the Motion to approve the draft Prevention of Terrorism (Temporary Provisions) Act 1989 (Revival of Parts IVA and IVB) Order 1999 to be taken today, notwithstanding that no report from the Joint Committee on Statutory Instruments on the draft order has been laid before the House.—(Baroness Jay of Paddington.)
On Question, Motion agreed to.

Privileges: Select Committee
The Chairman of Committees (Lord Boston of Faversham): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the Viscount Cranborne be appointed a member of the Select Committee in the place of the Viscount Whitelaw.—(The Chairman of Committees.)
On Question, Motion agreed to.

Water Industry Bill
3.33 p.m.
Lord Carter: My Lords, I have it in command from Her Majesty the Queen and His Royal Highness the Prince of Wales to acquaint the House that they, having been informed of the purport of the Water Industry Bill, have consented to place their prerogatives and interests, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.
Read a third time.
Clause 6 [Right of consumer to elect for charging by reference to volume]:
Baroness Miller of Hendon Baroness Miller of Hendon moved Amendment No. 1:
Page 5, line 12, at end insert—
("(7A) In any case where—

(a) the premises had been let for residential purposes for a term of six months or more but not for a term exceeding 5 years, whether commencing before or after the commencement of this Act,

(b) the lessee for the time being had given a measured charges notice to the undertaker without the express written consent of the lessor for the time being,

(c) the premises have reverted to the original lessor, whether on the expiry of the term, or upon forfeiture or abandonment or disclaimer or surrender of the lease or by any other means, and

(d) the lessor to whom the premises have reverted intends to occupy them as his principal place of residence,

the consumer, (here meaning the lessor for the time being) may within 12 months of the premises reverting to him give a notice to the water undertaker revoking the measured charges notice.")
The noble Baroness said: My Lords, in moving this amendment I should like to speak also to Amendment No. 2. This is the substantive amendment, and Amendment No. 2 is merely the paving amendment.
I have mentioned the problem that these amendments seek to resolve many times in this House during the course of our debates on the Bill. I mentioned it first at Second Reading, again in Committee, and again on Report. I want to emphasise yet again that the amendments have nothing to do with water or water meters. They are concerned with landlords and tenants, and the right of landlords not to have their property changed by a tenant after the lease has expired.
Clause 6 provides that the customer has a right to elect to have a metered supply of water. Subsection (5) provides that he can change his mind within 12 months and revert to the previous method of payment. Under Clause 11, a landlord may not prohibit his tenant from exercising the option of a meter. If the tenant stays longer than a year, the landlord is committed forever. That cannot be right.
As well as having referred to the problem on numerous occasions in this House, I wrote to the Minister. He kindly answered in full detail, but did not address any of the points to my satisfaction. However, the Minister was extraordinarily courteous in allowing me to have a meeting with him yesterday which took up a great deal of his time. Considering that he and the noble Baroness, Lady Farrington of Ribbleton, had a long day before them on the Greater London Authority Bill, I should not like them to think that I was anything less than extremely grateful for that.
As a result of that meeting, I have made enormous concessions regarding my original points. I do not want to go through all those points again. The amendment that is before the House makes the matter clear. The period has now been reduced to five years. Originally I referred to "a short tenancy"—I understand that 21 years is considered a short tenancy in normal landlord and tenant proceedings. Now the reference is to "5 years".
I have also reduced the provision as follows. If a landlord grants a lease and the tenant, without the landlord's consent—as he is perfectly entitled to do—opts for a meter, the position would be amended. Within that period the landlord may return and want the premises for himself. If the premises have reverted to the original lessor and the lessor intends to occupy the premises as his principle place of residence—not to let them to anyone else—the present position seems incredible. Someone can have a tenancy, live in someone's property for up to a year, opt for a water meter and, after the year, decide to ask the water company to change that method of payment. Given that a tenant can do that, it seems extraordinary that the landlord of the property for which the method of payment was changed without his permission cannot revert to the former method of payment in the limited—I emphasise "limited"—conditions that this amendment suggests.
Perhaps I may repeat an example that I gave previously. Let us suppose that a landlord who has two young children works for a company and is suddenly posted to Saudi Arabia. His water charges are dealt with by means of the old rateable value. He lets his apartment to a tenant who has no children and decides that it would be cheaper to opt for a meter. The meter is installed, and the tenant leaves after a year. The landlord returns, wants to move back into his own home and finds that, no matter what, he cannot

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change the new position. The tenant himself, after the year, could, but the landlord, the owner of the property, cannot.
In no other way can a landlord lose his rights beyond the length of the lease as a result of his tenant changing the position.
Whether it be a right of way or other improvements that the tenant wishes to put in, he cannot alter the property in that way.
I believe it is a matter of natural justice. I have said that before and I say it again. I do not wish to take up too much of your Lordships' time. I think I have argued it well—I say that with the greatest modesty. I could read to your Lordships what I said at Second Reading and go through again my logical arguments at the Committee and Report stages. But the point I emphasise again is that this is not a matter of the water, the water meter and so on. It is the basic right of whether a tenant can alter the property in the end against the interests of the landlord when the landlord did not give permission. I beg to move.
Baroness Hamwee: My Lords, I congratulate the noble Baroness on her steadfastness in pursuing the point at every stage of the Bill. I said at the last stage that she had a point. Since then I have received copies of the correspondence from the Minister for which I am grateful. I regret that, while acknowledging that the noble Baroness has reined back her ambitions on the clause, I understand rather better than I did when listening to the debate why the Government are concerned about the amendment. The Minister will explain it himself.
During the course of the Bill I have had to accept the Government's position on switching between the two types of charging for water. We have had discussions about the position on switching or otherwise between measured and unmeasured charges when a property changes hands. I do not believe that the situation is substantially different.
I will not detain the House, but I understand the arguments that have been made throughout the Bill, some by myself, about the need for stability within the industry for the long-term protection of consumers generally. I look forward to hearing the Minister, but it is only fair to warn the noble Baroness that I am rather inclined to understand the Government's arguments through the correspondence. I congratulate the noble Baroness on her tenacity. She will go down as a hero, if she goes down.
Lord Elton: My Lords, before the noble Baroness sits down, will she share with us anything in the correspondence that effected the change in her mind, or will she rely on the Minister to reveal it and thus save time?
Baroness Hamwee: My Lords, I have checked with the Minister that the points made in the letter will be part of his reply.
Lord Elliott of Morpeth: My Lords, perhaps I may intervene as a past chairman of a water company. I am extremely interested in Clause 6 in that it addresses the difficult relationship between landlord and tenant.
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I wholly agree with my noble friend and with the amendment she put forward today. I believe it will strengthen Clause 6 and the whole Bill if it is accepted.
3.45 p.m.
The Parliamentary Under-Secretary of State, Department of the Environment, Transport and the Regions (Lord Whitty): My Lords, I join in the recognition that the noble Baroness has pursued her case effectively throughout the Bill and has stuck to her guns. I should also record my appreciation of our meeting because it was not only my noble friend and myself who had the GLA Bill following our meeting yesterday. I appreciated the way in which we discussed this matter and corresponded on it. As the noble Baroness, Lady Hamwee, said, the noble Baroness, Lady Miller, has taken on board some of my objections to her previous clause at the earlier stage by restricting the scope of the amendment before us. Nevertheless, the clause as it stands cuts across the central principles of the Bill and I shall take a little of your Lordships' time to explain what I mean by that.
The Bill is about consumers; it gives rights to all consumers. It also attempts to treat all consumers in the same way. That means that landlords who are consumers who pay the bill will gain substantially from the Bill. It also means that compared with the current situation, no landlord will lose rights. Those are the principles. There are also some practical and technical matters which the House should know about before considering pursuing the amendment.
The principle underlying the Bill is to increase the choice for all consumers. By "consumers" we mean the normal meaning of the word and the legal meaning in water legislation. It is the person who pays the bill, irrespective of tenure and irrespective of the way in which they are charged for their water. All have an equal choice on the form of charging in the initial stages and all have an equal right of reversion for 12 months after having had a meter installed, if that is their choice.
The noble Baroness argued that the Bill would give tenants the ability to grant property rights extending beyond the terms of their lease. That is not the case. The Bill does not take away any rights that landlords currently enjoy in relation to water charging. Under current legislation, landlords do not have any right to choose the basis on which they are charged for their water. The present situation is that if a water company wished to impose a meter on a property the landlord, whether or not returning to occupy the property and whether or not covered by the amendment, would have no right to prevent this, regardless of his own wishes, actions or specific provisions he may have made in the lease with his or her tenants.
The arrangements currently in that sense, therefore, already override the landlord-tenant leasing arrangement. All we are doing is to transfer that right from the water company to the consumer, the person who pays the bill. The Bill, therefore, does not in any sense reduce landlords' rights over their property.
We are not dealing with property rights. Rights to determine the basis of water charging are being taken away from the water company, not the landlord. In some

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cases, the consumer who will benefit will be the landlord; in other cases it will be the tenants. Those who are consumers and pay the bill gain substantial rights over the current situation.
What is more, the noble Baroness's amendments undermine the important principle that increased choice should apply equally to all consumers. Landlords who fulfil the criterion in her amendment—which I agree is a relatively narrow one—would have full reversion rights not once but for five years as compared with every other form of tenure which is only 12 months. They would have the rights not just once but theoretically at least after each tenant who opts to pay on a measured basis. Those premises and the occupants would thus be in an entirely different and privileged position in relation to all other consumers—tenants, owner-occupiers, other landlords or new landlords or new tenants of the same premises. There would even be differential treatment between different kinds of property and different kinds of landlords since those rights could not apply to public sector landlords or social rented housing or housing which was rented out by property companies. There the landlord could not occupy the property as his principal place of residence.
I accept that the noble Baroness's amendments are more specifically targeted than those we debated at earlier stages of the Bill. There are therefore a significantly smaller number of cases which might be caught by her amendments. Nevertheless, that narrowing raises a number of technical and practical issues which noble Lords should bear in mind when considering the amendment.
First, the amendment introduces a real prospect of indefinite switching between measured and unmeasured charges for a significant number of customers. If that were pursued, it would undermine the stability of the water company's charging regime and those charges would have to be passed on to other customers.
Secondly, to trigger reversion to an unmeasured charge the landlord would need only to state his intent to re-occupy the property as a principal place of residence. How would a water company go about proving that that was the case? It would also need to be clear to the water company that the landlord had evidently and provably not agreed to the installation of the meter in the first place.
In addition to these concerns about how the clause would be interpreted, there are a number of technical defects in the amendment in a legalistic sense. These amendments could not be accepted in their current form, even if we put aside our considerable policy concerns. For example, Amendment No. 1 does not define "lessor". It would appear to grant rights of reversion not just to the direct landlord but to any tenant who sublet a property. Perhaps more importantly, the amendments would significantly change the meaning of "consumer". The word "consumer" has been well established in water legislation at least since the Water Act 1989. They would also change the general proposition that rights and duties attach to the person who pays the bill.
Of course, landlords who are concerned about the possibility of this effect have a relatively easy answer. If this is their main concern they can decide themselves to
1072
become consumers before they let out a short lease. If the issue of water metering is of sufficient importance to the landlord, all he needs to do is to take on responsibility for paying the bill and, presumably, therefore to include a sum to cover the water charge in the tenant's rent. In those circumstances, no rights accrue to the tenant unless he is the consumer. Landlords are already aware of this. I have had drawn to my attention a copy of a newsletter from the Small Landlords Association which draws attention to this option.
The noble Baroness has argued that this is not a sufficient answer to her point of principle, but I believe that there is a bigger point of principle here. We are concerned about consumer protection, equality of access to choice and equality of treatment for consumers across all housing tenures. Having said all that, the fear of the noble Baroness that we are taking rights away from landlords does not stand up. At the moment, the tenant-landlord arrangement can be overridden by the water company. All we are doing is transferring that to the consumer. Therefore, the position of the landlord does not materially change.
We believe that the policy package that we are implementing through this Bill introduces a major element of increased choice. It may not be as great a choice as the noble Baroness, Lady Hamwee, wants, but it is nevertheless very significant and one that is given equally to all consumers as that word is normally understood. It neither favours nor disadvantages groups of consumers relative to each other. The amendment tabled by the noble Baroness would undermine those important principles and also introduce a new level of complexity which in practice would be extremely difficult to enforce.
By this Bill we have no intention of making life more difficult for landlords. A very large swathe of landlords will benefit considerably from the additional rights and choices that we give them. But I do not believe that the elaborate provisions in this amendment, even given the relatively small number of people to whom it might in practice apply as compared with amendments moved at an earlier stage, justify altering the central principles of this Bill: choice, equality and equal treatment between all forms of tenure. I urge the House to reject this amendment if the noble Baroness is not at this stage convinced of my arguments.
Baroness Miller of Hendon: My Lords, I am extremely disappointed, although grateful to the noble Lord for the lengthy and detailed answer that he has courteously provided. I am also very disappointed that the noble Baroness, Lady Hamwee, does not feel able to support this very limited amendment which is much narrower than the one she believed had some merit. I note that she was convinced by the letter sent to her by the Minister. It is a pity that I did not have the opportunity to speak to her before we came into the Chamber so that I could point out what I consider to be the defects in the answer provided by the Minister.
The Minister made two points that I should like to deal with. First, he said that the water company could in any event impose a water meter on a landlord so that it would not make any difference. That is true. However, equally

1073
he can impose it on a tenant who cannot change it back. Whether or not it is imposed, we are talking about an altogether different idea. I am referring to a case in which a tenant under a tenancy decides to put in a water meter, and that is nothing to do with the landlord. After a year the tenant may decide to take it out because it does not suit him, but if the landlord comes back after a year he cannot do so. I regard that as a most unfortunate matter.
The second point relates to a matter referred to by the Minister in reply and on the previous occasion. The landlord can save himself by deciding to pay the water charges, and therefore he is the consumer, not the tenant, and can do as he wishes. I believe that to be a flaw in the Bill, and it is not appropriate for such matters to be dealt with by telling the landlord that he can get round it by paying the charges himself.
I am disappointed. Following the lengthy meeting yesterday, at which we took on board all of the points then made, I hoped that the Minister would find it possible to accept this amendment. If he does not, I conclude that there was no intention of accepting anything. I and the noble Baroness on the neighbouring Benches have raised several matters, but nothing has been accepted. That is a great pity. I believe that this amendment would strengthen the Bill.
Frankly, I did not realise, perhaps until an hour and a half ago, that this matter would be resisted. I thought that it would please the Minister. We have always tried to improve matters. I wish to test the opinion of the House.
3.57 p.m.
On Question, Whether the said amendment (No. 1) shall be agreed to?
Their Lordships divided: Contents, 90; Not-Contents, 116.

Division No. 1

CONTENTS

Ailsa, M.

Elton, L.

Alexander of Tunis, E.

Foley, L.

Annaly, L.

Freeman, L.

Astor of Hever, L.

Gainford, L.

Attlee, E.

Glentoran, L.

Berners, B.

Halsbury, E.

Biffen, L.

Hamilton of Dalzell, L.

Blaker, L.

Hanningfield, L.

Blyth, L.

Harding of Petherton, L.

Bowness, L.

Hemphill, L.

Brougham and Vaux, L.

Henley, L. [Teller.]

Burnham, L. [Teller.]

Higgins, L.

Buscombe, B.

Hogg, B.

Butterworth, L.

HolmPatrick, L.

Caithness, E.

Hooper, B.

Campbell of Croy, L.

Iveagh, E.

Carnock, L.

Jenkin of Roding, L.

Chadlington, L.

Knollys, V.

Clark of Kempston, L.

Liverpool, E.

Cochrane of Cults, L.

Long, V.

Crathorne, L.

Lucas of Chilworth, L.

Crickhowell, L.

Luke, L.

Cuckney, L.

McColl of Dulwich, L.

Davidson, V.

McConnell, L.

Dixon-Smith, L.

Mackay of Ardbrecknish, L

Dundee, E.

Marlesford, L.

Elliott of Morpeth, L.

Merrivale, L.

1074

Mersey, V.

Renton, L.

Miller of Hendon, B.

Renwick, L.

Milverton, L.

Rotherwick, L.

Mountevans, L.

Sandys, L.

Moyne, L.

Seccombe, B.

Munster, E.

Simon of Glaisdale, L.

Murton of Lindisfarne, L.

Skelmersdale, L.

Napier of Magdãla, L.

Slim, V.

Norrie, L.

Strathcarron, L.

Northbrook, L.

Swinfen, L.

Munburnholme, L.

Teviot, L.

O'Cathain, B.

Thomas of Gwydir, L.

Onslow of Woking, L.

Trefgame, L.

Pender, L.

Walker of Worcester, L.

Pilkington of Oxenford, L.

Westbury, L.

Quinton, L.

Wharton, B.

Rathcavan, L.

Windlesham, L.

Rees, L.

Young, B.

NOT-CONTENTS

Acton, L.

Ilchester, E.

Addington, L.

Irvine of Lairg, L. [Lord Chancellor.]

Ahmed, L.

Allen of Abbeydale, L.

Jay of Paddington, B. [Lord Privy Seal.]

Allenby of Megiddo, V.

Alli, L.

Jeger, B.

Amos, B.

Jenkins of Hillhead, L.

Archer of Sandwell, L.

Jenkins of Putney, L.

Avebury, L.

Kennet, L.

Bach, L.

Lovell-Davis, L.

Bassam of Brighton, L.

Macdonald of Tradeston, L.

Borrie, L.

McIntosh of Haringey, L.[Teller]

Bristol, Bp.

Brooke of Alverthorpe, L.

Mackenzie of Framwellgute, L.

Bruce of Donington, L.

Maddock, B.

Burlison, L.

Mallalieu, B.

Carter, L. [Teller.]

Merlyn-Rees, L.

Castle of Blackburn, B.

Methuen, L.

Charteris of Amisfield, L.

Milner of Leeds, L.

Christopher, L.

Mishcon, L.

Clarke of Hampstead, L.

Molloy, L.

Cledwyn of Penrhos, L.

Monkswell, L.

Clinton-Davis, L.

Morris of Castle Morris, L.

Cocks of Hartcliffe, L.

Morris of Manchester, L.

Crawley, B.

Nicol, B.

Currie of Marylebone, L.

Palmer, L.

David, B.

Paul, L.

Desai, L.

Peston, L.

Donoughue, L.

Pitkeathley, B.

Dormand of Easington, L.

Ponsonby of Shulbrede, L.

Evans of Parkside, L.

Prys-Davies, L.

Ezra, L.

Ramsay of Cartvale, B.

Farrington of Ribbleton, B.

Razzall, L.

Fitt, L.

Rea, L.

Gladwin of Clee, L.

Redesdale, L.

Glanusk, L.

Rendell of Babergh, B.

Goodhart, L.

Rodgers of Quarry Bank, L

Goudie, B.

Russell, E.

Gould of Potternewton, B.

Sawyer, L.

Grey, E.

Scotland of Asthal, B.

Hacking, L.

Serota, B.

Hamwee, B.

Sewel, L.

Hardy of Wath, L.

Shepherd, L.

Harris of Greenwich, L.

Simon, V.

Harris of Haringey, L.

Stallard, L..

Haskel, L.

Stoddart of Swindon, L.

Hayman, B.

Strabolgi, L.

Hilton of Eggardon, B.

Strafford, E.

Hogg of Cumbernauld, L.

Strange, B.

Hollis of Heigham, B.

Symons of Vernham Dean, B.

Holme of Cheltenham, L.

Tenby, V.

Howie of Troon, L.

Thomson of Monifieth, L.

Hughes of Woodside, L.

Thornton, B.

Hunt of Kings Heath, L.

Tomlinson, L.

Hylton-Foster, B.

Tordoff, L.

1075

Turner of Camden, B.

Weatherill, L.

Uddin, B.

Whitty, L.

Wigoder, L.

Warner, L.

Williams of Mostyn, L.

Warnock, B.

Young of Old Scone, B.

Resolved in the negative, and amendment disagreed to accordingly.
[Amendment No. 2 not moved.]
Lord Whitty: My Lords, I beg to move that the Bill do now pass.
Moved, That the Bill do now pass.—(Lord Whitty.)
On Question, Bill passed.

Welfare Reform and Pensions Bill
4.7 p.m.
Lord McIntosh of Haringey: My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.—(Lord McIntosh of Haringey.)
On Question, Motion agreed to.
House in Committee accordingly.
[The DEPUTY CHAIRMAN OF COMMITTEES (Baroness Serota) in the Chair.]
Baroness Castle of Blackburn Baroness Castle of Blackburn moved Amendment No. 1.
Before Clause 1, insert the following new clause—

Welfare Reform and Pensions Bill

  PART I: COMMENCEMENT
  (". Part I of this Act shall not have effect until comprehensive legislation embodying the pensions proposals outlined in "A new contract for welfare: Principles into Practice" (Cm. 4101) has been introduced.")
  The noble Baroness said: The amendment is in my name and that of my noble friend Lady Turner of Camden.
  When the Committee has a chance to look at the amendment it will realise how very reasonable it is. The Minister laughs, which I am afraid shows rather clearly the Government's attitude to the whole question of the fundamental reform of pensions in this country.
  The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham): My laughter was because I was sure that my noble friend would not dream of bringing to the Committee any amendment that she deemed unreasonable.
  Baroness Castle of Blackburn: The big question is what the Committee thinks, and it is, I hope, on behalf of the whole Committee that I am now speaking.
  The amendment seeks to say that Part I, which deals with the stakeholder pension, shall not have effect until the Government have produced in legislative form their comprehensive plan for pensions provision in the coming millennium. The question that will be uppermost
  1076
  in most people's minds is "Why?" Why have the Government brought one item only of all the work on which we have been engaged for the past three years and put it this Bill? What are they up to? To fragment pensions provision is to confuse. I used to accuse the Government of the noble Baroness, Lady Thatcher, of having the principle of "confuse and move". But are we not in danger of emulating them?
  What the Government ask us to do in Part I of the Bill is to say, "Here's your stakeholder pension. Pass it. Trust us. And trust us, incidentally, with a great deal of the details", because the House is left entirely in the dark as to many aspects of the Government's plans even for the stakeholder pension. It is all to be prescribed by regulation. So we are voting blind in any case.
  What should have preceded the Government's introduction of what they call fundamental reforms in the pensions provisions of this country is a speech of explanation showing how each proposal fitted into all the rest; because they must interface if the whole edifice is not to fall apart. What I object to—I hope that the whole House will object to it—is having to vote blind. It is not good for democracy; and it is certainly not good for the pensions provisions of this country.
  We have had three years in which the pensions review body, on which a number of us have served, has had intensive discussions on every possible aspect of pensions policy. What should be the role of state insurance? What should be the role of private insurance, the occupational pension scheme, and even—that unhappy experience—the personal pension scheme? The Government should have told us their plan and what kind of security system we would have at the end.
  Goodness knows, the Government have consulted enough. It has been going on and on. Some of us began to realise that we were wasting our breath, and that the Government had in their own mind a master plan which they were not prepared to share with the rest of us. The stakeholder consultation document came out months after the pensions review body had been into its work. It is a later edition; yet it is the first to be legislated upon. Why? Why take it out of context? Can the Minister convince the House that there is in that anything but an attempt to disguise the whole plan—because if it were revealed in its whole, I think that there would be a large revolt on these Benches? My reading of this Government's tactics over this is that they always had a master plan. Secretaries of State for Social Security have come and gone in the past three years; and in the end the Treasury prevailed. We had the Treasury man; and this is his first product.
  The Minister, Mr Darling, is a very nice chap. I like him very much. The hand may be the hand of Beveridge, but the voice is the voice of the Treasury. The Government always intended to let state insurance in this country wither on the vine. It is to go: "It's not proper insurance, is it?" Instead, society is divided into two halves. In the one half there are those who can afford the risks and costs of private insurance schemes; and in the other, those who cannot, who are to be haled out with means-tested charity.

  1077
  The Government will not fight us cleanly on that because they know that they would not win. So they say, "No, you're quite wrong. We've got a stakeholder pension. Our aim is to ensure that everyone who does not benefit from an occupational pension scheme shall have a stakeholder pension to fall back upon. This is so clearly a noble principle that we can put it in separately, and without telling everyone else what will happen to the state insurance scheme, the basic state pension, SERPS, and other aspects of the policy, we'll all admit that occupational pension schemes are a jolly good thing". But I am afraid that the number who have those is declining; and many are abandoning the principles which govern the defined pension at the end of so many years' service in favour of money purchase schemes.
  We are told, "Don't worry. We're going to spread these benefits". Yet the Government do not tell us what their ultimate purpose is. It is certainly not clear from the Bill, is it? Only two principles of the stakeholder pension are made clear on the face of the Bill. The first is that they must be money purchase schemes. They cannot be guaranteed defined pensions. Secondly, the only duty on the employer is to provide access to a stakeholder pension for employees. There is nothing to prevent the employers who have been contributing under occupational pension schemes switching to the cheaper and more insecure stakeholder pension scheme.
  During debate, we can come to the detail of some aspects of the proposal. But on this amendment, I wish to concentrate on the fact that it is unfair to this House, and to pensioners, to say, "We've had three years of consulting, listening to your points of view, and all the rest of it. We shall give you one salami slice of our pensions policy". I happen to think that it is a rather inadequate slice. But it cannot properly be judged against what we know the Government intend to do, for instance, about fulfilling their manifesto commitment to make the basic state pension the foundation of their pensions provision. How do they propose to do that while refusing to restore the earnings link? Perhaps—heaven knows!—there might be a bright light of conversion shining in their eyes and they will give us the earnings link at last, the logic having overpowered them.
  But there is this second great question mark: what will happen to SERPS? Noble Lords will understand that I have a right to be nervous because the Government change their tune from day to day. For instance, the Minister told us in the Second Reading debate that we have no manifesto commitment on SERI'S. Minister, you had better read the document. I have it here. It is worrying.
  If the Minister does not know about commitments, why on earth should the Government be intending to enforce them? The manifesto states:
  "Labour will retain SERPS for those who wish to remain".
  That is a manifesto commitment. Perhaps the Minister may say, "Ah, but we never intended to retain SERPS as an option for anyone". So we have to watch the words carefully and read the small print. It is only fair to all of us who have to legislate on these matters and to the pensioners concerned to be clear, to be detailed and to be honest about what you are seeking to do.
  1078
  I think that the Government always intended to smuggle out SERPS through the back-door. Bu: they did not say, "We will not retain SERPS as an option for anyone who wishes to make use of it". I know millions of people who would like to. How can we judge the stakeholder pension unless we know what are to be the alternative options open to people? Are we not right to wonder whether it is a bit of a smoke-screen for other designs that it will be harder for the Minister to make sound reputable?
  So I make a plea to the Minister: please accept this amendment. It does not reject the stakeholder pension. It says only that you cannot expect us to accept it, except within the wider context of a comprehensive pensions policy. What is it going to be substituted for? I have no doubt that the Minister will have a very fluent answer indeed, but it will all be in general principles.
  Here we have a legislative commitment that we are asked to commit ourselves to and we are merely saying that until an equal legislative commitment is put in front of us covering the whole area we ought not to be expected to judge. Once we pass this legislation it will be said, "Oh, it's a framework", and then the battle will start on regulations. By then people will be told. "It's too late to do anything about it. We have got it arid the Parliament agreed, didn't it? You had an opportunity to express doubts but you didn't. You took things lying down". So I urge the Committee, regardless of party, to say, "We have a right to know the whole picture before we are expected to vote on a piece of it" I move.
  Lord Higgins: It was said:
  "Age cannot wither her nor custom stale her infinite variety".
  The more I listen to the noble Baroness, Lady Castle of Blackburn, the more it seems to me that the first part of that description of Cleopatra could not be more appropriate in describing her speech today. As regards the infinite variety, one has only to look through the Marshalled List to realise that, as is often the case, she has done a great deal of homework. Certainly, having sat opposite her in one place or another for many years, I thought that she put forward in an extraordinary way and with such cogency her view on pensions, the area in which she has played such an important role.
  First, I must declare an interest as chairman of an occupational pension scheme. Perhaps on this occasion I should be a little more specific and say that it is one of the final salary kind. During Second Reading I suggested that the Bill comprised four or five Bills all rolled into one. It presented us with some problems because it was impossible to deal with some of the Second Reading points in detail, which we would have done had the pensions section or the section on the disabled been presented to the House separately. However, the noble Baroness's amendment, which she has moved so eloquently, perhaps gives us an opportunity of looking at the legislation in a broad framework.
  Perhaps I may make two procedural points. If we are to discuss the remainder of the Bill coherently, there is some danger if we use the expression "a second pension" loosely and generically. If we are talking about

  1079
  stakeholder pensions there is a case for describing them so, and if we are referring to the state second pension we should also use that expression; otherwise the discussion will tend to become confused.
  Secondly, as regards the groupings, we on this side of the Committee have sought to focus attention on particular issues relating to stakeholder and other pensions so that we can debate the particular issues rather than joining them together and discussing them in a general context.
  The noble Baroness's amendment is concerned with two issues. The first is timing and the second is the context in which the Government's proposals have to be considered. The issue of timing is most important, as we shall see in relation to subsequent amendments. Of course, the reality is that it is not proposed to introduce the stakeholder pension for some considerable time.
  As the noble Baroness rightly said, there has been a great deal of consultation. However, we waited a long time before the Green Paper appeared. The noble Baroness always suggested that there was a secret agenda. If that is still the case, I suspect that today's secret agenda is different from that in the first year of government when Mr Frank Field was a Minister in the department. There has been a significant change since his departure.
  The fact is that while there have been delays, there have been fits and starts. We discovered that the consultation process was not completed before the Bill reached Committee in another place. As the noble Baroness rightly points out, there are still many provisions about which we are unclear. I believe that today the Committee will wish to clarify the Government's position on a considerable number of specific issues.
  Furthermore, we must put the matter into context, in particular with regard to the other pension products which the Government are putting forward; for example, the state second pension. So far as we can see, that will be deferred for a very long time. However, we understand that it is to be a replacement for SERPS. The noble Baroness rightly pointed out that the manifesto referred to retaining SERPS. Apparently, it is not proposed to retain it for this Parliament but not for the next. It is difficult to see the justification for saying, "We have a manifesto commitment", when it is apparent that the Government have no intention of maintaining that commitment into the following Parliament, should they be fortunate enough to be re-elected. But the reality is that SERPS will go and a state second pension will be introduced.
  It was also suggested that the Treasury has taken over these matters. I have addressed that theme from this Bench on a number of occasions in recent months. I believe that that is clearly the case. But curiously in this instance, while the Government and the Department of Social Security are putting forward stakeholder proposals, the Treasury has turned up with a different proposal; namely, a lifetime individual savings account. We do not know what the relationship is between the stakeholder pension and the lifetime individual savings account.
  1080
  As was rightly argued, we need to look at the matter in context.
  I say "we" and, of course, a number of different interests are involved. There are potential or actual pensioners and there are the providers of the pensions. All have an interest in seeing matters in context. As was rightly pointed out, a whole range of aspects and alternative products are involved, which we cannot consider specifically when we look at the proposal for a stakeholder pension. I believe it is arguable that the stakeholder pension provides one more option to consider alongside all the other pensions, some of which can be held instead of a stakeholder pension, some in addition to it, and so on.
  I take up the point, defended by the noble Baroness for many years, of the position of the basic state pension and the issue of up-rating it in line with earnings, which has always been a difficult issue for those on this side of the House. I say that honestly. None the less, the basic state pension has formed the bedrock of state provision in this country. However, there are serious fears that that bedrock is being undermined. We are told that there will be a guaranteed minimum income, which Age Concern rightly describes as income support, and the undermining of the contributory principle.
  The other day the noble Baroness, Lady Hollis, slightly misunderstood what I was saying in relation to that. I was referring to the clauses later in the Bill—Clauses 68, 69, 72 and 73. In those clauses we find that people will receive what previously had been called "contributory benefits" without contributing. They will be deemed to have contributed. The combination of the minimum income guarantee and the undermining of the contributory principle gives one cause for concern about the safety of the universal non-means-tested state pension. I believe that we are right to consider that in the contest of the remarks of the noble Baroness.
  Having said so much in favour of the argument of the noble Baroness, I am puzzled as to why she should attach this amendment to the document Principles into Practice, Cm. 4101. I had some difficulty in finding anything about pensions in that document. There are other documents to which she could have referred. However, I was struck by the extraordinary way in which the document is produced. I take, for example, some of the principles: Principle Eight says:
  "The system of delivering modern welfare should be flexible, efficient and easy for people to use".
  Anyone would suppose that the Government were to bring forward a system that was not flexible, was inefficient and difficult to use. Apparently, that is a principle that the noble Baroness set out in the document. I also refer to Principle Three:
  "The new welfare state"—
  not government—
  "should provide public services of high quality to the whole community, as well as cash benefits".
  That appears to be unexceptionable. I am puzzled to understand why anyone would pay £5 for this document and I am a little puzzled as to why the noble Baroness should have attached her amendment to this document.

