HL Deb 08 November 2004 vol 666 cc706-44

8.41 p.m.

Further consideration of amendments on Report resumed on Clause 284.

Lord Higgins moved Amendment No. 276:

Page 236, line 3, leave out paragraph (c).

The noble Lord said: My Lords, I am glad that the noble Baroness has moved the Motion, since she omitted to do so on the last occasion that we resumed business. I see that my amendment has been grouped with Amendment No. 278 in the name of the noble Baroness, Lady Turner, and Amendment No. 279 in the name of the noble Lord, Lord Oakeshott. The content of our debate is more clearly illustrated by the two subsequent amendments than by my rather brief one; namely, the question of whether a scheme that was closed while the sponsoring employer was solvent and found to have insufficient assets to meet the scheme's liabilities in full shall be a qualifying pension scheme for the purposes of the financial assistance scheme.

In our earlier exchanges the noble Baroness said that this matter was still being considered by the Government. I was slightly surprised by that because while we all agree that it is highly deplorable for a company which is perfectly solvent to renege on its pension promises, a classic moral hazard argument would ensue if the company concerned believes that the FAS will pick up the pieces and lets it do so. It would indeed be singularly unfortunate were that to happen.

The first case which came to my attention was that of Maersk, but eventually public opinion in that instance caused it to change its position. The other one, which was referred to several times in Grand Committee, is that of the Japanese company, Nikko. I think that the name of the company has changed over time from Nikko Securities to Nikko Cordial, which I understand is part of Citigroup. That company seems to be in the same position. Complaints have been made by some 400 deferred pensioners of the company who have found that, as a subsidiary, the company went into what is known as members' voluntary liquidation. The result of that has been that the parent company, which is perfectly solvent and, indeed, extremely profitable, has not met the commitment to the deferred pensioners. This is very unfortunate.

I shall be interested to hear to what extent the Minister's consideration of the matter has developed. It seems to me that this will be a burden on the financial assistance scheme, which clearly, from what the Minister has said, will have limited resources. Therefore it will be to the disadvantage of someone else. If all the schemes which are solvent renege on their promises and act in that way, presumably the cost on the financial assistance scheme would be considerable.

The Nikko case raises difficult questions about the position of trustees who, I gather, have changed over time. These are very difficult issues. It may be that publicity and moral persuasion is not sufficient.

The Government's position is also not clear on the question of what date they will select as a cut-off point. I was going to say a "deadline" but, in a sense, it is a lifeline; it is how far back you go rather than stopping at a certain point. Perhaps the Minister will tell us the Government's present position so far as concerns the start date of the scheme.

These are difficult issues which affect people very seriously and it is important that we get them right. I shall be interested to hear the Minister's response and to what extent this is still a live issue or to what extent it is one on which the Government have not yet made up their mind. I beg to move.

8.45 p.m.

Baroness Turner of Camden

My Lords, I shall speak to Amendment No. 278, which is grouped with the amendment of the noble Lord, Lord Higgins.

The noble Lord has outlined the problem in some detail. We debated in Committee the problems that arise with a scheme that is wound up when the employer is solvent. The view of the Minister in such cases has been that it is right to look to the employer to make up any deficit in pension entitlement. However, I and others concerned with the Bill have had some heartrending letters from people who have suffered in circumstances such as those outlined by the noble Lord, Lord Higgins.

In one instance the scheme was wound up, the firm was later taken over by another firm, and then I believe there was insolvency. As a result, the pension payments of a number of individuals—including those with deferred pensions—have been very severely reduced and there seems to be no way in which they can obtain recompense. They are, apparently, outside what they believe to be the timeframe. I think the timeframe is June 2003 that is one that has been mentioned to me anyway.

Under the Bill as it is presently written, the scheme is not a qualifying scheme as far as the FAS is concerned. It is not much use directing the former employees and the pension scheme members to the employer because there is no money to be obtained from that source. I gather that those affected are currently pursuing their case with the Parliamentary Ombudsman. Whether or not this will be effective is somewhat doubtful.

It seems unfortunate that certain groups will be left out of the cover provided by the Bill. Like the noble Lord, Lord Higgins, I will be grateful to hear what the Government have to say about the issue.

Viscount Trenchard

My Lords, what are the Government going to do about this? It is debatable whether public money should be used in these circumstances at all, but if public money is to be made available to the FAS, why do the Government consider it right to provide public money to assist those whose pension schemes are underfunded because their employers are insolvent, but not right to assist those whose pension schemes are underfunded because their employers have decided not to pay? If this is a proper area for the Government to provide public money, what is the justification for them discriminating between these two groups?

