HL Deb 15 May 2000 vol 613 cc104-70

8.41 p.m.

House again in Committee on Schedule 4.

Baroness Turner of Camden

moved Amendment No. 125: Page 103, line 19, leave out from ("LET") to ("20") in line 21. The noble Baroness said: In moving this amendment, I wish to speak also to Amendment No. 126 with which Amendment No. 125 has been grouped. The Government propose that the state second pension, instead of being 20 per cent of earnings above the lower earnings level, should be 40 per cent of earnings up to £9,500 but only 10 per cent of earnings between £9,500 and £21,600. Raising the accrual rate to 40 per cent on the bottom slice of earnings is a positive step to help the low paid. In fact it would be even better if the Government would do what I should like them to do and restore the earnings link for basic pensions. That really would lift the low paid right out of poverty.

Nevertheless, I accept that what the Government are proposing is designed specifically to help the lowest paid and in that respect they are to be applauded. But reducing the accrual rate to 10 per cent on the middle slice of earnings is an unnecessary complication and perpetuates for all except the very low paid the cuts in SERPS which were made by previous governments. Do the Government think that people earning between £9,500 and £21,600 are somehow well off? I really do not think that that can be the case.

The effect of the amendment would be that the accrual rate on all earnings above £9,500 would remain, as now, at 25 reducing to 20 per cent over the next 10 years. That would be fairer to the bulk of people earning between £9,500 and £21,600 who are not well off and are very moderate earners by any criteria. I hope that the Government will be prepared to look with some favour on the proposed amendment. I beg to move.

Baroness Hollis of Heigham

Amendments Nos. 125 and 126 seek to change the rates at which entitlement to state second pension will be accrued for different bands of earnings. The accrual rates are set out in Schedule 4 to the Bill. These amendments would increase the accrual rate on all earnings above £9,500 from 10 per cent to 20 per cent. That would mean that not only would moderate earners be even better off under the state second pension than under our proposals—without the benefits tapering off as someone moves further up the earnings scale—but also higher earners would be considerably better off. Our proposals mean that those earning between the annual lower earnings limit and £9,500 will be treated as if they had earned £9,500. They will receive more than twice the amount that they would have received from SERPS.

Moderate earners—those earning up to £21,600 a year —will also receive more from the state second pension, despite the 10 per cent accrual rate on their second band of earnings. Those earning from £21,600 up to £26,000—the current upper earnings limit—will receive the same as they would have done from SERPS. The formulae for setting the two bands of earnings above £9,500 are designed to achieve this. In effect, the formulae work by clawing back the extra accrued on the first £9,500 of earnings from those who earn more. But it does this progressively on earnings in hand 2. So someone will need to earn £21,600 upwards before they cease to benefit from the boost of the lower earnings threshold—the boost from the accrual rate of 40 per cent on the first £9,500 of their earnings. The lower someone's earnings are, the more they will benefit proportionately. We believe that this is the right focus of resources.

The amendments would mean that everyone would be given more in state second pension than they would have received from SERPS. Moderate earners would further benefit from the higher accrual rate on earnings between £9,500 and £21,600. But also, because there would be no claw-hack to offset the doubling of the accrual rate on earnings up to £9,500, higher earners would also get more under state second pension than they currently do under SERPS, regardless of their earnings.

As a result of the amendments, someone earning over £26,000 would get 27 per cent more than under our proposals for state second pension while a moderate earner on £15,000 would get an extra 18.5 per cent. But low earners would not be any better off. In addition, any change to accrual rates would need to be reflected in the rebate arrangements, to prevent people from having an incentive to opt back into the state scheme. That further adds to the cost.

The formula is specifically intended to give a significant boost to low earners together with gains for all moderate earners while maintaining the position of higher earners. We believe that this strikes the right balance. As a result of that, I hope that my noble friend will agree to withdraw her amendment.

Baroness Turner of Camden

I thank my noble friend for her comprehensive explanation of the Government's position. However, she said that my amendment would not give extra benefit to higher earners. I thought t was the Government's intention that higher earners would not be in the second state pension tier at all but would be encouraged on to the private market. In most cases, I would imagine, people earning over £21,500 would, when the pension package is fully operative, either be in stakeholder or in occupational pensions. We are talking only about people on very moderate earnings—between £9,500 and £21,600—since the others are most likely to be catered for by the private market. I do not entirely support what my noble friend has said but I do not intend to divide the Committee at this point. I shall look at the matter again when we come to the Report stage. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 126 not moved.]

Baroness Turner of Camden

moved Amendment No. 127: Page 103. line 30, leave out sub-paragraph (5). The noble Baroness said: This amendment is grouped with Amendments Nos. 129, 130 and 131. The December 1998 Green Paper proposed that the state second pension should become flat rate five years after the introduction of stakeholder schemes—that is, in around 2006. Clause 35(14) would allow the second appointed year to be any year from 2004 onwards. The amendment would ensure that it could not be earlier than 2006–07.

Amendment No. 131 would make an order providing that either the first or second appointed year would be subjected to the affirmative procedure in both Houses.

As I said earlier, in my view the flat-rate second tier pension is really just a top-up on an inadequate basic state pension. When it becomes flat-rate, people on very moderate incomes will be pushed towards the private sector. As we have heard earlier, that is the Government's real intention. This is no doubt part of the Government's desire to reverse the present 60:40 balance between state and private pension provision.

The Government are doing much to provide better value from private pensions. Arrangements are to be put in hand pushing down charges and setting standards. That is to be welcomed. But people still face the greater risks represented by money purchase arrangements available through stakeholder provision.

I am unhappy about the pressure that will be applied to people with very modest incomes to take the risk of going on to the private market. What about the position of people with earnings that vary up and down around the £9,500 threshold? Would it make sense for them to switch between the state second tier pension and the stakeholder pension each time one or the other seems to offer better value? Switching to a flat-rate second tier pension needs careful consideration; it certainly needs scrutiny by both Houses of Parliament. I beg to move.

The Deputy Chairman of Committees (Lord Skelmersdale)

If this amendment is agreed to, I cannot call Amendment No. 128.

Baroness Hollis of Heigham

This group of amendments concerns the introduction of the state second pension and movement to stage 2 of the scheme.

Amendment No. 127 would delete the power to bring in stage 2 of the state second pension and so would mean missing the opportunity to help moderate earners shift into funded schemes.

Amendment No. 129 would include on the face of the Bill an undertaking that the second stage would not be introduced before the 2006–07 tax year.

Amendments Nos. 130 and 131 would subject the order which will set the date of implementation for state second pension to parliamentary debate. It would also make the setting of the start date for the second stage of the state second pension automatically subject to debate in both Houses of Parliament.

It may be helpful if I remind the Committee about what we are seeking to do. We are trying to encourage those who can to make provision for their retirement through the introduction of stakeholder pension schemes. These are due to start in 2001. But we accept that it will take some time for these schemes to establish themselves and for people to move out of the state scheme into such funded pensions.

I do not believe that it is right to wait for that to happen before we start to help those for whom a funded scheme is not an option. That is why we are reforming SERPS by introducing the state second pension, which will provide help to low earners, carers and long-term disabled people with broken work records. We want to introduce that as soon as possible.

The introduction of the state second pension is at the heart of our pension reforms. As a result, it will help those who need it and reduce the number of people who are dependent on the minimum income guarantee. We want as many people as possible to retire on income above that, but it takes time to build it up. That is why it is important that the scheme is implemented as soon as is realistically possible.

Once we have parliamentary approval for the legislation underpinning these reforms to SERPS, we shall concentrate on ensuring that the necessary administrative procedures are in place to enable an early delivery date. As I have said, we believe it is right to encourage those who can to provide for their own pensions through stakeholder schemes. When stakeholder schemes have become established, we shall encourage those moderate to high earners who have a significant part of their working life ahead of them to contract out of the state scheme. We shall encourage them to build up their own funded pension provision, perhaps through stakeholder schemes, for which they will receive an earnings related national insurance rebate paid into their pension fund.

We expect stakeholder pensions to be most suitable for people earning between £9,500 and £20,000 a year. However, carers and disabled people who are out of the labour market are unlikely to be in a position to invest in them, and most people earning less than £9,500 are likely to find that their income is too low for them to save more for their retirement, which is why we need S2P.

Stage 2 of S2P will provide that extra help by further focusing resources on those who need help most. The state second pension will become a flat-rate scheme in which anyone who remains within the scheme will be treated as if they earned £9,500 or whatever the lower earnings threshold is at that time. That means that low earners, carers and long-term disabled people will continue to be considerably better off than under SERPS, but it means that higher earners will no longer, as at present, get the earnings related advantage that they do in stage 1.

As I have explained, the scheme will continue to be earnings related for moderate and higher earners who are contracted out. That will encourage them to provide for their own retirement by means of a funded pension scheme but it will not be compulsory for anyone to opt out. We do not think it prudent to go on to a flat-rate state second pension scheme in one stage. It would cause significant disruption at a time when alternative forms of provision are still in their infancy. We believe that we need to be sure that stakeholder pension schemes have become well established and that moderate earners—that is, the group earning £9,500 to £20,000—have access to low-cost, flexible, funded, safe schemes before we make such a move. We do not believe that it would be responsible to set an arbitrary date now, as Amendment No. 129 would do. It is more prudent to wait and assess when the time is right to make the transition. That will be done in consultation with the organisations concerned. I cannot give the noble Lord any more information than that, but I shall no doubt try!

Lord Higgins

I hope that the noble Baroness can clarify one point. Is it the case that stage 1 of the state second pension could begin before the stakeholder scheme. Can it come in ahead of stakeholder pensions being introduced? If not, why not?

Baroness Hollis of Heigham

I do not see how it could. The state second pension has already been carried by the Bill that we debated last summer. The provision is already 12 months ahead. Secondly, in consultation with the industry we have obtained very clear agreement as to how we should proceed. It would be quite wrong now to hold back stakeholder schemes for another year in order to bed down the state second pension. It seems better to allow the arrangements negotiated with the industry to proceed. I believe that the noble Lord wishes to intervene.

Lord Higgins

I was not suggesting that the stakeholder scheme should be delayed. I was asking whether it would be possible for the state second pension to begin ahead of the stakeholder scheme. The noble Baroness said that that was clone in previous legislation. We are dealing with that legislation now. Why is it not possible to begin stage 1 of the stakeholder scheme immediately?

Baroness Hollis of Heigham

I have never known any social security legislation in relation to which it was expected that the new scheme would be started the day after. For example, it is necessary to migrate current information, to make sure that the IT systems are robust, to do complicated assessments, particularly if we want to meet our undertakings to give out statements of information to people.

If the noble Lord is simply asking why we are waiting a year or so as opposed to introducing the scheme right away, it is a complex and important new scheme. We need to make sure that the IT arrangements, the calculations and the migration of clean data go through. I cannot conceive of any scheme, even a simple one, that one would expect to start the day after the Bill had received parliamentary approval.

Our difficulty, on which the noble Lord has pressed me and which is an honourable difficulty, is that we cannot give a precise timetable as to when we move from stage 1 to stage 2. That is precisely because we want to be sure that, if we are encouraging people to move into the private funded market, we want to make sure that good, safe, cheap private funded provisions—that is, the stakeholder provisions—are properly available and performing to their CAT benchmarks. That is why we do not want to be more precise and why I cannot help the noble Lord beyond that. Obviously, that will be done in discussion with the industry. We need to know the number of stakeholder pension providers. We need to look at the numbers taking out such a pension and the level of security provided. As a guide, we have said that we think it may be about five years after the introduction of stakeholder pension schemes, which, if they are introduced in April 2001 (10 months away) would be from April 2006.

Our proposal to move to the second stage when stakeholder pension schemes are established and conditions are right, is designed to give us the flexibility to make sure that we have a strong incentive to offer to moderate and higher earners a move to funded schemes while the state scheme focuses, as my noble friend recognised, on those least able to provide for themselves. Amendment No. 127 would deny the Government that flexibility.

Amendment No. 129 is in keeping with the Government's thinking on the timing of moving to the second stage of the state second pension. While I do not believe that the face of the Bill is the right place to make such provision, I agree that noble Lords will require the necessary information to decide whether stakeholder pension schemes are properly established.

Amendments Nos. 130 and 131 would subject the commencement orders, which set the dates for the introduction of the first and second stages of the state second pension, to parliamentary debate. The Bill provides that the orders making these appointments should not be subject to parliamentary debate. The order-making procedure is very similar to commencement orders, which are not usually subject to the affirmative or negative procedures of Parliament. We have, however, said quite clearly that we shall not move to the second stage until we are sure that the time is right. Therefore, a decision will be taken later as to the date on which we shall move to the second stage. I am happy to repeat the undertaking that before we do that we shall supply the necessary information to both Houses when the time comes. If at that time your Lordships should seek further parliamentary debate or scrutiny, you will be free to do so. I hope that on that basis my noble friend is able to withdraw her amendment.

9 p.m.

Baroness Turner of Camden

I thank my noble friend for her response. I remain very concerned about the change to the flat rate provision. As I said earlier, it appears to be part of government policy—it has been confirmed by the response of my noble friend—to encourage people to move away from public and into private provision. When the Minister referred to the necessity to get people to provide for their retirement, she made it clear that that provision was in the view of government to be via the private market rather than contributions to any kind of public scheme. I am not happy with that. On the other hand, I am glad that my noble friend is able to give the Committee an assurance that there will be a full opportunity in both Houses for scrutiny when the Government decide eventually to move towards flat rate provision for the second stage pension. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Astor of Hever

moved Amendment No. 128: Page 103, line 34, at end insert— ("(5A) Sub-paragraph (5) shall not apply to those working for companies with fewer than five employees."). The noble Lord said: Amendment No. 128 proposes that stage 1 of S2P be kept for those working for companies with fewer than five employees. This will ensure that in the event that they are missed by stakeholder pensions, they will have access to some earnings-related provision and will be less likely to be forced into reliance on the minimum income guarantee when they reach retirement. Under the current provisions such employees will be at risk from the gap in pensions coverage that arises from their exemption by the Government from stakeholder pensions. I recall this point being debated during the passage of the Welfare Reform and Pensions Act last year which first introduced stakeholder pensions.

There must be a risk that an employee of a small company may be missed by stakeholder pension providers. In that case he would be in a bad position if he earned more than £9,500. He would be poorly rewarded by stage 2 of S2P and at some levels of income would be significantly worse off than would have been the case under SERPS. This affects a sizeable proportion of the population. Sole traders make up 64 per cent of all businesses and account for 12.7 per cent of employment. Those with one to four employees make up 25 per cent of all businesses and account for 10.9 per cent of employment. We on this side of the Committee believe that this is a measured and sensible amendment that understands the burdens on small business but also ensures that there is effective pension coverage for a large number of the working population who would be at some risk under the Bill. I beg to move.

Lord Goodhart

We on these Benches co-operated with the noble Lord, Lord Higgins, and the noble Lord, Lord Astor, on restricting the burden of administration requirements when we dealt with the working families' tax credit. In that case we thought it quite right that the administrative burdens on employers should not apply to small ones. However, in this case it is proposed that pension rights should vary according to the number of people that an employer employs. We find that proposition completely unacceptable.

Lord Haskel

I wonder why the noble Lord wants small employers to be free from unnecessary bureaucracy but not to be good employers. Small companies are just as keen as large ones to be good employers, to retain their staff and to attract the best people, and part of that is to ensure that they make proper pension arrangements. To excuse small employers on the basis that there is more bureaucracy confuses two propositions. Small companies do not want to be involved in unnecessary bureaucratic procedures but they do want to be good employers, which means providing good pensions for their employees.

Lord Astor of Hever

Does the noble Lord accept that under this Government small businesses have suffered a continuous assault by red tape? We want to do everything possible to cut down that red tape.

Lord Haskel

I do not accept that. I accept that there are two kinds of red tape. There is unnecessary bureaucracy, and perhaps small companies have suffered from it. However, they have not suffered from bureaucracy which is designed to improve the wellbeing of their employees.

Baroness Hollis of Heigham

I agree with almost everything that the noble Lord, Lord Goodhart, and my noble friend Lord Haskel have said. I am baffled by the push of the amendment. The amendment as tabled means that stage 2 of the state second pension will not apply to people working in companies with fewer than five employees. Instead of moving to a flat rate scheme, stage 1 arrangements will continue to apply to them. There is less work involved in stage 2, which is a flat rate scheme, than in stage 1. I do not know whether the noble Lord believes that his amendment exempts all employers with fewer than five employees from the entire state pension scheme. What his amendment does is to stop people from moving from stage 1 to stage 2, which cannot be sensible.

We propose the lower earnings thrust in stage 1 because we do not have the stakeholder pension in place. When the stakeholder pension is in place and people are able to contract out to it, we propose that at the second stage S2P should become flat rate and everyone will be treated as if he has earnings of £9,500, or whatever is the lower earnings threshold at that time. If anything, I should have thought that that would have reduced rather than increased the burden on employers. Even if one accepts that the provision is about burdens, and my noble friend does not accept that—it is about rights to entitlement—staying with differential schemes according to incomes over £9,500, which is stage 1, would increase the employer's burden. Going to stage 2 with small employers should reduce it.