  1081
  In reality, when looking at the possible range of products—I believe "products" is the right word—which are before us, we should consider the danger of the mis-selling of private pensions, about which, I fully accept, we have all been rightly concerned. In many ways, that has been a disaster which is very difficult to put right. Having said that, I believe that there is a great danger—implicit in what was argued in proposing the amendment—of considerable mis-selling of the new products because we do not know what the inter-relationship of them will be. Also, in legislation, we have to consider something that is being taken on its own without regard to the alternatives.
  On the timing issue, it is not clear what those who may consider taking out a stakeholder pension in due course ought to do in the meantime. As it will be a while before the stakeholder pension is introduced, perhaps the noble Baroness, Lady Hollis, will give us an indication of what people should do in the meantime. It may be two years before the stakeholder pension is introduced, and two years in the course of pension contributions which are paid at earlier stages of the contributory period rather than towards the end can have a significant effect.
  There is widespread concern outside the House about such issues. Perhaps I may end by quoting from an Age Concern document:
  "The Government has concentrated on providing additional help for current pensioners through income support"—
  which Age Concern refers to as a "minimum income guarantee"—
  "While increases to income support are welcome they are no substitute for a basic state pension paid at a reasonable level. The Government should be looking to minimise dependency on means-tested support yet by 2050 they still expect one in four pensioner households to be getting income support…Many older people with modest levels of savings and private/occupational pensions are already excluded from the minimum income guarantee and wonder why they bothered saving. There is a great danger that focussing on means-tested support will act as an even greater savings disincentive to future generations of older people".
  To be frank, there are some aspects of the views of the noble Baroness, Lady Castle, with which I do not agree, but with regard to the points that she made on timing and the question of discussing the issues in a sensible context, I find myself in agreement with her.
  4.30 p.m.
  Lord Goodhart: I have listened with great attention and respect to what the noble Baroness, Lady Castle, has said. As we all know, the noble Baroness was the author of the pensions legislation of 1975 which, to a considerable extent, is still the basis on which our pensions are built. No one in this House or outside it could possibly speak with greater authority than she does on the subject.
  I have a good deal of sympathy for what the noble Baroness has said in support of her amendment. My party supports, broadly and in many respects warmly, the Government's proposals for the reform of the pensions system. We believe that the idea of the basic state pension, the state second pension and the stakeholder pension as an alternative to the state second
  1082
  pension is an ingenious system that will move matters a long way in the right direction. In our view, the right direction is undoubtedly shifting pension provision as much as possible, so far as is consistent with the welfare of pensioners, from unfunded to funded. Of course, the state second pension is intended to provide for that.
  However, we have difficulty with the fact that we now have provisions for the stakeholder pension only and, as yet, we have no details on the state second pension. It is important, indeed vital, to understand the interaction between the stakeholder pension and the state second pension.
  We have seen from the Government's White Paper—not the earlier one to which the amendment refers—that the stakeholder pension is intended to be a funded alternative to the state second pension for those who are on incomes above £9,000. This is absolutely crucial. We need to know what the arrangements will be for opting out of the state second pension and into the stakeholder pension. But how can we know about that until we have an opportunity to see the legislation on the state second pension? Indeed, what has been brought out of the oven so far is no more than what might be described as a half-baked version of the stakeholder pension, because we know nothing about this crucial interaction. Until the state second pension is introduced, the stakeholder pension will be little more than a cheap and cheerful version of the long-standing and familiar personal pension.
  I am sorry that the Government found it necessary to delay introducing legislation in regard to the state second pension. Until that happens—I hope it will happen soon and I should like to know what the Government's proposals are on this—we are able to see only half the picture, and that is a pity. Therefore I have great sympathy with the views expressed by the noble Baroness.
  Lord Haskel: I too admire my noble friend Lady Castle and cannot improve on the compliments paid to her by noble Lords opposite. However, I feel that she is wrong to say that there is no context in which these pension proposals are made. The context is modern working life.
  In modern working life people are in and out of work much more frequently; they change their jobs more frequently; indeed, many people are self-employed. The Government tried to take care of that with the minimum wage and the working families' tax credit. In that way they seek to ensure that people receive a decent rate of pay. If people receive a decent rate of pay it gives them a chance to build up their own flexible pension which they can take with them from job to job. Indeed, if they are temporarily out of work or become carers, the Government have undertaken that the contributions will be paid.
  That is the context within which stakeholder pensions are being proposed and it is a logical context in which they should be discussed and debated.
  Baroness Crawley: My noble friend Lady Castle puts forward persuasive arguments, which is hardly

  1083
  surprising given her great expertise in these policy areas. I had the privilege of sitting with my noble friend for five years in the European Parliament and watched her forensically take apart good and bad arguments of parliamentarians from several member states of the European Union. No doubt, therefore, I shall be given a medal for foolhardiness for questioning her wisdom today.
  I am not convinced that it is realistic to delay this part of the Bill on stakeholder pensions until all the Government's other pension proposals are debated and introduced. The new stakeholder pension, as I see it, should be introduced sooner rather than later; not least because as a new, flexible, low-cost pension it will allow up to 5 million people access to a value-for-money funded pension for the very first time. No one can say that the present system is working for the benefit of everyone in this country, and we know that, unless action is taken quickly to modernise the pension system, one in three pensioners—those are my figures; the noble Lord, Lord Higgins, may be right to say one in four, but it is certainly millions—will end up relying on means-tested benefits in retirement in the middle of the 21st century.
  There is therefore more than an air of urgency about this debate. As noble Lords will know, the way in which pensions are provided for people continues to evolve. My noble friend Lord Haskel was right in saying that that evolution takes place in the context of rapidly changing markets, the increased supply of pensions to that rapidly changing market place and people's need for mobile pension schemes to suit their new working patterns. The delivery of pensions in the 1990s has become a partnership between the public and the private sector. The private sector delivers to those who can afford to save for their own retirement. The state should concentrate on what it does best; that is, alongside the basic pension, underpinning through the minimum income guarantee and the second state pension the incomes of those least well off.
  We need to reflect on the fact that, because of this Labour Government's initiatives such as the minimum wage and the working families' tax credit which is to be introduced in November, 80 to 90 per cent of women earners, who are the traditional losers when it comes to the pay and pension stakes, will be taken above the lower earnings level. They will therefore be able to build up a contributory pension scheme. While that does not at a stroke solve the pensions consequences problem for low-paid women, it represents some progress and it should be seen as such.
  Finally, I hope that we will not delay the establishment of a legal base for stakeholder pensions. They are an essential component of the whole reformed pensions package, not least because early legislation in this area gives time to potential providers to gear themselves up for the new schemes.
  4.45 p.m.
  Lord Peston: I intervene with some trepidation because, first, I do not agree with the amendment of
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  my noble friends, Lady Castle and Lady Turner and, secondly, unlike everybody else who has spoken, I am a mere amateur. I am not an expert on pensions.
  I should perhaps declare an interest which is the counterpart of that of the noble Lord, Lord Higgins; namely, I am an occupational pensioner. I have three pensions at least, all index-linked and I am a great believer in all these matters. I too am delighted the amendment was tabled because the topic is well worth exploring.
  Perhaps I may start with one or two random remarks. I would love to believe that the Government have a master plan. If they do, no one has told me about it and perhaps my noble friend Lady Hollis will give me a copy of the master plan marked "Secret. Not for anybody else to see". I have read the published documents but my noble friend Lady Castle is talking about the master plan and not the published documents. If there is a master plan I should love to see it.
  We must start from the position that the existing state of affairs with respect to income for the elderly is a complete mess. It is not something that any member of this party can support. It has gone from not very good to very bad indeed, especially for anybody who has to live on the state pension. I say to my noble friend Lady Castle that I too totally support the earnings-related update; I put my hand up to that. I have no doubt about that whatever. The problem is that the earnings-related update will be paid by the existing labour force. And how are we to persuade all those people who are currently in work to agree to what I would advocate; that is, a rise in taxation? I am still an old-fashioned person who strongly believes in progressive taxation and redistribution. The problem is persuading people to vote for it.
  I have argued cynically for a great many years that I am astonished how, for 18 years, a lot of the relevant labour force voted for the party opposite, which abolished the earnings-related approach to this matter and, to a large extent, abolished progressive taxation. But when those same people, having voted for that, retired, they asked, "Where is our earnings-related pension?". It is a cynical view. When I address meetings and people question me about it, I respond by asking them, "What did you vote for all those years?"
  If I had a vote, I would still vote for progressive taxation and uprating, but the problem is to persuade the workers in work to do so. I have to say that I am not convinced that they all will. So that is the nature of that problem. My noble friend Lady Castle ought to know that if she needs one supporter in favour of earnings related update, then I am it. Unfortunately, that does not help in a general election, particularly as I do not have a vote.
  I turn now to the other problem that I have with this amendment. It is rather like the way that the Opposition have been approaching the House of Lords reform; in other words, it is based on the proposition that until you can do everything you should not do anything. I agree that this is only a first step. The way to judge it is to ask whether it is a first step that improves the current

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  state of affairs. I have to say that I am persuaded that it will at least, within its limits, lead to an improved state of affairs in order to help. especially in the longer term.
  I do not disagree with my noble friend Lady Castle. I think that my noble friend the Minister owes it to us to give us as much practical detail as possible. If she cannot do so now—and I doubt that she can—we would at some point like to see precisely how some of these measures will work. Both my noble friend Lady Castle and the noble Lord, Lord Higgins, said that they would really like to see step by step how it would work. I, too, should like to see more of that, but that does not mean that we should not proceed with the legislation as it is or try to move forward.
  I have one further point to make about the question of what we can do. I actually believe that there is a broad sense in which the pension problem is insoluble. Indeed, it is fairly commonsensical; if it were an easy problem to crack, even noble Lords opposite would have cracked it. Certainly my noble friend Lady Hollis, who is brilliant at these things, would have got it sorted out by now. But we are discussing a number of rather conflicting difficulties. We have the problem of pensions for people who are in work, we have the problem of uncertainty with work and we have the problem that we do not have full employment. We also have all sorts of problems with the economy about which we do not even know.
  Essentially, as the noble Lord, Lord Higgins, and others pointed out, we have the incentive problem. We certainly want to tell people that they will be safe in their old age. None of us has any doubts about that as a moral principle, but if we then say that we will guarantee it, you may ask, "Why should I guarantee it?" It is the classic problem and not one that is easily solved, although we all say that we favour solving it.
  I have to tell my noble friend Lady Castle that I think she is being a little harsh in this respect. I stand second to no one in my willingness to attack my noble friends in government, especially as it turned out that I was not to be one of them. However, on this occasion my noble friend is being at least slightly unfair. The problem will not be easy to solve. But where people are in work and where the Government can deal with the mis-selling problem (which they can with appropriate controls), where they can say that, on average—not when you are poorer—if you can make provision for yourself within recognised schemes you should do so and where the Government then say that below that average they will use the tax system to try to help people, I think it is worth giving the kind of support that my noble friend would like to have on this occasion.
  I conclude my remarks by saying that I am delighted that my noble friend Lady Castle has raised this matter. It has given me a chance to say a few words in support, as well as make other comments. I entirely agree with her that we want more detail, if we can have it. But I hope that she does not in any way force us to vote on
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  the matter today and that she will content herself with at least hoping that my noble friend the Minister will give us some enlightenment and some answers.
  Baroness Hollis of Heigham: As we have heard, the amendment tabled by my noble friend Lady Castle would insert a condition that Part I of the Bill should not have effect until comprehensive legislation has been introduced on our wider proposals for pensions reform. Behind this lies a belief held by my noble friend that our pension plans are incomplete and that they are secret—indeed, I think she actually said that our policy was to fragment and confuse. In other words, we need the comprehensive policy laid out so that people can understand where this part of the Bill fits, and only then would she feel able to give it a possible endorsement.
  I take the criticism in the point made by the noble Lord, Lord Higgins, that if you were to rely on the document cited in the amendment—namely, Principles into Practice—you would find that it does not say very much about the detail of pensions. Therefore, my noble friend is right: there is no coherent pension policy in it to enable her to put what we are proposing today into context. But, as that document made clear, it was never designed to do so. It was the first document and was subsequently followed by the major pensions document Partnership in Pensions, which came some nine months later. The first document was produced in March 1998, but the latter came out in December 1998 and was introduced by myself by way of a Statement. Indeed, my noble friend was one of the most senior contributors to the debate which followed.
  Therefore, I take it as being a little odd that my noble friend should claim that the Government have not produced a coherent policy which they have brought to the House as a framework document within which the policies of the Bill can be understood, appreciated and debated. We did precisely that last December and, as I said, my noble friend was one of those who took part in the debate and who pressed me perfectly properly on her concerns. I hope, therefore, that my noble friend will accept that her basic premise—namely, that the Government do not have a policy, or, if they do. they are concealing it—is simply unfair. She must recognise that fact because she took part in that debate.
  My noble friend has rightly said that we need more detail, as indeed have other noble Lords. That is perfectly reasonable. We are producing that detail in a series of consultation documents which will go out to the appropriate bodies. On the basis of that, we shall issue our proposals. That is surely the right way to proceed. This is a highly technical process, involving a major sector of industry and we are handling it in that way. To say that we have no coherent framework simply runs in the face of this document, especially when my noble friend contributed to the debate on it last December.
  In that Statement, in the subsequent debate and in this document, we made clear that our approach is to build a modern and affordable pensions system which will ensure that everyone has the opportunity to achieve a decent income in retirement. No Member of the Committee today has disagreed about the substance of

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  what we need to do. But if we leave pensions are they are, too many people will passport the inadequacy of low wages into the poverty of old age. My noble friend and I entirely agree in one respect: we want to ensure that today's pensioners and, above all, tomorrow's pensioners can enjoy as comfortable a retirement as possible.
  My noble friend obviously prefers to argue the case of the SERPS proposals that she established in 1978. She was right then to do so. SERPS served some pensioners well, but I have to point out that it does not help those who need it most; that is to say, those on low earnings or those who move in and out of the labour market. Equally, as has already been said, occupational pension schemes are one of the great welfare success stories. But, as we all know, they are not available to everyone. Personal pensions can be a useful substitute for those who do not have access to an occupational scheme or those who change jobs frequently. But, again, as everyone knows—indeed, as we have said time and again in this Chamber—they are not suitable for everyone, especially those with moderate or low earnings or where the scheme carries heavy charges that can top-slice 25 or even 40 per cent off the pension of those who contribute for only a modest number of years.
  We know that the combination of SERPS, occupational pensions and personal pensions does not now address the problems of the modern labour market. As my noble friends Lord Haskel and Lady Crawley emphasised in their contributions today, we have to adapt that pension framework to pick up those who are currently falling between the holes and the meshes. That is why we produced this document—121 pages of it—laying out where we want to go, followed by consultation papers which have gone to those in industry. We have not gone by the rules for consultation documents because the industry would have been perfectly right to complain.
  We know where we are going. I would have hoped that your Lordships also knew where we were going. We seek to deliver a pension promise to those who are at present ill served by the offers in the market-place to ensure security in retirement. We have not been slow in doing that, despite the charges made by my noble friend.
  We introduced last April the new minimum income guarantee, which provides immediate help to today's poorest pensioners—often the elderly widow in her late 70s or 80s who has never had the chance to build a decent pension—and we have increased income support by three times the rate of inflation, so that single pensioners receive £75 and couples £116. To ensure that the value of that is maintained, next April the increase will be based on earnings and our long-term aim, if resources permit, is for that minimum income guarantee to be increased in line with earnings, so that all pensioners share in rising national prosperity.
  We believe that helping through the minimum income guarantee is the most effective way of helping those currently in need. It makes a real difference quickly to those who are poorest. But that is not all we are doing. In addition, we introduced winter fuel payments at a cost
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  of £200 million, increased them in the Budget to £100 a year, and have provided extra help in terms of VAT, scrapping eye-test charges, and so on.
  Those are the first steps. We will also set out our plans to reform state and private pensions so that everyone with a lifetime of work and caring behind them will build up rights to a pension that will take them above the minimum income guarantee. That is a safety net and we want to lift people above that safety net as far as we can. How are we doing it? The answer is in two ways: we are going for a state second pension and for a stakeholder's pension. At the moment, SERPS covers something like 7 million people. We expect 5 million of those to go into the state second pension.
  As a result, because that state second pension will assume that anyone earning between the lower earnings limit of £3,400 (or whatever) to £9,000 will receive a pension as though they were earning £9,000 a year. It will be more distributive—as my noble friend Lord Peston called for that—than anything we have so far seen in the pension world. Anybody on an income of £3,500, £4,000, £5,000, £6,000 and so on will get a state second pension as though they were earning £9,000 a year. That is something SERPS could never do, because it was earnings related. It gave the least help to those who needed the most help. That is why it is not an adequate framework for our future.
  So part of our policy will be a state second pension, with carers and disabled people credited into it. We expect, therefore, that in that new state second pension there will be 5 million people: 4 million coming from SERPS; half a million from personal pensions; half a million from occupational pensions and perhaps 2 million carers. Of the other 2 million people currently in SERPS, we would expect the equivalent number to go into the stakeholder pension, which is safe and financially more generous than people could get under SERPS. That is why we have a two-tier policy. We expect that the state second pensions to attract 2 million from SERPS, plus 2 million from an approved personal pension and, of course, those who are very badly served in the pension market at the moment—the 1 million people who are self-employed.
  That is where we see the present SERPS "clientele" going. Those who are among the poorest, earning under £9,000, will go into a second state pension, unfunded, pay-as-you-go, but genuinely and decently redistributed so that the poorest get the same as those who are on £9,000 a year, which SERPS never did. For those earning over £9,000 and up to £18,000 or £20,000, we are for the first time going to offer the stakeholder pension, a second pension in which the rebates have been recycled to produce a pot which will be available for a funded pension which is portable, cheap, secure, properly governed, available to the self-employed and which, if you are out of work for whatever reason for up to five years, you can continue to keep ticking over.
  Together, the state second pension and the stakeholder pension will do what SERPS was doing in the late 1970s but which it can no longer do because the labour market and the world around us have changed. Short-term work, part-time work, women's work,

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  contract work, low-paid work and being self-employed or moving in and out of the labour market: these were contingencies ill served by the SERPS that we inherited. I know that my noble friend did her best when SERPS was first established to meet some of those contingencies, but those provisions were stripped out.
  We believe that in this document we have set out our framework and that in this Bill we are starting the job of initiating stakeholder pension schemes. We do not think it is right to delay until both can come in at the same time. Even a short delay in starting pension arrangements can have a considerable impact on the level of pension which is available at retirement. We are particularly concerned at the lack of pensions suffered by so many people, or the inadequacy of personal pensions. Something like 50 per cent of personal pensions expenditure merely recycles the next rebate, which will ensure that those people will still need income-related benefits in retirement. We therefore need to move as speedily as we can on this. That is why we have brought forward this legislation at the earliest opportunity following the Green Paper. Potential scheme-providers need time to prepare.
  The Government need to ensure that the necessary administrative and regulatory arrangements are put in place. We need to act with some urgency and we are also conscious of the need to get the details right. Earlier this month, my right honourable friend the Secretary of State set out proposals for minimum standards, including charges. Further consultation papers will follow shortly.
  My noble friend would say that we can do nothing about stakeholders until everything else is in place. As my noble friend Lord Peston said, we cannot do anything until we are ready to do everything all at the same time. I can understand that concern. I appreciate that pensions policy has to be judged in the round otherwise problems arise—very much as happens with yellow lines on the road when the traffic tails back somewhere else down the system. You need to see it coherently.
  We believe that the Green Paper sets out all that. We shall take action as soon as we can and as soon as legislative time permits the introduction of the state second pension after this parliamentary Session. We cannot offer guarantees on that, but we hope to introduce it as speedily as possible. In the light of that, I hope that my noble friends Lady Castle and Lady Turner will feel able to withdraw their amendment. We do have a coherent pensions policy. It was shaped here and my noble friend took part in that debate. We are introducing it in two steps, partly because the industry needs the extra preparation time for what are essentially privately provided stakeholder pensions.
  We see this as a set of coherent policies. We shall be bringing forward proposals for the state second pension as soon after this parliamentary Session as time permits. In the light of that, I hope that my noble friend will accept that together the two elements—the state second pension, unfunded, and the stakeholder pension—do what she was seeking to do with SERPS, but in a more appropriate way which reflects the conditions of the
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  labour market in which we now live. We all want to see security and decency of provision in old age. We believe that the stakeholder pension marks the first step and, complemented by the state second pension, will achieve precisely that.
  Lord Higgins: I wonder if I may press the Minister on one or two matters. Several of her remarks threw a new light on the present situation as opposed to what we previously believed to be the case. What she has not. done is to explain why the Government cannot bring forward in this Bill the state second pension. As I understand the situation from previous statements, it has been previously anticipated that the state second pension would not come into operation for some five years after the stakeholder pension. Can she say whether that is so or not?
  The other point the noble Baroness made which is of considerable interest relates to the fate of the people in SERPS. The noble Baroness is now suggesting that some 2 million people who are now in SERPS will move into stakeholder pensions. Perhaps she will elaborate on that a little given the different structure of the two measures. As regards the others who are in SERPS, will they be able to remain in a SERPS system or will they be compelled to move to the state second pension?
  Are the Government delaying implementation of the state second pension because of the manifesto commitment, or is that being done for some other reason? The comments that the noble Baroness has just made seem inconsistent with that manifesto commitment; namely, that the Government propose to legislate in the next Session of Parliament—not the next Parliament—to introduce the state second pension. I hope that the noble Baroness will clarify those points.
  Baroness Hollis of Heigham: I said that we have no intention of affecting accrued SERPS rights. They will continue to exist and they will be protected. However, as the state second pension and/or the stakeholder pension come into play—particularly the state second pension—those rights will be carried over into the new pension format. In other words, SERFS will not continue to run in parallel; it was never intended that it should. The introduction of the state second pension Is planned for April 2002. However, that is subject to time being made available to introduce the primary legislation. Should all go well—I have no reason to doubt that it will not—and subject to legislative time being available, I hope that we shall move as quickly as possible from consideration in this Session of the stakeholder pension to the introduction of the state second pension.
  Lord Higgins: Would that mean that people on an earnings-related pension—namely, SERPS—would go into the state second pension which is not earnings related?
  5.15 p.m.
  Baroness Hollis of Heigham: They would do so only if that would be to their financial advantage. In other

  1091
  words, the choice is available to go into a stakeholder scheme. Someone who at the moment earns £3,500 or £4,000 a year frankly receives pennies out of SERPS. Under the state second pension the return for someone who currently earns about £3,000 or £4,000 a year would be four times what they would currently receive under SERPS. Under SERPS someone on £3,000 or £4,000 a year might receive only £11. However, he or she would receive about £40 under the state second pension. The state second pension is infinitely more generous than SERPS every step of the way. We are not talking about a reduction of rights but rather a huge increase in returns.
  Lord Peston; Before my noble friend sits down, I hope I may ask her one other question which I forgot to ask earlier. I forgot to ask about the element of compulsion with respect to the stakeholder pension. I think of someone who is starting work rather than someone who is already in work. Is it the Government's view that everyone who is in work must now compulsorily have a stakeholder pension? According to my reading of the Bill, that matter is slightly ambiguous.
  Baroness Hollis of Heigham: If the straight question is whether everyone in work will be compelled to be a member of a pension scheme, the answer is no. We do not propose that at the moment. We have consulted on this matter and there has been quite a lot of support for that proposal. However, I want to qualify that by adding a few more points. First, anyone who is in employment—that is, an employee—is, by virtue of the current SERPS arrangements or the occupational scheme arrangements, already effectively compelled to belong to a pension scheme. My noble friend Lady Turner who knows so much about pensions nods in affirmation. If employees do not have access to an occupational scheme, they enter SERPS. Therefore any employee is already in a pension scheme and our proposal will not reduce that provision.
  Secondly, as my noble friend Lady Crawley rightly said, by virtue of the minimum wage, many more women who hitherto have not been over the lower earnings limit, and therefore have been unable to enter contributory pension schemes, will be able to do so. About 85 per cent of married women in work and 88 per cent of unmarried women in full-time work will pass the lower earnings limit. Between 60 and 70 per cent of those in part-time work will pass the lower earnings limit. They will come into a contributory scheme and therefore into a compulsory pension scheme, if you like, in so far as they are employees. As I believe we all recognise, the difficulty concerns whether compulsion should apply to those below the lower earnings limit; that is, those low earners who are perhaps working six or eight hours a week and earning, say, £2,000 a year. One could end up guaranteeing them a pension which is more generous than their earnings. There is a real dilemma there.
  The second problem concerns how best to help those who are self-employed. If we were to make pension membership compulsory, I suspect that the group on
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  which that would bite most would be the self-employed. Many self-employed people regard their business as their pension. They believe that to "top slice" money which they consider could be more appropriately invested in their business and put that into a pension scheme would not be in their best interest. We have consulted on this matter. As I say, at the moment we do not propose to go down that route, but we are not closing the door on it. We hope that the new stakeholder scheme will be sufficiently attractive to encourage the self-employed to take out pension provision to an extent that has not been the case in the past. If we find that we are unsuccessful in that aim and that other avenues need to be explored, I promise the Committee that we shall reconsider the matter. We want to ensure comprehensive pension coverage. I believe that all Members of the Committee will understand the dilemmas that this Government and the previous administration—I refer to the Pensions Act 1995—have faced.
  Lord Peston: Some of these matters will be discussed when we discuss the next amendment which I gather my noble friend Lady Turner will put before the Committee. However, I have to say that in my judgment young people are incapable of taking a rational decision that will affect them 40 years ahead. Some time ago I remarked in this Chamber that I was incapable of taking such a rational decision in my youth. I am delighted that I had no choice in the matter and that I was forced to have a pension, the result of which is that I am not on the breadline now. I believe that we cannot let this issue of compulsion drift. It is hopelessly naïve to assume that people can take the right decisions with regard to provision 40 years in the future. That is the only reason I have intervened, but further points can be raised when the noble Baroness, Lady Turner, moves the next amendment.
  Baroness Castle of Blackburn: Has the noble Baroness finished her comments? One never knows; it goes on, does it not?
  Baroness Hollis of Heigham: If the Committee has finished with me, then I have finished.
  Baroness Castle of Blackburn: We have had the initial run of a worthwhile debate, not least because it enabled the noble Lord, Lord Peston, to get many of his repressions off his chest! I believe that the discussion has revealed the unsatisfactory position in which we find ourselves in that we are having to discuss on the basis of a narrow piece of specific legislation, a wide range of rather generalised promises. My amendment does not seek to say that the enforcement of the different aspects of pension policy must all take place at the same time, but that we must have the Government's whole proposition in front of us in legislative form. It is only when we come to draft the measure in statute that some of the vagueness disappears and we find that we do not like what we see.
  I stand by the claim I made that we ought not to have been asked to deal with one tiny slice of legislation. The position is also unsatisfactory because it enabled