Lord Hoyle

My Lords, I support my noble friend Lady Turner on Amendment No. 278. There are some very difficult cases, and it is not the fault of the people who have been in the scheme. The scheme was closed while the employer was solvent. Afterwards, these people have found that, through no fault of their own, they do not qualify. It must be wrong that they are excluded in this way. I simply ask that this is given consideration; I shall listen with interest to what my noble friend the Minister has to say about it.

Lord Oakeshott of Seagrove Bay

My Lords, I hope it might be for the convenience of the House, given that the hour is rather late, if I support the noble Baroness, Lady Turner, on Amendment No. 278 and speak briefly to my own Amendment No. 279, which effectively says the same thing.

As we discussed in Committee, we feel that this is an issue of principle. None of us believes that a very large number of people is involved, and we believe that they should be eligible. There does not need to be a lot of detailed analysis and work on how much money will be available for the scheme before one decides whether these people should or should not be included.

There can sometimes be a little misunderstanding about solvency or insolvency. A technically solvent employer can be in a very weak financial position, and not really in any position to contribute further to a scheme, particularly if that happened some time ago. The moral case is equally strong for including people in the solvent wind-ups as it is for other people covered by FAS.

It is nearly four weeks since we had quite a detailed, probing discussion on this in Grand Committee. I hope that the thinking of the Minister and her department has moved forward and that she can tell us what the position is.

Baroness Hollis of Heigham

My Lords, I shall do my best. I am grateful that the noble Lord, Lord Oakeshott of Seagrove Bay, is grouping Amendment No. 279 with Amendments Nos. 276 and 278, because I would have been repeating myself otherwise.

Amendment No. 276 would force FAS to offer assistance to members of schemes without regard to the circumstances of employers connected to those schemes. Amendments Nos. 278 and 279 appear to intend to force FAS to offer assistance to members of schemes regardless of the solvency position of the employer.

Let me deal with the "techie" point before coming on to the substance. Because of the use of the word "closed" in the amendments, they would not have this effect, because "closed" is generally applied to schemes that are closed to new members but otherwise operate normally. As noble Lords will be aware, FAS will offer assistance only to members of underfunded schemes that are winding up or have wound up, and the solvency position of employers at the point when or if they close their scheme will be immaterial.

The substance, I suppose, is related to a point that was pressed on me by the noble Lord, Lord Skelmersdale. Because we have made it clear that in the PPF we will not be asking other employers to subsidise employers who are solvent and therefore can reasonably be assumed to keep their own pension schemes afloat, and because I also said that we hoped that entries to FAS would be modelled pretty much on the rules of the PPF, there was a worry, by implication, that solvent employers would come in to FAS. There is clearly a difference of view here. Some people argue that that would not be proper, while others argue that because these events happened in the past and we cannot reopen them, it is unfair to leave people with severely deficient pension schemes with no possibility of remedy.

Let me outline where we have got to in our thinking. There are two different issues here. The point I was making about excluded schemes is that a number of particular types of pension scheme are not appropriate for the sort of collective assistance which either FAS or PPF makes. The noble Lord, Lord Skelmersdale, bet that I would not know, and, for once, I was able to say, "Please, guv, I've got two versions"; one is for small schemes, the other is not tax-approved schemes. Our starting point for FAS is that we are likely to use similar rules as for PPF, although we shall examine the matter carefully in case different considerations apply to PPF and FAS. We know that some schemes would not come under protection.

The question of solvency is rather different. It is about the status of the employer when the scheme winds up, not the type of scheme. The PPF will not help schemes with solvent employers. There are other things, such as contribution notices, financial support directions, remediation schemes, and the possibility of going to the regulator for clearance if there is a question of a merger or takeover. In general, we expect employers to honour their pension promises. In future, the new regulatory regime that we are putting in place will reinforce that approach.

For the FAS we are still considering issues of employer solvency, for reasons that were outlined by my noble friends behind me, and supported by the noble Lord, Lord Oakeshott. We expect employers to meet their pension promises, but a range of complex situations occurred in the past that cannot be unpicked now. We need to understand them properly before we take a final decision.

For example, we are looking into the issue of members' voluntary liquidations. For those to take place, a statutory declaration of solvency is required. However, the Pensions Act 1995 does not exclude such solvent liquidations from winding-up provisions, and we are exploring that potential anomaly. The circumstances of pension schemes winding up underfunded where the employer is in NVL is part of our work on definitions of insolvency that may be used for FAS.

Equally, we may find that there are other circumstances. For example, we are looking into issues raised by pension schemes when the employer becomes insolvent very shortly after the scheme winds up underfunded. We may have schemes when there was a solvent employer at the time, but there is now no solvent employer. Either it is insolvent or the employer has gone bust.