The key point is that those contracted out of the state scheme by funded alternatives will continue to receive the same level of help as under stage 1. Enhanced national insurance rebates and state scheme top-up payments will continue to be paid, thus providing earnings-related incentives for individuals to remain in or join a private pension scheme. This, in particular when coupled with an employer's contribution, should go a long way to ensuring that people with funded provision receive a decent income in retirement.

The exemption is modelled on the stakeholder pension. We provided it there in order to strike a sensible balance. Simply because, with stakeholder pensions, small employers are not required to offer access to a stakeholder scheme, this does not mean that they will not do so. In fact, we hope that many will. Equally, it does not prevent employees from taking out a stakeholder pension via another route. Many of those who work for small employers change jobs frequently and may prefer to choose their own stakeholder scheme.

We shall move on to the second stage of state second pension only once stakeholder pension schemes are established and we are convinced that all moderate earners will be able to join a low-cost, flexible scheme. So access to stakeholder schemes for all employees will be an important determinant of when we move to the second stage. It is important to differentiate between linking individual entitlement to a state benefit to the size of someone's employer and stakeholder access provisions, which are a requirement on the employer.

There are good reasons why operating two different forms of state second pension for employees, depending on the size of the employer they work for, would not be sensible. The decisions they have to make about their pension provision would be made more difficult, not less. Some moderate earners would end up staying in the state scheme simply because they were confused by the conflicting messages being given, and so on.

I am puzzled by the amendment. It seems to add more complexity for employers and to encourage people from staying in a state scheme when they would be better off going into a stakeholder scheme. In the light of that reply, I hope that the noble Lord will feel able to withdraw the amendment.

Lord Astor of Hever

I am grateful to the Minister for that response. It has reassured me. I understand the limitation of the amendment. In the light of that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 4 agreed to.

Clauses 32 to 34 agreed to.

Clause 35 [Supplementary]:

[Amendments Nos. 129 to 131 not moved.]

Clause 35 agreed to.

Clauses 36 and 37 agreed to.

Baroness Turner of Camden

moved Amendment No. 132: After Clause 37, insert the following new clause—


(". The Secretary of State shall each year increase the basic retirement pension by not less than an amount equivalent to —

  1. (a) the percentage increase in the general level of earnings during the preceding year;or
  2. (b) the percentage increase in the retail prices index during the preceding year,
whichever is the greater").

The noble Baroness said: I return again to the issue of indexing the basic state pension. It can be no surprise to the Government, I am sure, that their 75p increase has outraged most pensioners. MPs have encountered this anger in the recent elections, as have many party workers. The £150 fuel allowance has done nothing to assuage that anger. For most pensioners income is more important than what they regard as handouts. "If we were properly paid, we would not need handouts. We could pay our bills like people in employment". That sentiment has been expressed frequently to me.

As I said at Second Reading, I have yet to meet a rich pensioner. The reason advanced by the Government for their refusal to tackle the basic problem of the state pension is that to give everyone the increase we seek, and which was promised by the previous Labour government when the Castle plan was first implemented, is that it would mean that everyone would have the increase, including rich pensioners. I should like to spend some time dealing with the issue of rich pensioners because it is not adequate for the Minister constantly to reiterate the statement that the majority of pensioners are rich without advancing any facts in support of it.

Baroness Hollis of Heigham

In all fairness, I cannot let my noble friend get away with that. I have never said that most pensioners are rich. I have said that most pensioners are not poor. That is very different.

Baroness Turner of Camden

The noble Baroness has used occasionally the term "rich pensioners". Indeed, in the handout that I have, Mr Darling says that it shows that average pensioner incomes as a whole are rising faster than average earnings, and that some have done very well. Just because a few people, mostly recently retired, can afford a once-in-a-lifetime holiday in Florida does not mean that pensioners are well off but simply that some save up—something the Government are intent upon encouraging people to do.

I should like to explain why I am so sceptical about the Government's statement about well-off pensioners. I shall not use the term "rich". How are those figures arrived at? From what baseline? Does it include the value of various benefits paid to people on the basic pension who otherwise could not exist at all? If so, being on benefits scarcely constitutes wealth. Or is Mr Darling also referring to people who receive generous occupational pensions? If that is so, that is interesting. Most occupational pension schemes have been designed on the assumption that they will top up the basic state pension. Most occupational pensions are not fully index-linked to the retail prices index. Indeed, the usual formula, even in what is known as "good" schemes—and I have negotiated a good many of them in my time—allowed for annual increases in line with the retail prices index to a maximum figure of 5 per cent per annum. In the years—this has occurred sometimes in the past 20-odd years—when the R PI exceeded 5 per cent, the pension was nevertheless increased only by 5 per cent. Obviously, over time the value of the pension would erode, particularly in relation to the wages index.

Therefore, the argument that pensioner incomes have increased by more than the incomes of other people in the past 20-odd years cannot be right. The reason is that the structure was simply not in place for that to happen. Therefore, I return again to the matter of the basic pension. Quite simply, there was no structure whereby pensioners who received an occupational pension could have done better than everyone else in employment. There was provision under which pensions in very good pension schemes were increased in line with the retail prices index—never in line with the wages index—up to a maximum of 5 per cent per annum. That was the standard procedure throughout most of industry and commerce.

I return again to the matter of the basic pension. Even the promised £2 a week increase, to be put in place possibly next year, will not compensate for the amount that pensioners have lost. As we know—the figures have been quoted often enough—a single pensioner would now be receiving approximately £97 a week. The MIG is now set at £78. Many pensioners who just fail to qualify for the MIG nevertheless are not at all well off. Everyone, including the tiny minority of very well-off pensioners, will have paid for their pensions.

That is what angers so many pensioners. They are the generation who went through the last world war. They believed that with the introduction of the welfare state they were helping to build a society where people would not be neglected, isolated and impoverished in old age. They resent being told that they are well off when their occupational pension is of the order of £7,000 a year, which is about average, and declining in value relative to earnings, without any improvement worth mentioning in the basic state pension.

The genuinely rich, for whom the basic state pension is just so much small change, will be taxed anyway. There is a wealth of information available about poverty among pensioners, and even the Government admit that that is the case, otherwise there would be no point in paying everyone the fuel allowance. Incidentally, that is paid to everyone and it is not means tested.

Further, the MIG will be indexed to earnings rather than prices, although that, of course, is to be means tested. It would be so much simpler if the Government would return to original Labour policy and increase the basic state pension in line with my amendment. There would be a saving in benefits and means testing, which, as we know, is difficult and expensive to administer. The older generation, which deserves better, would cease to feel resentful and excluded. I beg to move.

9.15 p.m.

Baroness Castle of Blackburn

My Amendment No. 133 has the same aim as that of Lady Turner, although it is worded slightly differently. The purpose behind our endless, continuous and continuing campaign to secure the restoration of the earnings link for the uprating of the basic state pension is based on our belief that in a civilised society no section of the community should have to depend on means-testing. The Government talk about social inclusion. What could be more divisive than to say, "Oh, we are going to be kind to the poorest pensioners. Now, madam, you're the poorest; you're all right"? People do not like to be classified as those who need handouts from the taxpayer.

I must drive home a fact which very few people seem to have grasped. The cost of the basic state pension comes out of the National Insurance Fund. All right, the Government like to pretend that it is not insurance any more, but that is what the fund is and what it is called, whereas minimum income guarantee comes out of the pockets of the taxpayer. I believe that it is odd that this Government do not realise that by insisting on the role of the means test of benefit for the poorest pensioner—the targeted benefit which was very much part of the Conservative philosophy under Lady Thatcher—they are undermining the desire of so many pensioners to be independent of what they see as the dubious charity of the taxpayer. "Ah, but", said the Minister in our debate earlier this afternoon, "if we had not stepped in with our policy"—by, I forget the year, 2010 or 2015—"one-third of pensioners would be on means-tested supplements". Whose fault is that?

Of course they would continue to be on means-tested supplements while the Government uprate the minimum income guarantee in line with earnings but hold the basic State pension down to the cost of living index which gave us the disastrous 75 pence per week for those pensioners in the last uprating. If the Government hold out any hope of an increase next year, it is simply that they are praying that prices will go up, that the retail price index will save them from another sense of pensioners' outrage about another miserly increase. In any case, when one examines this Government's statistics—and one has to stand back, take a deep breath, put a wet towel around one's head and then the truth dawns—what are this Government expecting? They are expecting—and I think I am correct in saying that the Minister used this figure earlier—that, by the year 2000 and whatever, there will be one in five pensioners still on means-tested benefits. What percentage is there now? It is one in six. So there are going to be more people on means test—however much we argue about the exact figures—by the time the Government have done their pension building in complete form.

Another great statistic with which we are always dazzled is—I do not want to misquote the Minister that, by the end of this Parliament, the Government will have spent £6.5 billion more on pensioners. I think I am right.

Baroness Hollis of Heigham

£6.5 billion more.

Baroness Castle of Blackburn

More than what?

Baroness Hollis of Heigham

£6.5 billion more on pensioners than the forecast figures that we inherited and £2.5 billion more on pensioners than would have been the case had we restored the earnings-linked pensions.

Baroness Castle of Blackburn

I am coming to that with great relish. It is £6.5 billion more than Margaret Thatcher's lot. I would not expect it to be the same. Our policy manifesto did not promise no improvement on the present pattern. I do not think a Labour government should make great play with a figure like that. It should be contrasted with previous Labour administrations.

The Minister has just said it is £2.5 billion more than if they had restored the earnings link. It is fascinating, is it not? It does require a little careful study. One does have to keep a rather cool head when going through this minefield of pensions policies.

I am going to examine that figure. I think the important thing about the £6.5 billion is who receives the benefit. We are never asked to examine that. Let us return to this point. They are going to spend by the end of this Parliament £2.5 billion. At one stage we heard a higher figure than that, so perhaps some statistical realism has been creeping into the Ministry, but £2.5 billion more than if they had restored the earnings link.

On whom is that £2½ billion to be spent? Let us have a look. My trouble is that I work all these figures out and then I cannot read them, so I am trying to do it, as best I can, from memory. By refusing to restore the earnings link which a previous Labour government had introduced for keeping the basic state pension in line with national prosperity, a single pensioner in the lifetime of this Government would have received £195 more than they are doing at present. A married couple would have received £312 per year more.

What have they got to offset that? The Minister talks about this £2½ billion. They should be rolling in it. Right, let us look. They both, single and married, receive the same fuel allowance because, remember, that does not go to the pensioner, the individual; it goes to the household. Therefore, they each receive £150. If they are over 75, then they will receive another £43 from the TV bonus, rebate, whatever it is called.

If you do some arithmetic, you will find that the single person's £195 has been replaced by £150 or, if he is over 75, £193, because he will receive the TV bonus on top. So it is pretty well level pegging, is it not? He is not receiving anything of that £2½ billion.

If we look at a married couple, we find a much more damaging picture. We find that married couples under 75 will receive £150 fuel allowance to offset the £312 that they have lost from the refusal to restore the earnings link. Why is that? It is because, of course, the fuel allowance is per household, not per pensioner. If they had been receiving a pensions increase—the earnings link that would have been per pension. Fuel allowance is per household and, of course, so is the £43 TV licence money which they will receive if they are over 75.

Therefore, that £195 is reduced, in the case of a single pensioner, to £150 or £ 193—you do the mental arithmetic. And the married couple's £312 is offset by a mere £150 a year or, if they are over 75, £193.

I shall be very interested to know whether the Minister challenges those figures, because, if she does not and she accepts them, then she is admitting that it is meaningless to say, "We are spending 2½ billion more on pensioners". It all depends on who is getting what.

There will clearly be losers among people of modest incomes, among people who may be just over their savings or occupational pension limit for the minimum income guarantee, which is not, after all, so very splendiferous.

I think that the Government should, at the very least, show a bit more honesty and humility. If they came to us and said, "Look, it costs too much and we are sorry, but we just can't take it on board for the moment", we might disagree and quarrel but we would respect them. However, to come along with figures such as £6.5 billion more than Margaret Thatcher pent, which is not difficult, or to say, "We will be giving to pensioners £2.5 billion more than they would have received if we had restored the earnings link", is to discriminate, is it not? It is almost like the old days of the Poor Law and the deserving poor. People who have saved are not the deserving poor in this Government's estimation.

I ask the House most seriously to think about what it is doing. We shall go on fighting this battle. We shall go on meeting with pensioners who are 100 per cent behind us because one of the tragedies is that the Government would not listen. In 1996, when some of us were begging the government to include in the manifesto the pledge to restore the earnings link which had been so rudely abolished in 1980, we were told, "We're going to set up a pensions review body. Pensioners will have a voice". I know that I am an old cynic, but I said, "Yes, but who'll be listening?" and, of course, the Government did not listen. That pensions review body unanimously urged the Government to restore the earnings link. What on earth was the use of going through that charade? It reminds me of Glendower in Henry IV, who boasted, I can call spirits from the vasty deep", and his companion said, Why, so can I, or so can any man. But will they come when you do call for them? Will the Government do what the pensioners unanimously asked in the review body and are still asking? The Government have, of course spent money, but they have done so in a discriminatory way. I can assure the House that pensioners' dignity has never been more alert than it is today. Just like the disabled, they want to be treated as normal people in society, like everybody else, not labelled the poorest pensioner.

9.30 p.m.

Lord Goodhart

We have all listened with great respect to the two noble Baronesses who have spoken from the Government Benches. They undoubtedly make a strong case.

As we made clear in the House of Commons, and as I tried to make clear earlier in the debate this evening, the position of my party is that we are particularly concerned with the position of the older pensioners. That is why we put forward our own proposals for the age additions. We see this as a problem not only with the basic state pension, but also, for reasons I explained, with the state second pension, which is targeted particularly at those on modest incomes but, as things are now, will end up leaving those who live long enough dependent upon the minimum income guarantee.

We would prefer the Government to act in that way to deal with the problem of the older pensioners. We see that as a better-targeted and a more cost-effective way of dealing with such problems.

Baroness Hollis of Heigham

I hope that the noble Lord will allow me to intervene. We debated this point much earlier and I believe he accepted my figures. Though I have much sympathy with his analysis of the problem, the statistics do not bear out his assertion that age-related rebates on the state pension, as he suggested, would meet the problems he identified. I had thought that perhaps the noble Lord had accepted that, unfortunately, the statistics do not support what he is seeking to do here. In the light of that, does he agree that it is better to examine the MIG and so forth as more responsive, sensitive and appropriate ways of addressing pensioner poverty?

Lord Goodhart

We have already argued that point. Our position remains clear on this. On these Benches we do not think it satisfactory that people who, when they first become pensioners, do not qualify for the minimum income guarantee, should be forced by a decline in the value of their pensions relative to the value of the MIG to become dependent on it at an advanced age. However, I do not want to reopen that argument because I was coming to the end of my remarks.

If the Government insist on operating solely through the MIG and will not move in the general direction of giving non-means-tested help even to the oldest pensioners, then, if these amendments are pressed to a vote, we are likely to support the amendments.

Lord Higgins

I cannot hope to match the eloquence or analytical capabilities of the noble Baroness, Lady Castle, and I shall not detain the Committee for more than a moment or two.

The noble Baroness has rightly drawn attention to the reaction of pensioners to the Government's proposals. That is not outside my own experience, having represented Worthing for a number of years. It was said of that town that people went there to die and forgot where they came from. It is worrying that against this background a huge amount of press publicity has been put out saying that people should not worry because matters will be put right next year, but no specific information has been issued.

Perhaps I may make three points. First, the policy of the Government is in total chaos as far as means-tested or non-means-tested benefits are concerned. On the one hand, the Government stress means testing, but, on the other hand, we have seen a series of gimmicks put in place for TV licences and winter fuel payments which are not means tested. To a considerable extent those benefits reach many who do not in fact need the help.

Secondly, the figure of £6.5 billion has been mentioned by the noble Baroness as representing the increase in the amount targeted for pensioners. Perhaps I may ask her a specific question. Does that £6.5 billion take account of the changes in advance corporation tax that have removed roughly the same amount from private pension schemes?

Baroness Hollis of Heigham

The figure represents the extra spend by government. It not a consequence of any alterations in tax regimes which "de-formed" the spending and investment patterns of private pension schemes.

Lord Higgins

We say simply that there is £6.5 billion of extra spend and that £6.5 billion, roughly speaking, has been taken away from private pension schemes, which are suffering as a result. So, apparently, no net change has taken place at all.

Baroness Hollis of Heigham

The noble Lord has far more experience of Treasury matters than I, but he will know that changes in taxation, such as whether taxes such as ACT are changed or abolished, or whether corporation tax is reduced, do not make his argument any more valid than if he were to say that extra moneys gained from reductions in corporation tax, making our corporation tax lower than anywhere else in Europe, are ploughed back to employers and thus "stolen" from pensioners. The noble Lord knows perfectly well that it is not possible to make an argument for read-across of that kind.

Lord Higgins

I do not accept that for one moment. The reality is that the effects of the changes in the tax regime by this Government have reduced the available funds which private pension schemes previously enjoyed by roughly the same amount as that by which the noble Baroness has told us that the Government have increased payments to pensioners. People in occupational schemes are just as much pensioners as people in state schemes.

I have only one final point, and it is the only one the noble Baroness, Lady Castle, omitted; that is, we have this huge government windfall of £22 billion from mobile phone licences; what are the Government intending to do with it? They intend to reduce borrowing. That will hit annuity rates still further and have an even more adverse effect on pensioners.