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  the noble Baroness, Lady Hollis, to give a wonderfully eloquent tirade about the wonders that are to come in the light of the Green Paper, when I had narrowed my contribution to the question of timing and the context of the measure. I do not want to filibuster because I am anxious not to give the Government justification for keeping us all here until the early hours on the grounds that we were all trying to wreck the Bill. If it comes to wrecking the Bill because of filibustering, I think the noble Baroness had better measure the length of her own speeches and compare them with mine!
  I think it was worth while to have this preliminary run. The whole issue of pensions—as, God knows, I know—is extremely complex. I do not intend to press my amendment for one very specific reason: it has been pointed out by the noble Lord, Lord Higgins, and the Minister that my amendment is wrongly drafted. They seemed puzzled as to why I had chosen the earlier document to quote in the amendment. Frankly, I was a bit puzzled when someone read it to me. There is a simple explanation. The Committee will be tired of hearing me say that I now suffer from very low vision and that everything has to be read to me. When I detailed the job I said, "I am talking about the Green Paper; look at the title", and the wrong one was looked at. I am not trying to push the blame on to anybody else. It was intended to be a reference to the Green Paper, so perhaps I will not be accused of inconsistency.
  Of course I have read the Green Paper; of course it is full of noble sentiments—but the Committee will forgive me if I am a bit cynical. The glossies with which we have been inundated are no substitute for the hard statutory force of policy. I am not surprised that people have difficulty in finding their way through the glossies that come from the Government. After all, the manifesto glossy had a reference to SERPS which is now being interpreted in rather different ways than seemed to be intended.
  With the permission of the Committee, I will withdraw the amendment with a view to living to fight another day.
  Amendment, by leave, withdrawn.
  Clause 1 [Meaning of "stakeholder pension scheme"]:
  Baroness Turner of Camden Baroness Turner of Camden moved Amendment No. 2.
  Page 1, line II, after ("conditions") insert (", including a minimum level of employers' contributions,")
  The noble Baroness said: I beg to move Amendment No. 2. Although this amendment is grouped with Amendment No. 10, I do not intend to speak to or move that amendment.
  The Bill contains the provision that employers must facilitate access to stakeholder pension schemes. However, there is no requirement for employers to make any contributions themselves; they simply allow the providers of such schemes access to their staff. The object of the amendment is to provide for a minimum level of employers' contributions. We think that otherwise what the Government propose may not
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  increase or improve the general standard of pension provision. In fact it could accelerate a trend away from high-quality employer final salary schemes.
  Employers may be tempted to review their schemes, possibly redirecting the lowest paid into the state second pension and possibly middle earners into stakeholder schemes; higher employer contributions could then be confined to higher graded staff. That is not a development that most of us would want to see.
  A further point is that very few employees are likely to understand how much they may have to pay into a stakeholder scheme if they have to fund entirely themselves. It has been estimated that a young person joining a scheme funded on a money purchase basis would need to accumulate a fund of around £200,000 by age 60 in order to receive a pension of about £10,000 a year—adequate maybe, but not exactly luxury. A sum of £200,000 seems impossible to most young people.
  If stakeholder pensions are to fulfil the task envisaged by the Government of making retirement a pleasure rather than a time to be feared, employees will have to put aside a substantial sum at a time in life when many will be paying off mortgages and bringing up children. There seems no reason why employers should not be asked to bear some of this burden. That is the aim of this amendment.
  Lord Higgins: This amendment brings out a very important point which the noble Baroness has rightly emphasised. At the moment, a number of employers have schemes—nowadays, generally speaking, they are of a money purchase kind rather than a final salary kind—where they make contributions towards them. It is likely to be the case that, since the stakeholder pension does not have that provision, the benefits on that existing scheme may well be superior to what will eventually emerge on a stakeholder scheme.
  The noble Baroness paid tribute to occupational schemes. It is common ground that they have been a great success—no one is disputing that—but it may well be that to some extent there is an element of inertia in them. If suddenly employees, particularly perhaps of smaller firms, are told that the fashionable thing to do now is to have a stakeholder scheme in the terms set out very clearly on the face of the Bill, employers may well ask, "Why is it we are going ahead with the existing scheme rather than simply giving our employees a stakeholder scheme?" Because of the Government's—I was about to say "propaganda"—position on this, they may consider that that is something which the Government regard as perfectly reasonable. In short they will say perhaps, "We are being excessively generous'. In practice, employers are likely to close the existing scheme to new members and then introduce a stakeholder scheme.
  A real danger of the stakeholder scheme is that this kind of situation to some extent adversely affects a number of people who continue to have the opportunity of being in an occupational scheme. Having said that, there are much wider issues about the extent to which employers should be compelled to provide, contributions, which in effect is what I understand the

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  amendment to say. That raises other difficult questions. The trend, if I may put it that way, which I have just described and which I think the noble Baroness supports gives one some cause for concern.
  Another concern is the extent to which one has to make contributions to ensure a worthwhile pension. That matter will arise more specifically on later amendments. There is obviously a danger—Mr Frank Field has expressed this in glowing terms which I will not repeat in this House—that people will decide they should spend the money rather than put it into a scheme from which, in the event, they may get no benefit because the level of the minimum income guarantee comes above the level of pension provided by the contributions they have made. I understand the concerns which the noble Baroness has expressed, although I think there may be real problems in going down the road she advocates.
  5.30 p.m.
  Lord Goodhart: We support very strongly the spirit behind the amendment moved by the noble Baroness, Lady Turner of Camden. My noble friend Lord Russell and I have tabled Amendment No. 19 which is intended to cover the same issue. In the draft grouping it was grouped with Amendment No. 2. I am not sure why it has been degrouped because it seems to me that this is the appropriate place at which to discuss this and one or two other closely related issues. I intend to save the time of the Committee by raising my points in this debate and not moving Amendment No. 19.
  As I said in the debate on Amendment No. 1, we give broad support to the Government's proposals for the troika of basic pension, second state pension and a funded stakeholder pension as an alternative to the second state pension. However, we do not believe that stakeholder pensions will provide adequate pensions for employees unless three conditions are satisfied.
  First, membership must be compulsory for those serving above a certain level unless they already belong to a contracted-out occupational scheme or another pension scheme to which the employer makes appropriate contributions. Secondly, employers as well as employees must contribute, as the amendment proposes. Thirdly, the minimum contributions from both employer and employee must be sufficient to build up an appropriate fund. Amendment No. 2 deals with the second point—that employers should contribute—but it does not propose that membership should be compulsory for employees. Without that requirement, I do not think it will work. For reasons to which I shall come in a moment, compulsory membership will be essential.
  Perhaps I may go into a little more detail on those three points. First, I believe that membership should be compulsory. The second state pension is intended, as the Government have explained, to be a flat-rate pension. The level of that pension will be fixed so that those earning sums greater than £9,000 a year will in effect do better by switching to a stakeholder pension. It is perfectly legitimate to say that people can choose for
  1096
  themselves whether to stay in the second state pension or shift to the stakeholder pension. But on that point I agree with what the noble Lord, Lord Peston, said in the earlier debate. Furthermore, inertia is a powerful force. The Government are in effect deliberately setting up a scheme which means that people on earnings of more than £9,000 a year will not get their money's worth if they stay in the second state pension. To rely on inertia to reduce the numbers opting out is something approaching mis-selling. The Government should lay down rules which provide that at some point people must switch to a stakeholder pension.
  What is that point in terms of earnings? That is a matter of detail. I certainly think that £9,000 is too low. The incomes of many people will fluctuate to some extent. Someone's earnings may have gone up £9,500, but they may go down again next year, so that should not mean that at that point they are required to change. Since the value of the stakeholder pension is not wholly predictable, there is a need to leave a margin. We do not want people to be forced out of the second state pension only to find that they would have been better off to stay in it. I suggest that earnings of £12,000 might be the point at which people would be required to make the switch.
  Secondly, employers as well as employees must contribute. Pensions are now recognised as a form of deferred earnings. In effect, therefore, they are part of pay. It is the duty of employers to contribute to the pensions of their employees. Many employers already recognise that duty either by providing occupational pension schemes of their own or by contributing to group personal pensions for the benefit of their employees. However, not all employers do so. It is not practicable for some employers, particularly small employers, to set up their own occupational schemes. It will become much easier for them to contribute to a stakeholder pension.
  I therefore believe that employers should, if they are making no other adequate pension provision by means of their own contributions, contribute to stakeholder pension schemes. But the employer cannot contribute unless the employee is a member of that scheme. That reinforces the argument that membership must be compulsory above a certain salary level. There will be a problem if employers have to contribute whenever their employee is in the scheme but it is not made compulsory for the employee to join the scheme. If employee membership is not compulsory, employees will come under great pressure from their employers not to switch out of the state second pension because of the greater burden it will impose on the employer.
  Finally, what is the appropriate level of contribution? The minimum needed is at least 10 per cent of current wages if the target is to provide a pension in due course of around half average wages. Some people say that that 10 per cent is not enough and that closer to 15 per cent is needed. However, it may be reasonable to say that it should not be as high as that and that the compulsory level of contribution should he 10 per cent of wages between the lower earnings limit and the upper earnings limit. That would be a reasonable level. I also suggest that two-thirds of those contributions should be paid by

  1097
  employers and one-third by employees. That corresponds roughly to the proportions in which contributions to SERPS are made, as demonstrated by the current rates of rebate. It would be necessary to phase it in over a period of some years. The present contribution level via SERPS on personal pensions is about 5 per cent. Doubling that in one year could cause problems and certainly would be inflationary.
  Compulsory membership of stakeholder pensions and compulsory contributions cannot take effect until the state second pension is in position. But when legislation for the state second pension is introduced, I hope that that legislation will also include provision for a compulsory switch to stakeholder pensions for those who have incomes from earnings significantly above £9,000 and for compulsory contributions by both employers and employees.
  Lord Higgins: I am grateful to the noble Lord for giving way. If he is advocating compulsion in that sense, does he feel that there needs to be some protection to ensure that the pension which is eventually paid is above the level of minimum income support?
  Lord Goodhart: In principle, yes. If it was contributed over a lifetime of work, that would be the case. However, some people might be in employment for only a relatively short period of time and then might unexpectedly lose it. They would be unable, therefore, to build up enough rights. But I would certainly hope that the level of contribution would be such that people who had been in employment for most of their working lives would be at a level above income support.
  Without proposals of this kind, stakeholder pensions will never guarantee proper pensions for those in the lower and middle earnings ranges—that is, £12,000 to £25,000 a year. I hope the Government will accept that they need to move in the direction which I have proposed.
  Lord Freeman: I have considerable sympathy with the amendment moved by the noble Baroness, Lady Turner. I think that her diagnosis is right. We need to encourage employers to make a contribution to pension provision for their employees. But I think that her cure is wrong. I have proposed an alternative route in Amendment No. 17, which seeks to permit dual membership. I believe that the noble Baroness's amendment is flawed because, as the noble Baroness, Lady Castle, said in a powerful speech on the earlier amendment, we must do everything we can to ensure that we do not move away, or encourage a movement away. from defined benefit to money purchase schemes which are cheaper for the employer to contribute to but are a poorer deal for the pensioner.
  The noble Baroness's amendment might encourage employers to close a defined benefit occupational pension scheme and make the minimum contribution to the stakeholder pension scheme, which is a money purchase scheme. That would help the cashflow and the cost base of the employer but it would be to the detriment of the employee. I strongly believe that
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  anything which encourages employers to move away from defined benefits schemes should be resisted. I look forward later on to proposing an alternative route.
  Lord Peston: All my emotional instincts are to support my noble friends on this proposal but I think that there is a small problem with the economics of it which I feel obliged to draw to the Committee's attention.
  First, as a broad principle, the pension received by the average worker will in any system be paid for in full by the worker. Unless one believes that switching from one system to another—for example, from a state system to a stakeholder system or to an occupational pension scheme—leads to an economic revolution and suddenly the economy improves beyond all recognition. there are no free rides. In other words, all pensions are paid for. In general, the average person pays for what he or she receives. One hopes that in a decent system the rich finance the poor. I have made that point previously. I agree that it may be highly controversial to noble Lords opposite, but it has never been a problem for me. That is one part of the background. I shall say more about the numerical consequences in supplementing the points drawn to our attention in an important way by the noble Lord, Lord Goodhart.
  The difficult economics question is: who pays die employer's contribution? The naïve view is that the employer does. I have spent my life teaching economics and pointing out that that is not true; the worker does. The noble Lord, Lord Goodhart, has already alluded to that. The employer's compulsory contribution is simply part of the remuneration of a worker. In any reasonable labour market, unless the employer has monopoly power to a degree that I do not think employers have even in our system, the worker pays. I am not against the compulsory approach, but we should not mislead workers into believing that they are getting something for nothing. They are not. So there is nothing wrong with the idea of compulsion—
  Baroness Turner of Camden: Pensions are deferred pay.
  Lord Peston: That is right. My noble friend puts it much better than I can.
  The idea is not a bad one so long as workers are not under the impression that they did not pay for the pension in the first place.
  En passant, there seems to be a new rule now; namely, we can debate any amendment at any time we like. Therefore—
  Lord Freeman: There is a difference, is there not, between an occupational pension scheme where the employer makes a contribution to the deferred pay of the pensioner in addition to the employee's contribution and a stakeholder pension where the employee pays the whole amount?
  Lord Peston: I am not convinced of that either. My point is that the employee receives whatever the market

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  has to pay the employee to get him or her to supply—if I may use the Marxist term—his or her labour power to the firm. Most economists would argue that the form in which that is done is irrelevant.
  The noble Lord, Lord Freeman, raises another important point in his Amendment No. 17 which also enables me to reveal my ignorance. It had never occurred to me that the problem that he mentions was a problem. It had never occurred to me that people could not have more than one pension. It may be convenient for my noble friend Lady Hollis to elaborate on the point in replying to this amendment. As someone who believes that saving and deferred pleasures are good, I had taken it for granted that the more pensions a person has and the more a person saves, the better—for the very good psychological reason that I prefer not to be dependent on anyone else, not least the state.
  Perhaps I may make a remark on a subject that intrigues me. Again, it relates to the point that people pay for what they get. In broad terms, I have assumed that if one is in full employment for 40 years, and lives for 60 years, essentially one's contribution would be approximately one-third. That is what would be taken out of one's pay. But then we switch to the fact that one would not require equal consumer spending through life. We divide the final part by two, and we get the state pension of approximately half of average earnings; so we get to 15 per cent. It seems to me that, assuming that one has paid for one's house, that part can be knocked off, plus paying for one's dependants, and one ends up within the range of 10 to 15 per cent of income as the likely contribution procedure. I believe that that is what the noble Lord, Lord Goodhart, had in mind. For those of us who have lived through university life, that has broadly been the case. I think I contributed 5 per cent and my employer 10 per cent, but I know that I actually contributed the whole 15 per cent. If my contribution had been nought, I should simply have received 15 per cent less income in the first place.
  The numbers are manageable. My real point is this. Let us assume that we do not have stakeholder pensions—which I support—but pensions on a fully taxed basis. We are then talking about adding 10 per cent to the standard rate of tax. In other words, to repeat my point, one gets nothing for nothing; one gets something for something.
  In conclusion, compulsion is vital. The noble Lord, Lord Goodhart, made a telling point. I should like to see it done by way of some compulsory employer contribution. But I do not think that any of us in this House should even remotely mislead our fellow countrymen and cause them to believe that even this great Government have devised a scheme whereby everyone can be better off when they are older without contributing anything while they are working.
  Lord Stoddart of Swindon: I tend to support the amendment. I believe that it is necessary for employers to make a contribution to a pension scheme—a stakeholder scheme or call it what you will. I do not quite agree with my noble friend Lord Peston that in the field of pensions people cannot get something for nothing.
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  One great problem is that there are people at the present time, as Frank Field explained, who are in fact getting something for nothing because neither they nor their employers contribute to any basic pension scheme. The result is that when the many people who have paid contributions into a private pension scheme all their life and have forgone income as a consequence reach 60 or 65, they find that there is a range of state benefits that are not available to them because they have paid for their own pensions but which are available to those who have not paid any contributions—those people gain twice: they have not lost the income earlier in their life but they receive the benefits at the end of their life. That is the argument for compulsion. I believe that it will be absolutely necessary if any scheme is to stick over a long period of time.
  I am sure that the Government are doing their utmost to bring forward a scheme that will be beneficial and lasting. Although I appreciate the difficulties in relation to businesses, I fear that if the scheme is not made compulsory it will break down for the reasons I have mentioned.
  My noble friend is also right in saying that employers never pay. It is the employee who always pays. I know that to be the case. When I used to negotiate with the CEGB on the Electricity Council, and when I attempted to grind some extra wages out of the employers, they said to me, "Ah yes, Mr Stoddart, but you must not forget the large contribution that the CEGB and the electricity boards pay into the pension fund". So I appreciate what is being said.
  Nevertheless, for many of the reasons that have been mentioned, I believe that the employer should be part of the stakeholder pension scheme. The employer should have some influence on the provision, not only of a livelihood for the personnel throughout their lives but also to see that they have a good livelihood at the end of their lives. I believe that that will help employees to support good pension schemes. For that reason, the amendment should be given a fair wind.
  Lord Desai: Since we are having a very good seminar this afternoon, perhaps I may be allowed to contribute to it. I agree that if people are irrational, and especially the young who do not want to take part in saving, giving them the illusion that the employer pays a pension is a perfectly welcome piece of subterfuge. Of course, people themselves pay, but if they think that the employers pay, that is fine.
  Given the remarks of my noble friends Lord Peston and Lord Haskel on an earlier amendment, in the new labour market will there be administrative problems in tying employers down, because employers change? It is not like working for the electricity industry over a lifetime. I have worked for only one employer for 34 years—I hope that I do not get sacked for another six years! If people work for different employers, going in and out of employment, how can one best manage to obtain the element we want? It is an important question

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  which we ought to face. I do not know the answer, but the modern labour market does not make for simple rules.
  Lord McIntosh of Haringey: My noble friend Lord Desai described this as a seminar. I am not too keen on seminars which take place in the afternoon given that some people stay for the afternoon but not for the rest of the work which has to be done in the evening. I am not talking about anyone in particular, I hasten to say, but it is a trend that seems to have arrived in recent months and years.
  I am pleased that the noble Lord, Lord Goodhart, has brought back the link between Amendments Nos. 2 and 19. We originally grouped them together but some centrifugal force which I do not understand took place and separated them. They ought to be debated together because you cannot have compulsion for employees without having it for employers and vice versa. It has been a sensible debate and I am grateful for that.
  I should declare a past interest as one who ran a pension scheme for 30 years which, until 1988, was an occupational pension scheme, a final salary scheme. It was wrecked by the government of which the noble Lord, Lord Freeman, was a member. His government not only wrecked SERPS by reducing the outcome from the average of the best three of the last 10 years to the average of the last 20 years so that the value of SERPS was much worse after the Conservative Government wrecked it; but they also wrecked much of the final salary occupational pension schemes by removing the compulsory element of membership of those schemes. So I do not take any moralising about compulsion from any Conservative Members of the Committee. The compulsion was removed. My scheme was largely wrecked because I had many young people who knew they would move on. In my business you do not stay for 40 years working for the same employer. The young people would not join the scheme and it lost its funding rationale. I had to introduce a group personal pension scheme instead.
  Of course, any good employer—and I was a good employer—will want to contribute to a pension scheme. I shall not become involved in the economists' arguments about transfer charges; we do not need to do that for the purposes of the Bill. The argument is about who ultimately pays. The good employer will want to contribute to a pension scheme and will encourage his employees to do so precisely for reasons of self-interest, if that is the way to maintain, retain and motivate staff. Therefore, we should be doing everything we can to encourage employers to contribute to pension schemes. That is not necessarily to say that compulsion is the right solution.
  Stakeholder pensions are aimed at those people who do not have access to an occupational, salary-related pension. I say that to the noble Lord, Lord Freeman, who seemed to think that they were a generalised alternative. They are designed specifically to provide a cheap, value-for-money way for people on moderate earnings to build up a funded second-tier pension. So it is vital that we make the schemes as attractive as possible, both for employees and employers. In
  1102
  considering subsequent amendments, we shall consider the tough terms for insurance companies on which we wish stakeholder pensions to be built up, making them attractive to employers by making as limited and bearable as possible the burden on them. That is to ensure that they collaborate with stakeholder pensions.
  In Clause 3 we propose that employers should offer access to a stakeholder pension scheme for those employees who are not offered access to an occupational scheme. This will be an additional burden on employers, but we believe it is a reasonable requirement. We have made it clear that we shall strive to minimise the burden.
  There is nothing in the Bill which will prevent employers choosing to offer contributions to their stakeholder pension scheme. In many cases, they will and we shall give them every encouragement.
  If it is any consolation to Members of the Committee who are worried about the minimum income guarantee question, we have looked at the amount of money that will be achieved after the basic pension and the statutory second pension which will be paid at the level of £9,000, even for those who earn less, including carers and the self-employed. After a reasonable working life, we can say that the return on the basic and the SSP will be more than 100 per cent of the level of means-tested benefits. That really makes a difference for those who think that there is a realistic alternative of refusing to have anything to do with it and relying on the state at the end. There is, therefore, already an element of compulsion in the pension scheme.
  Lord Higgins: Perhaps I may press the Minister on the question of more than 100 per cent. That would suggest it would be a small amount above. Presumably he has done the calculations and can tell us what percentage the Government expect above the 100 per cent.
  Lord McIntosh of Haringey: It is a different figure according to the number of years. It is 105 per cent at 25 years, I believe, but if I am wrong, I shall have to write to the noble Lord.
  Lord Higgins: So after all the contributions, all you get is 5 per cent more than the means-tested benefit.
  Lord McIntosh of Haringey: Yes, if you have only the statutory second pension and the basic pension. But we are not talking about the stakeholder pension here. The whole point is that everything you put into a stakeholder pension on top of the basic and the SSP is above the minimum income guarantee and therefore it is returned to the pensioner in due course. I was talking about the SSP and the basic pension, not about the stakeholder pension.
  I said that there was an element of compulsion in the pension system. National insurance contributions are paid by all workers except the lowest paid. They provide entitlement to the basic state retirement pension which is the basic building block of pension provision available to all workers, with the assistance of credits

  1103
  and home responsibilities protection to many carers and disabled people. That is another difference which must be taken into account.
  In addition, national insurance contributions for employees give entitlement to the state earnings-related pension. Employees who choose to make an equivalent arrangement through membership of the contracted-out occupational pension—I mean those who choose to or are able to because one is on offer to them—or an appropriate personal pension can receive a rebate of national insurance contributions.
  State pensions have many strengths and it is important to recognise that current compulsory pensions do not ensure a decent provision for many people, particularly the lowest earners. That is partly because SERPS has been cut back from its original design and because demographic and labour market changes are tending to reduce the periods over which people are able to contribute; SERPS also, by its nature, gives the smallest benefit to the lowest earners.
  We considered whether it was right to increase the level of compulsory saving in the system, which is what is being urged by Members of the Committee in Amendments Nos. 2 and 19. I do not believe that it is the right answer to the pension problems we face. I say to my noble friend Lord Peston that it is not that it is not viable; it is. We would not have considered it if we did not think we could do it; but it would provide little extra pension for the lowest earners, who would be likely to find the burden of higher compulsory contributions the hardest to bear. At the same time, it would force higher earners to build up a significantly larger pension.
  Compulsory contributions by higher earners are already at a level where the resulting pension is likely to lift them well clear of the minimum income guarantee in retirement. We know that two-thirds of those who earn over £15,000 a year already save an extra 5 per cent of their earnings voluntarily in occupational schemes or personal pensions. Compulsion is a blunt weapon. The new framework that we propose for pensions, in particular the new state second pension—I appreciate that it is difficult to view the stakeholder pension without reference to the state second pension—will ensure that those who need the most help, in particular low earners and carers, get higher pensions without the need for extra compulsion.
  At the same time, we believe that many people who can afford to do so will benefit from making extra pension provision. We want to encourage higher voluntary savings and need to make it worthwhile. The state second pension will provide a decent second pension for all workers and carers and remove the threat of means-testing in retirement. We want to ensure that more people are aware of the need for pensions, and we intend to improve the information that is available.
  I hear what the noble Lord, Lord Goodhart, says about our two cut-off points, but I do not believe that the difference is other than one of degree. We are working towards the same objective. The development of stakeholder pension schemes will ensure that all
  1104
  moderate and higher earners have the option of a good value funded pension arrangement to which they can add extra contributions as their circumstances allow. We have indicated that when stakeholder pension schemes are properly extended we plan to move to a flat-rate state second pension with all moderate and higher earners contributing to an occupational scheme or their own funded pension.
  The new clause introduced by Amendment No. 19 also provides for a compulsory employer contribution which, as I understand it, would be set at no more than half the rate that applied to employees.
  6 p.m.
  Lord Goodhart: I am most grateful to the Minister for giving way. I am afraid that an unfortunate glitch has arisen. What I intended to say was that the contribution rate should not exceed 7 per cent. Therefore, it would be twice the contribution rate of employees.
  Lord McIntosh of Haringey: I am grateful to the noble Lord. What he says corresponds with my experience. I had two group personal pension schemes. As to one of them, I said that I would not as an employer put in anything unless employees put in 5 per cent. If they did that I would also put in 5 per cent. As to the other scheme, my fellow directors said that they would put in money even if the employees put in only 2 per cent. I thought that that was quite inadequate. I do not believe in encouraging employees to deceive themselves into thinking that they have adequate pensions. It is right to make a real contribution, and that is what good employers should do.
  Lord Peston: I have been listening to my noble friend most attentively but occasionally I become lost in the technicalities, in particular his argument on compulsion. Perhaps at a later stage we can come back to it. I thought that my noble friend's argument on compulsion was decisively in favour of it, and then he suddenly concluded that he was against it. He lost me completely on that. The remarks of the noble Lord, Lord Goodhart, on compulsion—in particular that within a firm one would not want to have similar workers with different packages—were overwhelmingly correct. We can return to that on another occasion. But I became really lost when my noble friend spoke about the self-employed. I believe that the self-employed are eligible for the stakeholder pension. We keep switching—outside the rules of the game—to the state second pension. I am trying to keep that out of my mind because, as I understand it, that is not part of this Bill. Nonetheless, as we have wandered into that matter, will the self-employed be eligible for the state second pension—or is it wrong of me at this stage even to ask the question?
  Lord McIntosh of Haringey: I hope that I did not give a false impression. My noble friend is right to say that the self-employed are able to join the stakeholder pension. I did not mean to suggest—if I did—that a

  1105
  decision had been taken about the self-employed and the state second pension. We are still consulting on that matter.
  I hope that I have made clear that we are very strongly in favour of giving every encouragement both to employees and employers to participate in adequate pension schemes. It is not because of any antagonism to employer contributions that we resist these amendments. We believe that, because of the effect on lower paid workers in particular and the need to provide encouragement at both ends, it is a better to rely on encouragement rather than compulsion at this stage. Therefore, we must resist Amendment No. 2 and, in due course, Amendment No. 19.
  Baroness Turner of Camden: I thank my noble friend for his very comprehensive answer to all the arguments raised in what I believe has been a very useful and interesting debate. However, I still hold to the view that it will be very difficult to persuade younger people in particular to contribute the necessary amount to provide them with a proper pension when they reach retirement age. Very few people will understand just how much of their disposable income they are expected to invest if they are to be properly looked after when they reach normal retirement age. For that reason, my amendment suggests that employers should make a minimum contribution.
  My noble friend said that everything possible would be done to persuade employers and employees to participate in pension provision, and for that I am grateful. However, I should like to consider what has been said in the debate this afternoon, with much of which I agree. For example, I agree absolutely with the noble Lord, Lord Freeman, that everything possible must be done to encourage defined benefit schemes as distinct from money purchase. On the other hand, the amendment is designed to ensure that whatever method is used, whether money purchase or defined benefit, there is still a necessity for the employer to make a payment.
  Lord McIntosh of Haringey: Before my noble friend leaves that point, perhaps I should respond to one point made by the noble Lord, Lord Higgins. He suggested that it would be necessary for employers to close occupational pension schemes, if I understood him aright, as a result of our proposals. That is certainly not our intention. Those who offer occupational pension schemes will face no extra requirement, and those who offer an occupational pension scheme to some employees but not others can extend that scheme if they want. I thought it necessary to make that clear in case that was in the mind of any Member of the Committee.
  Lord Higgins: I am trying not to be disorderly. I did not want to make an intervention in an intervention. The noble Lord misunderstood me. I am suggesting that people who are in a scheme where the employer makes
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  a contribution may well feel that they should switch to a stakeholder pension which does not require a contribution.
  Lord McIntosh of Haringey: That was what happened after 1988 when occupational pension schemes could no longer be part of a contract of employment. That happened under the Conservative government—and a very bad thing it was, too. That shall not happen in any additional way under this proposed legislation.
  Baroness Turner of Camden: The comments of my noble friend remind me of the debate on pensions that we had at that time. I remember tabling an amendment to try to provide for compulsory membership of occupational schemes. That amendment was defeated because it was opposed by the then government. I agree with the noble Lord, Lord Goodhart, that if there are compulsory employer contributions there must, therefore, be a compulsory contribution by the employee. I agree that that is completely logical, and I would feel inclined to support it. However for the time being anyway, I do not intend to seek to divide the Committee, and I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Lord Higgins Lord Higgins moved Amendment No. 3:
  Page 1, line 12, leave out subsection (2)
  The noble Lord said: Clause 1 (2) reads as follows:
  "The first condition"—
  of a stakeholder scheme—
  "is that the scheme is established under a trust or in such other way as may be prescribed".
  We change gear slightly at this point, moving from the broad issues we have been discussing to something which is much more specific, because we have sought to focus some of the amendments on particular points. This is one which has already received a great deal of consideration.
  What is slightly puzzling at a rather tedious level is this: if establishment of the scheme can be prescribed in "such other way" as may be thought appropriate by the Government, why does "trust" have to be mentioned at all? Perhaps in a way it is fortunate that the Government have mentioned it, because that has resulted in many representations from outside bodies. The Government now seem very confused about whether some of the schemes will be trust schemes and some will not, or whether none of them will be trust schemes, or whatever.
  The outside representations seem by and large to come down against trust schemes. The National Westminster Bank said in its response:
  "We don't believe a trust-based governance is necessary. Trustees can add little extra protection but will make schemes more complex and expensive to administer."
  Pearl stated:
  "The Green Paper's proposal on establishing independent trustees for stakeholder pensions will increase rather than decrease the cost of administering the schemes."
  Therefore, I hope that the Minister can indicate what the Government's position is given that it has become a little unclear whether they are or are not in favour of a trust-based scheme.
  It seems to me that there could be two quite different animals. There could be a scheme with trustees, which in effect would be the same sort of set-up as we have with an occupational pension scheme; presumably the trustees would be responsible for operating the trust and would employ fund managers to manage the assets and so on. On the other hand, a scheme could be entirely on an insurance company sort of basis, where no trustees are involved.
  My particular concern is this: if one is to do it on a trustee basis, where will one find the trustees? They will not necessarily be paid. I would guess that most trustees are not, so the cost point which is made in the response to the Green Paper which I have just quoted is perhaps a little unfair.
  That having been said, the responsibilities of trustees are very considerable. Following the Pensions Act, which was rightly introduced to deal with events following the Maxwell scandal—when the trustees seemed to hold the most incredible views on the difference between the assets of the trust and the assets of the company—those responsibilities are even more onerous than they were before. Some of the hazards were exemplified in a report in Pensions Week a little while ago, which said that OPRA "takes charity to court." The trustees of a particular charitable pensions fund, who had not fully conformed with the requirements imposed by the legislation and by OPRA, found themselves open to prosecution and considerable prison sentences. The Government may well find it not all that easy to have a stakeholder pension scheme with trustees, given that they are unlikely to be paid and that they will expose themselves to very considerable problems with regard to the administration of the trust.
  Am I right in thinking that the Government are fairly clear now that they are not going down the trustee path; or is it otherwise? When I look at some of the other pension provisions, I am not at all clear what will happen about the state second pension. I presume the point does not arise there at all. No doubt the noble Baroness will clarify that. My understanding is that LISAs certainly will not have trustees. The whole issue has become a little unnecessarily crowded, partly because of the wording of the clause, which seems to imply that there may or may not be trustees. Perhaps we may have a reply from the Minister which will clarify the situation.
  6.15 p.m.
  Baroness Turner of Camden: I hope that my noble friend the Minister will not accept the amendment. Unions which have been involved in discussions over stakeholder pensions and so on are rather keen on the whole idea of having them written under trust law. The idea is that if trustees emerge as a result of some form of election, that will give people more confidence that
  1108
  the stakeholder scheme with which they are involved is under lay administration or governance to some degree, and they will therefore feel more protected.
  I accept that trustees now have quite onerous responsibilities. Therefore, once trustees were appointed, it would be necessary to make sure that they were properly trained so that they could carry out their task on behalf of the members of the scheme. Frankly, I think that to have stakeholder pensions written under trust law is a good idea, and I hope that the Government will not depart from that.
  Lord Goodhart: I cannot support the amendment. In my experience of dealing with pension funds in practice, occupational pension funds were to a large extent written under trust law. Some of the smaller ones were dealt with by direct contract between the employer and an insurance company, but certainly the great majority of the larger ones and many of the smaller ones were written under trust law. That was accepted as being entirely appropriate by the Goode committee in its report, and trust law has proved itself to be a very flexible instrument which, having come from completely different sources, has adapted itself to the pensions system very effectively and successfully.
  I recognise, of course, that personal pensions are not generally written under trust law, but arise by virtue of a direct contract between the employee and the pension company. But, for the reasons that the noble Baroness, Lady Turner of Camden, has just given, there may very well be pressure for stakeholder pensions to be written under trust law. I hope that there will be, because it seems to me to be another element of protection for the employees, for the pensioners. I can see that there may be cases in which it would not be the only appropriate system, but I certainly hope that it will be encouraged, and I should like to see this subsection stay in the Bill.
  Lord Higgins: Perhaps before the Minister speaks, or other interventions are made, I should make it clear that the amendment's purpose is to clarify the Government's position. I am in no way against arrangements which involve trustees. As I mentioned, I am myself a trustee of a pension fund, and I think that the system has considerable advantages. But what has seemed a little unclear is exactly whether the Government are going to say that every scheme should have trustees, or not, and precisely what type of scheme they see: the trade union one, which the noble Baroness, Lady Turner of Camden, mentioned, or something more general. I am simply seeking to clarify the Government's position, not to take a position for or against trustees.
  Baroness Hollis of Heigham: I certainly accept that the amendment, like so many others, is a probing amendment to clarify the Government's position rather than to challenge the views that the Opposition understand the Government to hold.
  The amendment would remove the requirement for stakeholder pension schemes to be established under a trust. In response to the noble Lord, Lord Higgins, I should like to explain why we consider it to be an integral part of stakeholder pension proposals. As was