Lord Higgins

My Lords, when a company goes into voluntary liquidation, the noble Baroness says that it has to be solvent. Does that include the solvency of the pension fund?

Baroness Hollis of Heigham

My Lords, I understand that it is the solvency of the employer. Is the noble Lord talking about PPF or FAS?

Lord Higgins

My Lords, it does not matter which. I am merely implying that a system in which a company can go into voluntary liquidation with the company being solvent and take no account of its pension liabilities seems highly undesirable. If that is true, should we not do something about it?

Baroness Hollis of Heigham

My Lords, this is exactly why the regulator will expect to be a player in reaching agreement on everything, compromised agreements, and so on. That is why we had debates on the regulator earlier about how possible cosy decisions could be unpicked. We were concerned that the trustees might decide that because their scheme was only 70 per cent funded, they might as well make it only 20 per cent funded and shift the other money to the employer so that there were more assets to meet other debts. We aired those discussions previously.

I have given two examples. If there is members' voluntary liquidation, as I understand it—I am briefed—employers have to be technically solvent for that to happen. There is the case when an employer has subsequently gone insolvent after the point of wind-up but before the scheme can go into the PPF. We are seeking to address those issues.

I cannot tell the House yet where our lines will be drawn. On the one hand, we are trying to prevent an indecent situation arising in which people are caught by the accident of timetabling and end up with poor provision. On the other hand, we are trying not to so dilute the financial assistance moneys that people coming properly within the scheme have very little.

There is a final point. I hope that your Lordships understand the language that I am using on employer solvency. People desire to know who will be eligible for FAS help. It is positive help in terms of trying to manage entry into the fund if we do not make the decision too early because of the problem of moral hazard. If companies know that they cannot get into PPF, but believe through an early announcement by us that they may come into FAS, that would guarantee what we are trying to avoid. We want them to be willing to pick up their own liabilities. So, given that, I can take the noble Lord only so far in our thinking on this matter. We are considering those issues, for exactly the reasons expressed by the noble Lord, Lord Oakeshott, and my noble friend. We are, however, seeking to prevent FAS from being over-diluted, and to prevent the issue of moral hazard. It may not be until the new year, but as soon as we can come with a clear line, we shall do so. If I can do that earlier, I shall be happy to do so.

I have here a full briefing on the Nikko Bank, but at this late hour I would prefer to write to the noble Lord, Lord Higgins, with all that material, rather than take another 10 minutes of the House's time to explore the ramifications. I shall make sure that other noble Lords receive it, if that is acceptable.

9 p.m.

Lord Higgins

My Lords, that was a very helpful reply. I see that the Minister is still contemplating carefully to what extent, with regard to FAS, the position of those who have a solvent employer but one that has reneged on his promises is appropriate. It seems rather odd that the taxpayer should pick up that tag—but, as the Minister and the noble Lord, Lord Oakeshott, said, a comparatively small number of people and cases may be involved. However, she has not quite taken the point that I made in my intervention.

There may be a situation in which a company goes into voluntary liquidation, and it may well be a subsidiary of a larger group. Both the larger group and the company going into voluntary liquidation may be solvent, but are they still regarded as solvent if the pension fund is in deficit? Should not the estimate of solvency include the position of the pension fund as well as the position of the company? That matter is not directly related to the Bill but, in the context of pension provision, it raises very important issues with regard to the general state of the law.

The case that comes to mind, although I hope that it will never happen, is when things are disproportionate, as with British Airways. In such a case, the company is solvent—but the stock exchange would certainly take into account the pension liabilities. I shall not belabour the point any longer at this time of night, but I believe that I have spelt it out reasonably clearly and that it is worth consideration.

Baroness Hollis of Heigham

My Lords, I am happy to have another go at explaining the issue. The difficulty arises because the definition of the solvency of a pension scheme will have changed depending on whether it is under the minimum funding requirement or scheme-specific funding.

An employer that enters an NVL must meet all debts of creditors in full. However, the debt owed to the pension scheme is currently at MFR, rather than full buy-out. That is why there is a problem as to whether one considers a pension scheme solvent, as it could meet MFR but still not be in a position for full buy-out. That will change with the changes to the buy-out regulations introduced from April 2005, which is why there is no unambiguous answer to the noble Lord's question. It may be in a situation to meet full buy-out, but more probably it will not if it is funding at MFR level.