Baroness Greengross

Perhaps I may say how grateful I am to the noble Baronesses, Lady Castle and Lady Turner, for giving us another opportunity to debate state pensions. Again, I must still declare an interest in that I work for Age Concern.

First, I recognise that the Government have introduced measures which help people. They are very welcome and have made a big difference to the poorest pensioners. The rise in capital limits for income support from April of next year will especially benefit those with a small amount of savings. In fact, every year since 1988 when the current limits were set, I have written to successive Chancellors suggesting that they do this. So I am pleased that the Treasury listened, even though it took a long time.

However, time and again people say to Age Concern that what they really want is a decent level of state pension and the choice as to how to spend their money. We know now about the anger and disappointment people felt at the 75p increase this year. That is why I agree with the noble Baronesses that both the level of the basic pension and the current uprating system are unacceptable.

Older people were promised that they would share in the rising prosperity of our nation. Not everyone is, despite the good things the Government have done. The poorest benefit from above-inflation increases in means-tested help, and the minimum income guarantee, but only if they claim it. It is good that the Government are launching a take-up campaign to find the 750,000-odd people who are missing out. But if the pension had been raised last year to £75, the same as the MIG level then, a take-up campaign would not have been required.

Restoring the link with earnings would be one popular way of addressing the problem. But I am the first to recognise that it is difficult to turn back the clock. There may be other ways of assessing overall increases in living standards, particularly for the poorest pensioners. Last month, Age Concern published a new report from the Family Budget Unit arguing cogently for minimum income standards for older people and, despite the difficulties, I should like to see the Government investigate the use of budget standards to establish what income levels people need to achieve an adequate standard of living. Such assessments, regularly updated, could provide an important guide as to how much pensions and benefits should be uprated. They could include all types of income as I realise that although the state pension may be £67.50, many pensioners receive more income from additional pensions, savings, the MIG, winter payments, rebates on council tax and so forth. But for working families and single-parent families, and even for older workers, figures are now quoted for their minimum, taking account of the working families' tax credit, the New Deal and so on.

Can the Minister give that idea some thought for those who are already retired? I know she will say that the MIG is one part of an older person's minimum income standard, but this year it starts at just over £78 a week. That is just £4,000 a year. The research by the Family Budget Unit suggested that an older person aged 65 to 74 needed between £99 and £125 a week, which is why Age Concern suggested that the state pension should be at least £90 a week now.

Another way forward might be to link future increases in the pension more realistically to the cost of living increases for older people. If the RPI as a way of determining the pension rise does not work—it patently does not for older people—perhaps we need to think of another way. Over the years there has been much talk of a pensioner index. Could the Minister ask her officials seriously to consider something that gave greater weighting to council tax, utility costs or transport costs, things which form such a large part of older people's outgoings, or perhaps the link to GDP, which is one idea on which Age Concern published a report a couple of years ago?

I know that the Minister will refer in her response to the pensioner's credit, which is very good news. It is intended to help those with modest savings and, in particular, those with small occupational pensions, many of whom miss out at the moment. I very much welcome this aim, though I am unsure as to why it cannot be implemented in April 2001. Perhaps the Minister could enlighten me in that respect.

I, along with the vast majority of Britain's older people, believe that an improved basic pension is the most effective way of achieving the goal. As I said, a higher pension is also the best way to improve the income of the very poorest pensioners; namely, those entitled to income support who do not claim. Finally, a commitment to maintaining and improving the basic pension—if one of those ways could be chosen to do so—would give a firm foundation on which future pensioners could build up a decent income in retirement, together with state second pensions and stakeholder pensions. If we could achieve one of these aims, I think that we could say in this country that there is a standard of living for pensioners which we can, if not take pride in, at least be satisfied is really fair.

9.45 p.m.

Lord Brett

I listened to those who have spoken thus far and some points have been made with which I have more than a little sympathy. I agree with my noble friend Lady Turner. Under our arrangements for capping increases in pensions in relation to private sector schemes, I fail to see how it is possible for pensioners to have done so much better than people on average earnings. I also agree with my noble friend Lady Castle. Many pensioners felt insulted by the 75p increase.

I was "on the knocker" in local elections, which was not a pleasant experience when I met anyone who was pensionable. However, it was not a case of people saying, "Oh, this should be related to earnings", or, "We don't like it related to prices"; it was simply the fact that the amount of money produced by the formula was deemed to be insulting. That was the real issue, which never got beyond an argument.

It seems to me that my noble friend Lady Castle was a little unfair in her use of statistics. She did not seem to include other factors that the Government have taken into account during the past three years to assist pensioners; for example, concessionary fares, the change in taxation policy, free eye tests, and so on. Indeed, there is a whole series of things that cannot be left out of the equation.

Going back some years, I remember when the Secretary of State was my noble friend Lady Castle and the earnings related link was introduced. It made every kind of sense then because at that stage the vast majority of people had no provision other than the state pension. Indeed, it was something like two to one in favour of people having a state pension and only one-third—a minority, a privileged élite—having a scheme that was organised through the employer or in some other way. That situation has just about reversed itself now: 25 years later, we have two-thirds of people in occupational pension schemes.

We are not looking at pension policy revision for tomorrow; we are doing so for 25 and 30 years hence. Therefore, it would be wrong to ignore those features. In that sense, it is a question of asking ourselves what we will be doing in 30 or 40 years' time in a globalised economy as regards ensuring that everyone has an adequate pension. Therefore, in much of what the Government are seeking to do, I can see that they are endeavouring to protect pensioners with lower incomes. I do not want to get into a rich versus poor argument as regards pensionable income over the past 20 years. But, because we have paid people better at the higher levels of our society than those in basic employment, there has been a much greater extension, a stretching, of pensionable pay between those who are more than adequately pensioned (I include myself among them) to those who have a real need. The question we should be considering is: how can we best assist those in need? It seems to me that we should see such features as the minimum income guarantee, the working families' tax credit and, indeed, a number of these other measures as a package.

Although I should like to see the satisfaction on many people's faces if we were to restore an earnings link, we must ask ourselves whether that is the best policy in the long term; in other words, is it a policy that we can sustain? Moreover, is it one that the pensioner of 2020 will actually need? All those considerations lead me to believe that, if we were reinventing pensions, we would not be looking for an earnings link. We would be looking for a portfolio of pensions, somewhat similar to that being put forward now, with a degree of state provision and a greater degree of private provision.

Earl Russell

I wish to add a few points to the debate. First, if the Minister will forgive me, I wish to comment briefly on age-related additions. I want to borrow a point which the Minister herself contributed to our debates a couple of years back. She argued that the extent of poverty on benefit depended in large measure on how long you had been on benefit; that things wore out and they needed to be replaced.

If you are an 80 year-old pensioner, you have been on benefit for quite a long time. Your overcoat is probably worn out and you probably need new shoes. The carpets are probably threadbare. The car probably needs replacing, if, indeed you can still keep your insurance. You may have costs which are a great deal higher than those of a younger pensioner on the same income.

The point about the car insurance draws attention to the fact that in many ways older pensioners may have higher costs than younger ones. My father-in-law, to his utter fury, has just had his car insurance withdrawn at the age of 90, although his previous motoring offence was in 1941 when he was discovered to have only one of his headlamps covered with brown paper during the blackout!—which he still wakes up hot at night about. If you lose your car insurance—he fortunately got his back from another firm almost instantly—if you want to shop you have to spend money on taxis. If you want to go to the doctor, you have to get someone else to take you. These things add considerably to costs. Therefore the expense of being an older pensioner may be a great deal greater than the expense of being a younger pensioner on the same income. These things might perhaps be taken into account.

My second point follows the question of the noble Baroness, Lady Castle of Blackburn: "More than what?" The Minister gave a figure of £6.5 billion more than the previous government. First, is that calculated over three years since the comprehensive spending review, or over five years as the period of the Parliament? Secondly, is it calculated in money terms or in real terms? Thirdly, does it or does it not take account of the £3 billion undershoot in public spending in the first year of this Government? That is £3 billion under the Conservative targets to which they pledged themselves. These things are, I think, material.

The next matter I want to ask about is the minimum income guarantee in which the Minister has placed a great deal of faith in the course of these exchanges. I am not used to trusting in MIGs so I am perhaps entitled to ask for some clarification. First, what are the means of delivery of the minimum income guarantee? What methods do the Government suggest to ensure that this guarantee is made effective? How is the money to be got to the people who are entitled to it? Secondly, how many people have actually been helped by the minimum income guarantee since this Government first announced it? Is it any more than were getting means-tested help on top of the state pension before the guarantee was announced? In fact, has the minimum income guarantee made any practical difference and, if so, how can we quantify it and how is it visible?

I have one final point. Like the noble Lord, Lord Brett, I have been listening to voters recently. I know that the points the noble Lord makes about the other things which have been done for pensioners are true. However, these things carry with the voters no weight whatsoever. What is more, they blame not only the government but the whole profession of politics. A great many of them told me not merely that they would not vote for the governing party again but that they would never vote again for any party whatsoever. This is a dangerous disconnection between politicians and public. For good or ill, we live in a democracy. According to The Times today, in some constituencies among those who actually cast their votes as many as one in three may be pensioners. They have, or they did have, a high marginal propensity to vote. So we ignore them at our peril. The Government might be wise to listen. Whatever The Times today may suggest, I do not think that an extra increase next year will come in time. As my honourable friend Mr. Foster once told the then Mr. John Patten, the Minister should not think that jam tomorrow will get them out of a pickle today.

Baroness Hollis of Heigham

The purpose of the amendments is to provide for uprating of the basic retirement pension by at least the growth in general earnings or retail prices—whichever is the greater—during the preceding year. I say more in sorrow than anger to the noble Lord, Lord Goodhart, that I thought that was a valiant rally by the noble Earl, Lord Russell.

I hoped for a debate in which we could show through information that I could share with the Corn rnittee—and information which I imagine the noble Lord would not dream of disputing—that age-related rebates would not serve to reduce poverty in the way that the noble Lord suggested. I take the points about expenditure. We are not arguing that aspect at the moment. Income is the main push, in the sense that there remains greater inequality within each age band rather than between age bands. It is the same problem as more people living in poverty outside poor areas than there are in poor areas.

The noble Lord admits his proposal is an ineffective way to proceed but says that unless we accept it, he will go for an earnings link—which is something with which he has disagreed for all his time in your Lordships' House. I wonder about the grounds on which the noble Lord can justify pursuing a policy that statistics show will not achieve what he wants.

Earl Russell

The Minister could show that the suggested measure was imprecisely targeted but she could do that with a great many other benefits. There is a case for arguing that imprecise targeting is better than no targeting at all.

Baroness Hollis of Heigham

If only 40 per cent of 80-plus pensioners are on MIG, which is relatively generous in offering high earnings-related sums, the noble Earl would have us target a lot of resources at less than half the population in the age cohort who, as defined by income support eligibility, are not poor. Apart from being imprecise, the benefit would miss 60 per cent of the target.

Lord Goodhart

The logical conclusion of the Minister's argument is that everything would be shifted onto MIG and there would be no basic pension. What is the correct level at which to preserve the value of the basic pension and state second pension? We feel that a proper age addition is required even if it is not targeted as precisely as MIG would be. The fact that 40 per cent of 80-year-olds qualify for MIG is a sign that the pensions of S0-year-olds are too low.

Baroness Hollis of Heigham

Although one would end up with an unacceptable situation—reductio ad absurdwn—that is not an assertion that one would go down that path. The more absurd it is, the less likely that is to happen. II do not accept the thin end of the wedge argument.

Under the proposal, age-related rebates would give money to people who, in the top quintile, are enjoying household incomes of more than £400 per week simply because they are over 80—but would not offer similar support to people under 75 whose income might be one quarter of that sum. That is what I find objectionable about it. It is not that it targets imprecisely; unlike MIG, it does not target at all.

That is why I find it odd—I shall not put it otherwise—that the noble Earl says that we should go down a path that at best, in his words, targets imprecisely and, on my account, does not target at all. If we do not, he will support something that he has always persistently—and in my view properly—described as "inappropriate"; that is, the earnings link. The noble Earl has ended up in a very odd position: he is saying that we must accept something that does not work, otherwise he will force on us—or seek to force on us through any support that he can give—something that, up to now, he has always said would not work and should not be done. I find that an undesirable position for Front Bench spokesmen to find themselves in. I am happy to give way, if the noble Earl wishes.

10 p.m.

Earl Russell

It is only fair that the Minister should have her own proposals subjected to the same scrutiny as ours. No doubt MIG would be precisely targeted if it were ever delivered, but it does not matter how well something is targeted if it is not delivered. What are the means of delivery of MIG?

Baroness Hollis of Heigham

I fully take the noble Earl's point. He is right. My noble friend Lord Brett and other noble Lords have made exactly that point. We know that MIG can identify those most in need and concentrate help on them, but, unless we can deliver the money to them, I agree that it will be ineffective and inappropriate for what we need to do.

That is why we shall be writing to the 2 million pensioners whom we think are eligible; why we shall promote a massive advertising campaign, both nationally and locally, through Dame Thora Hird; why we shall encourage all the voluntary organisations, from the CABs to local authorities and so on, to work with us in a campaign over the summer; and why we shall spread the information through local housing offices and through leaflets that I hope local authorities will send out. This is to ensure that elderly people are aware that this is their right and their entitlement. To get that right and that entitlement, they can complete the forms in the privacy of their own home. They do not need to go into benefits offices; they do not need to queue; and they do not need to stand in a line with unemployed youngsters in front of them and other people behind them. They can do it all over the telephone in their own home, or in their son's or daughter's homes if their son or daughter is on the phone.

We have to make sure that people know about MIG; that, once they know about it, they seek to claim it; and that when they seek to claim it, they do so in a way that is as automatic and stigma-free as we can make it. We believe that we have achieved that. As I said, we are working with local authorities, and I have been talking to them; we are working with CABs, and I have been talking to them. I am very happy to take on board any of your Lordships' experiences of even more effective ways of getting automatic delivery. We do not have all the answers on this.

A year or two down the line, it would be reasonable for noble Lords to hold us to account on how effective we have been in achieving the delivery of MIG to the poorest pensioners, but this is the only way in today's society that we can address need—not by age-related rebates; not by giving more money to women or to single pensioners; not by an earnings link to state pensions. The only way we can really address poverty, target it and ensure that every pound goes to those who need it and not to those who do not, is through the minimum income guarantee. If the noble Earl and other Members of the Committee know of ways of helping us to do that, I shall be delighted to receive help.

Before I address my noble friend's points about the earnings link, the noble Baroness, Lady Greengross, asked me about the pension being index-linked. There is a pensioners' RPI, which is based on the expenditure habits of the poorest one-third of pensioners. Historically, it has not increased by any more than the main RPI. I do not think there would be any advantage to pensioners in that. We track it, but it makes very little difference.

The basic issue is whether it is right to go for the earnings link as a way of addressing pensioner poverty. The earnings link was in place for only four years between 1975 and 1979. As my noble friend Lord Brett rightly said, that was at a time when few people had a second pension. Had I been a junior Member of either House back in 1978 and my noble friend was introducing the earnings link combined with SERPS, I would have been cheering her on because, on the facts as they were then, it was a decent and proper response to the situation of pensioner poverty. That is no longer the case. In all honesty, I suggest to my noble friend that she is simply and resolutely refusing to take on board all the changes that have happened to pensioners' income in the last 20 to 25 years. It as though none of the changes that my noble friend Lord Brett mentioned has occurred. They have and we must deal with the world as we find it, not with the world that my friend was dealing with, properly as she did—and I would be one of her greatest fans in that respect—back in 1978. The reason is that over the 20 years or so since then, the impact of SERPS and occupational pensions on pensioners' income has been substantial.

I repeat, the real growth in average earnings for all of us since 1979 has been 38 per cent. Average pensioner incomes grew from their base by 64 per cent in real terms between 1979 and 1996/97. In other words, pensioner incomes have grown from their base by nearly double the amount of the rest of us from our base. The noble Lord asked, what sort of figures we were talking about in terms of 6.5 billion. It is at today's prices; it is over the whole Parliament; it is calculated on the basis of discretionary policy changes like MIGs, earnings upgrade, winter fuel payment, TV licences, no allowances for forecasting undershoot. I hope that addresses the point that I was asked. It remains the case that many pensioners now have incomes which are substantially above minimum income guarantees.

Most pensioners are not poor. A few pensioners are rich. A significant number, 20 to 30 per cent, are poor and those are the pensioners who have missed out from the growth in rise of pension incomes that we have seen since 1978, 1979 and onwards. In other words, what we have seen is that the growth in pensioner incomes has widened and there has been more inequality within pensioner incomes, with medium income pensions too, than most of the rest of us have experienced.

The gap between rich and poor pensioners has increased substantially since 1979. The median net income of the top fifth has grown by 80 per cent. The median net income of the bottom fifth has grown by only 34 per cent. If you take single pensioners, the gap is even wider. For example, 28 per cent for the bottom fifth—much less than for the rest of us—but 76 per cent, much more than double, for the top fifth.

Faced with that situation, taking single pensioners where the income of the bottom fifth has grown by 28 per cent and the top fifth by 76 per cent, is it right, is it decent and is it proper that the same increase should go to all of them even though some of those pensioners, a fifth, have fallen behind the rest of us proportionately to their base and the top fifth have exceeded the base compared to the rest of us by double? Is it right that we should treat them all the same? Should we give a little to everyone or should we say, what has happened since 1978–79 is that pension incomes have grown substantially for the great majority of pensioners but the 20 to 30 per cent who are on income related benefits have been left behind? I ask my friends in the name of socialism, what should you do? Give a little to everyone, irrespective of their financial need, or concentrate the help on those who need it most.