  1109
  said by the noble Lord, Lord Goodhart, and by my noble friend Lady Turner, who served for many years on OPRA, which is the major regulatory body, trust law is already extensively used in the pensions sector and it has been widely tested in the past. It provides valuable security and protection to scheme members.
  As the noble Lord, Lord Higgins, recognised, following the Goode report trust law was heavily strengthened in the Pensions Act 1995 which was led for the Government by the noble Lord, Lord Mackay. I remember the efforts by myself and my noble friends Lady Turner and Lord McIntosh to strengthen even the trustee provisions to ensure, for example, representation of pensioners and issues about the balloting mechanisms and the like.
  Trust-based schemes are an effective way of ensuring that schemes have a governance structure which ensures that they look after the interests of their members rather than those of the pension provider. Supporting a trustee structure will have some costs for schemes but these are unlikely to he excessive. If trustees are able to deliver even a small reduction in overall scheme costs by negotiating on behalf of scheme members, as we expect them to do, this is likely to outweigh the direct costs of trustees.
  Stakeholder schemes need to have a governance structure which ensures that members' interests are looked after. Trust-based schemes run by a board of trustees provide an effective way of achieving this. Trustees will ensure that contributions are used to secure value for money from providers and that schemes comply with the minimum standards. They should help to ensure that members receive good quality information and high standards of service.
  That is why we say that the legislation for stakeholder pension schemes should be set up under trust law. However—in response to the question pressed on me by the noble Lord, Lord Higgins—we want to retain some flexibility and that is why we are considering alternative governance arrangements, provided that they are capable of delivering the same degree of protection and a comparable outcome for members. Indeed, we have said in the pensions Green Paper that we welcome views from the industry on alternative structures which could provide those comparable benefits for members. That invitation for views was echoed in the consultation paper by the Treasury and the DSS on new flexibility in pension investment. We shall shortly issue a further consultation paper on the detail of trustees and alternative governance arrangements for stakeholder pension schemes.
  The noble Lord, Lord Higgins, asked two questions. First, were trustees involved in the state second pension? It is an unfunded scheme so the question does not arise. Secondly, he asked who were the trustees. We envisage that they could be drawn from members, employers and affinity groups such as trades unions—providers where the independence of the overall board of trustees can be protected; or indeed independent of professional trustees according to the type of scheme.
  We think that a trustee scheme is at present our best established method of protecting the interests of members, but we are happy to consider alternative forms
  1110
  of governance where these offer a comparable degree of protection for members. I hope that noble Lords will be reassured by that explanation and that, in the light of it, the noble Lord will be able to withdraw his amendment.
  Lord Higgins: I am grateful to the Minister for going some way to clarify the situation. I shall need to consider carefully what she said.
  Am I right in thinking that the Government do not intend that a scheme which does not involve trustees would not meet the requirements of the legislation? Are the Government now clearly of the view that some of the schemes will have trustees and some will not?
  Baroness Hollis of Heigham: We are saying at present that stakeholder schemes have to come within trustee law as regards their form of governance as well as meet the bench-mark standards which we shall lay out. But we are willing to consider that some stakeholder schemes should not come within trust law provided that they can—and only if they can—offer an alternative form of governance which offers at least equivalent protection for members. As I said, the Government are about to issue a consultation document to that effect.
  Lord Higgins: On that basis, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Lord Higgins Lord Higgins moved Amendment No. 4:
  Page 1, line 14, leave out subsection (3)
  The noble Lord said: This is a probing amendment. I do not understand what the subsection is intended to cover. It seems to cover almost everything. Subsection (3) states:
  "The second condition is that the provisions made by the instruments establishing the scheme comply with such requirements as may be prescribed".
  That seems to be totally devoid of content; or it contains everything that one can think of. Perhaps the Minister would like to explain why the Government wish to take such wide powers. I beg to move.
  Baroness Hollis of Heigham Baroness Hollis of Heigham As the noble Lord would expect, it is somewhere in between the two. It is neither devoid of content, nor absolutely encompassing.
  The amendment would remove the power to set out the requirements as to the content of the instruments that set up a stakeholder pension scheme. Perhaps I may explain why we think it is necessary to include such a power in the Bill.
  We have just discussed the proposed governance structure for stakeholder pension schemes. We have taken these amendments together; I do not know why they are ungrouped. I have emphasised the importance we attach to having a governance arrangement that ensures members' interests are looked after. Clause 1(2) and (3) provide the basis for defining the structure of stakeholder pension schemes.
  The governance arrangements for stakeholder pension schemes will need to be set up in such a way that value for money can be secured from providers and that schemes meet the minimum standards. We intend to use the power in subsection (3) to ensure that this is possible. For example, in the case of a scheme set up under trust, the trust deed should give trustees control of the scheme so that they are free to appoint and dismiss the organisations or individuals that provide services to the scheme. And the regulations can be used to prescribe the composition of the trustee board—it is part of the previous amendment—so that, for example, it requires a specific proportion of trustees to be nominated by members of the scheme.
  The effect of Amendment No. 4 would be that any type of trust arrangement (or alternative governance arrangement) would meet the stakeholder pension condition in Clause 1(2). It would not allow for the features of a strong governance arrangement to be specified.
  I hope that the noble Lords will accept the necessity of this piece. I am repeating myself. But we originally expected to group the amendments. I do not know why they were ungrouped. We are in discussion with the industry on how best to develop workable schemes. We are still consulting on the details. I repeat: we shall shortly be issuing a further consultation paper on trustees and governance arrangements. So, in the light of the explanation I have given, I hope that the noble Lord will withdraw the amendment.
  Earl Russell: I am sure that the Minister did not expect to get away without one speech from me on "such requirements as may be prescribed". The noble Baroness knows that those are words to which I am somewhat allergic.
  I understand that in a subject as complex as this, and where small changes in response to circumstances may be needed as often as this, the regulatory power cannot altogether be avoided. So that is not an issue between us. However, this provision is drawn in very general terms. It really does say that the Secretary of State may do whatever he likes. I should like a more defining purpose clause to say what it might be.
  If we are to have this sort of open-ended regulation, the provisions for parliamentary scrutiny and control of regulation have to be a great deal better than they are now. Some of your Lordships probably heard the Business Motion moved by the noble Baroness the Lord Privy Seal at the beginning of today's business. That related to the regulations renewing the provisions of the Prevention of Terrorism Act 1989, from which the Government happened to have left out two rather important sections. In the course of two years no one noticed that they had done so.
  We talk about scrutiny and reassurances as always relating exclusively to scrutiny. But is it not a fact that practising scrutiny without control is a little like practising football with the goal blocked up. It really
  1112
  does not engage the interest. If this sort of thing is to become general, the treatment of regulation in this Chamber will need some more attention.
  Baroness Hollis of Heigham: I might have guessed when the noble Earl entered the Chamber that such phrases as this might catch his eye. They have indeed done so in the past.
  What I plead in mitigation is that the Bill has been thoroughly scrutinised by the Delegated Powers and Deregulation Committee. As far as I am aware it has not commented on this proposal. It took no objection to it. It suggested only some modest changes to the entire Bill and every one of those we are happy to accept. So all I would say is that the watchdog appointed by your Lordships' House was apparently content with the phrasing in this clause.
  6.30 p.m.
  Earl Russell: I fully accept that, but the watchdog did not notice what happened to the Prevention of Terrorism Order renewal either.
  Lord Higgins: I am far too junior in this House to challenge the decisions of the body referred to by the Minister. Nonetheless, I find it a wide power.
  As regards the groupings, they arrived late yesterday afternoon. In suggesting the grouping, it seemed to me that there were separate issues with regard to trusts, for example, as opposed to the broad powers referred to by the noble Earl, Lord Russell. It seemed helpful to take the trust issue separately, rather than deal with it under the clause which gives these wide powers. However, another strange situation has arisen for which I am not responsible. The next two amendments, Nos. 5 and 6, go together and I am equally puzzled as to how they became separated.
  Baroness Hollis of Heigham: Perhaps I may intervene. I have with me the Government's original set of groupings. We proposed to group Amendments Nos. 2 and 10, for example, with No. 19. We also proposed to group together a number of issues on governance. Those groupings were published at the appropriate time around midday yesterday. I understand that the Opposition savagely ungrouped all our groupings and produced a shopping list virtually of single amendments, even though we visit some issues several times.
  If I have misunderstood the position and during the dinner break the noble Lord is happy to do some hasty regrouping, that would be to the convenience of the Committee and greatly welcome. We produced groupings which were one-third to one-half the number of separate debates now listed because we would otherwise be repetitive, which would be to no one's advantage.
  Lord Higgins: It would be best if the noble Baroness and I were to discuss the matter outside the Chamber. The list seemed to come out very late in the day, but no doubt we can go into that. I suggested that we should

  1113
  de-group some of the amendments because it seemed that it would speed up the proceedings and give a more coherent debate, but the next two amendments clearly go together. Perhaps we can chat about that during the break.
  As regards Amendment No. 4, which raises much broader issues, I beg leave to withdraw it.
  Amendment, by leave, withdrawn.
  The Deputy Chairman of Committees (Lord Murton of Lindisfarne): If Amendment No. 5 were to be agreed to I should be unable to call Amendments Nos. 6 or 7 owing to pre-emption.
  Lord Higgins Lord Higgins moved Amendment No. 5:
  Page 1. line 17, leave out subsection (4)
  The noble Lord said: There may be a case for taking this amendment and Amendment No. 6 together. It is a probing amendment. The legislation specifically provides that the stakeholder scheme, with,
  "such exceptions as may be prescribed",
  which undermines the whole thing, shall be a money purchase scheme within the meaning of the existing legislation. I was not clear whether that would include provision for straight insurance schemes or whatever. The noble Baroness, Lady Castle, has tabled an amendment proposing the opposite—that it should not be a money purchase scheme—and no doubt we shall hear her views on that in due course. I beg to move.
  Baroness Castle of Blackburn: I rise to speak to Amendment No. 6 which, as the noble Lord, Lord Higgins, pointed out, is more than a probing amendment. It is a very decisive amendment. It is designed to make it clear that approved stakeholder pension schemes will not be money purchase schemes.
  I was disappointed in the speech of the noble Lord, Lord Higgins, in moving Amendment No. 5, because I seem to remember that earlier he warned us most effectively that there was a drift in occupational pension schemes towards money purchase schemes which could become a torrent. Stakeholder pension schemes have to be money purchase schemes. I was beginning to say to myself. "Well, if our minds go on meeting like this, people will start to talk". Obviously, I was premature in my assumption.
  I have heard a number of gentlemen opposite warning us about the drift from the major merit of the occupational pension scheme, which was that it would be a defined pension. People would know to what they were contributing and what they would receive in relation to the number of years they served, salary and so on. During our debates today, we have heard widespread warnings that the whole tendency of the stakeholder pension, as it has been revealed to us, is to the poor man's occupational pension scheme; the inferior one. It is to have neither compulsory employers' contributions nor a guarantee of being a defined pension.
  Once that is injected into the pension scheme, the noble history of the occupational pension scheme will shrivel and die. We know that some workers are in a
  1114
  good occupational pension scheme, but under SERF'S people could contract out only into an approved occupational pension scheme. We were very determined to keep up the standards gained for working people in this country; and we surrender those standards at our peril.
  We look like having a stakeholder pension which will probably be weakened by not having employers' contributions, and it is doubtful whether even employees will take part in them. The employers' obligation is only to ensure that their workforce has access. That is a lovely word, but all it means is that when somebody or other has set up the stakeholder pension scheme, the employers' obligation will be confined to the check-off. That is taking the worker's contribution from his pay packet. It was one of the convenient arrangements which trade unions tried to reach with employers over trade union dues. Incidentally, I helped them in my notorious In Place of Strife.
  However, now we reach the question that is the nail in the coffin of good occupational pension schemes and I urge everyone in the House to think about it carefully. We are given one of the few definitions in the Bill that is not to be prescribed later. We are told that stakeholder pensions "must" be a money purchase scheme. So the risk to the employee is doubled. It is no longer a defined pension. It is at the mercy of stock market plays—the ups and downs and the vagaries of the stock market—and the employer need not contribute.
  What are we trying to do? Are we trying to turn back the clock to the pre-war age, before the 1945 Labour Government started to put a platform under the feet of working people and give them standards below which nobody would be allowed to fall? Is all that to go? Is the New Labour philosophy to be "The market reigns, OK"? I think that the House ought to hesitate before it passes this subsection of the Bill. Tonight, I hope that the Minister will make a statement that she is aware of that platform and that she will carefully consider not only what I say but also what other Members of the House have said.
  Earl Russell: The noble Baroness, Lady Castle of Blackburn, describes this scheme as the "poor man's occupational pension scheme". I take her point and, to a degree, I share her concern. However, I believe that the Minister can imagine what the noble Baroness, Lady Castle, would have said if she had begun by saying that this is the rich man's occupational pension scheme. The speech that would have followed would have been a much less gentle and much less calm speech than the one to which we have just listened.
  The noble Baroness has raised problems that go a great deal wider than her speech indicated. A great deal can be said for a final salary scheme. It is more reliable, more secure and in many cases a better form of provision. However, it is also important that the Bill should provide for as many people as possible. We have heard the Minister, the noble Baroness, Lady Castle, and many others speak about people who are left out of pension schemes. Too many people are left out arid we do not want any more.

  1115
  Since the noble Baroness, Lady Castle, was Secretary of State, there have been large changes in the labour market and not necessarily changes for the better. However, to attempt to reverse those changes is not within the powers of the Bill. A fairly large number of years of continuous employment are needed to make a final salary scheme work. Alas, that is now a rare thing indeed for a great many people. The "casualisation" of the global labour market means that many people will be left out of such schemes which could not be money purchase schemes. That would be very unfair.
  If the noble Baroness, Lady Castle, is saying that she wants to reverse the changes in the labour market, I believe that that would be a difficult undertaking. However, I would listen to her on the subject with a great deal of interest were it first to be conceded that such a reversal could not be done simply and solely by the Act of a British Parliament. It would have to be approached through international institutions, by global agreements, and it would have to proceed very slowly and carefully with an immense amount of consultation. If the noble Baroness, Lady Castle, wants to embark on that attempt, I would be happy to join her and would approach it with great interest. However, I believe that she is trying to do more within the compass of the Bill than it is within the power of the Bill to accomplish.
  Lord Freeman: The noble Baroness, Lady Castle, knows more about pension schemes than most noble Lords. Therefore, when she proposes an amendment one has to look carefully at the intention. If the intention is to ensure that stakeholder pensions are clearly not money purchase schemes—they must, therefore, be defined benefit—they will need an underwriter. If the underwriter is not to be the state, it must be an employer. Therefore, I find myself in agreement with the noble Baroness.
  However, we already have a system of occupational pension schemes which for many employers provide defined benefit schemes, where the employer makes a contribution and the pension received is dependent upon the years of employment and, typically the final salary. Therefore, the effect of the amendment is to wreck the stakeholder pension scheme, if that is designed, as I would hope it will be, as an alternative, and in some cases a supplementary mechanism by which individuals can top up their pension contributions.
  Therefore, I am not persuaded by what the noble Baroness, Lady Castle, has said. The effect of her amendment would be to deny a mechanism to those earning between, say, £10,000 and £20,000 during their working lives to continue making contributions to a stakeholder pension scheme, which I support, but it would be a top-up mechanism to occupational pension schemes that already exist. The working life of such people may move from employment to self-employment to unemployment and back to employment, where there may not be an occupational pension scheme or perhaps to later employment where there may be one.
  The noble Lord, Lord McIntosh, although not attacking me personally, took a swipe at former Tory Ministers who in the past moralised on pensions
  1116
  legislation. The reason that the compulsion to ensure that those in employment had to join an occupational pension scheme was lifted from employers was the reason why I am concerned about this legislation. The Inland Revenue would not permit those in a single employment to be in an occupational pension scheme and to take out a personal pension. Therefore, because we wish to promote personal pensions, we have to lift that compulsion in order to permit those in employment to take out a personal pension scheme. Some pension schemes were mis-sold and some had inadequate transfer values attached. I am well aware of the history and the problems. It was not for dogmatic reasons that that compulsion was lifted but because of the Inland Revenue rules that existed at the time. In a later amendment I shall argue for the change.
  6.45 p.m.
  Lord Higgins: I agree entirely with the noble Baroness, Lady Castle, that there is far more to be said for final salary schemes than for money purchase schemes. Equally, I agree with her that it is a shame that the trend has been away from final salary schemes to defined contribution schemes.
  The problem I have with the amendment—sympathetic though I am for the reason that I have just mentioned—is that the crucial difference between the two is who carries the risk. In regard to a final salary scheme, at the end of the day the employer carries the risk and. if necessary, has to make additional employer contributions in order to top up the scheme and to cover the provisions that the actuaries say are necessary to maintain the final salary guarantee.
  Lord McIntosh of Haringey: It works in both directions. Workers have been known to take contributions holidays when they have over-funded the scheme.
  Baroness Hollis of Heigham: When the scheme is over-funded.
  Lord Higgins: That is so. I would not dissent from that view. The noble Lord is absolutely right. It cuts both ways. There are many decided cases on who owns funds and, even today, that matter is not clear. On that point we go off on a different tack.
  If the noble Baroness were to say that they ought to be final salary schemes, it is difficult to see who in the context of a stakeholder pension will carry the risk. There will not be an employer standing behind the stakeholder pension scheme unless—perhaps this is a consideration—we take the kind of example mentioned earlier of a trade union scheme.
  I now wonder what is the purpose of the expression that clearly was not written in by accident,
  "exceptions as may be prescribed".
  For the reasons that I have mentioned, it is bound to be a defined contribution scheme rather than a final salary scheme. I am not clear what the Government think may

  1117
  be prescribed as the exceptions. Do they see a way in which the point made by the noble Baroness, Lady Castle, can be met?
  Baroness Hollis of Heigham: If one now knew what the exceptions were, they would not have to be prescribed in the future. But I shall come back to that point if I may.
  Clause 1(4) provides that stakeholder pension schemes must, with exceptions to be prescribed, offer money purchase benefits. Amendment No. 5 would remove the requirement that stakeholder pension schemes should be provided on this basis. Amendment No. 6 goes further by specifying that pension schemes must not offer money purchase benefits.
  I do not want to repeat the discussion we had earlier in explaining why we are introducing stakeholder pensions. But as many Members of the Committee have said, we are adding to the current framework where there are gaps in provision. The current framework includes salary-related schemes, which are excellent for many. It includes personal pensions, which are also suitable for many, and it will include the state second pension to help those who cannot afford to save towards their retirement.
  Stakeholder pensions will address a significant gap in the pensions market. For a large number of people they will provide affordable, funded pension provision for the first time, so that they can see their own "pot" of money grow and look forward to a secure income in retirement. We believe that the most effective way to promote financial security in retirement for most people is to encourage provision of funded pensions and personal savings.
  For many of the reasons cited by Members of the Committee tonight, we believe that money purchase schemes are the most suitable arrangements for stakeholder pensions. I join with everyone else who has said that where the conditions are appropriate, a final salary scheme—that is, a defined benefit scheme rather than a defined contributions scheme—is the best scheme going. But it benefits those who are in long-term work with the same employer, especially men, and especially those on ascending salaries; that is, the better off. In other words, it particularly privileges the more middle-class occupations, which are dominated more by men than by women.
  Let us be clear. That is the group that defined final salary schemes benefit. We need only to look at the structure of the occupational schemes to see who is in them. There are considerably more men—85 per cent of men compared to 75 per cent of women—in occupational pension schemes with those levels of benefit. So it belongs to a society where men could reasonably predict a long-term job with a long-term employer. For those people—and I have been a beneficiary of a final salary scheme—it is very nice; the Civil Service, the university world, teachers and so forth. But that is unlikely to be the case for many people.
  For somebody who is mobile and moving from job to job—perhaps in information technology and moving within a couple of years between employers—they are not the answer. Defined salary schemes have relatively low
  1118
  transfer values. Part-time staff, who may be above the LEL, are not eligible to join defined salary schemes, and, if they did, the benefits they would receive would not be particularly generous. For those moving in and out of work, for whatever reason; for those who are self-employed or women who may take several years out to have children or work part-time while they do, there is now less than adequate pension provision—and even now, those people are not in money purchase schemes and are certainly not likely to qualify and benefit from final salary schemes. So to tie a stakeholder to a final salary scheme which duplicates the provision that is already in the market-place, but does little to add to the provision for those who need a decent scheme and cannot get access to it, is wrong. That is why it is right to go for a money purchase scheme.
  The noble Lord, Lord Higgins, was right when jousting with my noble friend that behind a final salary scheme stands the employer to make good the pension promise: to underwrite the deficit and perhaps to take advantage of pension holidays. But there is no such person behind a money purchase or stakeholder scheme. Money purchase schemes are simpler, more flexible and will embrace those groups within our labour market that are currently ill served by the pension provision on offer. To do as my noble friend suggests would take stakeholder pensions effectively beyond the reach of precisely those people for whom they' are designed and we would he wasting our time.
  Money purchase schemes also enable each member to have their own easily identifiable "pot" of money. That has a number of advantages. It is a concept of saving with which people are familiar. Scheme charges will be easier to understand and compare. Transfer of funds will be more straightforward.
  One of the factors which currently discourages many people from starting a pension is the complexity of existing arrangements. We believe that providing benefits on any basis other than money purchase will inevitably be more complex and therefore less attractive to people who are thinking about moving into pensions for the first time. However, the Government recognise that pensions are a rapidly developing field and that suitable new arrangements may be developed in future. So the power to prescribe exceptions gives us the flexibility to allow other forms of arrangement, provided they still satisfy the other conditions for stakeholder pension scheme status. We would want Ito ensure that such schemes would remain secure, flexible and offer value for money. We propose to consider this issue further at a later stage in our programme of further consultation on the detail of stakeholder pension schemes. It is to allow headspace for alternative arrangements which offer the same benefits but which are not yet in the market-place that we include those phrases in the Bill.
  In the light of that explanation—I doubt that I have satisfied my noble friends—I hope that the noble Lord will feel able to withdraw his amendment.
  Lord Higgins Lord Higgins: In light of that response, l beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Baroness Castle of Blackburn Baroness Castle of Blackburn moved Amendment No. 6:
  Page 1, line 18, after ("are") insert ("not")
  The noble Baroness said: We have had a useful air-clearing this evening. We really began to see through the fog of obscurities of some aspects of government intentions. I would be much more impressed by the Minister's argument if stakeholder pensions were not intended to be a substitute for SERPS; if they were an option. Some of us have argued all along that we should give people a choice so that they can either continue with the SERPS with the Government's promise to retain it indefinitely, with newcomers entering a new SERPS with all the contribution details given to them, or choose a stakeholder pension which, by the Minister's definition, will be paltry in size. It will not have an employer's contribution. It is designed for people who are at the bottom of the scale and cannot afford SERPS and it will be risky.
  Incidentally, SERPS, which has been applauded by Eagle Star as I quoted to the House at Second Reading, has the most portability of any scheme. There is just one fund—the National Insurance Fund—and it does not matter which job we move to, which remains the basis of our security. But I point out also that as SERPS never advocated final salary schemes for people and we wanted to give working people a second pension, we suggested that a pension should be based on the 20 best earning years of a man's or woman's life. That is the only effective way of meeting the point made by the Minister.
  If the Government are honest with their figures, their statistics and information, people will be shocked to realise how little they will receive. They will be on their own. They carry their own risks and carry all the costs. I am asking the Minister to allow me to expand my arguments as she expanded hers. I am not suggesting that we should put it to the vote today. I beg to move.
  7 p.m.
  Baroness Hollis of Heigham: We are in some difficulty here because Amendments Nos. 5 and 6 were grouped, and we have now effectively de-grouped them.
  I take issue with some of my noble friend's assertions. I totally understand her degree of commitment to the SERPS, which she devised and which, at the time and under the conditions with which she surrounded it, was superb. However, some 20-odd years later and with so many of the conditions that my noble friend inserted into it—for example, the 20 best working years—the scheme is no longer meeting the needs that it could were we back in the late 1970s. In future, people who would have been protected by my noble friend's scheme will be able to go into a state second pension, which will offer to the lowest paid three to four times the levels of benefit offered by SERPS.
  I turn now to the stakeholder pension, which my noble friend was dismissive of by saying that the contributions would be "paltry". I can tell the Committee that they will be no more and no less than those of the average money purchase scheme. In fact, the stakeholder pension will probably offer rather better
  1120
  value, given the tightness of its charges. From our research, we expect that perhaps one third to a half of employers may contribute; but that pension will offer better value as an alternative to many of the personal pensions which currently exist. On reflection, I hope that my noble friend will accept that the state second pension that we will be introducing is SERPS without the earnings related component and, therefore, better devised in today's conditions, as opposed to those in the late 1970s, for the poorest people in our society who do not have a pension. We take the spirit of what my noble friend was doing at that time and we are adapting it to meet the needs of the current labour market.
  Earl Russell: I hope that the Minister will forgive me for taking up a few more minutes of the Committee's time to add a footnote to what I said on the previous amendment. The Minister is quite right to say that any final salary scheme must depend on a fairly long and continuous period of service. One of the things that I believe should concern us all about the funding of pensions is the reduction in the average number of earning years in some people's lives.
  When I started work, I was in pensionable employment at the age of 23. I do not know how many of us have children of whom we can say the same; not very many, I suspect. I can remember when most people were in regular employment up to the age of 65, but the figures now for people over the age of 50 exempted from actively seeking work, and who have not been in employment in the past 10 years, are really quite frightening. If you lose your job when you are over 50, your chances of getting re-employed are really very small.
  We need to be thinking about pensions in the context of the labour market. But if we are thinking about the labour market, we also need to be thinking about a rather longer period of earning years. I hope that we will keep that in the back of our minds throughout the discussions on this part of the Bill.
  Baroness Castle of Blackburn: I beg leave to withdraw my amendment.
  Amendment, by leave, withdrawn.
  Lord Higgins Lord Higgins moved Amendment No. 7:
  Page 1, line 21, at end insert ("but there shall be no requirement to take a stakeholder pension in the form of an annuity by a specified age")
  The noble Lord said: I am sure that the Committee will be well aware that problems have arisen with other types of pension scheme where the provisions are such, especially those imposed by the Inland Revenue, that a pension must be taken as an annuity by a specified age. Many people have suffered considerably in the past few years because they have had to take their pension at a particular time when, for a brief period, the stock market declined very substantially. In addition to that, annuity rates have plummeted.
  I noted a press article some while ago which reported that the Annuity Bureau had said that a man with a pension fund worth £100,000 could have secured an

  1121
  annual income of £15,823 seven years ago; a year ago he could have got an annuity of £9,700; but today he would only get £9,494. That disregards the effect of stock market collapse at certain times. I made a calculation at about that time that, in some of the worst cases, people would he lucky if they got 60 per cent of the pension which they might reasonably have expected to receive 18 months previously. It is obviously a serious matter, and is set against the background of very low rates of inflation—indeed, as low as we have had since the 1960s.
  There is no guarantee at all for the person who retired about a year ago, in the circumstances I described, that inflation rates will remain where they are. Indeed, all kinds of factors can come into play in the future. Whereas at the time of Beveridge the life expectancy of a man beyond his retirement age was something like two years, nowadays it can be very long. Therefore, someone may find that he is stuck with the kind of pension that I outlined but then goes on living for another 20 years. Inflation is not likely to be as low as it is now throughout the whole of that period; indeed, it could be substantially higher.
  The purpose of this amendment is to seek to avoid a situation where the stakeholder pensioner is restrained in such a way. Of course, against the background that I described there are increasing arguments for saying that it should not be necessary to buy an annuity, or that one ought to be able to buy some other form of asset, which might cope with inflation in the future or perhaps give a better yield than the present rates of annuity, and so on. Similarly, widespread discussions are taking place which stress that the age of 75 should not be a deadline. One well realises that the murky hand of the Inland Revenue may appear at this point and say, "You got all the tax reliefs when you were paying in; and, therefore, you ought not to be able to extend the thing indefinitely". There are even bigger arguments about whether one should be allowed to cash in one's pension at that point and transfer it to one's heirs.
  This situation has developed comparatively recently. As I said, rates are now down to where they were in the 1960s, but there seems to be a case for relaxing the rules as far as concerns stakeholder pensions. No doubt the Inland Revenue will have a view on that and doubtless the Minister has a view on whether or not this amendment is acceptable. But, against the background I have outlined, I should have thought that it is not an unreasonable consideration to put before the Committee. I hope that the Minister will give me a sympathetic reply. II beg to move.
  Lord Monson: Unlike the noble Lord, Lord Higgins, I am no expert on this matter. Nevertheless, I am very pleased to be able to support him. One of the reasons that annuities are such poor value at the moment is that annuity yields are linked to gilt yields. For technical reasons, gilts are presently exceptionally high, even allowing for the current low inflation environment. If those retiring were allowed to invest their retirement fund directly into debentures or good quality euro bonds and, in addition, to withdraw a maximum of, say, 2 per cent per annum from capital, they might receive
  1122
  almost as much annual income as they would if they had to invest in annuities, but they would also have a capital sum left over to pass on to their families on their death. This capital sum would, of course, be subject to capital transfer tax, so the Treasury would not lose out.
  Earl Russell: The point of the noble Lard, Lord Higgins, about taking a pension at a particular moment's valuation in the stock market is a serious one. I recall a story of my father's—it relates to a legacy, but the basic point is the same—about someone who was bankrupted by inheriting £1 million in shipping shares. She inherited the shares and they were assessed for duty in April 1929. The duty was payable in October 1929. The case is no doubt extreme but it illustrates the point. Whether this amendment is the best way to deal with it I do not know, but I hope the point will be taken on board.
  Baroness Hollis of Heigham: Whether the story is relevant to our debate is one matter, but it is a very good story, and a revealing one. Amendment No. 7 seeks to remove the need for purchasing an annuity with a stakeholder pension fund. Clause 1(4) provides for stakeholder pension schemes to provide money purchase benefits, as we discussed just now. We have also discussed the reasons why we think that should he so.
  Under Inland Revenue legislation the funds built up in money purchase schemes must be used to purchase an annuity. Perhaps I could remind your Lordships why this annuity rule exists. It reflects the fact that the tax privileges accorded to pension contributions are given in order to ensure that the beneficiaries have an income throughout retirement. The Government encourage saving for retirement on the understanding that the fund will provide a stream of income during retirement. This avoids the risk of an individual having to rely on a low pension income and perhaps income related benefits because they have spent the proceeds of their fund in the early years of retirement.
  There is some flexibility in the annuity requirement. We propose that the pensioner age for stakeholder pension scheme members will be between 50 and 75. A tax-free lump sum will be available. These rules obviously follow the rules for personal pensions. The point which concerns your Lordships, and which I entirely accept, is the problem of falling annuity rates. That is the core of this issue. As your Lordships know very well, annuity rates are set in the market and reflect factors such as life expectancy and long-term interest rates. Obviously what we would all like are high annuity rates, low inflation and long-term life expectancy. Actually it is not very easy to put all those things together.
  It is true that annuity rates have fallen recently, as has inflation. The annuities purchased therefore will have correspondingly greater purchasing power and many people with pension funds have benefited from investment yields which have more than offset the fall in annuity rates, particularly as their funds have grown. The noble Lord, Lord Higgins, asks what will happen if in future inflation should rise and someone is caught in an annuity with assumptions of lower inflation and so on.