Lord Higgins

My Lords, I am most grateful for the Minister's response. Whether in the case of Nikko Bank it was even able to meet the MFR I rather doubt. Be that as it may, I am grateful to the Minister and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham moved Amendment No. 277:

Page 236, line 4, at end insert ", and ( ) prescribed details of which have been notified to such person as may be prescribed by a person of a prescribed description—

  1. (i) in the prescribed form and manner, and
  2. (ii) before the prescribed date;"

On Question, amendment agreed to.

[Amendments Nos. 278 and 279 not moved.]

Lord Higgins moved Amendment No. 280:

Page 236, line 15, after "person" insert "with qualifications equivalent to those of the members of the Board of the Pension Protection Fund"

The noble Lord said: My Lords, this is a nice simple amendment which we can all understand—which is not true of myself, and possibly of other noble Lords, with regard to some of the previous debates.

One suddenly realises that we spent an enormous length of time discussing the board of the Pension Protection Fund in all its aspects but we really know remarkably little about the structure of the financial assistance scheme and, indeed, whether the qualifications of the people who will manage it will be the same or not the same as those managing the Pension Protection Fund. I noted with interest two adverts in the paper last week stating that so-called six figure salaries are to be offered to those on the board of the Pension Protection Fund. Will the same be true of the financial assistance scheme, or will that scheme simply be an offshoot of the Pension Protection Fund structure? At the moment the structure is extremely obscure. Perhaps the noble Baroness can enlighten us. I beg to move.

Baroness Hollis of Heigham

My Lords, the noble Lord asked whether the same structure would apply to the financial assistance scheme or whether it would be an offshoot of the PPF. At the moment we envisage that these will be two separate bodies. I can quite conceive in a number of years' time the PPF taking over the residual responsibility of the FAS as those obligations are discharged. I refer to a finite number of schemes going through. Once the basic information has been established and it becomes primarily an administrative function, I can conceive—I am not saying that it will happen—that it would make good sense for them to become the same organisation. As I say, it will not be known for a number of years whether that makes good sense.

The problem with this amendment is the wording. As drafted, this amendment would require that, where the scheme manager of the FAS is a person other than the Secretary of State or a body established for that purpose, that person has qualifications equivalent to those which the people appointed to the board of the PPF have.

As noble Lords know all too well, I am afraid, final decisions on the FAS have yet to be taken and we are still consulting. However, this summer when we discussed the qualifications needed for appointees to the board of the PPF we all agreed that it was to be expected that such people would have the appropriate skills and experience for the task in hand. Obviously, we would expect the FAS scheme manager to have the appropriate skills.

However, the amendment could have a further effect in that such a scheme manager could be required to have equivalent qualifications to those of the people on the board of the PPF. People on the board of the PPF would have appropriate qualifications regarding investment, fund management, calculating and imposing a levy and so on. However, it is not clear at present that such qualifications would be a relevant requirement of the scheme manager of the FAS. For instance, the FAS will not impose a levy and other details of the scheme's operation remain under consultation. For example, it may not involve pooling and investing scheme assets. It could, for example, simply involve buying annuities and that is it. I am not saying that it will but it could. In addition, there may be areas where we want the FAS scheme manager to have experience and skills which would not be relevant for the board of the PPF.

This is a useful probing amendment. However, the nature of the fund and the construction of its operations will be sufficiently distinct in the early years and a straight read across, as the noble Lord suggested, would not make good sense. I am sure that we shall seek to appoint the most appropriate people for this task. I hope that the noble Lord will withdraw his amendment.

Lord Higgins

My Lords, I am grateful for that response which has helped to illuminate the situation. No doubt the salaries of those on the FAS will be somewhat lower than the salaries of those on the board of the Pension Protection Fund. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham moved Amendment No. 281:

Page 236, line 39, at end insert— ( ) for or in connection with—

  1. (i) the review of, or appeals against, any determination, or failure to make a determination, in connection with the financial assistance scheme, or
  2. (ii) the investigation of complaints relating to the financial assistance scheme,
and for the establishment of a body or the appointment of a person or persons to hear such appeals or conduct such investigations:

On Question, amendment agreed to.

Lord Higgins moved Amendment No. 282: Page 236, line 42, leave out paragraph (h). The noble Lord said: My Lords, this is in effect a probing amendment. Clause 284 is a very short clause concerning the financial assistance scheme. Clause 284(3) states: Regulations under subsection (1) may, in particular, make provision … (h) providing for a person to exercise a discretion in dealing with any matter in relation to the financial assistance scheme". What on earth does that mean? What is its purpose? It seems quite strange. What power is such a person to have in exercising his discretion on matters about which we know absolutely nothing, other than that they are in relation to the financial assistance scheme? As I said before, there are certain points in a Bill where one thinks that the draftsman has finally had a nervous breakdown, and this seems to be one of them. I beg to move.