Baroness Turner of Camden

This is not a charity.

Baroness Hollis of Heigham

No, it is not charity. This is an income related benefit which goes to those who need it and it has come from the rest of us through taxation which is also income related. It is from those of us who can afford to pay through a means-tested tax system to those who need it through a means-tested income support system. I think that is a decent and proper way to help those most in need. Give to those who need it. Not a little to everyone, but focus it on those who need that help who otherwise will linger in poverty. I give way to my noble friend.

Baroness Castle of Blackburn

I think it is a little mean to harangue us when we are not as accustomed, as the Minister is, to jumping up to answer every point as it is made. That reduces a debate in this House to chaos. We shall wait for our next turn, do not worry.

Baroness Hollis of Heigham

As I am sure my noble friend knows, one of the differences between Committee stage and Report stage is that there is a debate and therefore noble Lords may intervene freely. I am disappointed in my noble friend if she feels restrained from doing so on the assumption that this is not Committee stage but Report stage. We have such procedures at Report stage. At the Committee stage we do our best to have a debate and if it is helpful to intervene all of us are happy to give way. That is the difference in the way we handle our procedures in this House compared perhaps with the Commons.

As I said, some have missed out. Therefore, the Government have a clear choice. There can be a little to everyone, which is what my noble friend is proposing, or, as the Government are doing, a focusing of help on the poorest. My noble friend said—I wrote down her words—that it all depends on who benefits. Yes, precisely. It all depends on who benefits. My noble friend wants Members of your Lordships' House—all of us—to benefit, whether our income is £20,000 or £100,000 a year. Frankly, that is not what I am in the game for. I am in the game for those who do not have those levels of income and who would otherwise be dependent on very low levels of income.

To increase the basic pension in line with average earnings would cost an extra £1 billion in 2000, an extra £7.5 billion in 2010 and would rise to an extra £24 billion in 2025. My noble friend said that I do not talk figures and that if I did she would respect me. Well, I am telling her now—that is what the cost would be. I am talking figures—an extra £24 billion in 2025. But, more importantly, that would not increase the overall income of the poorest pensioners—it would merely come off their MIG—and it would spend money on the rest of us, who do not need it, to help ourselves in retirement. I say to my noble friend—

Lord Goodhart

The noble Baroness is being extremely eloquent at the moment. How does she think that this will go down with the 80 year-old pensioner on, let us say, £110 a week who says, "Why is it that I am getting nothing whereas someone who has a few pounds a week less than I do is getting the substantial increase from the minimum income guarantee?"?

Baroness Hollis of Heigham

That is a perfectly fair point. That is exactly why we are proposing to introduce a pensioner's credit. It is going out to consultation. We are targeting help on the poorest. We still want to retain the incentive for people to save and to build for their retirement. Therefore, you must not penalise people just above the income receiving limits. The noble Lord is absolutely right. That is why in the Budget the Chancellor raised the capital limits to increase eligibility for MIG and its pass ported benefits from £3,000 to £8,000 and from to £6,000 to £12,000. That is a substantial increase as they had not been raised since 1988 and 1990 respectively. It is why the Chancellor has taken on board that entirely legitimate criticism that we need also to consider the equivalent of a disregard for modest income—just above the benefit line. That is precisely why the pensioner credit is being developed and will go out to consultation in the usual way. The noble Lord is exactly right.

To go back to the basic choice facing all of us, if for a poorer couple over 75—people on benefit levels—you linked their pension to earnings, as my noble friend proposes, this year they would get £6. Or you can make them eligible for MIG. That same poorer pensioner couple of 75 would get £18. So £6 or £18? You cannot do it all. You cannot give £18 to everyone. If you give £6 to everyone you still have to help the poorest pensioner more or alternatively they fall behind the rest of us, while others of us enjoy £6 extra that we do not need.

The basic retirement pension alone cannot provide, and was never intended to provide, a complete income in retirement. It is a key building block and that is why we are uprating it with RPI. We are trying to see this as the first step and then put in place the second tier of the state second pension, the stakeholder or the occupation pension; and for those in the meanwhile who fall between the net, to support them with the minimum income guarantee. Through the minimum income guarantee we increased income support for pensioners last year by three times the rate of inflation. This April it was increased in line with earnings.

My noble friend Lady Castle said that one in six was currently on MIG and all that would happen under our proposals in 2050 is that one in five would be. I am sorry. She is incorrect on that. One in three pensioners is currently now on MIG and that will fall to one in five as a result of our proposals. If we did not intervene, that one in three would remain. So we are bringing about a substantial improvement in the lot of pensioners—not, as my noble friend argued, a serious deterioration.

We have not forgotten our manifesto. We are spending £2.05 billion extra on pensioners. They will have, for example, special winter fuel payments. That is a form of hypothecated contribution to fuel costs, because pensioners spend longer at home, they need higher levels of heat, and they are living in houses that are more poorly insulated. We are introducing free television licences, there are free eye tests, as well as tax reductions which mean that two-thirds of pensioners do not pay income tax. As a result, as I have said, an extra £6.5 billion will be spent on pensioner incomes in this Parliament. We are spending £2.05 billion more than would be the cost of uprating the basic state pension in line with earnings, and in an effective and balanced way.

To put it another way, all pensioner households will enjoy the equivalent of a tax-free £3 per week hypothecated winter fuel allowance, and all pensioner families over 75 will enjoy a free TV licence worth an equivalent of £2 a week, making a tax-free £5 a week. So for all pensioner households over 75 the Government are offering the equivalent of £5 extra tax-free a week. The poorest 30 per cent who are broadly eligible for MIG will, on top, receive a further £10 to £20 a week. In other words, under the earnings-related uprating, the bottom 20 per cent would see their incomes improve by around 15 per cent. Under government policies, their income will improve by double that.

So we are helping all pensioners with winter fuel, and those over 75 with television licences, by virtually as much as the earnings link would have provided. But for the poorest we are offering double what my noble friend's proposals would offer. That is where the need is. Given everything the Committee knows about what has happened to the growing stretch of pensioner incomes, in which two-thirds of pensioners do not need our help in this way but one-third do, I hope that my noble friends behind me will recognise and respect the fact that what was right in 1978 is not right now, because the world has changed. If we are to meet pensioner poverty, this is the best way forward. I hope that, in the light of my remarks, my noble friend will withdraw her amendment.

10.15 p.m.

Baroness Turner of Camden

I thank my noble friend for her eloquent response to the debate, which has been a very good one. She will not be surprised to learn that I disagree with her. I still believe in the earnings-related concept. My reason is that I am a firm and committed believer in a system of social insurance.

I interrupted my noble friend to point out that the basic state pension was not a charity. It is not. People have contributed to this pension during their working lives, through the tax system and through national insurance. When they arrive at the age when they are due for retirement, many look to that as a basic building block, as my noble friend rightly says, of pension provision.

Indeed, my noble friend talks about the basic building block, but that is beginning to crumble, and has been crumbling for some time. It will continue to do so unless the Government do something about improving it. There does not seem to be any indication that they want to do that. The concept is that increased pension provision is paid out only on the basis of people in actual need.

My noble friend has repeatedly said, as has my noble friend Lord Brett, that we are not in 1978 any more. But since 1978 matters have got rather worse than was intended then. SERPS has been substantially diminished. Moreover, as a result of previous government policies, the numbers of final salary schemes have diminished. Indeed, such schemes have hardly been introduced in the past 20 years. What we have instead are money purchase schemes, with the inevitable lack of security that goes with money purchase provision. That now applies right across the occupational pension scene, instead of the much better final salary provision that existed well before 1978. Things have not improved marvellously since then.

I have said repeatedly that much occupational pension provision is based on the assumption that it tops up the basic pension. The pension package in 1978 had two tiers: the basic building block, as it has been described, and an occupational pension or SERPS on top. Part of that package, the basic building block, was to be increased in line with the wages index. The failure to do that produces a situation in which even occupational pensioners are not as well off as they expected because the basic pension has not kept pace with the earnings index.

I thank the noble Baroness, Lady Greengross, for her support. Her observations deserve consideration. Even if this amendment is not accepted I hope that the Government will think very seriously about making a substantial improvement in the basic state pension. As has been pointed out by every noble Lord on this side of the Committee who has spoken this evening, the increase of 75p has resulted in considerable resentment among pensioners which has been made manifest in recent election campaigns. I have a good deal of contact with pensioners. My union has a section for the retired with its own organisation and annual meeting. A large number of people are in receipt of an occupational pension which is not usually generous. The pension has not been increased in line with the wages index. Pensioners are lucky if they have received retail price indexation. Therefore, even though they have an occupational pension the basic state pension is a matter of great concern to them.

Although I shall not press my amendment at this time of night, I ask the Government to think very seriously about the whole issue of the basic state pension. We have reached a stage where, even if the amendment is not accepted—I remain wedded to the notion of earnings-related indexing—it is essential that the basic state pension is examined carefully in light of very widely expressed dissatisfaction by the electorate who are pensioners. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Castle of Blackburn

had given notice of her intention to move Amendment No. 133: After Clause 37, insert the following new clause—


(" . In section 150(2) of the Social Security Administration Act 1992, in paragraph (a), after "beginning" there shall be inserted the words "and, in the case of the weekly rate of the basic pension specified in section 44(4) of the Contributions and Benefits Act and the category B retirement pension specified in Part I of Schedule 4 to that Act, by not less than the percentage by which the general level of earnings is greater at the end of the period than it was at the beginning".").

The noble Baroness said: I do not intend to move the amendment for the time being.

[Amendment No. 133 not moved.]

Clause 38 [Preservation of rights in respect of additional pensions]:

[Amendment No. 134 not moved.]

Lord Higgins

moved Amendment No. 135: Page34, line 22, at end insert— (""(4B) The regulations shall be based on the presumption that claimants have received incorrect or incomplete information unless the Secretary of State provides proof that the information the claimant received was correct and complete."). The noble Lord said: This is a very important amendment which arises from so-called inherited SERPS. We had a Statement on this subject earlier this year. There are other amendments on the same subject in the names of the noble Lord, Lord Rix, and the noble Baroness, Lady Greengross. I concentrate on Amendment No. 135 in my name and those of my noble friends. The amendment provides that the regulations with regard to compensation for inherited SERPS, shall be based on the presumption that claimants have received incorrect or incomplete information unless the Secretary of State provides proof that the information the claimant received was correct and complete". When the Statement was made on 15th March, both the noble Lord, Lord Goodhart, and I had difficulty in ascertaining the precise recommendations of the ombudsman on this subject. We quoted paragraphs 32 and 41 of his report, which we understood to be his recommendation to the Government. Unfortunately, the ombudsman decided, strangely, to express his views by reference to a letter that he had written to the Permanent Secretary at the Department of Social Security rather than to recommend in terms that, given the situation, the Government should do this and that.

On that occasion I asked the Minister: As there is confusion perhaps we could ask the ombudsman what he meant". The noble Baroness replied, somewhat unhelpfully, I thought, The noble Lord is entitled to ask the ombudsman whatever he wishes"".—[Official Report, 15/3/00: col. 1617.] So I did, and received a courteous reply from the ombudsman.

I fear that it is still not clear in my mind what he recommends. He seems to feel that he should wait until he receives the detailed eligibility criteria under the scheme and he will then say whether they meet the views he expressed. I always hesitate to criticise officials who cannot answer back, but there again seems a degree of obscurity.

None the less, crucially, there are two points which anyone claiming that he should be compensated because of the sad history of widows' SERPS needs to establish: first, that he was misled; and, secondly, having been misled he took action, or failed to take action, which resulted in his being unable to make adequate provision for his widow at such time as she became bereaved. My amendment seeks to deal with the first of those propositions; namely, whether it is necessary for anyone claiming compensation to establish that he had been misled.

On that subject, the ombudsman's views are clear. He says: In the course of my investigations I suggested to the Department that the onus of proof"— as to whether one had been misled— was therefore reversed. It was for the Department to prove that someone would have acted differently if they had not been misinformed. It seemed to me that the normal rules of the Department's non-statutory scheme for financial redress for maladministration would be inappropriate". He continues in the letter: The presumption had to be that anyone who could reasonably claim to be misled and in consequence to have acted, or failed to act, to their detriment had a prima facie case for redress". The situation seems clear. Either people did not read the leaflets, in which case they would have assumed that the entitlement to the widows' pension was unchanged. Alternatively, they read the leaflets, in which case they were misled. Therefore we should not go along the route we discussed last year when debating the matter. We should not ask: did an individual telephone the department on a specific date? What did the department say? Alternatively, did he write to the department and receive the wrong answer? Was he merely having a discussion at the local social security office? For the reason I have stated, that should not be required of someone making a claim for compensation. I hope that that is common ground. While we shall not reach a final decision today, I hope that at later stages the Minister will accept that position, or accept my amendment today.

The letter continues: The Secretary of State for Social Security has said that he accepts that where there is no documentary evidence it will be for the Department to challenge or disprove a claim". That is to say, a claim that the individual was misled. Perhaps the Minister will confirm that that is so. If so, I imagine that she will be able to accept my amendment.

The second leg of the argument is whether an individual can claim that, as a result of having been misled, he took action which resulted in detriment to him; or did not take action in particular to make provision for a widow's pension. The amendments in the name of the noble Lord, Lord Rix, and the noble Baroness, Lady Greengross, refer to aspects of that problem.

My impression is that the ombudsman also takes the view that, so far as that is concerned, it is for the department to prove that the individual concerned took some action which protected the position of his widow. I am not entirely clear about that. I shall listen with interest to what the Minister says at this stage in the proceedings. However, so far as concerns the first point, it seems to me that my amendment is very important. I hope that, even at this stage, the Minister can accept it. However, no doubt we shall not reach the final conclusion this evening and shall have to see how we proceed at later stages.

This is a long and sorry tale. It is maladministration on a totally unprecedented scale and, as a House, we need to put the matter right. I am bound to say that the Government have not been unforthcoming on this matter. None the less, it seems to me that the details need to be spelt out in primary legislation. That is why my amendment is worded in the way that it is. I do not believe that it would be satisfactory to leave the matter to regulations at a later stage. That may have been appropriate earlier. However, I believe that by Report stage or, at any rate, Third Reading, we need to be absolutely clear about exactly what the Government propose and, if necessary, vote to establish the right position. I beg to move.

10.30 p.m.

Lord Rix

At the Second Reading of this Bill, I said that I would be putting forward a simple amendment to address the ambiguities inherent in Clause 38 as at present it appears on the face of the Bill. Other Members of the Committee have had the same notion and we are now presented with three further options for change and, may I say, improvement. Therefore, I hope that the eventual outcome will be something better than the Government's proposals, welcome though those proposals are.

The amendment of the noble Lord, Lord Higgins, which he explained so clearly to the Committee, reverses the burden of proof as regards information received, although not as regards action taken. It requires the Secretary of State to show that his department provided the kind of information which, we know, in general it failed to provide. My noble friend Lady Greengross, whose amendment follows mine, takes certain key categories of likely sufferers from duff information, or no information at all, and protects their survivors without any requirement to claim under the compensation scheme. In other respects, her amendment and mine are very much alike. That reflects a unanimity of purpose, if not of belief, as to how far the Government may be persuaded to go.

According to this morning's edition of The Times— we have already heard this article quoted by the noble Earl, Lord Russell—the former deputy Labour leader of Plymouth Council, David Millar, blamed his loss of office as a result of the recent local elections by saying: If there was one single issue which did us more harm than any other it was pensions". As we all know, SERPS is described as an "additional pension", and any confused, retired pensioners who are worried about their surviving spouse's inherited benefits must surely be included among those absentee voters. My amendment both helps the Government out of that particular hole (dug, I may say, by an earlier administration) and operates within the compass of the Government's compensation scheme. However, it reverses the burden of proof—and here it differs from the amendment of the noble Lord, Lord Higgins—for those most likely to have suffered irremediable disadvantage.

I am seeking to write on the face of the Bill necessary concessions which the Government might be minded to put into regulations under the broad and nonspecific powers of Clause 38(5). The history of the amputation of SERPS rights is such that I make no apology for opting for a little more certainty and a little less trust. We all remember Virgil's stricture about, fearing the Greeks even when they bring gifts". or Juvenal's question: Who is to guard the guards themselves?". Such classic doubts could be put to rest by the adoption of my amendment, which is supported also by the noble Lord, Lord Goodhart, and my noble friend Lady Greengross, for I believe that it encompasses reasonable simplicity and relative justice.

An injustice having been done, and, to their great credit, recognised by this Government, that injustice needs to be remedied. I believe that my amendment has the virtue of providing that those who have most palpably suffered injustice do not have to stretch their memories, and perhaps their imaginations, in order to reclaim justice.

Baroness Greengross

My Lords, as my noble friend Lord Rix has said, a number of options are now before this House. Although different, each seeks to find a better solution to the inherited SERPS problem than the proposals put forward by the Government. I rise to speak to my amendment, No. 139, but I would also wish to refer to the other amendments tabled by noble Lords.