  1123
  As the noble Lord will know, there are products in the market place and people are certainly well advised to consider the appropriateness of buying an inflation-proofed annuity from which you expect a lower figure now in order to get inflation proofing later on. Currently the gap between those two is relatively narrow and could provide good value. Certainly the noble Lord will know that in the marketplace you can get an inflation-proofed annuity or you can get a level annuity. Under the latter you get higher figures to start with or you can get an inflation-proofed annuity and you start with a lower figure which is protected. You can choose which to have. At the moment my understanding is that the inflation-proofed annuities represent good value.
  The best protection the Government can offer to those purchasing annuities is to maintain a framework of financial stability which will ensure lower inflation in the future. This is what we intend to do. We will ensure that pensioners will have a guaranteed level of pension and we have set out proposals in the Green Paper. We recognise that pensions are a rapidly expanding field. The power to prescribe exceptions, as discussed between the noble Lord, Lord Higgins, and myself a few moments ago, will give flexibility if new schemes should develop. I hope that in the light of these explanations the noble Lord will feel able to withdraw his amendment.
  7.15 p.m.
  Viscount Eccles: Would the noble Baroness just return to the 75-year age point, which I think applies to this whole scheme of personal pensions? She is clearly right that life expectancy is getting longer. Would it not be the case that regardless of annuity rates there is a case for raising that age limit from the present age of 75?
  Baroness Hollis of Heigham: The Government are certainly considering the whole range of issues. I hope I shall not be misunderstood when I say that that might go alongside a rise in age in the European countries regarding the average age of state retirement and pension age. We think at the moment, given the current retirement age, the age of 75 strikes a reasonable balance between flexibility for the individual and the need to ensure they have a pension which is secure for the rest of their lives. I am advised that the effect of mortality on annuity rates means that it is unlikely that individuals would actually benefit from deferral beyond the age of 75 in terms of mortality rates. Clearly that could change in terms of inflation rates, but there the protection would be in terms of getting an inflation proofed annuity.
  Viscount Eccles: I thank the noble Baroness for that answer. I do not want to prolong this but I was hoping that choice would come into the matter. I have an uneasy feeling that the Treasury does not like the idea of the deferment of income which would follow from raising the age of 75.
  Lord Higgins: I think my noble friend is right in supposing that to be the Treasury view. I was somewhat
  1124
  astonished by the noble Baroness's statement that index linked annuities are very good value at the moment. There are some strange implications in that for the Government's view on interest rates, as against the market's view on interest rates.
  Baroness Hollis of Heigham: All I meant was that if somebody seeking to buy an annuity shared the noble Lord's concern about future inflation rates they would have the option to purchase an annuity which protected them against any possible changes in inflation to their disadvantage. I absolutely was not making any suggestion that the Government's economic policy will not keep inflation at the present unrivalled low level which we all enjoy and which will do so much to strengthen our economy.
  Lord Higgins: I shall read carefully what the noble Baroness has said—but anyway I shall assume that it was a DHSS brief rather than a Treasury one! Be that as it may, I am rather disappointed by the noble Baroness's reply. This is a serious problem. Everyone is looking at it in a broader context so far as pensions generally are concerned. It seems rather a shame not to build this flexibility into the stakeholder pension scheme in the way the amendment suggests. I would like to give further thought to this. One would have hoped that the deliberations which have taken place otherwise would not rule out this particular amendment. However, I beg leave to withdraw the amendment now but I may well wish to return to it at a later stage.
  Amendment, by leave, withdrawn.
  The Deputy Chairman of Committees (Lord Strabolgi): Before calling Amendment No. 8 I must inform your Lordships that if this amendment is agreed to I cannot call Amendment No. 9.
  Lord Higgins Lord Higgins moved Amendment No. 8:
  Page 1, line 22, leave out subsection (5)
  The noble Lord said: I think I am right in saying that Amendment No. 8 is linked with Amendment No. 9. I therefore beg to move Amendment No. 8 which asks to leave out subsection (5). That subsection is concerned with the extent to which the income from a stakeholder provider can be used to defray the administrative expenses of the scheme—I presume whether it is a scheme written under trust or otherwise.
  The other amendment seeks to restrict the expenses to 10 per cent. I was slightly surprised by that figure. Perhaps the Minister could give us some idea of what they expect the administrative expenses to be. This raises a whole series of questions as to what the "operating costs" of particular stakeholder pensions are likely to be. The Government have suggested that the limit should be a maximum fee of 1 per cent of funds under management. This produced a reaction in the press—perhaps not wholly surprising—from some of the potential providers who said that this was a very restrictive figure. Of course it has repercussions also for the issuers of advice, to which we will turn on a later

  1125
  amendment, and exactly what it is that the providers of the stakeholder scheme are producing for the potential pensioner.
  I notice that Pensions Weekly states that the Government are suggesting that providers should perhaps make a loss in the early years of the schemes that they provide. Front-end-loaded costs are a feature of most conventional schemes. Therefore if one takes out a scheme and then withdraws from it in the early years, one may not even get one's money back, let alone anything on top. Will the Government indicate how they envisage expenses being spread over the life of a scheme? Some people may decide to take out a stakeholder pension and then subsequently withdraw from it. I refer to the competitiveness of the stakeholder pension in this regard vis-à-vis other schemes.
  There are considerable problems here. I was rather surprised to notice the words which appear at the end of the subsection which I seek to delete which state,
  "may be used to defray the administrative expenses of the scheme, to pay commission or in any other way which does not result in the provision of benefits for or in respect of members".
  Many criticisms have been made about the level of commission which is paid and the fact that charges are front-end-loaded. Therefore, conventional pension schemes are not good value unless one contributes to them throughout the entire life of a particular asset. I notice that the noble Baroness opposite nods in agreement. I do not refer to the noble Baroness on the Front Bench opposite, but the "back-up team", as it were.
  I hope that the Minister can explain to us in what circumstances commission will be paid and why it is considered that it should be subject to a limit. One of the advantages—I concede that there are advantages—of the stakeholder scheme is that if such a limit is set, that is likely to put competitive pressure on conventional schemes, and perhaps to some extent encourage them to spread their expenses over the life of a scheme. This is an important point which it is right to raise. I believe that the noble Baroness, Lady Castle, has another amendment in this group which refers to a figure of 10 per cent. I hope that the Minister will also comment on that amendment. I beg to move.
  Baroness Turner of Camden: Amendment No. 9, which is grouped with the amendment we are discussing, stands in my name and that of my noble friend Lady Castle. Originally we tabled this amendment because the consultation brief proposed a maximum figure of 1 per cent of the fund per annum. That would mean that a person who pays into a scheme for the whole of his or her working life would find that up to a quarter of his contributions could be swallowed up in charges. The amendment seeks to limit the reduction in the value of benefits to a maximum of 10 per cent. I shall be interested to hear the comments of my noble friend the Minister on this matter.
  The noble Lord, Lord Higgins, has mentioned the problem of front-loading in connection with normal insurance contracts. There has been criticism about the cost of administration and about the level of commission. Those criticisms are not always fully
  1126
  justified, but they were often made in relation to personal pension provision. If a clear limit is placed on what can be charged for administration, I believe that people will feel much more secure with regard to the safety of their investment. That is an important point. We shall not press this amendment this evening, but I should welcome hearing the Minister's comments on the question of charges and administration.
  Lord McIntosh of Haringey: I am grateful for the explanation that has been given of both these amendments. They both relate to the charging structure for stakeholder pensions although they are very different—indeed, opposite—in their approach. Amendment No. 8 would mean that stakeholder pension schemes could charge their members in any way and at any level they wished. Amendment No. 9 seeks to put on the face of the Bill a restriction on the level of charges in terms of a percentage of the benefits provided.
  I shall set out the Government's thinking on this matter. We think that a simple and transparent charging structure should be one of the fundamental features, and indeed one of the fundamental attractions, of stakeholder pension schemes. The Green Paper proposed minimum standards for stakeholder pension schemes. Our proposals were set out in our consultation document published on 2nd June. As the noble Lord, Lord Higgins, rightly says, it has aroused a considerable response. There are those in the pensions industry who believe that tough standards have been proposed. However, others in the pensions industry believe that they can meet those standards. We propose setting restrictions on the way charges are made—both the amendments address this matter—and an overall limit on the charges.
  Some personal pensions have a charging structure which bears heavily on those with low pension savings, or penalises those who stop paying into the pension scheme. The noble Lord, Lord Higgins, mentioned front end loading. Personal pensions often charge in a complicated way so that scheme members find it hard. to understand how the overall charge is worked out. I know that there have been some improvements in the terms offered by some personal pensions. That is good news, but we want to make sure that no stakeholder pension scheme is able to charge in a penal or complex way.
  We have proposed that stakeholder pension schemes may charge only in terms of a single annual charge on the value of the fund. We have also proposed that there should be a 1 per cent limit on total charges. No additional charges will be allowed for transferring in or out of a stakeholder scheme, or for stopping or changing contributions. We have invited further views on those issues.
  I understand the thinking behind Amendment No. 8. We know that the proposed limit on charges will be challenging for some schemes. However, we want to make sure that the members of those schemes get a good deal. Some have said that a limit is not necessary and that competition will drive down costs. However, many providers have come forward with proposals for

  1127
  lower-cost personal pensions which offer greater flexibility to their members. We welcome such initiatives and are pleased that our proposals for reform are having a beneficial effect. However, we do not think that this should be left to chance.
  Every fraction on the charge means a lower final pension for scheme members, and a limit on charges provides them with important reassurance. We are determined to strike a hard bargain on behalf of the consumer. That is why we proposed the challenging but realistic limit of 1 per cent. We have taken into account responses to the Green Paper and have considered what charges are being levied. As I said, we have already seen charges being offered at this level and lower. However, we shall listen to what the industry has to say and take its views into account before a final decision is made on the wording of the regulations.
  But even with a limit on charges, there will still be competition between stakeholder pension scheme providers and managers, and this should help to drive down charges below the maximum. The governance structure of stakeholder pension schemes, which we have already debated, should enable schemes to negotiate competitive charges for their members and obtain value for money.
  Amendment No. 9 seeks to limit the amount that can be taken in charges to 10 per cent. The noble Lord, Lord Higgins, asked me what that meant in terms of numbers of years. If we assume that contributions rise in line with average earnings, at the 20-years point we would just about reach the 10 per cent limit. A large number of schemes finish before 20 or 25 years. I do not know what the proportion is, but a high proportion of schemes would be below my noble friend's limit.
  The only way that we envisage Amendment No. 9 being workable would be for stakeholder pension schemes to make a single charge on contributions. A charge of 10 per cent on contributions would have the same outcome as the limit suggested in the amendment. We looked at the possibility of a charge on contributions. That would provide more revenue for the scheme in the early years, compared with a charge on fund value. But it would not provide schemes with any revenue when the scheme members suspend contributions, which is one of the conditions of the scheme. The other main option—a single charge on the fund value, which we favoured—produces an incentive for schemes to maximise the value of their funds, either by maximising investment returns or by transfers-in from other schemes. It should continue to provide schemes with some revenue from dormant accounts and means that those who suspend contributions to a scheme should not impose an excessive burden on other scheme members.
  These are finely balanced arguments, but we came to the view in the end that a single percentage charge of fund value was the better scheme and that is the one favoured by the great majority of Green Paper responses.
  Amendment No. 9 also seeks to quantify the limit on the face of the Bill. We do not want to do that yet. We are in the process of consulting further on the details of the minimum standards, including charges, and will lay down
  1128
  the detail in regulations to give us the flexibility to amend the standards in the future if as a result of regular review it becomes appropriate to do so. Setting standards that all stakeholder schemes must meet will ensure a level of conformity across schemes; it will allow individuals to compare what is on offer, which will be especially important when considering charges; and it will rebuild public confidence in pension schemes which are secure, flexible and value for money. On that basis, I hope that noble Lords will feel able to withdraw the amendments.
  I did not respond to the point made by the noble Lord, Lord Higgins, about the costs in early years. It is true that there will be extra costs in early years; that is not uncommon in business. We do not expect that to be unmanageable.
  Lord Higgins: I am grateful to the Minister for that reply. I raised one other point: I was not clear why commission should be included in the list of legitimate costs. I have always been better on concepts than arithmetic; I therefore have some difficulty in relating the 1 per cent charge per annum on funds under management to the amendment of the noble Baroness, which requires that the fund as a whole should not be reduced by more than 10 per cent. Am I wrong in thinking that if it is 1 per cent per annum and it runs for 30 years, that will be significantly in excess of the restriction which the noble Baroness was suggesting?
  Lord McIntosh of Haringey: That is true. That is why I gave the figure of 20 years as being the cross-over point.
  Lord Higgins: Even at 1 per cent the value of the fund will be quite significantly reduced. The noble Baroness's amendment would be much more stringent than the figure suggested by the Government. There are also more technical questions about discounting back and forth to get a present value and so on. I do not think we need to go into that on this occasion. Perhaps I may ask the Minister to answer my central point. Can he clarify why there is commission? Is it suggested that there should be different charges for investment in tracker funds rather than funds which are managed on a more general basis?
  Lord McIntosh of Haringey: I am guessing now, but it seems to me that commission is a way of incurring marketing costs—and marketing costs are part of the costs of running a pension scheme. It is not up to us to decide how a pension scheme provider should allocate its costs. So far as concerns the customer, commission is the same thing as any other back office cost. Commission is like any other cost; it reduces the value of an individual fund. That is why we have set the 1 per cent limit on the total fund rather than attempt to distinguish between different kinds of costs. That would be too detailed. As to tracker funds, the same charging rules would apply as to any other fund.
  Lord Higgins: In the light of that answer, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendments Nos. 9 and 10 not moved.]
  Baroness Amos: I beg to move that the House do now resume. In moving the Motion, perhaps I may suggest that the Committee stage does not begin again before 8.15 p.m.
  Moved accordingly, and, on Question, Motion agreed to.
  House resumed.

Prevention of Terrorism (Temporary Provisions) Act 1989 (Revival of Parts IVA and IVB) Order 1999
7.34 p.m.
The Minister of State, Home Office (Lord Williams of Mostyn)The Minister of State, Home Office (Lord Williams of Mostyn) rose to move, That the draft order laid before the House on 23rd June be approved.
The noble Lord said: My Lords, your Lordships will know that with permission I repeated yesterday a Statement made by the Secretary of State for the Home Office in another place. The burden of that Statement was that, due to an error in the drafting of the 1998 and 1999 continuance orders, Parts IVA and IVB of the Prevention of Terrorism (Temporary Provisions) Act 1989 had not been in force since 22nd March 1998. As promised, I return seeking the revival of those provisions. I am grateful to the noble Lords, Lord Cope of Berkeley and Lord Thomas of Gresford, for their assistance in having these matters very promptly brought back before your Lordships.
I said yesterday that it was our intention and understanding—and I have no doubt that of the House—that Sections 16A, B, C and D of the PTA should continue to be available following our debates. In repeating the Statement yesterday, I indicated that that was not so. The error was discovered by an academic writer in Criminal Law Week; it was brought to the attention of the Home Secretary on 26th May; we had advice on the argument in the article from the Law Officers which came to the Home Office on 17th June; thereafter we had detailed advice from officials on 18th June; and the draft order was laid yesterday, 23rd June.
Before I go, quite shortly, to these relatively simple provisions, I should correct one point from the repeated Statement of yesterday. The information we had yesterday was that six persons had been charged with offences under Section 16A and B; in fact the total was seven. The seventh related to international terrorism and the matter was dropped before it came to court. It is only right that I should correct that error. It remains the case, therefore, that there have been no convictions so far under Section 16A or B.
I perhaps should make one other point of clarification. In repeating the Statement I referred to an individual who had been in custody for some months and that we could expect to receive a claim for compensation. In one other of the total of seven cases, the alleged offence was committed after 22nd March and there were some months in custody; therefore there may be a compensation claim.
Quite shortly, Section 16A makes it unlawful to possess articles in circumstances which give rise to suspicion that they are intended for terrorist purposes. It is a defence to prove that the articles concerned were not held for terrorist purposes. Section 16B makes it an offence to collect or record information which is likely to be of use to terrorists without lawful authority or reasonable excuse.
It is true that these provisions have been rarely used, as I indicated yesterday in answer to particular questions from Members of the House. Experience of the equivalent provisions in Northern Ireland is positive. Both the noble and learned Lord, Lord Lloyd of Berwick, in his inquiry into legislation against terrorism and Mr John Rowe QC in his annual reports on the operation of the PTA have commented on the usefulness of the provisions and recommend that they should be retained.
Your Lordships will know from what was said yesterday that there is a matter going through the courts; I understand that it will be determined on 19th July by the Appellate Committee of your Lordships' House in the case of "K" and others. I simply mention that as part of the narrative; we spent some time discussing that matter yesterday.
I turn now to Sections 16C and D. Section 16C gives police, subject to authorisation at superintendent level or above, the power to cordon off areas and to restrict access in connection with terrorist investigations; and creates offences if police instructions are not obeyed. As I said yesterday, central records are not kept. The powers have been relatively frequently used by the Metropolitan Police Force, which has used them 86 times since March 1998. As I indicated yesterday, there are certain common law powers, but Section 16 provides a firm statutory basis for police action.
Section 16D gives the police the power to impose temporary parking restrictions on roads in response to a general threat to vulnerable targets such as government buildings or financial centres. There are some common law powers but the provision provides the reassurance of statutory underpinning. As with Section 16C', both the noble and learned Lord, Lord Lloyd, and John Rowe QC thought that the powers are valuable and should be retained.
I hope that that is a sufficient summary of the present position. Everyone who had to do with the passage of the continuance orders thought that the drafting brought about the legal consequence that Section 16A, Section 16B, Section 16C and Section 16D had legal statutory effect. Our advice being that they did not, we thought that it was our duty to notify both Houses of Parliament as soon as possible and, following the indications given by the noble Lords to which I referred with gratitude earlier, this has been the earliest opportunity. I commend the order to the House.
Moved, That the draft order laid before the House on 23rd June be approved.—(Lord Williams of Mostyn.)
Lord Cope of Berkeley: My Lords, as will be apparent to those who were present yesterday or who read what I said yesterday on this matter, I welcome the

1131
prompt way in which the Government have brought this order before the House. It is right to put these offences back on the statute book following the unfortunate way in which they fell off it, as it were, by accident. We have all supported these offences being on the statute book. We thought at the time that we were keeping them on the statute book—everyone did—and they are not, as far as I know, controversial. I welcome the order and the promptness with which it has been brought before the House.
The only matter which still concerns me is why it took a month between the discovery of the mistake and the Statement that was made and the order that was laid yesterday. I realise that the Government would be particularly keen to give attention to the drafting of the order in case there should be some further error in the matter. But the point, although obscure in the sense that it was tucked away in the law, is not a complicated one as far as I can detect. It is a relatively simple one. I am not a lawyer, but it seems that way to me.
The Minister has just explained in a little more detail what happened during the month. Evidently, the Law Officers took from 26th May to 17th June to decide what advice to give to the Home Secretary. So it would seem that three weeks or more were taken up by the Law Officers in considering the case. That is not of great importance now. The important point is that we are now putting the matter right. But I do not think that it reflects very well on the urgency with which the Government tackled the matter.
As the Minister said, there were references yesterday, both in the Statement and in the exchanges which followed, to the particular case involving the sections. It did not seem to me yesterday, and it does not seem to me in considering the matter since, that those are precisely relevant to what we are doing today. Thanks to modern devices, I was listening to some exchanges in another place on this order a few minutes ago. However, I do not think it is either necessary or helpful to pursue that matter today. We may or may not have to return to it once the Appellate Committee of your Lordships' House has come to its view. However, that is a matter for another day.
Lord Thomas of Gresford: My Lords, I apologise for introducing a sour note into this debate, but yesterday I raised the propriety of that part of the Statement which said:
"The Government believe these provisions, in their current form, are not incompatible with the ECHR and are an important part of the armoury in the fight against terrorism. It is entirely consistent with this position to seek the early revival of these provisions now that it has come to light that they are not currently in force. In adopting this course of action the Government are not attempting to pre-empt or in any way influence the outcome of the appeal. We shall await their Lordships' judgment with interest".—[Official Report, 23/6/99; col. 954.]
When I raised the propriety of making that kind of comment, my view was based not on knowledge of what had happened, but on principle. I was a little taken aback by the vigour of the Minister's reply on this issue. He
1132
was not his usual urbane self. At col. 956 of the Official Report, he said:
"The Home Secretary takes the view … that in speaking to Parliament we ought to be as candid, as open and as helpful as possible".
The method of his reply aroused my curiosity and I made further investigations. I discovered that what the Home Secretary failed to say to Parliament in the Statement repeated by the noble Lord was that the view being expressed as to compatibility with the European Convention was contrary to the law as at present interpreted by the Lord Chief Justice and two other judges in the Divisional Court in the case to which reference was made—"K". So it is not peripheral. I regret to disagree with the noble Lord, Lord Cope, on this matter. I had assumed that the Statement that was confidently made yesterday represented the present position and that it was the applicants in that case who were mounting a challenge to the Government, who had obtained a successful judgment.
The passing of this order does not affect the judgment of the Divisional Court. The decision of that court was that the DPP had continued the prosecution of the applicants in the mistaken belief that these provisions of the Prevention of Terrorism Act did not violate the European Convention and had thus made an error of law. So the view of the courts as presently expressed is that there is an error of law when prosecutions are brought under the Act. I think that there is a vast difference between this House being asked to approve an order which is in accord with the judgment of the Divisional Court and being asked to do so when, as at present, the legislation which is being continued is held to be contrary to that view and is determined to be in violation of the European Convention on Human Rights. I do not find the Home Secretary's Statement to be candid, open or helpful. Indeed, I feel that I was misled yesterday and that the House was misled.
It is central to the Human Rights Act that Parliament be made aware of the extent of compliance with the convention when it debates legislation. That is why we have Explanatory Notes at the beginning of proceedings on a Bill and a statement of compliance on the face of the Bill. No doubt that is the reason for what I thought yesterday to be an extraneous piece of information contained in the Statement.
I do not think it is helpful to discuss the decision of the Divisional Court except to point out that it is in exact accord with the views expressed by the noble Lord, Lord Williams of Mostyn, when in opposition. It was his view, he then said, that the offences were far too harsh and draconian and that they would bring the law into disrepute. When the measures were first introduced, he said that they would bring us into serious conflict with the European Convention on Human Rights. The noble Lord's view has been upheld by the Lord Chief Justice and other judges. The noble Lord said:
"If we condemn our citizens to the possibility of 10 years' imprisonment on the basis of reasonable suspicion…we are in serious danger of giving terrorism a victory that it would not otherwise achieve".—[Official Report, 7/6/94; col. 1208]

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That view was expressed not only by the noble Lord, but also by Mr John Rowe QC, who identified Section 16A as being potentially in breach of Article 6(2) of the European Convention.
The argument about the presumption of possession under Section 16A(4) of articles giving rise to a "reasonable suspicion" that the article is in his possession for a purpose connected with the position of terrorism is very reminiscent of the first case which came to the Privy Council from Hong Kong—the case of Lee Kwong Kut— in which I was personally involved. The point is that the test of "reasonable suspicion" in that Hong Kong legislation, and indeed in this legislation, is purely objective. A person can be found guilty and sentenced to up to 10 years in prison even if he is actually unaware of the true position. The presumption of innocence is violated.
As for Section 16B, the category of information that is encompassed is impossibly wide. I quote:
"a simple map or a simple list of addresses and telephone numbers would fall into this category … The real danger will be that persons who have information recorded or collected or possessed by them will be charged and harassed unnecessarily".—[Official Report, 7/6/94; col. 1209]
Those are the words of the noble Lord, Lord Williams of Mostyn. I commend him on his correct interpretation of the law as upheld by the Divisional Court.
This is a serious matter. It is positively unconstitutional to legislate, even with secondary legislation of this kind, which as I said yesterday does not make a great deal of difference so far as the order is concerned. The intention of Parliament was perfectly plain in the previous order that was passed. It is unconstitutional to legislate on the Government's assurance that these offences are compatible with the convention when the courts have ruled precisely to the contrary. Unfortunately, it gives no confidence that, when future legislation comes forward, with the Government giving a certificate that it complies with the European Convention, that certificate means anything.
It is for that reason that noble Lords see in me a complete volte-face from the position that I took yesterday; namely, that the quicker we got what I regarded as a technical and mechanical matter out of the way. the better. I do not believe that that is so. On further examination, there are important issues. This legislation should not have been brought forward until the Judicial Committee had—if it does so; and that is a matter of great argument—actually set aside the decision of the Divisional Court.
There are ample powers of protection in the meanwhile, as we discussed yesterday. The ordinary law of criminal conspiracy is sufficient to enable the prosecution of individuals who possess information with the intention of using it to carry out a terrorist attack. The only point is that the prosecution have to prove that offence beyond reasonable doubt, whereas under this legislation the burden of proof is entirely reversed.
Finally, I am reminded of the wise words that were spoken by my noble friend Lord Wigoder in 1974, when the Prevention of Terrorism Bill was introduced into the
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House by another of my noble friends, Lord Harris of Greenwich, who was then on the Labour Benches. My noble friend said:
"all of us who treasure our civil liberties—and that means every Member of your Lordships' House—is bound to want to consider with the greatest care emergency legislation which may have been hastily conceived, hurriedly drafted and passed into law without careful detailed examination in your Lordships' House".—[Official Report, 28/11/74; col. 1517.]
That was a very wise statement. It is as applicable today as it was then. I should be grateful if the Minister could deal with what I regard as the unconstitutional aspects of the order.
Lord McConnell: My Lords, on many occasions I have attacked the Government for their attitude towards terrorism and for not being enthusiastic enough in dealing with it. But on this occasion I support the order. It is perfectly right and proper that it should be brought before the House. It is, therefore, only right that I should stand up and say so.
This matter has taught us certain lessons about being more careful in the future, about not rushing legislation, and about examining it before it is presented to either House. But I need not rub that in. Those lessons have been learnt recently. I shall merely content myself by saying that I support the Minister in regard to this order.
Viscount Waverley: My Lords, I too support the order.
Lord Williams of Mostyn: My Lords, I want to make the timetable absolutely plain. I know that it is a relatively minor matter, but I do not want any misunderstanding.
The article appeared in the Criminal Law Week on 24th May. The Home Secretary was faxed the article on 26th May. We spent the time from 26th to 28th May preparing advice and questions for the Law Officers. So the advice from the Law Officers, in fairness to them, was asked for on 1st June. It arrived at the Home Office on 17th June. I should not like there to be any suggestion that the Law Officers were dilatory, because I do not believe that they were.
I am rather surprised that the noble Lord, Lord Thomas of Gresford, felt that he had been misled yesterday. I do not think anything could have been plainer. In repeating the Home Secretary's Statement, I made specific reference to the case of Kebilene and others. So far as I know, that has been reported and commented on in the newspapers. If the noble Lord. missed it, then I am rather surprised; it has been reported and commented upon. The reason that it was mentioned in the Statement, I think rightly, was to point out that there was a judicial review and it was about the question of whether or not the Director of Public Prosecutions should continue to give his consent to the prosecution of offences under Sections 16A and 16B. if they are incompatible with the terms of the European Convention on Human Rights. That is the point of Kebilene. The European convention has not been fully incorporated by the Human Rights Act, which will not come into effect until 2nd October next year. I believe that we did rightly

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in drawing your Lordships' attention to the case of Kebilene and the fact that the Appellate Committee was going to determine issues that were related, as the noble Lord, Lord Cope, said, not central to, the particular matter.
As the noble Lord, Lord Cope of Berkeley, indicated, and as your Lordships agreed, we all thought that the drafting of the continuation orders had had the legal effect of continuing Sections 16A, 16B, 16C and 16D as the basis for criminal offences. Because the drafting was in error, as I explained yesterday and was generally accepted, it turned out that Sections 16A, 16B, 16C and 16D were no longer of legal effect. Having taken advice on that—and one does not want to rush into matters of this potential importance—we brought the matter back to the House and explained the error that had been made; the Home Secretary said, "for which I take responsibility", and no one tries to derogate from that. I cannot imagine that anyone could conceivably have been misled who had put his or her mind to these matters.
There is nothing unconstitutional about what we are doing. I repeat, although I was reproved by the noble Lord, Lord Thomas of Gresford yesterday, that we believe that our stance on incompatibility and compatibility is the correct one. In due time, should the House of Lords Appellate Committee come to a different view, we shall have to review the position. But I stress that what the House of Lords is being asked to consider is the application for judicial review, which has already been heard at first instance in judicial review terms, as to whether the director should carry on giving his consent to the prosecution of offences if the offences are not compatible with the European convention. I see nothing unconstitutional in that. I believe that we were right to mention the case of Kebilene yesterday. If I had not mentioned it in repeating the Home Secretary's Statement, your Lordships could reasonably have felt a little aggrieved that we had not been as full and frank as possible. I put the matter yesterday on the basis that this is a related matter. The noble Lord, Lord Cope, was good enough to repeat it. I do not think that he ever said that it was peripheral, which was the word used by the noble Lord, Lord Thomas. I think he said that it was related but not central to this point. I commend the order to the House.
Lord Cope of Berkeley: My Lords, before the Minister sits down, is he aware that I myself saw both the law report and the newspaper report of this particular case at the time, although I am not as avid a reader of law reports as the Minister. It seems to me that if the Government had failed to bring the order before the House in these circumstances, they would have been prejudging, if not prejudicing, the case in the Appellate Committee. To me that would have seemed to be unconstitutional to a much greater degree than bringing the order before the House in the circumstances.
On Question, Motion agreed to.
Baroness Farrington of Ribbleton: My Lords, I beg to move that the House do now adjourn during pleasure until 8.15 p.m.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was suspended from 7.59 to 8.15 p.m.]

Welfare Reform and Pensions Bill
House again in Committee on Clause 1.
Lord Higgins Lord Higgins moved Amendment No. 11:
Page 2, line 11, leave out from ("to") to ("and") in line 12 and insert ("a minimum contribution level of £10 per month,")
The noble Lord said: The purpose of Amendment No. 11 is to raise the issue of what contribution those subscribing to a stakeholder pension can make. The Committee will be aware of widespread comment in the press that the Government intend that it should be set at a minimum level of £10 per month; in other words, £120 per annum. This raises a number of questions on which it would be helpful to have the views of the Government. This matter is also related to the earlier debate about the costs that might be involved in the provision of stakeholder pensions. It also looks forward to later amendments related to the extent to which advice will be given by those who provide such stakeholder pensions.
One must express hesitation about the figure of £10 which appears in the amendment in the light of press comments on the position of the Government. At £120 per year, for someone who provides a stakeholder pension of 1 per cent—we discussed this matter just before the adjournment—the cost allowed would be only £1.20. If one is a minimum contributor it seems unlikely that one will get very much for the sum of £1.20.
At the other end, the question arises: what kind of pension will one get for a minimum contribution of £10 per month? In that context, one raises yet again the issue of whether the pension that one gets is likely to be sufficient to provide a pension in excess of the minimum guaranteed pension proposed by the Government, which one understands is to be index-linked. Clearly, if an individual did not reach that level with the subscription just mentioned it would be money—I was going to say—down the drain. Without using Mr Frank Field's exotic expression, that would be roughly where it would go.
Of course. the Minister may well argue that one is unlikely to be making the minimum contribution throughout one's working life and that the expectation is that people will probably contribute significantly more. Even so, if the amount contributed is significantly higher, calculations suggest that even, say, for someone aged 21 on an income of £12,000 a year, with the salary rising by 2 per cent over inflation and a contribution of 10 per cent of earnings to the scheme, the total contributions will he only some £85,000. That would produce an estimated income in retirement at today's purchasing power of about £11,700, plus what is left, if anything, of a basic state pension. That would presumably be scarcely seen as a reasonable return on the investment made over one's life.
I am sure the Minister has alternative figures which we can consider. But certainly the minimum contribution level and indeed the level of contributions which may be expected by people above that level raise serious questions as to whether encouraging low-earners to go into this scheme will be a worthwhile investment. I should be grateful if the Minister could comment.
Baroness Hollis of Heigham: The amendment would put on the face of the Bill details of the minimum contributions that schemes can require stakeholder pension scheme members to make. We expect to set out these details in regulations. I am sure that the noble Lord will agree that the matter is much better handled in that way. I could explain the purpose in one phrase: this is meant to be a ticking-over contribution. Perhaps I may enlarge on that point.
Subsection (7) provides that schemes must allow members to make contributions as they think appropriate. This means that members will be able to contribute such sums as they wish, either on a regular basis or as and when they can. The subsection also provides a regulation-making power to prescribe minimum contribution levels and other restrictions on the making of contributions.
The Green Paper made clear our intention that schemes which require minimum contributions should not be able to set them above a specified amount. Our recent consultation document proposed that no scheme should be able to require a minimum contribution of more than £10. This low limit will ensure that people who can afford only modest contributions are not ruled out from joining a stakeholder pension scheme. I am pleased that the noble Lord's view of an appropriate minimum level is consistent with ours.
We have also proposed in our consultation document that there should be no requirement for contributions to be made at a specified frequency—for example, once a month, as suggested by the amendment. One of the key flexibilities that we want to introduce into stakeholder pensions is the freedom for individuals to make contributions as often as they wish—that is, by regular payments or by a one-off payment. We want them to be flexible enough to adapt to circumstances.
For example, regular and monthly contributions may be the most appropriate arrangement for those in work. However, they may lose their job and be unemployed for a time. If that happens, we want them to be able to continue to make modest contributions—perhaps £10 or £20—as and when they can afford to while they are looking for work. Likewise, we want to make sure that people who take a career break to raise a family—they may take three or four years out while they have a couple of children—can continue to make one-off contributions from time to time, possibly from freelance earnings or in some other way; we want them to be able to make a modest contribution while they are out of the labour market. And we want to cater for people who may wish to make irregular lump sum payments—for example, if they should inherit money or if they wish to make a contribution from their savings.
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In the consultation document we have invited views on the compatibility of the minimum contribution rule with the variety of ways in which schemes may collect contributions. I could discuss that if necessary, but essentially I entirely agree with the noble Lord that a £10 a month regular minimum contribution over many years will not produce a faintly satisfactory pension. But the point is that the provision allows a welcome flexibility for exactly those people that the stakeholder pension is designed to cater for: those who may be in and out of work, those who may temporarily drop out of work, those who may have temporary childcare responsibilities and the like. They can then have the option of making good that low level of contribution in their later contributions.
As I said originally, it is a sort of ticking-over contribution which we think offers much needed flexibility so that we keep people within the pensions system rather than have them drop out altogether. I hope that in the light of that explanation the noble Lord will withdraw the amendment.
Lord Higgins: There are two points here. If the Government suggest that minimum level which I understand is the figure they are suggesting now, presumably it may subsequently be adjusted for inflation and so on. The question nonetheless arises whether any provider of a stakeholder pension is prepared to take on the paper-work and so on involved, given that the charge it would be allowed to make would he about £1.20 a year.
Baroness Hollis of Heigham: I obviously did not make myself clear. We do not expect people to go into a scheme and pay £10 a month. What we expect is that people who are in a scheme may lose their job and want to keep ticking over by dropping down to a contributory rate of £10. It may also be a way of enticing people on very low pay to make a start.
Nobody disputes the noble Lord's assertion about whether, at £10 a month and with the level of charges that would need to be made, a viable pension would be produced. But the provision does produce flexibility to enable people who may be temporarily out of the labour market, temporarily unemployed, looking after children or whatever, to keep a scheme ticking over. Then hopefully they will be encouraged to make good that shortfall later. No one is suggesting setting up a new scheme for somebody for the most part on £10 a month. It may be the case on one or two occasions, but it is much more likely to be a drop-down rate rather than a starter rate.
Lord Higgins: The expression "tick-over" rate which the noble Baroness used is perhaps a convenient way of describing it. As she says, it may also be a start-up rate. None the less, I would have thought that there must be some minimum level below which, on average, a provider was not particularly keen to take on all the administrative hassle and so on for £1.20 a year.
The other issue is whether ticking it over at that rate will provide a pension which is in reality worth anything at all because it is below the minimum income level

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which the Government propose. Presumably it is possible to do the calculation to show how much one would have to pay into a scheme in order to produce the Government's income level. Indeed, that would be a rather useful calculation to have done generally because it would clarify the situation. One of our concerns, as I pointed out in an intervention during a speech by the noble Lord, Lord Goodhart, is that people will be deterred from saving at all or find that they have had a very bad deal. Then one is into mis-selling territory if they do not know. I leave on one side the issue concerning the disabled which we shall come to later.
It would be helpful to have this figure because it would give people some idea of whether it is worth while ticking over, for example, or going for a period. Obviously for the arithmetic one must make certain assumptions about whether the contribution is paid regularly or spasmodically. I presume the Government have done the calculation, and it would be helpful to have the figure.
Baroness Hollis of Heigham: I am not sure that it is a realistic figure that the noble Lord has asked for. People on such a low income that £10 a month is the only realistic contribution they can make to a pension scheme will not be in the stakeholder pension; they will be in the state second pension, an unfunded scheme for the low-paid earning less than £9,000 a year.
What we are talking about here are the circumstances of people, perhaps at the beginning of their working lives, expecting to make increased contributions and getting them into the pension habit. People in work who became unemployed—took time out—in the old days stopped their pension contributions. But we are allowing a tick-over. We do not expect a £10 a month contribution or sporadic lump sums of £20 here and £30 there to be a sustainable basis for a pension scheme, but the provision gives a flexibility to people whose incomes or earnings are somewhat erratic but who none the less feel that it makes sense to remain in the stakeholder framework rather than the state second pension. That is all that we are doing with it.
Lord Higgins: We have the same problem as with Amendment No. 1. We do not know exactly what the position will be on the state second pension.
Perhaps I may press the Minister. She may be unable to give the answer now. There are two cross-over points. What level of contribution on average floats people out of the state second pension into a stakeholder pension? At what level of contribution on average, on some reasonable expectation about the lifespan of the individual, would it not be worth while contributing because one runs into the problem of the guaranteed minimum pension? I should have thought that that can be calculated. It would be helpful to know.
8.30 p.m.
Baroness Hollis of Heigham: If the noble Lord is serious in his request, he must write to us with a list of the assumptions that he wants us to build in. That would
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include, for example, inflation and what has happened to the equity market in a funded scheme; it would have to make assumptions about that man's or woman's earning capacity, and so on. I am not sure why the noble Lord is pressing us on this. This is a drop-down rate or an early start rate for someone who will remain within the stakeholder pension.
We have already said today that the state second pension will be expected to cover people up to between £9,000 and £12,000. But between £9,000 and £18,000 or £20,000 it makes sense go to into a funded scheme. At £20,000 one is almost certain to be in an occupational scheme or able to afford an adequate personal pension.
I do not see why there is any problem about cross-over points. But if the noble Lord wants us to do some calculations and will specify the assumptions he would like us to include we shall have a look at them. However, as posed his question is unable to be answered.
Lord Higgins: I accept that one has to make assumptions. I shall give further thought to that.
My concern is that people should not invest in a stakeholder pension and find at the end of the day that they receive nothing. We need to have some parameters within which the scheme operates. Let us see whether we can make progress on it. Subject to that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Higgins Lord Higgins moved Amendment No. 12:
Page 2, line 12, leave out ("and other restrictions as may be prescribed,") and insert ("up to a maximum of £5,000 a year of the proportion of earnings which may be relieved of income tax if invested in an eligible pension scheme for a person of the relevant age in accordance with current Inland Revenue rules, whichever be the higher,")
The noble Lord said: Perhaps the Minister can confirm that it is suggested that we should link this amendment with other amendments, including the amendment tabled by my noble friend Lord Freeman.
Baroness Hollis of Heigham: It is the same issue about concurrence, dual membership and tax relief. It is essentially a tax relief issue.
Lord Higgins: As the noble Baroness rightly said, Amendment No. 12 has some tax implications. I think that I am right in saying that at present the maximum figure which has been suggested by the Government is £3,600. We are suggesting—it is an arbitrary figure—that we should raise that to £5,000 to establish exactly what the situation is with regard to taxation.
Other amendments raise the question of whether one should be allowed to be in more than one scheme. As we understand, one is not allowed to have both a stakeholder pension and another pension. I believe that that is the case, whether or not the individual has more than one occupation. But no doubt the noble Baroness can confirm the Government's position.

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First, if an individual has two unconnected jobs, each of which has a stakeholder pension scheme, is it permissible for contributions to be paid to both stakeholder schemes where the aggregate contribution to both amounts to more than £3,600? If not, how does each employer know the amount of contributions to the other scheme? If there is an overall limit, on which scheme does the restriction apply? We need to know the relationship in dual employment.
My second question relates to additional voluntary contributions. What is the position as regards the £3,600 limit, which I understand is an aggregate contribution limit, so far as concerns AVCs? Does that limit apply in that case too? No doubt as the matter has been raised also by my noble friend Lord Freeman he will have a number of additional points to make in relation to dual membership. I leave him to spell those out. I beg to move.
Lord Freeman: I speak to Amendment No. 17. Because it is a probing amendment, I make plain that at the appropriate time I shall not move the amendment. I hope that the Minister will accept my comments on Amendment No. 17 as part of this debate.
My concerns relate to the rights to dual membership by individuals in a single employment. It is beyond doubt that so far as concerns Inland Revenue rules, if one has two or more employments one might have different pension provisions. For example, one might be in an occupational pension scheme for one's main employment. One might have a personal pension scheme at present; or some other form of pension provision for other employments. My concern relates to single employment and rights to dual membership.
Amendment No. 17 refers specifically to rights to dual membership of occupational pension schemes and a stakeholder's pension. It seemed to me that that is where the issue particularly arose. For the sake of my brief arguments, I define an occupational pension scheme as a defined benefit—for example, a final salary scheme.
At present, under Inland Revenue rules it is effectively impossible under tax law for those in single employment to have dual membership. It has to be one or the other. The noble Lord, Lord McIntosh, referred to the change in the law in the 1980s. He was right to describe it as presenting a problem to some in the sense that those in an occupational pension scheme have to leave that scheme in order to set up their own personal pension plan for that employment. Indeed, employers were not allowed to make it a mandatory condition of employment that one had to join an occupational scheme; otherwise one would have been in the situation of trying to promote personal pensions and effectively being unable to offer them to those in single employment. I believe that dual membership makes sense.
At Second Reading on 10th June, the noble Baroness, Lady Hollis—I shall paraphrase the essence of her helpful comments—said that the issue was complicated, that discussions were taking place with the Inland Revenue, that Her Majesty's Government were
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reflecting upon the issue of dual membership and that their mind was not closed to the issue. All that is extremely helpful. The issues may have moved on, and it may be that some resolution is close at hand. There are further stages to the Bill in this House. If it is not possible to resolve the matter tonight I hope that before Third Reading it will be possible to resolve the issue. I think that it is important to those in the industry. I do not speak for them but I am well aware of their concerns. Those who make provision and those who provide need to be clear about the position.
Why is the Inland Revenue involved? Why is tax law relevant? There is control over the deductibility of pension contributions by employees and employers. The noble Lord, Lord Peston, is not in his place but he seemed to argue for no tax restrictions on deductibility. I think that that is asking too much. There are laws in place. If one allows today unlimited provision for pensions in the future one will lose tax revenue. It will be recouped when the pensions are paid, but the short-term cash position is disadvantageous to the Government.
I would argue that a limited degree of relaxation is called for. I agree with my noble friend Lord Higgins that a simple way of relaxing provision is to allow those in one employment to have rights to remain in an occupational pension scheme whose tax rules are complicated and different from the simple tax provision for which the regulations will provide for stakeholder pensions—an upper limit of £3,600 or whatever. That is tax deductible, no questions asked: a lump sum provision by the employee. There is room to permit an employee to have both tax deductions under the different regimes that would apply to a stakeholder pension—I imagine that we are talking only about an employee's contributions and not an employer's— and an occupational pension scheme.
Why? There are two simple reasons I want to put to the Minister. I assume that we shall find a number of examples of employer-funded pension schemes, whether they are defined benefit or money purchase, to which the employee can make contributions and which cover employees in the salary range £10,000 to £20,000. The Minister earlier implied that one was dealing with a continuum of pension provision into which one could neatly fit different categories of people. She is largely right, but I am afraid there is some overlap. There are a number of examples of smaller companies, particularly in the engineering industry, which are employing people at £20,000 per annum, which are providing an employer-funded contribution pension scheme, and they should be encouraged.
Therefore, I am pressing the issue of dual membership for two reasons. First, in order to avoid the awkward decision when someone is coming out of self-employment, or employment where there is no employer-funded pension scheme, into full-time employment where there is an employer-funded pension scheme, avoiding the difficult decision as to whether he should continue his stakeholder pension. The economic arguments might be in favour of ceasing contributions to the stakeholder pension scheme and going into the employer's pension scheme. Frankly, in some cases it

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may be sensible to continue to top up one's stakeholder pension scheme. The figures that I have seen which indicate or moot a maximum contribution level of £3,600 per annum—that is, applying the normal 15 per cent tax deductibility rule—would give a salary of £24,000. Fifteen per cent of one's salary at £24,000 a year is quite a large sum. But if one was in an occupational pension scheme and was paying 5 or 6 per cent, with the employer paying perhaps 10 per cent, there would still be sufficient room to top up one's stakeholder pension scheme by 9 or 10 per cent of one's salary.
In the real world, many people will wish to maintain contributions to a stakeholder pension scheme throughout their working lives. It provides continuity. One needs to make contributions over a great number of years in order to have a meaningful pension. Ten pounds a month—£120 a year—even with a full working life, will provide only a modest pension of perhaps £10 or £15 a year. That is the pension one would get on retirement at 60 if one made that contribution for 20 or 30 years, given normal annuity rates.
The second and more important reason for the arguments lying behind my amendment is to avoid the problem referred to by the noble Baronesses, Lady Castle and Lady Turner, and my noble friend Lord Higgins. It is to avoid the problem of some employers closing their own schemes, to which they make contributions, and saying, "We have to provide introductions and advice to facilitate a stakeholder pension scheme in our little company or factory. We are going to stop our scheme. We don't have to make a contribution. Times are hard. Here is your scheme to which you as an employee will contribute."
The noble Lord, Lord McIntosh, said that all good employers will wish to keep their employer contribution scheme in order to attract people to the company. The Association of Consulting Actuaries, in a sample of 572 companies, reported that 12 per cent stated that they would close their scheme under the Bill as presently drafted. Perhaps that is an exaggeration, but every time an employer ceases making a contribution to an employer contributory scheme, however generous that may be, it is a retrograde step. Dual membership is a very modest way of increasing total contributions to pension provision in later life and maintaining employer responsibilities at the same time.
8.45 p.m.
Lord Goodhart: I rise to support both the amendment which have been introduced and to speak to my own amendment, No. 20. That amendment covers two issues. First, can a member of a stakeholder pension scheme use that scheme as though it were a personal pension and make contributions up to the Inland Revenue limits, even if they exceed the £3,600 proposed limit on stakeholder contributions? Secondly, can a member of a stakeholder pension also be a member of another scheme? As we have heard, the first issue is dealt with by Amendment No. 12. The second issue is covered by Amendments Nos. 17 and 18.
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I am not in complete agreement with Amendment No. 12 because the first part of the agreement deals with the limit to contributions and puts it at £5,000 a year as against the Government's proposal, which is to impose an upper limit by regulations of £3,600 a year. I agree that it is a good idea that anyone should be allowed to contribute up to £3,600 a year to a stakeholder scheme, provided that that does not exceed his or her total income.
The existing rules on maximum contributions imposed by the Inland Revenue are complicated. It seems that it is a good idea to have a simple rule for relatively small contributions. However, in our view, £5,000 a year is on the high side. While we cannot say that we regard it as a major issue, we would be more in support of the Government's proposed limit of £3,600. That is the point at which the Inland Revenue limits should come into effect.
However, we are in wholehearted support of the rest of Amendment No. 12. Let us assume that a young employee is taken on at relatively low salary. He does well in his job and reaches a salary level where the Inland Revenue limits are more than £3,600 a year. He may well prefer to continue to pay the full amount into the one stakeholder pension of which he is already a member and to make additional voluntary contributions. Is it intended that under the Government's regulations he will be allowed to do that? I can see no good reason why not and I strongly urge the Government to allow it to be done. There is no clear reason that that should not be allowed.
I turn to Amendments Nos. 17 and 18. Alternatively, if the Government are not willing to allow that, or if the individual prefers to be a member of a separate non-stakeholder pension scheme in respect of the sum over and above £3,600, there must be a strong case for allowing the employee to be a member of two schemes at the same time; one a stakeholder scheme and the other some form of approved pension provision. It can be a personal pension or membership of an occupational scheme. If the hypothetical employee cannot do that, the only possibility would be for that employee to transfer his or her existing funds out of the stakeholder pension scheme into a personal pension scheme or an occupational pension scheme, or leave the money in the stakeholder pension scheme as a deferred pension. None of those solutions seems attractive. Furthermore, I believe that that would be both unnecessary and undesirable.
The simple question is: why not allow dual membership? For the reasons clearly explained by the noble Lord, Lord Freeman, Inland Revenue limits are needed. If those limits are not exceeded, why does it matter that those contributions are made partly to one scheme and partly to another? Why not allow the contributions to be made to two different schemes?
I can see technical problems if one scheme is a money purchase scheme, which a stakeholder pension scheme must be, and the other is a defined benefit scheme. That is because the Inland Revenue limits are calculated in different ways. That does not seem at all impossible to me. It should certainly be within the abilities of the

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high-powered people who staff the Inland Revenue to provide a solution. That is why we have provided, in subsections (2) and (3) of Amendment No. 20, for an immediate right to become a member of a stakeholder pension scheme and another money purchase scheme. Where the alternative scheme is not a money purchase scheme, we have proposed, in subsection (4), that proposals for legislation should be laid before Parliament for consideration at a future date.
Having said that, it seems to me that the principle is clear. We want to make stakeholder pensions as attractive as possible. We believe that it is highly desirable that it should be possible to contribute up to the Inland Revenue limit in stakeholder pension schemes, even if those limits are higher than £3,600, and that it should be possible to have dual membership of a stakeholder pension scheme and a tax-exempt non-stakeholder scheme at the same time, provided that the total Revenue limits are not exceeded.
Lord Higgins: Perhaps I may mix my metaphors and say that I hope that I am allowed two bites of the cherry in such deep waters.
In regard to the transitional arrangements, there are some problems. First, people will be uncertain as to what they will do when stakeholder pensions eventually arrive. Meanwhile they may have engaged in other schemes and there may be considerable disadvantages for them if they have to stop one scheme in order to become a member of a stakeholder pension scheme. In particular, there will be difficulties with regard to the transfer values, if the Government persist in their view that one can hold only a stakeholder pension scheme but not any other scheme at any given time. I hope that attention can he given to the problems of the transitional arrangements, given that it will be some while before stakeholder schemes become operational.
Secondly, how will the £3,600 limit—if the limit remains at that figure—or the £5,000 limit, if that is accepted, be indexed? Will it be indexed in line with the RPI, as is normal with tax indexation, or with wage inflation? If it is the former, the effect will be to reduce annually the proportion of earnings that may be paid into a stakeholder pension scheme where the maximum contributions are being paid. Assuming that wage inflation continues at a low rate, in practical terms that will significantly reduce the pension that someone would expect to receive from the stakeholder pension scheme Summarising that, will it be indexed on the usual tax basis of RPI or wage inflation?—otherwise, the pension will decline as a proportion of what might have been expected.
Thirdly, in regard to AVCs—a matter I raised originally—do the Government feel that people in the scheme can have AVCs in addition to the existing £3,600 or the £5,000 limit? If so, I wonder whether that will require any changes to the regulations of the existing pension scheme arrangements which would seem to allow that to be the case at present.
Baroness Hollis of Heigham: The answer to all the points raised—two raised by the noble Lord, Lord Higgins, and other points raised by the noble
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Lords, Lord Freeman and Lord Goodhart— is that we are consulting on those matters. Within that context, I believe that we all agree the nature of the problem, including some of the implications in terms of costs and tax limits.
Amendment No. 12 refers to placing on the face of the Bill a maximum limit for contributions to stakeholder pension schemes. We propose a single flat rate of £3,600, or total earnings, whichever is the lower. At the moment we do not propose that people can go up to £3,600 in two schemes. However, that is a matter under consideration and under consultation. Amendment No. 12 seeks to increase this maximum Limit to £5,000, or some other limit based on a proportion of earnings, whichever is the higher.
Given that the target group comprises those earning between £9,000 and £18,000 a year, the limit of £3,600 is, therefore, generous enough to allow them to make significant contributions if they wish. Anyone who wishes to pay in more than £3,600, and who would be allowed to do so under the relevant contribution limits, will still have the option of taking out a personal pension scheme if they do not have access to an occupational scheme. As I say, we are considering the point made by the noble Lord, Lord Goodhart, on AVCs and their equivalent.
On the issue of whether membership of stakeholder pension schemes should be allowed in addition to membership of another type of pension, as is proposed in Amendments Nos. 17, 18 and 20, that is another issue that we are considering in the light of responses. A number of noble Lords have argued—we have heard the arguments put very eloquently—for concurrent membership of a stakeholder and an occupational scheme. We are mindful of the argument that that would encourage more people to join occupational pension schemes when they are offered, but still allow them to keep a stakeholder pension scheme alongside that.
We have also received strong views on the question of allowing membership of a stakeholder pension scheme in addition to personal pensions for those not in occupational pension schemes. A number of noble Lords have argued that allowing contributions up to only £3,600 in a stakeholder pension scheme could raise difficulties when someone would like to pay more because their earnings have risen. It was agreed that if the personal pension contribution based on earnings was higher, it could be inefficient and confusing to have to switch to a personal pension at that stage.
We are considering all these points, but we have to consider the other side of the matter. There is the risk of adding complexity to the operation of stakeholder pension schemes if providers have to check that total contributions, including to a stakeholder pension scheme and an occupational pension scheme, do not exceed the overall limit. There is a real problem concerning the transparency and the tracking of such contributions from the point of view of the Inland Revenue. Some noble Lords have had experience of a similar situation.
If stakeholder pension scheme contributions were allowed in addition to the existing limits on occupational pension schemes, the cost could be as much as

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£400 million. I could break down that figure if noble Lords were interested, but we have put the figure at that amount if stakeholder pension contributions are allowed in addition to the existing limits on occupational pension schemes. If they are not, there is not much point—because they are capped at the figure of £3,600 and one may as well stay within the stakeholder pension scheme.
A significant part of the costs would arise in relation to those who already use the tax allowance and occupational schemes to the full. I do not believe that they are the main priorities for additional help. So our concern would for those in an occupational scheme wanting to top up with a stakeholder pension rather than doing it the other way round.
9 p.m.
Lord Freeman: Would the Minister be amenable to putting on the record the basis of the calculation of the £400 million? It may be helpful for me to be in touch with her office to determine what the right mechanism for that might be.
Baroness Hollis of Heigham: I suspected that that question might be raised. The assumption underlying that figure is that those people who invest in stakeholders on the free-standing AVC contributions might do this to take advantage of a tax-free lump sum or whatever, and there will be a doubling of current investment levels so the cost in extra tax relief would be £250 million. There are currently around 900,000 free-standing AVC arrangements.
The second assumption is that around 400,000 people are in occupational schemes near to the maximum that they can invest. It is assumed that they would contribute to stakeholders at between 4 and 10 per cent, at a cost in additional tax relief of £100 million. It is assumed that 40,000 of those earning in excess of the current limits for occupational schemes will each contribute the maximum of £3,600 to a stakeholder pension scheme at a cost in additional tax relief of £50 million. Personal pension holders will take the higher of the limits currently applying so there is no additional cost for tax relief above that in the Green Paper estimates. Those are the bases of the assumptions we are making which underpin the figure and calculate that it could be up to £400 million in Inland Revenue tax relief on pension schemes.
The second question that arises, apart from tax concession, is that allowing membership of both a stakeholder pension scheme and a salary-related occupational pension raises the further issue that salary-related schemes are subject to a limit on the final benefit payable as well as a limit on the contributions. We would therefore have to consider carefully how the two regimes could be calibrated within arrangements such as those proposed in subsection (3) of the clause. In seeking to require proposals as to how this could be achieved rather than immediate introduction, the Committee will recognise the difficulties.
To summarise, we recognise where Members of the Committee are coming from and are mindful of the fact that we do not want people having to drop out of
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stakeholders simply because they have gone up the income scale, nor do we want people hampered by the fact that they are trammeled into one specific scheme. On the other hand, we do not want to add complexity. We are concerned about the cost and we recognize that there may be specific problems with final salary schemes. Having said all that, they are important issues and we take that on board. The Government are giving them careful consideration and in the light of that the Government will shortly be publishing a consultation paper on taxing pensions which bears on these selfsame issues. That being the consequence, I ask the Committee to bear with me and not to press further tonight. When we have this consultation paper out, the basis of our understandings will be seen and we can consider whether there are ways forward on which we can all agree. In the light of that, I hope the noble Lord will feel able to withdraw his amendment.
Lord Goodhart: Before the noble Lord, Lord Higgins, replies, perhaps I can say that I regard this position as deeply unsatisfactory. We have here two very important questions: the right of members of stakeholder pensions to pay AVCs into the pension scheme and the right of dual membership.
It may be adequate if, though these are not on the face of the Bill, we are told what the Government intend to put into regulations. But we are not told that; we cannot be told that because the Government have not yet made up their mind. We are told that there is going to be a continuing consultation process which will no doubt last well beyond the debates on this Bill in your Lordships' Chamber. I find it unsatisfactory that we are asked to legislate on that basis. That reinforces the idea that the proposals in Part I of this Bill are somewhat premature.
Baroness Hollis of Heigham: The Government have a very clear view; that we meant to have stakeholder pensions to a ceiling of £3,600. The Government could have held firm on that view and simply said, "We are not going to move". On the contrary, we are trying to recognize the strength of the arguments put to us tonight and through other representations, and are consulting further to see whether we can move. But when we started off with this Bill we did not expect to be departing from our position of £3,600.
If your Lordships want the Government's position to be always unambiguous, that means that the Government will never listen to any propositions or amendments put forward by the Opposition. I am sure that is not a position that the noble Lord, Lord Goodhart, would wish to espouse.
Lord Freeman: I am grateful to the Minister for putting on record the basis of the calculation and am also cognizant of the fact that if governments are to shift their position, they have to consult, and it is not always possible or desirable for everything to be laid out in an