The proposed protected rights scheme has few supporters. While we welcome the seriousness with which the Government have treated this very big problem, including delaying the change to October 2002, I wonder whether the protected scheme will work. I understand that in another place both the Public Accounts Committee and the Public Administration Select Committee have expressed grave reservations on its practical operation.

At Second Reading I raised some of my concerns regarding the need to make an application to the scheme and the information people will have to provide. I see two key problems. First, many people who contact Age Concern and other organisations echo the statement of one man who wrote: I was not misinformed. I was not informed. How will I be able to present my case". I gather that the Secretary of State has admitted that in future better information will have to be given when changes are made to state pensions, as finally government have recognised that changes to pensions law are different from most other changes to law, which do not involve planning for one's retirement income.

Although the Minister said that the Government have no legal obligation to tell people of changes, surely the solution should take into account the moral obligation. I might add that, as the Minister knows, we have sought alternative legal advice that is contrary to hers. I believe that the Government did have an obligation to inform SERPS contributors, especially those who had paid into SERPS before the law changed in 1986 and 1995, of the changes made.

Secondly, as the chairman of the Public Accounts Committee, David Davis, said in another place, the protected rights scheme as announced could be good for the dishonest and bad for the honest. Others have suggested that a cottage industry is going to develop to show people how to claim successfully, which might put the cost to the Government much much higher. This puts responsible organisations in an invidious position. We would of course provide information about making a claim but would never urge people to be dishonest.

But what message does this send out to older people, especially to today's older wartime generation? Someone is going to suggest before long a campaign called "Lie before you die". This whole sorry story has been dubbed in the media as the "SERPS mis-selling scandal". Many people have contrasted the way that private companies have been obliged to seek out people who may have been mis-sold a personal pension. Therefore, I still believe that the simplest and fairest way to deal with this problem would be to abandon the change altogether for SERPS contributors. This is the only way to reassure everyone who paid contributions in the expectation that their spouse, if widowed, would inherit their full SERPS.

I support the amendment in the name of the noble Baroness, Lady Castle. I am also attracted by the ingenious amendment in the name of the noble Lord, Lord Higgins, although it does not necessarily protect those who are already or almost retired.

It is in a spirit of compromise that I have put forward my amendment, which is fairly modest. It falls short of reversing the change but aims to ensure that the reduction will not apply to the widow or widower of certain people who would now find it difficult or impossible to make alternative arrangements.

Like my noble friend Lord Rix, I wish in particular to protect those who will have already reached pension age or who will have retired due to ill health on 6th October 2002 and people for whom a claim to the protected rights scheme would be impossible due to mental disability. Others, such as younger people who have been misinformed, would still need to rely on the protected rights scheme for protection, which would become a much smaller and more robust scheme and far less costly.

It is likely that a major reason for the Government not going further in addressing this problem is the potential cost. But the cost of the two-and-a-half-year delay and the current protected rights scheme is estimated at £8.2 billion if there are successful claims covering 30 per cent of expenditure. If 50 per cent successfully claim, then the cost will be another £3.8 billion.

However, the costs must not be overemphasised, nor should we be confused by them. The figures are spread over a 50-year period. When else is expenditure totalled up over such a long period? The £10 Christmas bonus costs the Government around £100 million per year in today's prices. Over 50 years, that is £5 billion. Are we suggesting that that is too much? Far from it: most older people rightly say it is not enough. The winter fuel payment is now £150, at a cost to the Government of some £1.25 billion per year. Over the next 50 years that is £85 billion.

It might be expected that exempting certain groups, including all over pension age, would increase costs considerably. Yet in another place the Minister stated that the cost of exempting all who had reached pension age by April 2000 would cost £7.1 billion. While my amendment covers more people and would therefore involve somewhat higher expenditure, above all it must he remembered that what is described as a "cost" must also be considered in terms of the losses that individual older widows and widowers would otherwise face. It is not the Government who lose but future widows.

In effect, I think that both the amendment in the name of my noble friend Lord Rix and my amendment spend the £8.2 billion which the Government think they might have to spend over the next 50 years in a far more sensible way. My amendment differs from that of my noble friend in that none of the categories I list would have to claim to the protected rights scheme. They would be automatically exempted. But either amendment would greatly lessen the worry and potential financial losses of many older people and would lighten the administrative burden on the DSS by reducing the numbers needed to apply to a protected rights scheme.

10.45 p.m.

Lord Goodhart

In the other place, the representatives of my party moved an amendment to require the Government to pay out to everybody who has retired by 5th April of this year a full widow's SERPS and with a phased reduction for those who are retiring at a later date.

In your Lordships' House, we have not tabled our own amendment. That is in recognition of the fact that the noble Lord, Lord Rix, led the battle over the inherited SERPS rights last year in the debate on the Welfare Reform and Pensions Bill and we thought that, in tribute to him, he should continue to lead the battle in your Lordships' House.

That said, it seems to me that there is a strong case indeed for the Government to do a good deal more than they have already done or have undertaken to do. As regards the burden of proof on being misled, the noble Baroness, Lady Greengross, was right to say that in this case there was an absolute duty on the Government—more on the previous government than on the present one as most of the time concerned was during the period of office of the previous government—to disclose the change in SERPS. Therefore, the absence of information is, in itself, misleading. It should not in any way be necessary to show that anybody asked for information and was given misleading information.

Inevitably, the Government must accept that virtually everybody in this country was misled in the sense of not being informed of the 50 per cent reduction in widows' SERPS. Therefore, there can be no question of the burden of proof resting anywhere but on the Government.

Perhaps slightly more difficult is the burden of proof on the question, "If you were misled, did that make any difference to what you would have done, or would it have made no difference to you if you had known that if you had died after April 2000, your widow's SERPS would be reduced?" I imagine that in the great majority of cases, the only honest answer would be, "I don't really know. This happened some years ago. I never really thought of the matter at the time. I can guess what I might have done but I really cannot say anything definite".

To require people to prove that they acted to the detriment of the future of their spouse because of the misleading information they received or failed to receive would be, in effect, a cheat's charter. It would open the whole field to dishonesty and to those who say, "Yes, I definitely would have done something different. I would have made better provision for my widow than I did". There would be no way to disprove that. They are the people who will do well out of this. In some cases, that may be correct. I believe that in the great majority of cases, it probably will not be. But for the people who are honest and say, "I can't say that I would have done something different. I might have done; I really don't know", if the burden of proof is on them, they would get nothing.

Ultimately, if one is to be fair, one has to go down the line of saying that everybody who is not now in a position to see that their surviving spouse is adequately provided for will not suffer from the spouse reduction. The only fair thing to do would be for the Government to accept that as the general position and act accordingly. I know that it will be expensive. However, in fairness to people who have been the victim of this problem, it is the only thing to be done.

Lord Higgins

I thank the noble Lord for allowing me to intervene. It would seem that the ombudsman is of the view that the burden of proof is reversed both as regards whether people were misled and whether they lost out as a result of that. Again, perhaps I may quote from the letter which I believe is not out of context: It was for the Department to prove that someone would not have acted differently if they had not been misinformed". The ombudsman appears to take both points.

Lord Goodhart

I am grateful to the noble Lord, Lord Higgins. I would strongly support his proposals, as I support the proposals of the amendments to which I have added my name. I hope that the Government will move further on this, at least in the sense of telling us what will be laid down in the regulations and that those regulations will recognise that the burden of proof on either issue cannot fairly rest on those who wish to claim.

Baroness Hollis of Heigham

All these amendments refer to the proposals made by the Government to address the problems of inherited SERPS, both for widows and widowers, and of course a problem that has also been inherited by the Government. We have debated this subject before and, once the regulations have been drafted, no doubt we shall debate it again.

Perhaps I may deal first with Amendment No. 124 which seeks to overturn completely the change that would halve the amount of SERPS that can be inherited. We believe the policy to be essentially sound, bringing state provision more closely into line with that required of private pension schemes. Our clearly stated aim for pensions is to reverse the current position where 60 per cent of expenditure is provided by the state and 40 per cent by the private sector. It would not be in keeping with that aim to create incentives to stay in the state scheme.

The cost of not implementing the change is estimated to be £23 billion over a 50-year period. The sums are enormous. That would represent a huge burden for future contributors on expenditure that is not well targeted as the poorest widowed pensioners would see no gain at all.

Lord Higgins

The figure mentioned by the noble Baroness is almost exactly the same as that for the proceeds from the mobile phone licences, only that receipt was instantaneous rather than spread over 50 years.

Baroness Hollis of Heigham

It is also almost the same, although not quite the same, as the sum spent on retirement pensions and SERPS put together, which runs at a little over £32 billion. In terms of proportion, over 50 years this amendment would almost double the sum of money spent on pensions. That puts into proportion what it will cost to rectify a mistake that we inherited.

Earl Russell

Can the Minister tell us when was the last time she heard a Minister calculate expenditure over 50 years?

Baroness Hollis of Heigham

I believe that happened on the last occasion that I made a speech on this subject. However, whether that speech was made on this Bill or on a Statement, I should not like to say.

The inherited SERPS figures are discounted over 50 years; namely, they return to today's prices. However, the effect over 50 years seemed to be the most helpful way of passing the information to noble Lords. It is a huge burden for future contributors and it is not well targeted.

Furthermore, those people who did receive the correct information and have spent money buying alternative arrangements would rightly feel aggrieved if it turned out that they need not have done so. As we have said on previous occasions, the change to 50 per cent inheritance will happen, but not until October 2002. People who have been mis-advised will be able to apply to the inherited SERPS scheme for further protection. Those who have not been mis-advised will have two and a half years in which to reconsider their financial arrangements. We think that the scheme we have proposed represents a fair balance between the interests of pensioners and contributors.

Lord Rix

I am grateful to the noble Baroness for giving way. Can she explain the position for those who are retired and unable to make what is considered to be a legitimate claim, who have received no information and who have made no alternative arrangements? How can they do so between now and October 2002 if they are already retired? Obviously, the majority of them will have no capital available with which to buy extra insurance.

Baroness Hollis of Heigham

I hope to deal with that. If those pensioners—I am now anticipating what I was about to go on to say—received information that was incorrect and would have done something different, then their rights will continue to be protected. If they received the correct information and did something about it as a result, they would not need any action to follow. What is being proposed is a broad-brush solution which will benefit those who have already taken some protection and not actually help the poorest pensioners who would still have recourse to MIG.

But let me continue, and, if the noble Lord is not satisfied with my reply, by all means he can come back to me or invite me to write to him.

We repeated in March the Government's Statement about inherited SERPS. In the subsequent debate, the noble Lord, Lord Higgins, was quick to highlight the issue of where the burden of proof should lie in a person's application for redress under the scheme. Along with the ombudsman, he urged that it should lie with the department. The noble Lord, Lord Goodhart, then followed, quoting from the ombudsman's report and urging the Government to accept that people who took no action and who would have difficulty in demonstrating that they would have acted differently if correctly advised, should be catered for under the scheme.

The amendments reflect both those points but I hope Members of the Committee will agree with me that they are largely unnecessary. Let me refer the Committee to words used both in another place and by myself in the Statement to this House: I intend to accept all the recommendations made by the NAO and the ombudsman". That means—and If cannot be clearer than this—that the Government accept that the burden of proof lies with the department. We also accept the ombudsman's point that the inherited SERPS scheme must be capable of a global solution—the noble Lord pressed me on that fairly recently in this Chamber—which includes providing redress to those who were misled and who took no action as a result.

The noble Lord, Lord Higgins, said that the ombudsman said that the department must prove that the individual was misled. Not quite. The ombudsman said that the burden of proof on the department would mean that, where an individual maintained that he had been misled, it would be for the department to produce proof to the contrary. I suggest it would be wrong not to expect people to answer any questions about the nature of the advice they received. However, I repeat that the Government accept that the burden of proof lies with the department.

Amendment No. 135 would require us to presume that all applicants under the scheme received incorrect or incomplete information. It does not allow for the situation which I have already bounced to and fro with the noble Lord, Lord Rix; that is, a situation in which a person neither received nor requested any information.

Amendment No. 138 takes a similar line, but only in respect of certain groups of people—those who are already pensioners or incapable of work when the change is due to take effect in October 2002, and those who are unable to pursue a claim under the inherited SERPS scheme because of mental disability. Everyone potentially affected would still have to apply to the scheme, but only those contributors of working age who are fully fit would have to satisfy the criteria for the scheme as intended. Amendment No. 139 goes even further and automatically exempts the spouses of all those in the same specified groups from the change in the rules.

It is the Government's wish to provide redress to those who were misinformed. In other words, the protected rights scheme rights the wrong that was done to people from 1988 onwards. It does not right a different wrong; that people would like to have 100 per cent pensions even though in fact all private schemes are 50 per cent. It does not right the wrong that they were in ignorance of the law because in all areas of life people may be in ignorance of the law and that is no excuse. It rights the wrong that people were given misleading advice and as a result either did, or might have, acted to their detriment or failed to act to correct that problem.

We simply cannot accept that those who were not misinformed because they never asked for any information should be included. That is tantamount to saying that any citizen claiming ignorance of any new law should be given exemption from it. That clearly cannot be right, whether it is about the law on seatbelts, which are now compulsory, including rear seat belts, TV licences or the like. We have to make the assumption for all of us that ignorance is no excuse in terms of an apology for failing to observe the law. We expect that to be a general convention in our behaviour.

I take the point that we want people to be aware of policy changes, particularly on pensions because it is a long-term investment. And at some point in the future we hope to be able to send people a regular statement of their likely state pension entitlement on retirement, and we could look at the possibility of including information about future policy changes with such statements. We have no wish to withhold information from people, but we are not liable if, in that sense, people have not familiarised themselves with it.

I have already repeated the Government's acceptance of the recommendations made by the NAO and the ombudsman. In addition, I can reassure noble Lords that the department will be consulting widely on how to bring them into effect. We have already begun that process and, through that, I am aware of the proposals made by the noble Baroness, Lady Greengross, and the noble Lord, Lord Rix, concerning people who will be unable to pursue a claim to the scheme because of mental disability. We intend that the appointee procedures that apply to benefit claims where a person cannot act for himself or herself will be a feature of the scheme. However, in this situation, I can appreciate that a successful claim will turn on past events and so appointee action may be limited.

I have, therefore, agreed to look carefully into the problem for the regulations. I am grateful to noble Lords for their assistance in this respect. We shall be putting the resulting regulations before the Social Security Advisory Committee, the Public Administration Select Committee and the ombudsman, to name but three. Then, as a final stage, they will come before both Houses of Parliament, where they will need noble Lords' approval. So never will regulations have been scrutinised by so many for the benefit of even more people.

The inherited SERPS scheme must and will provide redress to individuals who have received incorrect or incomplete information and relied upon it. The regulations which establish it will be extensively consulted on and debated. But the kernel of the problems of the inherited SERPS scheme was misinformation by the department: for that, the department is to blame. That is why our solution addresses that problem. Those who were misinformed and who suffered, or might have suffered, a loss will have their former rights fully protected. On that basis, I urge noble Lords to withdraw their amendments.

11 p.m.

Lord Rix

Perhaps I may ask the Minister to explain what she means by "incomplete information". I am not quite sure what it means. For example, does it mean that the phone went dead in the middle of the conversation? Alternatively, does it mean that the typewriter ribbon ran out? I am not quite certain as to the meaning of the phrase "incomplete information".

Baroness Hollis of Heigham

I have to say that I have not, in my own mind, gone into such mechanistic versions of what the phrase might mean. However, I think it means that the information was not sufficiently full to allow someone to make an informed decision. It is too late at night for me to think of an obvious example but, let us say, if someone received information which said, "Yes, you will be getting half a widow's pension", but did not give any indication as to when that might take effect, thus causing the person to believe that it would be 25 rather than 14 years on, that might be the sort of circumstance envisaged here. In other words, what was said was not untruthful but, by its lack of completeness, it did not give a full picture on the basis of which people could make a reasonable decision. If I have unintentionally misled the noble Lord, I will of course give him some further examples. But that is the sort of thing that I believe is meant by the phrase rather than situations involving typewriters and phones.

Lord Rix

I have one other example for the Minister. If someone looked through the leaflet that is issued every year with the pension statement and, up to 1996, that presented no alternative—no change—to SERPS, could that not be construed as "incomplete information"?

Baroness Hollis of Heigham

If, for example, someone received a leaflet in 1996 which clearly led him to believe that, as a result, he would continue to enjoy 100 per cent SERPS pension, that would be inaccurate, incomplete or misleading—however you may wish to describe it.

Lord Higgins

In the light of the Minister's response, I am absolutely clear in one respect; namely, that to deal with this matter by regulations would not be a satisfactory arrangement because regulations are not amendable. Indeed, this place may well take a different view from the view which the Government eventually feel they want to take. Given the scale of the problem and the public interest in it, it would not be right to say that the matter will be dealt with by regulation, where it is a take-it-or-leave-it situation.

Baroness Hollis of Heigham

As draft regulations, so to speak, they would be going before the Social Security Advisory Committee, the Public Administration Select Committee and the ombudsman. If points were made by those three separate bodies that ought to be borne in mind, the regulations would be modified before they came to this as well as the other place.

Lord Higgins

It does not necessarily follow that the Government will accept all the recommendations that those bodies make—

Baroness Hollis of Heigham

They may disagree.

Lord Higgins

Indeed, they may disagree. In my view, it is for this Chamber and the other place to decide the appropriate way to handle the matter.