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inflexible way to begin with. I do not wish to press my amendment, and reserve the right to come back at a later stage.
Lord Higgins: The Minister gave a reply which in a number of respects is very comprehensive. But I have much sympathy with the view expressed by the noble Lord, Lord Goodhart These are extremely important issues and obviously some degree of consultation is necessary. But we are not in the situation we were on the Tax Credits Bill where there were problems of consulting other departments. This is essentially a matter, as I understand it, between the Inland Revenue and the DSS. We have rather more time than we had in relation to the Tax Credits Bill. We are now only at Committee stage. One would have thought we might reasonably expect the Government to have come to a conclusion on this matter.
Baroness Hollis of Heigham: I am grateful to the noble Lord for giving way. I must say that that is an unusually uncharitable interpretation of what I said. I said that the Government went into the discussions when this Bill started in the other House with a clear view: £3,600 stakeholders. In the course of the discussion and also tonight we have had views put, backed up by representations from knowledgeable organizations with whom the Government are in partnership, that we should consider variance on this.
The Government could simply have dug in their heels and said, "Go away. We are not moving". We are not saying that. It is rather unfortunate because we appear to be damned if we listen and damned if we don't.
Lord Higgins: It is certainly not my intention to be uncharitable at all. We fully accept, as the Minister said, that instead of simply producing a fait accompli the Government are carrying out consultations and they will reconsider the position. That is an entirely reasonable view for the Government to take, indeed more reasonable than the one just suggested by the noble Baroness.
But having said that, it is equally reasonable on our side to say that we have a reasonable amount of time before this Bill completes its passage through this Chamber; we are only at Committee stage. And it is not unreasonable to ask the Government to take a view in the light of the consultations and representations. I am sure the outside bodies, which are all extremely expert and erudite in these matters, will be happy to make their representations at a technical level and then the Government can reach their conclusion.
If we on this side of the Chamber agree, that is fine; if we disagree, then we can table suitable amendments. This matter has been running for a good while before reaching this stage. It is not a matter where, other than considering the arguments, the Government need time to make a decision. Indeed, it is a question of sitting down, thrashing the thing out with those who are expert in such matters, and taking a view with which we may then agree or disagree. However, it is not satisfactory to leave the matter hanging totally in the air until after the Bill has received Royal Assent. I am entirely
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sympathetic to the noble Baroness who is seeking to be helpful. However, as on former occasions. I am seeking to press the Government to get together with officials, and others, and reach a conclusion on the matter.
Before I withdraw the amendment, perhaps I may throw one final stone into the pool—if that is not mixing metaphors even more—and ask the Government whether they would care to consider whether they need to make additional regulations under Section 111 of the Pensions Scheme Act 1993 if they are to fulfil what at present seem to be their intentions. Subject to that, although I do not expect the noble Baroness to reply, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 13 not moved.]
Lord Higgins Lord Higgins moved Amendment No. 14:
Page 2, line 18, at end insert ("or other insurance contract,, annuity contracts or pension arrangements which satisfy Prescribed requirements")
The noble Lord said: This is a much simpler provision than the one that we have just discussed. It would ensure that the seventh condition for the definition of a stakeholder pension scheme is amended to ensure that such a scheme accepts transfer payments from a broad range of pension arrangements. There are, of course, difficult issues involved here. However, if people want to transfer their assets into a scheme, it would seem appropriate for them to have the ability to transfer assets of the kind described in the amendment, as well as existing rights in other pension schemes.
There are other issues with regard to the question of accepting transfer payments. My understanding at present is that the Government will insist that the trustees—if they are trustees—of a particular stakeholder pension scheme will need to accept such transfers. However, that position is not the same as that applying to an ordinary occupational scheme. If I remember correctly, an ordinary occupational scheme has the right to refuse to accept transfer payments and, in any event, considerable negotiations have 10 take place as to the actual value of the transferred assets. Perhaps the Minister will be able to clarify that point.
However, as the amendment stands, it seems to be a reasonably flexible approach to having transfers for people who want to take out a stakeholder pension but who already have other assets which they would wish to include in the stakeholder scheme. I beg to move.
Lord McIntosh of Haringey: The minimum standards which we propose should provide members with important reassurance that schemes will, among other things, be flexible enough to accommodate the changes in circumstances that can occur during their working lives. That is why we are proposing that the stakeholder pension scheme members will, if they so choose, be able to transfer rights in other pension schemes to their stakeholder scheme. The ability to consolidate pension rights into a single fund will also make it easier for people to understand the current value of their pension savings. It will also help to avoid the proliferation of a number of small "pots", thus helping to secure better value for members.

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Our proposals already require stakeholder pension schemes to accept transfers of rights in occupational and personal pension schemes. Of course, as the noble Lord, Lord Higgins, made clear, there are other types of financial arrangements which are recognized as pension arrangements; for example, retirement annuity contracts and certain other types of annuity or insurance policies. Insurance and annuity contracts, for instance, can be used to give effect to a former employee's rights in an employer's occupational pension scheme. When our proposals for pension-sharing on divorce come into effect, spouses who become entitled to a share of their former spouse's pension will be able to purchase a deferred annuity if, for example, they are not members of a pension scheme at the time. These people may eventually want to transfer such rights into a stakeholder pension scheme.
There is nothing in our proposals which would prevent a stakeholder scheme accepting such transfers under the existing rules. If I have understood the amendment correctly, the noble Lord is simply seeking to build on our proposal so that stakeholder schemes are required to accept transfers from a broader range of pension arrangements.
I accept the weight of the arguments which I believe have prompted the amendment, but I would need to be sure that broadening the requirement would not mean placing undue burdens on stakeholder schemes and that there was no conflict with wider pensions legislation. Therefore, I should like to consider the amendment further. In the light of that assurance, I hope that the noble Lord will agree to withdraw it.
Lord Higgins: This is not only the best assurance: I think it is the only assurance! I am looking forward to further assurances, but in the light of the Minister's agreement to look at this again, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
9.15 p.m.
Lord Higgins Lord Higgins moved Amendment No. 15:
Page 2, line 20, at end insert—
("(10) The ninth condition is that approved group personal pensions shall be deemed to be stakeholder pensions for the purposes of this Part.")
The noble Lord said: There are concerns outside that the Government's proposals could be damaging to occupational schemes and group personal pension schemes. The Government seem to have said very clearly, for example, in the Standing Committee on 3rd April that the provider of a stakeholder pension or a personal pension could not be the same. The conditional arrangements could be the same but people should be aware of the distinction between the two schemes.
As I say, fears have been expressed outside that the position of the pension schemes, in which the noble Lord, Lord McIntosh, is very expert, could be adversely affected. Perhaps the noble Lord could tell us whether, in his view, this is so or not. I beg to move.
Lord McIntosh of Haringey: The noble Lord, Lord Higgins, is of course right in saying that I am a supporter of group personal pension schemes and I am particularly in favour of those schemes in which employers contribute as well. The Government are also in favour. We are pleased that our proposals for reform are already having a beneficial effect for those seeking to provide for their retirement.
We have no wish to undermine good-value existing provision, where it exists, but personal pension schemes do not have all the features which will make stakeholder pension schemes a good deal for their members. We believe that stakeholder pension schemes, because of all the tough conditions we have set out for them, will provide better value and a more flexible alternative for many of those who cannot join an occupational pension scheme.
The proposed minimum standards will ensure that all stakeholder pensions will offer low minimum contributions as well as the flexibility to stop and restart contributions without additional charge. As much as I liked my own group personal pension scheme, it did not do that. The requirement for stakeholder schemes to have a government structure which ensures that they are run in their members' interests is particularly important and is fundamental to our proposals.
We are prepared to consider alternative arrangements, provided that they are capable of delivering a similar outcome for scheme members. We are determined that stakeholder schemes shall be run in the members' interest. Personal pensions, even group personal pensions, often fall short of the high standards that we expect from stakeholder schemes.
It has been suggested that the availability of a group personal pension scheme should be enough to exempt an employer from the proposed requirement to provide access to a stakeholder pension scheme. We are keen not to discourage good-quality provision and we want to consult further on our specific proposals with regard to the way in which we could best incorporate these arrangements into a new regime. We know that many employees will already have started to pay into a personal pension, and we want to ensure that they are not disadvantaged.
As part of our programme of further consultation we shall shortly be publishing a consultation document on the details of the requirements for employers. This will include proposals on how to incorporate group personal pensions into the new arrangements, including whether there should be an exemption from the employer access

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requirement for group personal pensions where certain conditions are met. I hope, on that basis, that the noble Lord will feel able to withdraw his amendment.
Lord Higgins: We understand that the Minister is sympathetic on this point, but we shall need to consider the various issues that he has just raised. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Higgins Lord Higgins moved Amendment No. 16:
Page 2, line 20, at end insert—
("(10) The ninth condition is that the scheme shall provide to anyone who applies to join the scheme full and accurate advice as to how a stakeholder pension would benefit the applicant compared to other types of pension and shall tell the applicant that they have up to twenty eight days to cancel the application without cost or penalty; and an applicant to a stakeholder pension scheme shall have up to twenty eight days from receiving the said advice to canceling the said application without cost or penalty.")
The noble Lord said: My understanding was that the Government were suggesting—I have no reason to dissent from this—that Amendments Nos. 16, 31, 25 and 29 should be taken together.
Lord McIntosh of Haringey: We have been informed by the noble Baronesses, Lady Castle and Lady Turner. that Amendment No. 29 will not be moved—if that would help the noble Lord in his speech.
Lord Higgins: I was not proposing to make a speech on behalf of the noble Baroness, Lady Castle. I would not presume to rise to that level of oratory which we have seen during the course of the day. The real problem here is that, having regrouped it, I have lost sight of some of my most important notes. However, I shall seek to counter that! Essentially, here we have Amendment No. 16 first of all, which says that the ninth condition of the scheme shall provide anyone who applies to join the scheme with full and accurate advice on how the pension would benefit the applicant, compared to other types of pension, and telling the applicant, in simple terms, that they would have up to 28 days to cancel the application if they do not like it.
We are concerned about the level of advice. The reality of the situation is that the stakeholder pension adds to the list of products which are available to those who are seeking to provide for their retirement. In addition the Treasury is putting forward its proposals for LISAs. Further, there are the proposals for state second pensions. There are occupational pensions involving either final salary or defined contributions. There is the whole question of personal pensions and so on. There is now a plethora of products, and individuals will find it difficult to choose between them. We suggest that individuals will need advice. We cannot seem to obtain a clear response from the Government as to how they believe this advice should be provided. They have swayed back and forth on this matter. Either they have said that advice is not really necessary in this area or that advice is necessary only in relation to stakeholder pensions; or they have accepted that advice is necessary
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but they have not indicated how it is to be provided or who will provide the resources to enable the advice to be given.
It has been suggested that the figure of 1 per cent of funds under management per year will not be sufficient to enable those who are providing the pensions to give a great deal of advice. Earlier the noble Lord mentioned including commission within that figure. That suggests again that a provider of a stakeholder pension may seek to promote his stakeholder pension rather than someone else's. Amendment No. 16 seeks to provide adequate advice to anyone seeking to join a scheme.
Amendment No. 31 states that,
"the employer shall require a certificate from the designated scheme to the effect that none of his employees will be admitted to membership of that scheme without evidence that the employee has taken independent advice in relation to his pension provision".
The individual concerned will have to obtain that advice. That may involve him in expense. We are not clear as to the Government's position on this matter.
Amendment No. 25 states that,
"the employer shall confirm with the Department of Social Security that the stakeholder pension scheme he proposes to designate is the most appropriate form of pension provision for his employees",
as against one of the many alternative products which I mentioned a moment ago.
This matter raises important issues. The Government appear uncertain about it in their own mind. I shall not burden the Committee by quoting from ministerial statements, but they appear to vary as regards the giving of advice in this area and how important they think that is. Certainly we on this side of the Chamber believe that such advice is important. There are real dangers that an individual may take out a stakeholder pension and then find either that it is not the most appropriate form of pension provision for him or that it is a bad buy, not least because of its implications in relation to the minimum income guarantee. We have discussed this matter many times already today. I beg to move.
Lord Goodhart: I have some reservations about the matter of advice in this area. Advice is certainly important for people who are investing substantial sums in pensions. Of course they can afford to pay for advice which is proportionate to the amount at issue. However, advice is expensive. Most of the people at whom stakeholder pensions will be targeted will be extrernely reluctant to pay for advice. If it is provided at no immediate cost to them by means of funding it out of the stakeholder scheme, that will impinge upon them sooner or later because it will add to the costs of the scheme.
It seems to me that one of the attractions of the stakeholder scheme—I am not suggesting for one moment that people should not take advice on this—is that if someone does not wish to take advice, he knows that if he goes into a stakeholder pension it may not he the ideal solution for him but at least he will not go far wrong with it. For that reason I am unable to support any amendments which make advice compulsory.

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As to the question of commission, I hope very strongly that one of the rules of stakeholder pensions will be that no commission will be paid. It has always seemed to me that commissions are an invitation to institutionalised bribery.
Lord McIntosh of Haringey: I understand the sensitivity of the Conservative Party to the potential for the mis-selling of pensions.
I do not want to underestimate the importance of advice for some people and information for others. Pension provision is a long—term commitment; if people are to be encouraged to make that commitment they need to be aware of the benefits of saving towards a pension. They need to be confident that their proposed arrangement is suitable for their needs and that it is secure. I take the point of the noble Lord, Lord Higgins, that people will be making a judgment not only of stakeholder schemes but between other potential forms of provision.
It is true that good, accurate information and advice will be an important part of the decision-making process for many individuals considering joining stakeholder pension schemes. We want that to be available to all potential members. We are not suggesting that everyone should join a stakeholder scheme without seeking advice. The complexity of existing personal pensions and the way they are run is one of the reasons why people need individual advice at present.
The stakeholder scheme is basically off-the-peg; it is not tailor-made. It is Marks and Spencer, not Savile Row. Indeed, it might even be Marks and Spencer literally as well as figuratively. As the noble Lord, Lord Higgins, said, if we require the schemes to meet the costs of providing advice, that would impose excessive costs. On the other hand, if individuals had to bear some or all of the costs, many could be put off starting a pension altogether. A number of people, like me, are very resistant to financial advice. We do not understand it, and when we do not understand it we do not believe it. There are an awful lot of people in the country like that.
Perhaps I may now turn to the second part of Amendment No. 16. I agree that the existence of a cooling-off period provides important protection. The regulation of marketing and financial advice is a matter for the Financial Services Authority and its rules already ensure that anyone receiving advice on a personal pension—as for any other financial service product—can cancel their application within 14 days. I expect there will be a corresponding cooling-off period for stakeholder pension schemes, but I do not think anybody will go to the stake for the difference between 14 days and 28 days.
I think that the arrangements on which we will shortly be consulting will meet the concerns expressed by the amendment. On that basis, I hope that the noble Lord will feel able to withdraw it.
Amendment No. 31 requires stakeholder schemes to ensure that anyone applying to join the scheme had received independent financial advice when the scheme
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had been designated by the employer. Employers would have to ensure that their designated schemes provided a certificate guaranteeing that none of their employees would be allowed to join that scheme without receiving independent advice. My argument that advice may be valuable in some cases but not in all deals with the argument for Amendment No. 31.
I do not understand Amendment No. 25. It provides that the employer shall confirm with the Department of Social Security that the stakeholder pension scheme is the most appropriate form of pension provision. That seems to be ambiguous. It could mean that the employer shall confirm with the Department of Social Security in the sense that the Department of Social Security confirms to him; or that the employer reports to the Department of Social Security that it is the employer's view that it is the most appropriate form of pension provision. The wording,
"confirm with the Department of Social Security",
is ambiguous. Unless the noble Lord, Lord Higgins, has any more to say on that point, I think that that is enough to encourage me to resist the amendment, particularly in view of the arguments which I have already put forward, against universal advice.
9.30 p.m.
Lord Freeman: Will the Minister comment briefly on what is probably the best avenue of advice? I refer to the annual pension statement, for which the Bill provides and which I very much welcome. Does the Minister agree that it is difficult to provide initial advice on how much pension provision an individual should make? It is the realisation year by year of how little has been provided that is often the best prompt and encouragement to make provision.
Lord McIntosh of Haringey: I entirely agree with that point. When stakeholder schemes start, there will be no investment record that will be relevant to the decision which the individual has to make. Without that, it is difficult to see a distinction as between stakeholder schemes.
However, the noble Lord, Lord Higgins, had a wider point regarding people who need to make a judgment between stakeholder schemes and other forms of financial provision. I recognise that in some cases, although not in all, that is desirable and even essential. However, his amendments would make it a prerequisite without which one could not enter a scheme. Some people do not fit into that category.
Lord Higgins: Perhaps I may take up the point made by the noble Lord, Lord Goodhart, with regard to commission. In an earlier debate, we referred to the fact that the Bill provides that some of the costs which are to be allowed are commission payments to those providing stakeholder pensions. I agree with the noble Lord. There is a danger that a provider of a stakeholder pension who is paid commission will argue that his scheme is better than other schemes. That is one of the reasons why people will need to take advice. There are two angles to the advice. One is the advice that is needed by the

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person taking out the pension and the other is the advice that is needed by the employer in deciding which scheme to recommend to his employees. We shall come to that matter in a later amendment.
I did not find the Minister's reply very satisfactory as to whether the Government feel that they should in some way provide independent advice and that the individual should get independent advice. It would seem that the Government's view as far as concerns stakeholder pensions is that people do not need advice.
Lord McIntosh of Haringey: I specifically deny that I have said that on many occasions advice is desirable and even necessary. What I am contesting is the view, required by the wording of the amendment, which is that advice is always necessary.
Lord Higgins: I am slightly puzzled by that reply. The stakeholder pension is a fairly clearly defined scheme. In taking out a stakeholder pension, one either does or does not need advice. My view is that one will need advice. I am not clear where people will get that from.
We may return to this matter at a later stage, after I have looked carefully through what the Minister said and other government statements on the matter. Subject to that, and the point I made about commission, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 1 agreed to.
[Amendments Nos. 17 to 20 not moved.]
Lord Higgins Lord Higgins moved Amendment No. 21:
After Clause 1, insert the following new clause—

Welfare Reform and Pensions Bill

  PUBLICATION OF ANNUAL PENSIONS AND SAVINGS INFORMATION
  (" The Treasury shall publish annually a decision tree showing the relationship between stakeholder pensions and all other types of pension and other forms of saving to enable employees to decide what is the most appropriate form of provision for retirement for them to make.")
  The noble Lord said: This amendment was my own idea. I have subsequently discovered that the Government have had the same idea. I believe I am right in saying that, in the Green Paper or elsewhere, the Government have suggested providing such a decision tree.
  Clearly, individuals are to have a wider choice of products than ever to enable them to provide for their retirement. Some of those products are appropriate for people in certain income groups—for example, between the well known limits of £9,000 to £18,500 or so—while others will find it more appropriate to go for the state second pension, and so on.
  It is important that, as soon as the stakeholder pension becomes a live issue for individuals, as well as being able to assess whether that is appropriate for them, they should be able to take into account the other government products, in particular the state second pension. They should be able to decide whether there is a more appropriate form of provision than the alternatives that are set before them. Even at this early stage perhaps the
  1158
  Government will consider producing a decision tree of this kind. Individuals can then decide whether one option would be better for them than another.
  A further dimension is required in relation to timing. One of the problems is that, as I understand it, the stakeholder pension will not be up and running until 2001. The expectation is that the state second pension will not be up and running until some five years later. Despite the noble Baroness's earlier remark about the legislative timetable, the estimate of five years after the stakeholder pension for the state second pension has been generally accepted, albeit apparently to the noble Lord's surprise. So there is also a sequential problem, as well as one of timing, about whether people should take up a particular form of provision now rather than later.
  That is important in this sense. If people defer making any provision for, say, two or three years early on in life, that has a far more dramatic effect on the actual pension that they will receive than if they were to lose the final two years of pensions contributions for simple reasons of compound interest and so on. So I hope that the Government will consider this proposal, not in a formal sense but by way of a general publication. It would certainly be more valuable than the one we discussed in relation to the first amendment by the noble Baroness, Lady Castle, which seems grossly over-priced at £5. A decision tree would give individuals a better idea of how to deal with this matter. We need to encourage people to make provision.
  Leaving compulsion on one side, it is quite apparent that in 20 years' time it is likely that a large proportion of people will still be on means-tested benefits rather than using the result of their own funded pension. We need the best information we can have and I hope that the Government will undertake to do that. I beg to move.
  Lord McIntosh of Haringey: We are very much on the same side; we are in favour of good quality and understandable information and advice. We are also in favour of decision trees. I do not know whether the noble Lord saw the Explanatory Notes to the Employment Relations Bill. For a 40-page schedule on recognition procedures, it had four decision trees. That was the only way in which I got even close to understanding what the schedule was about. So I am in favour of the format as well as the objective of what the noble Lord proposes.
  However, decision trees will not be a complete substitute for advice. We think it is right to consider whether a change in the balance between information and advice could reduce overall costs. A decision tree, together with clear supporting information, will enable many people to make an appropriate choice for themselves. But there will, inevitably be some people who, as I said—although the noble Lord did not believe it—will need more detailed, individual advice, particularly those who have already taken out a personal pension. The decision tree will direct such individuals towards taking appropriate advice.
  I understand the concerns that underlie this amendment. We made clear in the pensions Green Paper published last year that we would work with the

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  Financial Services Authority and the industry to develop appropriate arrangements for the provision of information and advice to prospective members of stakeholder pensions. We want to consider the scope and contents of the decision trees; whether there should be a single standardised decision tree; and who should be responsible for making it available and ensuring that it remains relevant and up-to-date.
  Where we part company, I am afraid, is that we are not convinced that a government department is best placed to develop and issue this information, which is what the amendment proposes. It may be more appropriate for schemes to be responsible for decision trees, as they will be able to build in tailored elements such as where individuals can go for more information. Any information the schemes provide will, of course, be subject the normal FSA regulation of marketing material to ensure that it is accurate and not misleading.
  We are seeking further views on these issues. I would not want to pre-empt the outcome of that consultation by ruling out any options at this stage. This work is going ahead, and we shall shortly be issuing a consultation paper setting out our proposals for the provision of information and advice. I hope that that will convince the noble Lord that it is right to withdraw the amendment.
  Lord Higgins: I am grateful for the sympathetic response from the Minister. I believe there is a case for it being a government publication and I am glad that the Minister is prepared not to rule it out at this stage. It is important that the Government should take some responsibility for introducing the new products and ensuring that people understand them and make the right choice between the options. "Choice" is the crucial word. Subject to that, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Clause 2 [Registration of stakeholder pension schemes]:
  Lord Higgins Lord Higgins moved Amendment No. 22:
  Page 2, line 30, at end insert—
  ("() the premiums received will provide a pension in excess of what will be provided by the minimum pension guarantee;")
  The noble Lord said: Amendment No. 22 stands in my name. Noble Lords opposite may be right in saying that it should have been grouped with some of the other amendments. I was confused because it comes in a different clause and I misunderstood your Lordships' procedures.
  The amendment proposes that the Government and the schemes should ensure that the premiums received will provide a pension in excess of what was provided by the minimum pension guarantee. Despite our earlier debates, we have not had a clear assurance from the Government that that is so. Earlier, the noble Baroness said that we would carry out calculations to give us some indication of what the term is likely to be for any given level of contributions on certain assumptions which I have undertaken to suggest to her. However, we
  1160
  are still worried that people will simply pay into the scheme and that it will turn out not to have a real pay-off because the pension which the contributions provide is less than the minimum pension guarantee. Mr Frank Field stressed that at considerable length. I would have thought that if this amendment was accepted it would ensure that that was the position. But we must be sure that it is not mis-sold, in the sense that the eventual return from the contributions is effectively zero. I beg to move.
  9.45 p.m.
  Baroness Hollis of Heigham: Amendment No. 22 adds an additional condition for the registration of stakeholder pension schemes. It would mean that for a scheme to register itself as a stakeholder scheme the trustees of the scheme (or other responsible individuals in schemes set up under any possible alternative structure) would have to declare that the contributions paid into the scheme will provide a pension, perhaps 30 years down the line, in excess of the minimum pension guarantee.
  The minimum income guarantee provides an essential fall-back for those who cannot save enough to provide themselves with a decent income in retirement. It currently provides an income of at least £75 per week for a single pensioner and £117 per week for a pensioner couple. As resources allow, we shall uprate these in line with earnings. Next April they will rise in line with earnings. Therefore, it is a decent and proper commitment to protect today's poorer pensioners, which is our immediate priority.
  We are also looking at ways to modify the rules on capital so as to reward savings. But, as I mentioned in an earlier debate—we tried to group these amendments—the minimum income guarantee is a safety net for those who cannot afford to save for retirement. In particular, the safety net is for those who now have not saved enough in work for retirement, primarily older women who have not participated in the labour force, by virtue of children and so on, compared with women today.
  Those who can save will be helped by other parts of our reforms. The new state second pension will give extra help to the lowest earners who currently receive the least from SERPS. However, moderate earners are in a position to save more than the compulsory minimum and to build up funded pensions which can lift them clear of the minimum income guarantee. These are the people to whom we want to give an opportunity to save in stakeholder schemes.
  Amendment No. 22 takes a different approach and seeks to require an undertaking from stakeholder pension schemes that they will provide a pension (unspecified) in excess of the minimum income guarantee (unspecified) in years ahead (unspecified). As I explained earlier, this raises a number of difficulties. It requires schemes to look into the future and give an undertaking that a member will receive a pension in excess of the minimum guarantee. Of course, investment returns are subject to a degree of uncertainty. There must also be some uncertainty as to the level of the