I turn to my other point. My amendment—I believe that it helps those who have already retired as well as others—seeks to move the burden of proof on to the Government. I thought that that was accepted by the Government. However, that burden of proof does not constitute simply a case of being rung up on the wrong day or being sent the incorrect letter, or whatever it may be. The starting point—this is my understanding of the ombudsman's position—is that men were told that their wives would receive a full widow's pension. Unless they were subsequently told that that was not the position, they were misled. There was another category of people who were, so to speak, specifically misled. To say that it is a case of ignorance of the law when people are told one thing, the law changes and they assume that the original situation still exists, is to stretch the point too far.

However, no doubt we shall read carefully what the Minister has said and return to this matter at successive stages of the Bill. However, it is a matter on which Members will need to exercise a degree of discretion. I hope that rather than deal with the matter in regulations the Government will include it on the face of the Bill. We can then consider whether to accept it in that form.

Baroness Hollis of Heigham

What does the noble Lord mean by putting it on the face of the Bill? We are still in the process of consultation. Is the noble Lord saying that we should not continue to consult but should include the measure on the face of the Bill even though we do not expect to see the introduction of the scheme for two-and-a-half years and even though the consultation is extensive and detailed and, as a result, we shall need to put proposals to the other bodies involved? I do not understand where the noble Lord is coming from. Is he saying that there should be a separate Bill or is he saying that the measure should be included in this Bill?—because, if so, it is a case of saying goodbye to consultation now.

Lord Higgins

This matter has been going on for a long while. Last year we had another I believe that the views of the House were clear. We were told that the measure would be dealt with in this Bill, which it is. However, the crucial point is that at the end of the day the House should be able to amend measures. It is not acceptable that the matter should be dealt with by regulations. It needs to be dealt with by primary legislation. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 136 to 139 not moved.]

Clause 38 agreed to.

Clause 39 [Home responsibilities protection]:

[Amendment No. 140 not moved.]

Clause 39 agreed to.

Clauses 40 and 41 agreed to.

[Amendments Nos. 141 and 142 not moved.]

Lord Astor of Hever

moved Amendment No. 142A: After Clause 41, insert the following new clause—


(" . A person shall be able to hold both a stakeholder pension and an occupational pension concurrently and without financial penalty.").

The noble Lord said: This amendment would introduce concurrent scheme membership of stakeholder pension schemes and also all forms of occupational and individual pension schemes. The Government have already announced that they will permit individuals to contribute both to a stakeholder pension scheme and to a money purchase occupational scheme which opts to be covered by the new unified defined contributions regime. An individual will be able to contribute up to £3,600 in total to such schemes irrespective of level of earnings. Over earnings of £3,600, existing limits will apply.

However, many experts in the pensions industry argue that concurrency is vital. Indeed, it is widely considered to be the most important pensions issue at present. If concurrency were to be accepted, it would transform the whole pensions world for the better. These experts believe that members of all occupational pensions schemes should be able at the same time to contribute to a stakeholder pension or to a personal pension, as this would have a number of important benefits for pension provision in the United Kingdom. It would simplify the increasingly complex framework of pension provision, which works against the best interests of people joining pensions schemes. We are convinced that further simplification of the pension regime is vital, as many people have a limited understanding of pensions and may make inadequate provision.

The introduction of concurrent scheme membership would have the important benefit of enabling individuals to use their stakeholder pension as an additional voluntary contribution vehicle if they belong to an occupational pension scheme. It would increase the likely take-up of stakeholder pensions, so the cost of provision may be reduced. Concurrency would also avoid the possibility of another pension mis-selling or mis-buying scandal. There would be less risk that individuals would remain in a stakeholder pension rather than choose simply to join their employer's occupational pension scheme.

If the Government are serious about supporting occupational pension schemes, this is an important and tangible way of demonstrating their seriousness. The Government have hinted that they wish to address the issue. If so, could the Minister be more specific tonight, because companies will have to plan ahead? I urge the Government to reconsider concurrency, so that as many people as possible take up as much of their pension entitlement as they can. I beg to move.

Lord Goodhart

It is obviously much easier to combine a stakeholder pension with a money purchase scheme—whether it is an occupational or personal pension. The fact that there may be difficulty, in respect of the rules, in combining a stakeholder pension with a final salary occupational scheme is no reason for not changing the rules to make that possible.

Stakeholder pensions are of considerable benefit to many employees. It would be of great advantage if employees would not be required to give up their stakeholder pension simply because they move to a company with an occupational scheme. Equally, it would be highly undesirable if they came under pressure to opt out of an employer's occupational scheme to preserve their stakeholder pension. Concurrency is of considerable importance.

I agree with everything that the noble Lord said about the desirability of encouraging people to maximise their pensions within the permissible limits.

Baroness Turner of Camden

I am inclined to agree with what has been said by both noble Lords. The proposal would involve a kind of AVC scheme. I agree that people should be encouraged to maximise their pension provision. People move in and out of employment. They may spend some time in an occupational scheme but want to switch to a stakeholder scheme. If they could have both, that would simplify matters for them. This is a sensible proposal and I hope that the Government will be prepared to consider it.

Baroness Hollis of Heigham

The amendment seeks to permit concurrent membership of an occupational scheme and stakeholder pension scheme, thus enabling individuals to make tax-privileged contributions to each scheme at the same time. We have already announced our intention to permit simultaneous membership of stakeholder and money purchase arrangements. An individual will be able to contribute within existing limits to both an employer-run money purchase scheme and a stakeholder pension scheme. This new clause would take that a step further and allow concurrent membership of a defined benefit scheme, a final salary scheme, and a stakeholder pension scheme.

I have some sympathy with the points raised, as my noble friend said, but we need to consider whether allowing a person to make extra contributions of up to £3,600 per year into a stakeholder scheme when they may already be making the maximum permitted tax-privileged contributions into their employer's scheme, really represents the best use of public money. If such full concurrency were to be permitted, we estimate that this would cost the taxpayer around £400 million a year, much of which—if not most of which—would go to those who are already building up large pension rights through defined benefit schemes.

However, we have not ruled out allowing people on low or modest earnings—many of whom do not in any case make full use of the contribution limits for their employer's scheme (in other words, where there is "headroom")—to make further concurrent contributions into a stakeholder scheme. This is a so-called "partial concurrency".

Under the existing system, members of an employer's defined benefit scheme can make additional AVCs on a money purchase basis to a separate AVC fund. Various checks have to be carried out, however, to estimate how much can be contributed to the AVC fund without risking the eventual aggregate pension benefits exceeding the defined benefit tax limits. These procedures cause extra administrative effort and expense for schemes, but it is difficult to avoid this entirely when applying aggregate limits to pension rights accruing under the two different principles, defined benefit and money purchase.

I had exactly this problem when I came with a modest defined benefit scheme from my university and I was entitled to join a scheme here. I should emphasise to the Committee that the work required in the pensions department in order to calculate the headroom and what I might be allowed to pay in AVCs to top it up, was extraordinarily complex and very complicated.

The pensions industry has told us that a partial concurrency scheme based on estimating headroom, operating in a similar way to the current AVC arrangements, would seriously jeopardise its ability to develop good value stakeholder pensions within the 1 per cent cost limit. In other words, it is the pensions industry which is saying that it has real worries about some of the proposals mentioned today.

I accept many of the arguments made today. We are therefore keen to find a way forward which will accept partial concurrency without imposing significant administrative burdens on schemes, which the industry itself is worried about. We are currently consulting with the industry to find a practicable system which will achieve this.

To summarise, we estimate that full concurrency would cost around £400 million in extra tax relief, much of which would go to high earners who are already contributing to defined benefit schemes at the maximum allowable level. I cannot believe that the noble Lord is asking us to allow, effectively, a £400 million increase for those already endowed with good pension schemes.

We have, however, already signalled our willingness to allow partial concurrency, as long as this can be done in a way which will avoid the imposition of unacceptable administrative burdens, and therefore costs, on schemes. We are working with the pensions industry to achieve this.

I hope that the Committee will agree that we are working with the industry and trying to meet the substance of what the noble Lord has said. Obviously, we shall come forward with proposals in due course—should we be able to deliver them—in consultation with the industry. I hope that the noble Lord will withdraw his amendment.

Lord Astor of Hever

I am grateful to the noble Baroness for her response. I am also grateful to the noble Lord, Lord Goodhart, and the noble Baroness, Lady Turner, for their support. I am disappointed with the Minister's response. Certainly from my discussions with the industry I have gained a very different impression from hers. I think that the industry would dispute her figures.

There has been so much debate on concurrency that one would have thought that the Government would have by now reached a final conclusion. Many companies are reviewing their pension arrangements in the light of the introduction of both stakeholder pensions and the state second pension. There are many arguments in favour of this; it would simplify the pensions regime. Despite what the Minister said, the industry is behind us and, I believe, so is the Committee. Accordingly, I should like to test the opinion of the Committee.

11.20 p.m.

On Question, Whether the said amendment (No. 142A) shall be agreed to?

Their Lordships divided: Contents, 22; Not-Contents, 11.

Division No. 1
Addington, L. Goodhart, L.
Anelay of St. Johns, B. Henley, L.[Teller]
Astor of Hever, L.[Teller] Higgins, L.
Blatch, B. Hooper, B.
Buscombe, B. Luke, L.
Byford, B. Mackay of Ardbrecknish, L
Cope of Berkeley, L. Mancroft, L.
Dean of Harptree, L. Monro of Langholm, L.
Fookes, B. Northbrook, L.
Northesk, E. Turner of Gamden, B.
Russell, E. Wilcox, B.
Amos, B. Hoyle, L.
Carter, L.[Teller] Irvine of Lairg, L.(Lord Chancellor)
Crawley, B.
Gale, B. McIntosh of Haringey, L [Teller]
Greengross, B. Massey of Darwen, B.
Hollis of Heigham, B. Pitkeathley, B.

Resolved in the affirmative, and amendment agreed to accordingly.

11.28 p.m.

[Amendment No. 143 not moved.]

Clause 42 [Member-nominated trustees]:

Baroness Turner of Camden

moved Amendment No. 144: Page 38, line 23, at end insert ("; and (c) in paragraph (a), after the words "are made," there shall he inserted— (aa) that in the case of schemes which fall in a prescribed class, that such arrangements for the selection of persons nominated by pensioner members and deferred members of the scheme to be trustees of the scheme as are required by this section are made.""). The noble Baroness said: We now enter an entirely different territory, that concerned with trustees. The intention of this amendment is to impose a requirement to have pensioner nominated trustees in larger, more mature schemes, leaving the definition of the schemes to which this requirement will apply to be prescribed in regulations. The nominations are to be drawn from all former members.

It must be said that whenever one meets pensioners, as I frequently do since my union, as I have said before, has a retired members section which holds an annual meeting, the absence of pensioner members among trustees causes a great deal of resentment. Of course, decisions can be taken by people in employment, but they can be to the disadvantage of those who have left but who have nevertheless contributed, sometimes for a working lifetime, to the fund.

It has been argued that pensioner trustees would not be representative of, or accountable to, pensioner members given the absence in the majority of cases of any organised pensioner body. However, there are large companies, and I am well aware of some, where retired members do keep in touch with their former company. Sometimes there is an organisational structure for them to do so.

Nothing will give more encouragement to the formation of pensioner bodies of that kind than giving them a focus and purpose and recognising their legitimate interest in the governance of schemes. This is a reasonable suggestion. I hope that the Government will be prepared to look upon it with favour. I beg to move.

Lord Goodhart

I rise to support Amendment No. 144 and to speak to Amendments Nos. 148 and 152 standing in my name and that of my noble friend Lord Russell. I must apologise for an error in Amendment No. 152. Line 3 refers to "trustee" when it should refer to "director".

I believe that, wherever possible, both active and pensioner members should be represented on a board of trustees or on a board of directors of the trustee company. Current employees and pensioners have different interests. At its simplest, for example, employees have an interest in the continuance of the company that employs them, whereas pensioners do not—assuming, as is usually the case, that the pension fund is properly funded. Employees might, therefore, accept steps to save the company from liquidation at the cost of some damage to the pension scheme. Pensioners would have no such interest. Again, pensioners might want a more cautious investment policy than current members. I do not say that in taking those decisions the pensioners would necessarily be right, but the arguments need to be presented on their behalf. Therefore, I believe that they need separate representation.

The Government have said that a specific pensioner trustee or a specific employee trustee would regard himself or herself as a speaker for his or her constituency. But if that was a ground for refusing separate constituencies for employees and for pensioners, why have member nominated trustees at all, since the constituency differences between employer and member nominated trustees are much greater than between employee and pensioner trustees?

In those circumstances, I am happy to support the amendment moved by the noble Baroness, Lady Turner, and I commend my amendment to the Committee.

Lord Hoyle

I rise briefly to support the amendment, which stands in my name as well as that of my noble friend Lady Turner of Camden. I do so because, as she rightly said, there is a strong feeling among retired people who have contributed to a pension all their life that they also want to he represented in order to safeguard their pension interest. As a member of MSF, I have received a large number of letters from other members signalling the need for that, and also from members of other pension funds. As has rightly been said, there is an attempt on the part of some large companies to keep in touch with pensioners so that they are aware of what is going on. It would be even better if they were represented on the boards of the pension funds. As has been pointed out, their interests may not be the same as those of other members, but their interest is to ensure a valid pension and adequate funds to pay not only their pensions but the pensions of those who will benefit in the future.

Baroness Hollis of Heigham

The combined effects of Amendments Nos. 144 and 147 would be to pro vide for an additional member-nominated trustee in prescribed schemas over and above the minimum one-third to be nominated by the pensioner and deferred members. Similarly, Amendments Nos. 148 and 152 would mean that schemes with at least two member-nominated trustees or directors must have one who is appointed by active members and one appointed by pensioner members. Currently, schemes with a minimum of 100 members must have at least two member-nominated trustees. Schemes with fewer than 100 members need have only one. In both cases, the scheme is subject to the requirement that at least one-third of the trustees are nominated by members. The revised provisions do not change this.

It may be helpful if I explain how we see the new provisions working and why they are devised as they are. First and most importantly, the new provisions will ensure that there are member-nominated trustees or directors in every scheme. Our most important priority is to get members on to boards. Beyond that, we are also mindful of concerns that the present legislation is too complex and difficult to operate. Equally, we have to consider the costs associated with forcing schemes to change their existing arrangements.

To satisfy the new requirements there will be two routes, which for convenience we have labelled the "trustee route" and the "employer route". Under the trustee route, trustees will implement nomination and selection procedures using a framework set out in regulations. They will have some flexibility; for example, they can divide the membership into constituencies and there will be scope to use selection panels and so on. All active, deferred and pensioner members will be free to stand for selection. All active and pensioner members, and such deferred members as the trustees decide to include, will have to be invited to make nominations. The statutory framework will ensure that members are treated fairly. Therefore, unlike the current provisions, there will be no need for consultation or member approval. As a result, the whole process will be simpler and cheaper, which we believe will be widely welcomed.

Giving schemes flexibility is important. That is why, under the employer route, employers will have the right to propose bespoke nomination and selection arrangements for their schemes. The proposal must provide for a minimum of one-third member-nominated trustees, but the provisions are more flexible and for that reason must be approved by the members. We do not want to disrupt existing arrangements, which is why for many schemes the employer route will be the only way to do this. There will be more scope for the employer to determine the selection arrangements under this route. But the final choice will be made from individuals who have been nominated by scheme members, and the proposal will be adopted only if the members agree. The employer will be required to consult scheme members under a statutory consultation procedure similar to that currently in force. However, we need to look carefully at the matter to see whether it can be improved in any way. Under the new provisions, employers will no longer be able to opt out altogether. Therefore, every scheme will have member trustees, whichever route is used. Our first priority is to get member trustees in every scheme.

We thought long and hard about whether we should make a special case for pensioner trustees. In the consultation paper Strengthening the Pensions Framework we proposed that there should be a pensioner trustee in large, mature schemes. This generated a good number of responses, some supportive but most not. Most concern centred on the fact that in law all trustees have the same roles and responsibilities in respect of all the members. There was a real danger that we would have been seen to suggest something different. On balance, we decided not to do anything which suggested that any trustee had a representative role, and to focus on our main priority of ensuring that every scheme had members on the trustee board. Who those members should be, and whether they should be active, pensioner or deferred members, is something that is best left to the trustees and scheme members to determine. They know the scheme better than anyone; it is not for government to decide. I do not know what kind of schemes my noble friend has in mind for inclusion within a "prescribed class", but I suspect that it may be the larger, more mature schemes where there is a significant proportion of deferred and pensioner members.

Amendments Nos. 144 and 147 go further and make special provision for deferred members as well as pensioners. I am aware of concerns that sometimes deferred members are overlooked. This concern is highlighted by the fact that changes in the labour market mean that there are increasing numbers of deferred members with significant stakes in the scheme. But we also have to think about the practical consequences. Many deferred members have simply lost touch with their scheme or have only limited rights under it. We believe that the trustees are in the best position to determine the matter. I doubt that those responsible for running pension schemes would thank us for the consequences of Amendments Nos. 148 and 152. They make no allowance for the membership profile; they could have very few pensioner members or active members.

I remind the Committee that the Government have worked very closely with the pensions industry and other groups, including OPRA and the TUC, to produce these changes which will give members greater participation and confidence in their pension schemes and, at the same time, will make arrangements for the nomination and selection of member-nominated trustees easier to operate. These proposals, which we believe are a sensible and measured response, have been widely welcomed and represent a real strengthening of the pensions industry.

Under the trustee route, the new provisions would provide equal status for active and pensioner members. Under the employer route, the employer will be able to propose his own nomination selection arrangements to suit the circumstances of the scheme. The price of additional flexibility is that the proposal has to be put to the members for approval. If pensioner members feel that they are being treated badly, they will have the opportunity to voice their objection.

In the light of what I have said, I hope that my noble friend will feel able to withdraw the amendment.

Baroness Turner of Camden

I thank the Minister for that comprehensive reply. It is plain that the Government have given serious consideration to the issue of pensioner trustees. I am sorry that, nevertheless, they have come to the view on balance that it is probably not a good idea. I am not sure that I agree. Although I accept that trustees do not have a specifically representative role, nevertheless it appears to employees and to members of the scheme that they have put forward individuals who, without being specifically representative, would bear in mind the concerns of the people who put them there.

However, it is not my intention at this point in the proceedings to test the feeling of the Committee. I shall consider carefully what the Minister said. I am glad that the Government have given serious consideration to the issue and probably continue to do so. I hope that their minds will change in the future and, perhaps through general good practice, and so on, large schemes will be persuaded that it is in their interests ultimately to have representatives of pensioners on their board. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Dean of Harptree

moved Amendment No. 144A: Page 38, line 23, at end insert ("; and () after paragraph (b) there shall be inserted ", and (c) that those arrangements provide for all members of the scheme, that is to say, active, deferred and pensioner members, lo have equal rights of nomination and selection for member-nominated trustee seats.""). The noble Lord said: The amendment is similar to Amendment No. 144 moved by the noble Baroness, Lady Turner. I agree with everything she said. My amendment goes a little further, but the principle is the same. I am indebted to the National Federation of Post Office and BT Pensioners for the amendment. I declare an interest. I am an unpaid pension trustee and an occupational pensioner.

The Pensions Act 1995 introduced the requirement for member nominated pension trustees for occupational pension schemes. However, in practice there have proved to be too many opt-out provisions. The Government deserve great credit for pushing forward the frontier in the Bill, but I agree with the noble Baroness that they do not push it forward adequately enough as regards pension trustees.

The Minister, as I expected, argued that pensioners should not be trustees because they are pensioners. I agree that it is the job of pensioners to look after the interests of everyone concerned and not just one particular group. It is their job to look after all interests and not just the group to which they belong.

However, that argument could apply equally to employee pensioners. So I do not regard that argument as having much validity. The principle that we should apply here is that all those involved in pension schemes—employers, employees, pensioners and deferred pensioners—should have a say in the running of their schemes. As the noble Baroness also said, pensioners should also have equal rights of nomination and selection with active members. I say that for two reasons. Pensioners are out of sight and therefore can be easily out of mind. Employee trustees are on the spot. They can make their personal representations. They are often represented by professional organisations or trade unions. In many cases, pensioners have no organisation for themselves and, even if they do, their members will be scattered about the country. Therefore, they would be at a big disadvantage if a Bill allowed trustees to establish constituencies of members for nomination and selection procedures. In those circumstances, it would be very difficult for pensioners to organise the nomination and selection.

I know that the Minister's heart is in the right place on this matter. I hope that she will consider again those practical points and will recognise that there could he a big loophole so far as concerns effective representation for pensioners. I beg to move.

11.45 p.m.

Baroness Turner of Camden

For some reason, Amendment No. 144A has been grouped with Amendment No. 145, which is similar to an amendment that I drafted. I believe that Amendment No. 145 should have had my name to it, and perhaps I may say a few words about it.

The purpose of the current legislation is to ensure that members' views are represented on trustee boards and that not all trustees are appointed by the employer. The whole purpose of legislation could be undermined by leaving the door open to an employer to have a say on the selection of member trustees. The legislation addresses those employers who have been most determined to resist members having even a minority say in the running of their schemes. The next line of defence for employers who wish to resist having member-nominated trustees would be to try to get member trustees of their own choosing rather than those chosen by the scheme members.

Even under the proposed statutory route, the outline proposal allows an option under which employers can be represented on a selection panel for member trustees provided that they are in a minority. The presence of a senior company figure and the control of proceedings by the company-appointed pensions manager clearly has the potential to allow an employer considerable influence over the outcome. Amendment No. 145 makes it clear that member-nominated trustees must be selected only by the members, without influence by the employers.

Earl Russell

I hear what the noble Baroness, Lady Turner of Camden, says about independence from the employers. It is a key point. I can remember one or two cases that we discussed in this Chamber where that independence had not in practice appeared completely obvious. I hear also what the noble Lord, Lord Dean of Harptree, says about constituencies. However, a trustee should, by definition, be trusted. One way or another we must ensure that.

Lord Hoyle

I shall be brief in my support of Amendment No. 145. I believe that it would be totally wrong if the employer had any part whatever in the selection of member-nominated trustees. Certainly, I believe that they should be selected only by the members. As has been said quite rightly, if they did have any say, it would not be long before they nominated the trustees themselves. It would remove the rights of the members. Much pressure is already put on trustees at the moment. It is certainly true that sometimes they are intimidated by the presence of senior employers who also sit on the board of trustees. Therefore, I feel that it is only right that the members, and the members alone, should have the right to select member-nominated trustees.

Baroness Hollis of Heigham

This group of amendments covers some of the more detailed aspects of the new member-nominated trustee selection provisions. Amendment No. 144A would provide that all active, deferred and pensioner members are given equal rights in the nomination of member-nominated trustees and directors. That would apply equally to the trustee route and the employer route.

Perhaps I may recap briefly. Under the trustee route, all active, deferred and pensioner members will be able to stand for nomination. All active and pensioner members will be guaranteed the right to make nominations. Deferred members will be invited to make nominations if the trustees so decide.

I believe that I explained in a previous amendment why we consider that trustees are in the best position to decide the extent to which deferred members should be involved. Under the trustee route, trustees will have some flexibility to determine the selection process. This will include the possibility of using selection panels to make the final choice if there are more nominations than vacancies. This amendment will effectively outlaw the use of selection panels.

As I said before, and I think we should take it seriously, we do not want to disrupt existing arrangements unnecessarily. At the moment where there are more nominations than vacancies, many schemes use selection panels to make the final choice and it works very well. It means a group of individuals with a good understanding of the circumstances of a particular scheme can come to a view on the best person for the job. We do not see any reason to put schemes to the trouble and expense of changing their existing arrangements unnecessarily.

The second route is the employer's own scheme route. This amendment would severely limit the scope for an employer to propose the nomination and selection arrangements of his choosing. Our proposals already make the most important limitations. They insist that they must provide for at least one-third member-nominated trustees, and they require the proposals to be put to the members for approval. They also provide for all active, pensioner and deferred members to be eligible to stand for nomination.

Further restrictions are, I believe, unnecessary. Indeed, the flexibility that is such an important feature of the "employer route"—so that, for example, a trade union might be able to nominate people, as opposed to the trustee route where it would have been appropriate—would be completely lost. This is something we do not want to do, nor should we do. We want flexible arrangements here. I know that the Committee will appreciate that.

Amendment No. 145 would prevent anyone other than members or their representatives from being involved in the selection of member-nominated trustees.

Under the trustee route which I have already described our provisions are not very different from the amendment. However, they are more flexible and less disruptive. As I have already said, they will provide for the final selection to be made either by means of a ballot of the members or by a selection panel. We will be consulting on the details of the regulations in due course, but the intention is that if selection panels are used, they must comprise a majority of scheme members or their representatives. That seems to be the crucial safeguard. One either goes to a full ballot of all members or one goes to a selection panel in which the majority of the members on that panel are scheme members or the representatives and not the employers.

This amendment, on the other hand, would require that all the members of the selection panel must be member representatives. We see no reason to be quite so prescriptive.

Under the employer route, employers will have the right to propose bespoke nomination and selection arrangements for their scheme. The proposal must provide for a minimum of one-third member-nominated trustees, but the provisions are more flexible and for that reason must be approved by the members. It is certainly the case that there will be more scope for the employer to determine the selection under this route. The final choice will be from individuals who have been nominated by scheme members. Most importantly, the proposal will be adopted only if the members have agreed to it.

Although the amendment would have much the same effect as our proposal, it would force many schemes to change their arrangements for no good reason. We think we achieve the flexibility without undermining the key aim of getting member trustees on to the boards.

Amendment No. 149 is about informing and consulting members. It would introduce a regulation-making power requiring trustees to inform and consult members and former members in a prescribed manner about the effect of the arrangements they are required to make under Section 16 of the Pensions Act as revised by Clause 42.

As the amendment points out, it will be relevant only if the employer is not making a proposal under Section 18A. As I have already made clear, employers will no longer be able to opt out from having member-nominated trustees. Every scheme will have member trustees. That is our main priority. We are trying to keep down complexity and cost. That is why we have provided the two routes, the trustee route and the employer route, for putting member-nominated trustees into place. Schemes using the trustee route will have to follow a statutory framework that will ensure that all are treated fairly and, as a result, the whole process will be significantly cheaper and simpler than the employer route. However, the employer route has the greater flexibility. So, as it does not give the same guarantees, it is only right that proposals should be put to the members for approval.

However, I do not want to misrepresent the amendment. I do not believe it is asking for member approval in the way I have described for the "employer route". I think the intention is simply to make sure that members are given the opportunity to have a say and to be kept properly informed. We have no argument about that. I am a little concerned about putting a requirement on the face of the Bill.

The trustee route meets two important aims. It is fair to members and it is simple to devise, and I do not want us to stray from that if I can avoid it. We intend to make regulations that will require schemes to document their member-nominated trustee procedures to make them available to members. We are also planning to require trustees to set out the procedures in the Annual Report. It will be an unnecessary burden to insist on member consultation on something that is bound by a statutory framework.

I turn now to Amendment No. 153. This amendment inserts the words, in relation to that company", into Section 18(8) of the Pensions Act. Perhaps I may explain exactly what that is all about. In a situation where a company is trustee for more than one scheme—for example, where an employer runs two pension schemes, but uses the same trustee company for both—the member-nominated director provisions would require that the members of each scheme would be entitled to nominate one-third of the directors of the trustee company.

Clearly that would not work well if we left it alone. For example, how would a company that is trustee for, for example, four schemes be able to have four-thirds of its directors nominated by the members? The only practical way to deal with this in legislation is to add the memberships of the various schemes together so that they get to nominate one-third of the directors collectively.

Having said that, we also recognise that there will be situations where the company wants to keep the memberships separate. So what we have effectively done is leave the choice to the trustee company. The default is to aggregate, but the option is there not to.

Where the trustee is a professional trustee company acting for several different schemes run by different employers, I suspect that they choose to avoid the situation altogether by setting up separate companies for each scheme. That seems to me to be a very sensible approach.

My legal advisers tell me that the amendment will not have any material effect on the clause as drafted and I hope this brief explanation will reassure noble Lords that this amendment is not necessary.

Finally, Amendment No. 154 would introduce a new regulation-making power into Section 125 which would determine who is to be treated as a qualifying member. The expression "qualifying member" appears throughout the revised member-nominated trustee provisions as amended by Clauses 42 to 45 as a result of the Welfare Reform and Pensions Act 1999. We are simply carrying these changes through into the new member-nominated trustee provisions.

The reason for replacing "member" with "qualifying member" is to provide a legal mechanism whereby only active, pensioner and deferred members are involved in the member-nominated trustee process. Members whose only rights derive from a pension share on divorce will not be included. 'This maintains the existing policy that only members with a connection to the scheme through employment should be involved in the nomination and selection of member-nominated trustees. Therefore, we do not need separate regulations to deal with that point.

In the light of those explanations of what are really very technical amendments, although it seemed important to put those explanations into Hansard so that companies could see what we are determining or proposing, I hope that the noble Lord will feel able to withdraw his amendment this evening.

Lord Dean of Harptree

I greatly admire the stamina of the noble Baroness, although I do not quite go as far as that in relation to the arguments that she has used.

I do not intend to argue the toss at this hour of the night, nearly midnight. I shall study carefully what the noble Baroness said and, if necessary, return to this very important subject. I believe that she has underestimated the practical difficulties involved for pensioners in achieving effective representation. I may well return to this matter at a later stage, but in the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 145 not moved.]

Baroness Turner of Camden

moved Amendment No. 146: Page 38, line 33, at end insert— ("(5A) In subsection (6)(b) for "one-third" there shall be substituted "one-half.""). The noble Baroness said: The purpose of the amendment is to ensure that at least 50 per cent of trustee boards are member-nominated trustees rat her than the one-third currently in legislation.

The general conclusion on member-trustees is that they improve the working of trustee boards, both by their input and by ensuring that trustee boards conduct their business in accordance with pensions legislation. They also add to employee confidence in pension schemes, which was, of course, rather badly shaken by the Maxwell scandal.

Many large firms have operated for years with a 50 per cent member trustee board; for example, British Aerospace, Prudential, Rolls Royce, Shell, Unilever and many others. I understand that the Government themselves—and we heard something about that this evening—favour 50 per cent, as does the NAPF, but there is a reluctance to make it a statutory obligation.

I believe that the main concern expressed about giving member trustees parity is that employers fear that they will lose control of the cost of their schemes. But, of course, trustees can normally improve member benefits only if the employer agrees. Moreover, unions have long understood the difference between negotiating terms and conditions, including pensions, and representing beneficiaries' interests in a pension scheme. They are quite different functions.

It is true that trustees control investment policy but they must, in any event, act in accordance with the best professional advice available. I think that the time has come to make 50 per cent a statutory requirement. I hope that the Government will move towards that this evening. I beg to move.


Lord Hoyle

I too support the amendment which is extremely sensible. If large companies do not fear 50 per cent of the members of the board being employee trustees, I do not see why the Government are so fearful of making it a statutory requirement. As has rightly been said, particularly after Maxwell, many employees have little confidence that schemes will be administered sensibly and in the interests of employees. In many cases, employees regard pensions as salaries that have been rightly deferred for the benefit of members. I believe that the way to ensure that their confidence is retained is by way of a statutory 50 per cent membership. I cannot see why the Government are hesitating when so many large firms find this to be a practical and reasonable proposition.

Lord Dean of Harptree

I believe that this is a good advance on the present practice. I support the amendment.

Baroness Hollis of Heigham

I am intrigued by all this support for proposals which, as I recall, were bitterly opposed when we debated the 1995 Act, when my noble friend, with support from me, tried to press many of these points.

I sympathise with the amendment. However, our priority is to get members on the trustee boards of all occupational pension schemes. As my noble friend Lord Hoyle stated, some schemes already have 50 per cent member-nominated trustees, and I applaud that. However, I do not believe that the exact proportion is as important as getting some members on to every board. The schemes we are proposing will have at least one-third.

Having ordinary members on the board is not about having individuals to represent the interests of scheme members; nor is it about creating a voting block to balance the power of employers. It is about bringing a different set of skills and experiences to bear and about providing board discussions with a different perspective.

All trustees have the same responsibilities to run the scheme in the interests of the beneficiaries; a point made by the noble Lord, Lord Goodhart. I believe the overwhelming majority of trustee boards work together in that way for the interests of members as a whole. Indeed, I believe that trustee decisions are rarely made by anything other than complete consensus.

I have no issue with the principle of 50 per cent member-nominated trustees, but I think it would be an unfair burden on business to require it now. I hope that my noble friend will agree that it is important to work with the industry, particularly after we have gone against the wishes of the industry earlier tonight, at least temporarily. We may therefore need to do even greater work with industry in order to overcome some of the problems we dumped on it in an unfriendly way tonight. I hope that we shall work with the pensions industry and sponsor employers to continue to encourage good quality occupational pension schemes.

Like my noble friend, we believe that ordinary scheme members add real value to trustee boards and we want to see more of them. We have worked with the industry to develop these new arrangements. We believe that they represent a real step forward. With that in mind, I hope that my noble friend will feel able to withdraw the amendment.

Baroness Turner of Camden

I thank the Minister for her explanation of the Government's policy as regards statutory requirement. However, I had the impression that she was sympathetic to the points put in our argument.

Baroness Hollis of Heigham


Baroness Turner of Camden

Nevertheless, there is no point in prolonging the argument at this time of night. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 147 to 149 not moved.]

[Amendment No. 150 had been withdrawn from the Marshalled List.]

Baroness Turner of Camden

moved Amendment No. 151: Page 39, line 24, at end insert— ("(10) The Secretary of State shall make regulations providing that all trustees should be required to have attended an approved training course explaining the role and responsibilities of trustees within six months of being either elected as a member-nominated trustee or appointed as a trustee by the scheme's sponsoring employer. (11) These regulations shall also prescribe the content of such an approved training course. (12) The failure of a trustee to attend such a course within six months of being either elected or appointed as a trustee shall nullify the trustee's election or appointment."). The noble Baroness said: Amendment No. 151 stands in my name, that of my noble friend Lord Hoyle, and other noble Lords.

The amendment concerns the training of trustees. As we all know, pension provision has become a rather complicated matter. Successive governments have introduced legislation with the laudable aim of protecting beneficiaries, but the result has often been to add to the complication. Owing to the reforms introduced by the previous government in the wake of the Maxwell scandal, there is now an obligation for occupational pension schemes to make provision for employee trustees. We discussed that earlier this evening.