  1161
  minimum income guarantee in 40 years' time when the youngest members of stakeholder schemes will retire. I
  do not believe that this is an undertaking that we can reasonably expect schemes to give.
  The amendment also raises an issue about who is liable in the event that the scheme does not deliver the promised pension. I fear that most commercial undertakings would simply not take on the kind of open-ended commitment which is implied by the amendment. It seems to me that the practical effect of the amendment would be to force schemes to accept only members who undertook to pay a level of contributions that could be safely expected to produce a pension well in excess of the minimum income guarantee. That could restrict stakeholder pension schemes to higher earners and undermine our aim of extending good value funded pension opportunities to moderate earners. Further, the amendment does not take into account the basic state pension. Even relatively small second-tier pensions when combined with the basic pension will be enough to lift people above the minimum income guarantee. I remind the Committee that the minimum income guarantee is about £7 or £8 above the basic state pension. The amendment would effectively deny such people the opportunity to join a stakeholder pension scheme.
  We are determined to ensure that as many people as possible retire on an income above the minimum income guarantee. The amendment, however, seeks to impose what I fear would be an unworkable requirement on stakeholder pension schemes. It would ask them to speculate as to the situation in 40 years' time and accept liability if their speculation proved unfounded, and to do so on stakeholder pensions alone. No similar requirement is envisaged for other pension schemes, such as money purchase schemes. I urge the Committee to reject this amendment.
  Lord Higgins: I confess that I do not find the Minister's response reassuring, in the sense that people may find that some of the stakeholder pension schemes do not provide a level of income above the minimum income guarantee.
  I find the reply of the noble Baroness the Minister somewhat surprising because one of the earlier provisions put forward by the Government will tell people on an annual basis what pension they are likely to receive eventually. I have previously expressed surprise at that, for the very reasons that the noble Baroness has just put forward; namely, that considerable assumptions about annuity rates, investment rates and so on are required. But if indeed the noble Baroness and the Government persist in taking the view that they will forecast what pension people are likely to receive as a result of their contributions, I should have thought there would be no problem in the Government equally accepting what the amendment says.
  I remain puzzled, not least for the reasons mentioned earlier, because even over a timescale of 18 months one may well be significantly out in one's pension forecast. Therefore, if the Government continue to take the view that they will provide people with an annual statement of the pension they are likely to receive as a result of
  1162
  their contributions, I should have thought that it would not be difficult to balance that—for the individual if necessary to balance it—against the level of the minimum income guarantee.
  Baroness Hollis of Heigham: As the noble Lord will recognise from his earlier discussion about employers' liability, there is a big difference between a forecast and a guarantee. We shall be doing the usual print-out saying "Given the current level of contributions, this is what you can expect". That is very different from guaranteeing. We know about some of the situations in which Equitable Life currently finds itself over guaranteeing a return at a certain level 30 or 40 years on. We do not know what the minimum income guarantee may be.
  Lord Higgins: I shall not be tempted to go down the Equitable Life road, on which I have strong views.
  If the Minister is indeed going to take the position that she has just described, such an indication is likely to be highly misleading and of no real value. I was surprised the Government put forward that idea. The noble Baroness said that it was a forecast rather than a guarantee. It is rather like the statement on proposals for taking out pension arrangements, which says that on the assumption of a growth rate of say, 3 per cent, the pension will be so much and on the assumption of a 7 per cent growth rate it will be a different figure. No doubt this was an idea thought up by the previous Government.
  Baroness Hollis of Heigham: I do not know about the noble Lord, but certainly any private pension scheme of which I have been aware will normally give an annual statement saying what one's current level of contributions will buy, and projecting that forward. This allows people a sense of ownership of their pot of money, because it is their money. In addition, if they feel that the anticipated level of pension is inadequate, this could encourage them to put extra money into the scheme. So this is about information; it tells people what they can expect and therefore encourages them, if appropriate, to invest more. It is a useful tool. If we were not to produce such information, which private schemes regularly produce for their clients, the noble Lord would be equally critical.
  Lord Higgins: Of course, the private schemes do so on very arbitrary assumptions, and mostly assumptions which do not mean very much. As I have said, the noble Baroness may well blame the previous government for producing this scheme, but my personal view is that it is not very helpful. Perhaps we may return to this point.
  I find it almost bizarre that the Government propose to tell people what they may expect, when, as we discussed earlier, that cannot be done with a reasonable expectation of accuracy, even over a timescale of a couple of years. But, subject to that, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Clause 2 agreed to.
  Clause 3 [Duty of employers to facilitate access to stakeholder pension schemes.]
  Lord Higgins Lord Higgins moved Amendment No. 23:
  Page 3, line 24, after second ("of') insert ("10 or more")
  The noble Lord said: This is becoming something of a duologue, or perhaps a trio.
  The amendment is about the position of small businesses. In particular, we are concerned about the burden that is likely to be placed on small businesses in putting forward for their employees a specific stakeholder pension. The CBI in particular has expressed strong opposition to the proposals in the Bill which will require firms without occupational schemes to nominate a particular stakeholder pension.
  We suggest that those with fewer than 10 employees are unlikely to have the resources which are necessary to decide on behalf of their employees whether a specific scheme is good or whether it is an appropriate form of provision for retirement. Employees may feel disgruntled if it turns out to be the case that the choice the employer made has been wrong, even if the employer is not legally at fault.
  I suspect that the vast majority of smaller firms do not feel competent to judge between one scheme and another so far as concerns stakeholder pensions. The CBI has also expressed the view that it is not in the Government's interest to compel companies to put this forward and that the alternative might be that there should be a requirement simply to act as a clearing house: that the smaller employers might agree to collect the contributions but that those should then go into some more general system rather than that they have to nominate a scheme which they are ill equipped to judge. I beg to move.
  Baroness Crawley: I hope that the Minister will not take much heed of the amendment. Stakeholder pensions are designed to benefit people who work for small firms and are unlikely to have occupational pensions. Under the amendment, 84 per cent of employers would be excluded from having to give access to stakeholder pensions. Surely the more people able to become members of stakeholder pension schemes, the greater economies of scale and the better value those schemes will be. I understand that the DTI has a small business service which small business can access easily. Under that service from April 2000 there will be assistance with payroll matters, under which heading I assume that this category of pension would come.
  Lord Goodhart: I am unable to go as far as the noble Lord, Lord Higgins, on the amendment. We are concerned about the position of small businesses. Under the Tax Credits Bill, these Benches joined with the Conservative Benches to exclude from liability to pay through the wage packet the working families' tax credit. We took that view because we felt that the employees were in no way disadvantaged by it.
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  In this case the position is not the same. The employees will suffer if as a result they are denied access to stakeholder schemes. Those who will benefit from going to stakeholder schemes are those earning more than £9,000. That is a substantial sum. It is not a large wage but it is certainly more than, let us say, a part-time cleaning lady would receive.
  We cannot go the whole way and say that there should be a blanket exemption for any employer who employs fewer than 10 employees. Nevertheless, I think that there is a case for saying that those with smaller numbers may be exempted from some of the provisions in Clause 3. For instance, I see no reason why someone with two or three employers should be required to allow a representative reasonable access to the employee. It would be possible for the representative to approach the employees directly, and therefore there is a case for re-examining the clause and giving a power to modify the provisions in respect of small employers.
  There is a power to define "relative employees" which could be used to exclude employees by reference to the number employed by their employer. But that would be inappropriate and would not achieve the purpose. There is a case for saying that regulations could be allowed to modify the provisions of Clause 3 in the case of employers with fewer than 10 employees.
  10 p.m.
  Lord McIntosh of Haringey: My noble friend Lady Crawley urged me not to take heed of this amendment. I must disappoint her because I take heed of all amendments. That is what I am paid for. However, there are some difficulties with it. They are based on a misunderstanding on the meaning of "employer access" and there has been some exaggeration, not by your Lordships but in the public prints, of the burden which will be involved. Many employees are fortunate enough to work for an employer who runs an occupational pension scheme, so they have been able to join a good value pension scheme through their workplace. Employers see occupational pension schemes as a powerful tool for recruiting and retaining staff.
  For those who cannot join an occupational pension scheme, the only option has been a personal pension. But as we know, those can be costly and inflexible and shareholder pension schemes will offer a better value option. We want everyone in work to have access to a good value pension scheme through their workplace. That point was made by the noble Lord, Lord Goodhart, when he said that employees would suffer if they were excluded.
  Therefore, we have two reasons for framing the requirement on employer access; first, to help stakeholder pension schemes achieve the aim of better value provision; and, secondly, to encourage people to join the schemes. We think it is reasonable that employers should play a part in helping to make this a reality for those employees who cannot join an occupational scheme.
  We are not asking very much. Employers should provide information about a stakeholder pension scheme for employees covered by the requirement and allow

  1165
  scheme representatives access to those employees. The noble Lord suggested that that requirement might be waived for small firms. I suspect that it might not happen in any event because a number of scheme providers might consider it expensive for two or three people.
  Secondly, they should provide a facility for deductions to be paid to the scheme through the payroll arrangements. My noble friend Lady Crawley rightly reminded us that the DTI small business scheme exists and will provide payroll facilities for deductions.
  Employers who offer an occupational scheme to all their employees will not be affected. Other employers will he exempted from those requirements in relation to employees who can join an occupational scheme or those whose employees fall below the national insurance lower earnings limit. We are committed to minimising the impact on businesses and therefore in the Green Paper we invited views on whether the access requirement should be voluntary. We considered the responses we received. We shall be issuing a further consultation on our specific proposals. The Bill as it stands without the amendment would allow us to prescribe exceptions to the access requirement if it became clear that this was justified in the light of consultation or experience. I hope that that will reassure the noble Lord, Lord Goodhart.
  However, the amendment is too inflexible and too wide-ranging. It would mean that the requirement would not apply to 84 per cent of employers. Of a total of 1.2 million employers, only about 200,000 have 10 or more employees. Whereas a high proportion of those employers provide pensions, smaller employers are much less likely to offer an occupational pension. An exclusion for employers of fewer than 10 staff would leave out a disproportionate number of the very employees we are trying to reach.
  I hope the Committee will agree that we have struck a reasonable balance between the small additional burden on employers and the need to ensure wider access. I hope the noble Lord will not press the amendment.
  Lord Higgins: This has been a helpful debate. As the noble Lord, Lord Goodhart, rightly suggests, perhaps the figure of 10 is not necessarily the appropriate number of employees. The Minister and the noble Baroness, Lady Crawley, have suggested that 84 per cent of employers would be excluded on that basis.
  There are two separate issues. One concerns whether the employers should provide facilities for making contributions. Considering our discussion a few days ago on working families' tax credit, this is yet another complication with regard to the way in which the companies account for PAYE and so on. The burdens are, yet again, placed upon small businesses by the Government, but one can understand why they believe that it is appropriate that that should be so.
  The second question is that of selecting a stakeholder scheme. If there are only three employees, it is debatable whether they are in as good a position to make the decision as the company, which may involve, at most,
  1166
  one or two people. At this stage it becomes a personal matter, rather than a matter for a company as such. The employee and the employer are probably equally qualified to make a choice.
  There is also the question of the extent to which—
  Lord McIntosh of Haringey: The only argument for the employer making the choice is that, if he makes the selection and offers that to the employees, he will make deductions for one scheme only, whereas if three employees choose different schemes the employer would have to make deductions on behalf of three schemes, which would be more complicated.
  Lord Higgins: I am not suggesting that if there are three employees and two employers they could all choose different schemes. That would be pretty unlikely., as I believe the Minister would accept. However, the question is how much variation there will be in the schemes. Given the tight way in which the proposal is circumscribed, it is difficult to see how they will be greatly differentiated, or indeed why the employer should select one rather than another. There will not be many schemes offering the provision of the product at less than 1 per cent on the costs and presumably they will be much the same. I leave on one side trustee schemes involving trade unions and so on. Presumably the small employer will have a certain number of providers who will say that they can make the schemes pay at the level of charges that the Government impose. To what extent the products will be differentiated is difficult to see. The well known system of sticking a pin in a list of names may as well be used.
  Lord McIntosh of Haringey: Good capitalist competition will mean that many will beat the minimum conditions set out in our consultation paper and, therefore, there will be real competition.
  Lord Higgins: In deference to the noble Lords, Lord Peston and Lord Desai, I shall not go into economists' views on perfect competition. As the noble Lord has described, in the circumstances they very often come up with the business.
  On a serious level, it will be difficult for employers to make a choice. Subject to that, I beg leave to withdraw the amendment. I may want to return to the point made by the noble Lord, Lord Goodhart. There is probably a minimum level at which stage it becomes absurd, other than in the context of collecting the contributions.
  Amendment, by leave, withdrawn.
  Lord Higgins Lord Higgins moved Amendment No. 24:
  Page 3, line 25, at end insert ("but an employer shall in no way be responsible for any consequences which result from the failure or performance of an authorised stakeholder scheme")
  The noble Lord said: We have already stressed the difficulty which employers may face in deciding which scheme to go along with. But what is clearly the case is that the employer ought not to be held legally responsible for what happens, either with regard to a specific stakeholder scheme failing—I presume that is

  1167
  not totally impossible because such schemes are not subject to the kind of provisions to which some occupational schemes are subject—or its performance. It may be that the employee feels that the scheme that has been recommended has not performed in the way expected. Therefore, to exonerate employers from the consequences of having been compelled by the Government to choose one scheme rather than another, we ought at least to give them the protection which this amendment seeks to give. I beg to move.
  Lord McIntosh of Haringey: I do not like the noble Lord's arguments, but I have some sympathy with his amendment.
  I want to make it absolutely clear that Clause 3 imposes no duty on employers to designate a scheme which performs to any particular standard or to investigate a scheme before designating it. The duty is simply to select a scheme from the register and offer access to it in the way set out in Clause 3. An employer could, of course, choose to do more than this; for example, by meeting scheme representatives or consulting league tables.
  An employer might become liable if he misinformed his employees about the designated scheme or misled them. Any such liability would arise under the general law of negligence—as it would at present, for example, if he made any misleading statements about a group personal pension. It would certainly be sensible for employers to make clear to their employees what they are and are not doing in designating a scheme; that is, that they are not recommending it, offering advice about it or any guarantees about its performance. In addition, we hope that employers will take some action, perhaps by notifying the Occupational Pensions Regulatory Authority or informing their employees, if they discover a serious problem with the designated scheme. Such actions would be both proper and prudent.
  Notwithstanding this, concerns are still being expressed about employer liability. The amendment therefore seeks to include a statement on the face of the Bill making clear the intention that employers should not be liable for the performance of their designated scheme. I am pleased to say that we will consider whether it would be possible to include such a statement to the effect that Clause 3 is not to be construed as imposing any duty on employers in relation to the performance of their designated scheme. I hope that that positive response will by itself encourage the noble Lord to withdraw his amendment.
  However, by expressly including one duty, we do not wish to suggest that others may be implied, even though they are not apparent on the face of the Bill; nor do we intend to exempt employers from their general liability for negligence or breach of contract. So, we shall have to consider carefully whether it is feasible to include such a statement in the Bill and, if so, how it should be worded. I should therefore like to consider the principle embodied in the amendment and I give my assurance that we shall do so. We are taking further legal advice
  1168
  on the issue. In the light of that assurance, I hope that the noble Lord, Lord Higgins, will feel able to withdraw the amendment.
  Lord Higgins: That is assurance number two, so we are making rapid progress. It was a helpful remark. The Government recognise that it is particularly unfair for employers to have to take on responsibility for the results of any particular provider of a stakeholder pension which, in effect, the Government are forcing them to recommend. We therefore look forward to seeing the form of words the Government produce at a later stage and hope that that will be enough to meet the point. I am grateful to the Minister for his remarks and beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 25 not moved.]
  The Deputy Chairman of Committees (Viscount Simon): Before calling Amendment No. 26, I should point out to the Committee that if it is agreed to, I cannot call Amendments Nos. 27 and 28.
  10.15 p.m.
  Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 26:
  Page 3, line 26, leave out from ("shall") to end of line 29 and insert ("ensure that at all times there is at least one scheme designated by him for the purposes of this subsection which is registered under section 2 and offers membership to all his relevant employees (whether or not any other scheme registered under that section which does not offer membership to all those employees is for the time being designated by him for those purposes).
  Before designating a scheme for the purposes of this subsection the employer shall consult with his relevant employees and any organisations representing them.")
  The noble Lord said: In moving this amendment, I shall speak also to government Amendments Nos. 30 and 34. I shall also give the noble Lord, Lord Higgins, an opportunity to speak to Amendment No. 27, to which I shall then respond.
  Amendment No. 26 makes is clear that an employer can ensure that "at all times" he has designated a scheme which is registered as a stakeholder scheme. That means that employers will be expected to check from time to time that the designated scheme remains on the register. We do not intend that this should impose an unrealistic expectation on employers that they should respond instantly when a scheme is removed from the register. We do not expect the "de-registering" of a scheme to be a common occurrence.
  Amendment No. 30 introduces a fifth requirement on employers, although, again, this is simply a clarification of what was originally intended. The amendment makes it explicit that an employer should withdraw his designation of a scheme if it ceases at any time to be registered as a stakeholder scheme. He would then be required to designate a new scheme. This will avoid a situation where a scheme which had lost its stakeholder status continued to be an employer's designated scheme; that would mislead employees. Amendment No. 34

  1169
  simply changes the wording of the definition of a designated scheme, as set out in Clause 8, to make it consistent with the new drafting in Clause 3(2).
  As I have explained, these amendments do not represent a change in the way we intend the requirement on employers to work. The amendments simply make it clear that an employer who is required to designate a scheme should make sure that it is, and continues to be, registered as a stakeholder scheme; and that if it is removed from the register, he must withdraw his designation of that scheme. This will ensure that employees have continuing access to a stakeholder pension scheme.
  We want to ensure that we strike the right balance between minimising costs to business and ensuring flexibility for scheme members. We intend to use regulations to ensure that these amendments do not place an unreasonable burden on employers; for example, the powers in Clause 3(1) can be used to give employers a reasonable period in which to recognise that a scheme had been deregistered and to find and designate a new scheme.
  We are committed to consulting further with employers' representatives and the pensions industry on the details of the requirement. Our consultation document on this will be issued shortly. I commend the amendments to the Committee. I beg to move.
  Lord Higgins: The Minister has set out the reasons for the Government's amendments, which, on the whole, would seem to be sensible with regard to the situation where a designated scheme ceases to be designated. To that extent, I think that those amendments are appropriate. As regards Amendment No. 27, I do not propose to move it at this stage. Nevertheless, it deals with a point that we may wish to consider further.
  On Question, amendment agreed to.
  [Amendments Nos. 27 to 29 not moved.]
  Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 30:
  Page 3, line 46, at end insert—
  ("() The fifth requirement is that the employer shall, if any scheme designated by him for the purposes of subsection (2) ceases to be registered under section 2, withdraw his designation of the scheme (but this requirement is not to be taken as implying that he cannot withdraw his designation of a scheme in other circumstances).")
  On Question, amendment agreed to.
  [Amendment No. 31 not moved.]
  Clause 3, as amended, agreed to.
  Clauses 4 to 6 agreed to.
  Schedule 1 agreed to.
  Clause 7 [Reduced rates of contributions etc: power to specify different percentages]:
  [Amendments Nos. 32 and 33 not moved.]
  On Question, Whether Clause 7 shall stand part of the Bill?
  Lord Higgins: This clause is concerned with reduced rates of contributions and so on. This is a complicated
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  issue, and I have not tabled any specific amendment to focus discussion on it at this stage. However, I think it would be helpful if perhaps the Minister could outline precisely what the intention is as regards reducing the rates of contribution and altering the percentages in particular places.
  We shall of course come to some very complicated clauses later in the Bill with regard to contributions, but perhaps the Minister could outline what she has in mind for the purposes of this clause.
  Baroness Hollis of Heigham: I am happy to do that. Clause 7 sets out the treatment of national insurance contributions for the members of stakeholder pension schemes. As your Lordships will be aware. pension scheme members who have contracted out of SERPS are liable for a lower rate of national insurance contributions. The way in which this happens in practice varies according to the type of scheme. Some members pay a lower rate of contribution; others pay the normal rate but have part of their contributions related to the scheme; some schemes contain an element of both. For simplicity, I propose to refer here simply to "rebates". although the mechanisms will vary according to the type of scheme.
  Stakeholder pension schemes will fall in legislative terms into one of the two existing general categories of pension schemes. They will be either occupational pension stakeholder schemes or personal pension stakeholder schemes. As a result, much of the existing legislation for contracting-out will apply to them automatically. So there is already provision in the Pension Schemes Act 1993 about the arrangements for contracting-out and for rebates to be paid. But existing legislation only provides for a rate of rebate to apply to money purchase occupational schemes and a separate rate of rebate to apply to personal pension schemes. Both may vary with age. It does not, of course, currently make further separate provision for stakeholder schemes as these are a new development.
  This clause provides a power to set different rebates for stakeholder schemes. Rebate rates are set by the Secretary of State in the light of advice from the Government Actuary. The rates of rebate reflect the cost to the scheme of providing benefits to the value of the state benefit forgone by contracting-out. The Government Actuary takes into account, among other things, the expense level of schemes since these affect the cost of providing an equivalent benefit to that which has been given up.
  The clause would enable a different rate of rebate to be set for stakeholder pension schemes if it should be appropriate to do so. The presence of this power does not mean that we necessarily intend to set different rebates. Decisions on rebate rates for stakeholder pension schemes will be taken later. We expect to lay the appropriate orders by April 2000, a year in advance of their introduction, as is required under existing legislation. But the clause ensures that a different rate could be set for stakeholder pension schemes if it was judged necessary and desirable to do so. Should this be appropriate, the clause also allows different rebate rates

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  to be set for personal pensions, whether or not they qualify as stakeholder pensions, according to when the member joined the scheme.
  Clause 6 provides an important flexibility for setting rebate rates in the future. Its powers may not always need to be used in practice but it is prudent to include them here to allow the most effective use to be made of significant public resources in the form of national insurance rebates.
  Lord Higgins: The Committee will be grateful to the noble Baroness for that explanation. As I understand it, the clause is essentially a precautionary clause to enable the Government to alter the rates of contributions. However, I wonder whether the Minister could clarify the relationship between that clause and the ones that appear much later in the Bill, in particular Clauses 68, 69, 72 and 73 which are concerned with contribution rates.
  I am not quite clear why the provisions of Clause 7 appear at this stage in the Bill rather than later. This is a rather complicated matter. Last year when the Government—wrongly, in our view—altered the rules in relation to advance corporation tax there were implications for rebates and contribution rates which had the rather perverse effect of encouraging people to move from personal pensions back into SERPS, which the Government did not intend.
  I seek to understand this issue. As I say, it is not a simple one. I seek to understand what will be the effect of changing these rates of contribution to enable the Government to set reduced rates. I am not clear about the relationship between this provision and later clauses which mention other contributions by employees. However, that may be due to my ignorance of the matter. Nevertheless, I still have some difficulty in ascertaining exactly what the Government have in mind.
  Baroness Hollis of Heigham: There is no connection at all between these issues. However, if the noble Lord has further worries on the matter and he wishes to write to me, I shall be happy to write back in greater detail. However, as I say, these are unconnected issues.
  Clause 7 agreed to.
  Clause 8 [Interpretation and application of Part I]:
  Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 34:
  Page 6, line 8, leave out ("under") and insert ("for the purposes of")
  The noble Lord said: This was spoken to with Amendment No. 26. I beg to move.
  On Question, amendment agreed to.
  Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 35:
  Page 6, line 16, at end insert—
  ("() The Secretary of State may by regulations make provision for a stakeholder pension scheme which—

  (a) is of a prescribed description, and

  (b) would (apart from the regulations) be an occupational pension scheme,

  to be treated for all purposes, or for such purposes as may be prescribed, as if it were a personal pension scheme and not an occupational pension scheme.")
  The noble Baroness said: This is a technical amendment that clarifies the definition of a stakeholder pension scheme. It will ensure that the appropriate provisions of existing pensions legislation are applied to stakeholder pension schemes. In particular, it will ensure that occupational pensions scheme legislation will apply to stakeholder pension schemes only where appropriate.
  Stakeholder pension schemes will fall, in legislative terms, into one of the two existing general categories of pension scheme. They will be either occupational pension stakeholder schemes or personal pension stakeholder schemes. As a result, much of the existing respective legislative arrangements will apply.
  Public discussion has tended to focus on personal pension stakeholder pension schemes. But, as I have explained, the Bill also allows for employers who would like to offer a stakeholder pension scheme as part of their occupational pension arrangements to do so. They will be able to set up their own stakeholder scheme if they wish to, rather than rely on an external scheme. However, these arrangements will apply only to "traditional" occupational pension schemes.
  There is a slight possibility that, because of the way in which a stakeholder scheme has been set up, it could fall under the definition of an occupational pension scheme under the Pension Schemes Act 1993, even though it was not set up, or funded, by any employer. This might arise, for example, where a scheme was restricted to persons in particular types of employment. There is a risk that in these cases legislation appropriate only to schemes sponsored by employers might apply. In particular, employers of those who joined such a scheme might find themselves unnecessarily caught by that regulation.
  We want to make sure that in such cases the appropriate legislation is applied. It would not be right, for example, for employers in such circumstances to have to be consulted in relation to the scheme's statements of investment principles, as is required by Section 35 of the 1995 Act; nor do we intend, in such circumstances, that employers should have any role where trustees modify scheme rules, as in Section 68.
  I should stress, however, that all trust-based stakeholder schemes will be subject to appropriate regulation and supervision by OPRA by virtue of Schedule 1. This amendment will not change that.
  As I say, this is a highly technical but clarifying amendment. I commend it to the Committee. I beg to move.
  Lord Higgins: The noble Baroness is right in saying that this is a technical amendment. However, on hearing her comments on the amendment, my initial feeling is that it is an appropriate amendment for the Committee to accept. It appears that a stakeholder scheme may inadvertently become an occupational pension scheme. An example could be where a group of employees in a particular profession all have a similar stakeholder scheme. That would be regarded, in some sense, as an occupational scheme, with the consequences outlined by the noble Baroness.

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  Obviously very different considerations need to be taken into account so far as concerns occupational schemes as against stakeholder schemes. The provisions of the previous pension Act, which were introduced post-Maxwell, were extremely stringent. OPRA also imposes very important restrictions and regulations on those operating in occupational schemes. It would not seem appropriate, in general, for those to apply to a stakeholder scheme. On the other hand, as the noble Baroness pointed out, trustee stakeholder schemes will require regulation which is not appropriate to a stakeholder scheme run, for example, by an insurance company.
  Following the debates today, we still have a certain lack of clarity between schemes which are trustee schemes and ones which are not. Can the Minister say what provisions she has in mind for trustee schemes? Clearly, the full range of requirements imposed on occupational schemes would not be appropriate. For example, as she has rightly pointed out, they will not be required to produce a provision for investment principles. With occupational schemes, it takes a long while to work out what the investment principle should be and to submit it to the appropriate authority, and so on. At least the Minister has suggested that that is the position.
  Presumably, a stakeholder scheme which has trustees will require some regulation as far as concerns its investment principles. Can the Minister say to what extent the trustee stakeholder schemes will have the same regulations as occupational schemes, and to what extent they will not?
  10.30 p.m.
  Baroness Hollis of Heigham: I shall have to write to the noble Lord on the detail. I think perhaps he may be missing the purpose of the amendment; that is not what the amendment does. He has raised perfectly legitimate questions, but not ones generated by the amendment. If he will allow me, I shall write to him on the particular points about trustee responsibility.
  Perhaps I may expand and make this clear. The proposed amendment will ensure that the occupational pension scheme regulation will apply to stakeholder pension schemes only where appropriate. Perhaps I may give an example, which I possibly should have done in my speech. A stakeholder pension scheme might be set up for persons in a particular form of employment—a scheme for plumbers, a scheme for hairdressers or whatever. That scheme may not be set up or funded by any employer as an occupational scheme would be. We do not want that occupational pension scheme regulation with respect to employers' duties to apply in these cases. It would not be appropriate in these circumstances, for example, for employers to have to be consulted about the investment principles or to have any role where trustees modify the scheme rules. I do not know whether that helps the noble Lord, but that is what we are doing with the amendment.
  Lord Higgins: I think I have understood it correctly. The Minister gave an example of hairdressers or whatever. Clearly, a stakeholder scheme covering,
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  generically, hairdressers does not have an employer; the hairdressers are either self-employed or employed by some boutique or whatever.
  Baroness Hollis of Heigham: It could be a network of small businesses.
  Lord Higgins: It could be a network of small businesses, as the noble Baroness rightly said from a sedentary position. None the less, presumably the trustees will have some responsibilities. It would seem appropriate for those to be well defined. If I understand correctly, the Government are not yet clear about what regulations will be imposed on trustee schemes which were not imposed on schemes operated by. say, an insurance company. Can the Minister give some indication of when such regulations are likely to arrive? They will be quite important to the operation of a trustee-based scheme because the whole structure of that part of the scheme will depend on what frame work the Government establish.
  Baroness Hollis of Heigham: The noble Lord asked what will be the governance requirements of trust-based schemes. Trust-based stakeholder schemes will be regulated under the 1995 Act by virtue of Schedule 1 to the Bill, where the detail is laid out.
  On Question, amendment agreed to.
  Clause 8, as amended, agreed to.
  Clause 9 [Monitoring of employers' payments to personal pension schemes]:
  Lord Higgins Lord Higgins moved Amendment No. 36:
  Page 7, leave out lines 13 and 14
  The noble Lord said: The purpose of Clause 9 is to establish general rules with regard to payments by employers to pension schemes. If I understand it correctly, that is outwith the whole of the stakeholder pension scheme structure. We are seeking to establish rules for monitoring employers' payments to personal pension schemes. I am not an expert in personal pension schemes as against occupational pension schemes. But this would appear to be a new set of provisions which the Government feel are now necessary despite the fact that an extensive pensions Act was passed only a comparatively short time ago.
  In this clause the Government are saying that employers,
  "must secure that there is prepared, maintained and from time to time revised a record of the direct payment arrangements which complies with subsection (4)",
  and that the record must, on the one hand, show the rates and due dates of contributions payable under the arrangements and, on the other, "satisfy prescribed requirements". The purpose of the amendment is to delete paragraph (b) and the words "satisfy prescribed requirements".
  One becomes increasingly worried about the tendency for "prescribed requirements". They seem to turn up on every conceivable occasion and in every conceivable clause. As this is a new proposal, can the noble Baroness

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  indicate what "prescribed requirements" the Government have in mind for which they wish to take powers to make secondary legislation?
  Lord McIntosh of Haringey: Clause 9 covers direct payment arrangements, where an employer pays a deduction from an employee's salary, or sometimes an extra contribution, direct to the personal pension. We strongly support such arrangements because they provide for certainty of payment and a steady build up of pension. They are particularly welcome, of course, where the employer is also making a contribution. However, we recognise that there need to be safeguards to protect the employee's interests.
  There is already a body of rules which governs the timely payment of contributions to occupational pension schemes, with which the noble Lord, Lord Higgins, as he acknowledges, is more familiar. Clause 9 seeks to put employer payments to personal pensions on broadly the same footing.
  Amendment No. 36 would modify subsection (4) of Clause 9, which deals with the record that employers must set up showing details of their direct payment arrangements. The record is the agreement between employer and employee about what is to be paid to the personal pension provider and when it is to be paid. It will also be the means by which the personal pension provider will monitor the payments to ensure that they are made on time. Subsection (4) provides that the record must show the rates of payment and the due dates by which payments are to be made and contains a regulation-making power which will allow for additional features of the record to be prescribed. The amendment would strike that out.
  The Government share the concern about burdens on employers. We intend to make the requirements on employers in this area as simple and as straightforward as possible. But in drawing up requirements in this area we must keep in sight the primary purpose of the arrangement that personal pension providers must be able to monitor in a straightforward way that payments have been received on time. We have to take account of providers' views on this issue. We shall be talking to them about it. The regulation-making power will allow for flexibility to take account of the different ways in which employers and providers do business.
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  We have already recognised one requirement as relevant to regulations. That arises where both the employer and the employee are contributing to the personal pension. The requirement will be that the record shall show separately the employer and employee rates of contribution. We have to distinguish, because it will be possible to have different due dates for employee and employer contributions. Separating the employer and employee contributions in that way is not new. Employers already do it for the purposes of tax relief. Tax relief on the employees' contributions is claimed directly from the Inland Revenue by the provider, so the provider needs to know the amount that represents employee contributions.
  The additional requirements will not be onerous. That would not be in anyone's interests. We shall be consulting on the regulations and will listen carefully to the responses. But in order to protect the members of personal pension schemes and offer them the same safeguards—I emphasise that point—as already apply for occupational schemes, we need to set up workable monitoring arrangements. The amendment would damage that. I urge the noble Lord to withdraw it.
  Lord Higgins: In the light of the Minister's comments, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Clause 9 agreed to.
  Clause 10 [Late payments by employers to occupational pension schemes]:
  [Amendment No. 37 not moved.]
  Clause 10 agreed to.
  Lord McIntosh of Haringey: I beg to move that the House do now resume.
  Moved accordingly, and, on Question, Motion agreed to.
  House resumed.

  Baxi Partnership Limited Trusts Bill [H.L.]
  Bill reported from the Unopposed Bill Committee with amendments.
  House adjourned at nineteen minutes before eleven o'clock.