Pension fund trustees are expected by the employees who elect them to look after the interests of beneficiaries. They will be held responsible in the eyes of employees for anything that goes wrong. The trustees will be held to be accountable and they must also ensure that—to use another frequently used term—there is transparency. So trustees need to be familiar not only with their own scheme rules but also with the legal requirements. They must know when to seek advice and where to get it.

Employees must have confidence in their scheme and the way in which it is administered. Unfortunately, despite the very good record of occupational pension schemes—they are the reason why many pensioners are able to live in rather more comfort than they might otherwise be able to do—that trust has been sorely dented by scandals such as the Maxwell affair. The recent legislation has been designed to try to restore confidence and employee trustees play an important role in that regard.

The idea that trustees should be trained has the support of unions and employers. The text of this amendment has been supported by unions, in particular my own, MSF, and also by the Engineering Employers Federation. Many organisations offer courses of a high standard. Unions do so as well. My union has its own residential college at Bishops Stortford and training courses have been available there for some time.

Furthermore, it is not only employee trustees who need to be trained. Management normally nominates trustees, and they may well be people who hitherto have had little to do with pension provision. It is therefore necessary for them to be trained as well.

Unions well understand the difference in function between those nominated and elected as trustees and union representatives with the duty of negotiating terms and conditions. Our training course makes this difference quite clear. Trustees have an obligation to act for all beneficiaries and are not concerned with negotiating terms and conditions. They are quite separate functions.

I hope that the Government will feel disposed to accept this amendment. If for any reason the wording is not acceptable, perhaps the Minister will accept the principle here and come back with an alternative form of words on Report. I beg to move.

Lord Hoyle

Again I shall be extremely brief, since it is now past midnight. The amendment is also tabled in my name, along with those of my noble friend and the noble Lords, Lord Higgins and Lord Astor.

I wish to support the amendment because training is absolutely necessary. Pension provision is a difficult and complex matter and, as has rightly been said, to perform properly as a trustee you must understand the workings not only of your own pension fund but of others. You need to understand its aims and how investments work. It is vital that training is given not only to those nominated by members but also to those representing employers, so that all concerned will have the necessary expertise and skill to administer pension funds in the interests of all their members.

Lord Astor of Hever

I am happy to support the amendment moved so effectively by the noble Baroness, Lady Turner. The role and responsibilities of the trustees of occupational pension schemes are becoming increasingly onerous. As the noble Baroness, Lady Turner, and the noble Lord, Lord Hoyle, rightly pointed out, their work is increasingly complicated.

There is a danger that enthusiastic amateurs could be elected without being fully aware of their wider responsibilities as trustees. It is therefore critically important that they understand their role in sufficient depth. Members of occupational pension schemes should not be expected to hand over the future security of their pensions, which are probably one of the most important financial investments that individuals will ever make, to those who have not been properly trained to deliver with due care. The members of occupational pension schemes should have the same guarantee of customer care and a proper understanding of the issues as they would expect and demand from every other part of the financial services industry.

For those reasons, we add our full support to this amendment.

Lord Dean of Harptree

Those of us who have been pension scheme trustees for some years will recognise the enormous additional responsibilities and financial obligations which are now to be placed on pension trustees. Those of us involved in the last amendments, from all sides of the Chamber, are anxious that those on pension trustee boards should be more widely representative than they are at the present moment. This conveys to me clearly that training is not only advisable but also necessary. So I am glad to support the noble Baroness in her amendment.

Lord Goodhart

I too support the principle behind the amendment. I am a little concerned with the form of the drafting because some employers have a number of different trust funds and may wish to appoint the same individual successively as a trustee of a number of those funds. It might in that case be inappropriate to require somebody who has already been on a training course to go on a further one. Subject to that point, the principle is absolutely right.

Baroness Hollis of Heigham

Almost everybody in the Chamber spoke in favour of the amendment tonight except, alas, myself.

Amendment No. 151 would require all trustees to attend an approved training course within six months of being appointed or face removal. It would also require the Government to prescribe in regulations the content of such training. I sympathise with the spirit of the amendment. I accept that trustees have the job of the proper running of the scheme. It is vital that they have a full knowledge of what is expected of them and for that they need to be trained. In that regard we are at one with the amendment; that is, we all agree that trustees need adequate training to carry out their responsibilities. The question is whether, from what we currently know, given the wording of the 1995 Act, that training should be compulsory and what form it should take.

The present law stops short of making training compulsory, but it does make it a requirement that employee trustees are given paid time off to undertake training. Trustees who are employees of the sponsoring employer, that is the majority, have the right to that paid time off and it is important that they exercise that right and obtain the training that they need. If they do not, they will not be serving the best interests of their scheme, the employers, the members, or anyone involved in the scheme. So it is in everyone's interests to make sure that they are properly trained, and the substantive proposal in the 1995 Act was that they should have paid time off to receive that training. So there is no bar to that.

Whether it is appropriate to go to the lengths proposed by these amendments is another matter. There is already a great deal of quality training available for trustees. Many trustees take advantage of that training. The Pensions Management Institute holds a list of 38 providers of trustee training and so forth. The Pensions World magazine listed 27 providers who last year provided training for over 3,700 trustees. There has been an increase in demand for training since 1998.

Those not trained, or who are not coming forward, so far as the research suggests, are those who have already been a trustee for a long period of time and are very experienced; they already have relevant experience in being a trustee; or they are essentially trustees for a scheme managed by a professional insurance company and only in a few cases would they appear to be under pressure of time or lack of interest.

I could go on. As I say, it is clear that many schemes already have a good record on trustee training. There are encouraging signs that further progress is being made and more training is being made available. As I say, the Committee made it clear that there is agreement throughout the Chamber and I am willing to take the amendment away and consult further with the industry. My advice is that employers will oppose the extra costs and are hostile to it. It may be that the industry has a different view. If it feels it is appropriate to explore this further, I am willing to do so. I entirely accept the spirit of the amendment.

As I say, when I come back I may say that we have taken advice, that we have consulted but do not feel, to use the old-fashioned phrase, that the time is right to make it compulsory. But I am willing to ask the officials to explore this further, given the opinions throughout the Chamber tonight.

Baroness Turner of Camden

I thank my noble friend for that response; it is one of our victories this evening.

I am pleased that my noble friend is going to consult. The text of my amendment—I obtained it from my union—was originally drafted by the Engineering Employers' Federation so I imagine that some employers will be quite amenable to the suggestions made in the amendment. I am grateful for my noble friend's assurance this evening and, with pleasure, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

12.15 a.m.

Clause 42 agreed to.

Clause 43 [Corporate trustees]:

[Amendments Nos. 152 and 153 not moved.]

Clause 43 agreed to.

Clauses 44 and 45 agreed to.

[Amendment No. 154 not moved.]

Clause 46 [Information to be given to the Authority]:

[Amendment No. 155 not moved.]

Clauses 46 and 47 agreed to.

Clause 48 [Reports about winding-up]:

[Amendments Nos. 156 to 160 not moved.]

Clause 48 agreed to.

Clause 49 [Directions for facilitating winding-up]:

[Amendments Nos. 161 and 162 not moved.]

Clause 49 agreed to.

Clause 50 [Restriction on index-linking where annuity tied to investments]:

Baroness Turner of Camden

moved Amendment No. 162A: Page 54, line 40, after ("satisfies") insert ("the conditions mentioned in subsection (1A) and"). The noble Baroness said: In the absence of my noble friend Lady Dean, I have undertaken to ensure that this amendment is moved. The proposal to raise the age at which pensioners are obliged to use their pension funds to buy an annuity from 75 to 80 has to be welcomed as indicating that the Government are aware there is a problem surrounding annuity purchase, but it does not solve it. It can only help pensioners with very large funds, who can use the income drawdown arrangements. But they still have to hand over the remaining pension fund to the life office to buy an annuity, perhaps shortly before death. Most pensioners cannot afford to delay annuity purchase, so postponing the decision until 80 does nothing to help them.

The problem with annuity purchase is not just low annuity rates. That might change in the future. The obligation to purchase an annuity locks an individual into a lifelong and unchangeable contract at a particular point in time. With increased longevity, funding the annuity is increasingly difficult for life offices and reduces the returns on annuities. It is also far too inflexible because annuitants are required to use all of their pension fund for this purpose.

In view of the Government's desire to encourage more people to save for their own retirement, the Government should seek to provide potential savers with a much more attractive prospect—retaining control over at least a portion of their pensions funds. On retirement, the individual should only be obliged to purchase an annuity which will provide him with sufficient income to avoid state support until the end of his life, thus fulfilling his obligation to the state. The Retirement Income Working Party suggested that the level of weekly income should be set at £140 a week, including the basic state pension for a single person. For a man aged 65, the annuity purchase for an index-linked pension of about £70 a week would cost about £55,000.

Under this text, pensioners would be free to invest the remainder of their funds, subject to the appropriate tax regulations, bearing in mind that tax relief has been provided to enable them to save. The financial services industry would have an incentive to develop new products to provide income in retirement. I beg to move.

Lord Higgins

The reason for my not pursuing this point is that it seemed to me to be very late at night to engage in a discussion on an amendment of such importance. However, the views on this side of the Committee are well known; indeed, new developments in this field need to be taken into account. For example, the £55 billion windfall that has come into the Government's hands as a result of the mobile phone situation may alter the position in financial markets quite considerably. It remains to be seen whether, on the one hand, the Government use that money for debt repayment. That would obviously affect annuity rates, which would not be to the advantage of pensioners. On the other hand, given the increasing trend in pension funds to include in their portfolio corporate as well as government bonds, it remains to be seen whether that £55 billion will anyway be offset by the phone companies themselves having to raise the finance in the form of corporate bonds. These are complex issues.

I imagine that the noble Baroness is not proposing to press the amendment to a vote at this stage, even if she might win! It seems to me that the amendments tabled by the noble Baroness are, in many respects, rather more sophisticated than that which I, being a simple soul, had tabled. It is important to maintain people's ability to keep their incomes as pensioners above income support level. However, I hope that, subject to what the Minister says, we might return to this important matter at a later stage.

Lord Goodhart

I hesitate to become involved in a discussion about the philosophy behind tax relief on pensions at this stage of the night. However, I am somewhat concerned about the matter. It has always seemed to me that the purpose of tax relief on pensions is to provide a fund which is basically for the benefit of the pensioner and the pensioner's widow or widower. Once the pensioner—whatever age he or she reaches—is not required to use the whole of the fund for his or her own consumption, there is considerable scope for tax avoidance, particularly in the case of wealthier pensioners. One obtains the benefit of the funds and one can hand them onto other members of one's family with the benefit of the tax relief which one has not used oneself.

The amount of tax relief that is available on pensions contributions in this country is extremely large, compared with tax relief in other countries, or indeed compared with tax reliefs available in this country on ISAs. As I say, I am somewhat concerned about this matter. I can see that other measures could be taken, such as allowing funds to be invested in something other than strictly an annuity. I shall not go into the matter any further tonight but I am somewhat concerned about the amendments.

Baroness Hollis of Heigham

I am tempted to ask whether I can support the noble Lord, Lord Goodhart, and sit down again. I thought that he expressed admirably the concerns about this matter.

Clause 50 gives members of defined contribution occupational pension schemes the option of using the non-protected rights element of their accumulated pension fund accrued from April 1997 to buy an investment-linked annuity instead of an index-linked annuity. The clause also provides for a power to prescribe the conditions which investment-linked annuity products must satisfy.

I feel that I cannot deal with this matter quickly as it is such a substantive item. If we do it at all, I have to spell out the reasons for the Government's position. I had hoped that we might defer the matter to Report stage, but the Committee has decided otherwise.

We issued a public consultation document seeking views on whether greater flexibility should be allowed so that members of money purchase schemes could choose to buy either an investment-linked annuity or a traditional index-linked annuity to satisfy the indexation requirements. Forty responses were received, of which, 34 supported the proposal for change and welcomed the Government's willingness to recognise innovative annuity products.

The amendments have a number of intentions aimed at changing the current rules on annuity purchase for tax-approved pension schemes. Amendment No. 163 is intended to remove the existing requirement for pension funds to be used to purchase an annuity by the time of the member's 75th birthday at the latest.

Amendment No. 162A seeks to specify on the face of the Pensions Act 1995 as to the type of investment linked annuity products which may be purchased and is directly linked to Amendment No. 162B. Amendment No. 162B seeks to require that money purchase pension funds should be used to provide only an annuity of £70 per week and that figure would be subject to annual increases in an attempt to ensure that the annuitant would not qualify for income support. The balance of the pension fund would be invested so that it was not subject to income tax, and any withdrawal of capital or income from the fund would be subject to income tax at the highest marginal rate of the fund holder.

Defined contribution pension schemes, such as personal pensions and the new stakeholder pensions—money purchase— are based on the idea of building up a fund from contributions made while the member is working. The fund can then be used to provide a pension income in retirement. Annuities convert capital into an income guaranteed to continue in payment for life. They are the only product that can do this. However, there is a wide range of annuity products available on the market to suit individual needs— including investment-linked annuities, which allow annuitants to benefit from possible investment growth in the future. I stress that lifelong payment is a feature of all types of pension annuity. That is an important point.

Annuities pool risk. Those who die younger are, by definition, cross-subsidising those who live longer. As those who, for whatever reason, suspect that they may die younger and avoid annuities, the average age of those who remain lengthens and annuity rates have to fall to cover them. An annuity then becomes a less attractive buy for persons with average life expectancy, so the non-virtuous spiral continues.

The income draw-down facility allows members to defer annuity purchase if they wish, while drawing an income from the capital of the fund, which can remain invested in stocks and shares, but which must stop at the age of 75. It is high risk and high cost. We calculate that it works only if one has a fund of at least £200,000 per year. Some experts give a slightly lower figure.

The noble Lord, Lord Goodhart, was absolutely right. Tax-approved pension funds benefit from valuable tax privileges at substantial cost to the Exchequer. Those incentives are designed to help people to obtain an adequate pension in retirement, not to provide a highly tax-privileged way to make investments of a general nature to produce a highly privileged way of producing an inheritance for others subsequently to enjoy. It is right for the Government to have an interest in the use of pension funds after retirement to ensure that they do provide a pension through retirement as intended.

We have heard much about the apparently poor value that annuities represent. I accept that rates have fallen in recent years but that is partly due to the money illusion. The stable economy provides scope for sustained growth in pension funds, and lower inflation means that an annuity will buy more. Since 1990, annuity rates have fallen by just over one-third. Inflation has fallen by well over two-thirds, while the FT30 has doubled. We are experiencing a lower return on a double-sized fund to meet an even lower level of inflation. Explained that way, people would be hard-pushed to argue that an annuity currently at around 9 per cent for a single male age to 65 with a five-year guarantee is unacceptable.

Amendments Nos. 162A and 162B seek to remove the current requirement to use the whole of a tax-approved defined contribution fund to buy an annuity. The amendments would require that an income of only £70 per week should be purchased as an annuity, subject to annual increases. That appears to be to prevent the pensioner having to fall back on income support.

The amendments have a similar objective to the proposals in the Retirement Income Working Party report. We are considering those points, but we need to assess the full implications of requiring people to buy an indexed annuity from their personal pension fund. Many factors need to be taken into account. We are giving serious consideration to whether that is a useful approach. Those are not empty words. Treasury, Inland Revenue and DSS officials are reviewing the Government's position but we need to be sure that any change is an improvement on the present position.

Annuities provide a guaranteed income for life. They are by no means poor-value products, as some people like to suggest—especially in the low-inflation environment that we are committed to maintain. The annuity purchase rules, as they relate to tax approval, are contained in the Income and Corporation Taxes Act 1988. Amendments to that legislation would fall outside the scope of the current Bill. The Government are actively considering the rules in question, and in light of my explanation, I hope that my noble friend feels able to withdraw her amendment.

Baroness Turner of Camden

I thank the Minister for that lengthy explanation. It has fulfilled the requirements of myself and my noble friend Lady Dean. She has not been able to be in her place this evening and I promised that I would move the amendment. We were anxious to get on record the view of the Government on what we consider to be a serious matter. As the noble Lord, Lord Higgins, said, it is inappropriate to start discussing a matter of such complexity at this hour of the morning. We shall examine in detail what has been said and consider whether or not it is worth raising the whole issue yet again on Report. In the meantime, having thanked the noble Baroness, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 162B not moved.]

Clause 50 agreed to.

[Amendment No. 163 not moved.]

[Amendment No. 164 had been withdrawn from the Marshalled List.]

Clause 51 [Information for members of schemes etc]:

[Amendment No. 165 not moved.]

Clause 51 agreed to.

Clause 52 agreed to.

Clause 53 [Investigations by the Pensions Ombudsman]:

[Amendment No. 166 not moved.]

Clause 53 agreed to.

Clauses 54 and 55 agreed to.

Schedule 5 [Pensions: miscellaneous amendments and alternative to anti franking rules]:

[Amendment No. 166A not moved.]

[Amendment No. 167 had been withdrawn from the Marshalled List.]

[Amendment No. 168 not moved.]

Schedule 5 agreed to.

Baroness Amos

I beg to move that the House do now resume.

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

House resumed.

House adjourned at twenty-seven minutes before one o'clock.