Baroness Barker

My Lords, having had my attention drawn to the paragraph by the noble Lord, I cannot help but think that if Earl Russell were here, he would tell us an anecdote about the poor law. I am afraid that my historical knowledge does not allow me to do anything so eloquent.

Baroness Hollis of Heigham

My Lords, I much enjoyed and will much miss Earl Russell's comments on what he called Humpty-Dumpty clauses in which, I remember vividly from most of them, income should be treated as capital and capital as income whenever the Government see fit. He sought to demolish that with good humour, asperity and wit. I then tried to explain that it was all about capital lump sums being paid back in instalments and, if one did not treat them as income, one was stuck, so one got round all the rules. It persuaded me, but I am not at all sure that it persuaded Earl Russell, whom we very much miss.

The amendment seeks to remove a provision which allows regulations setting up the FAS to provide for a person to exercise a discretion in any matter relating to the FAS. It is a bog-standard provision frequently used when taking regulation-making powers, to make explicit the range of ways in which those powers may be used. Section 183 of the Pension Schemes Act 1993—an Act passed by the noble Lord's government—contains a similar provision in relation to most regulation-making powers within that Act.

I do not encourage the noble Lord to move an amendment to it tonight, but Clause 313(4) has the same power. It reads: A power conferred by this Act to make subordinate legislation includes power to provide for a person to exercise a discretion in dealing with any matter". Again, that is a bog-standard provision to deal with the regulation-making powers in the Bill. However, the provision has been repeated in Clause 284. This is where the noble Lord, Lord Skelmersdale, asks why, if it is in Clause 313, it is not overriding and we need to put it into Clause 284. It is because Clause 284 contains wide powers, and it was thought best to present a full picture of the range of the powers within the clause itself. It might not have been necessary; I suppose that Clause 313 might have done it for us.

Let us look at how the FAS in particular may benefit from the provision. There may be cases in which it is sensible to allow some discretion, within guidelines, to help us to deal with a wide range of individual circumstances. An example is where scheme trustees are required to provide certain information within a set period—say three months—but the FAS manager has the discretion under the power identified by the noble Lord, Lord Higgins, to allow a longer period in certain cases where there are particular difficulties.

I reassure noble Lords that the provision certainly does not offer a blank cheque for the use of discretion in matters relating to the FAS. As with all other powers under the Bill, the FAS regulations would set out clearly where and within what limits discretion would be exercised. It goes without saying that such discretion would have to be exercised in accordance both with public law principles and the European Convention on Human Rights.

I do not know whether I have reassured the noble Lord by saying that it is a fairly bog-standard requirement or that we are also taking the power later in the Bill. However, the main point of substance is that regulations will specify and constrain how the power is to be exercised. I have given one such example, which I hope will satisfy him. It is a sensible discretion. With that, I hope that he will withdraw his amendment.

Lord Higgins

My Lords, we shall have to look forward to the regulations and see what they specify. As in other cases, no doubt the noble Baroness will let us have a draft. I was not a member of the previous government—I spent most of my time as the chairman of the Treasury and Civil Service Committee criticising much of what they did—so I do not think that I can be held responsible. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

9.15 p.m.

[Amendments Nos. 283 and 284 not moved.]

Clause 292 [Stopping disposal of assets of institutions administered in other member States]:

Baroness Hollis of Heigham moved Amendment No. 285:

Page 241, line 8, leave out from "may" to second "an" in line 11 and insert "on an application made by the Regulator with respect to UK-held assets of the institution grant—

  1. (a) an injunction restraining a defendant, or
  2. (b) in Scotland,"

The noble Baroness said: My Lords, Clause 292 relates to stopping the disposal of assets of institutions administered in other member states. In moving the amendment I shall speak also to Amendments Nos. 286 and 287.

Article 19(3) of the European Directive on the Activities and Supervision of Institutions for Occupational Retirement Provision 2003/41/EC(IORP) Directive requires member states to put in place mechanisms to prohibit, in accordance with the provisions of Article 14, the free disposal of assets held by a depositary or custodian located within its territory at the request of the pension scheme's home member state.

Amendments Nos. 285, 286 and 287 are technical, replacing "claim" with "application". They are necessary to provide consistency in the terminology used in the context of applying for an injunction where such cases may arise in the UK. I beg to move.

Lord Skelmersdale

My Lords, given that this matter is a requirement under EU legislation, and knowing other countries' sloth in putting EU legislation into law, has the Minister any information as to what extent this is reciprocated across EU countries?

Baroness Hollis of Heigham

My Lords, no, not offhand. I said to the noble Lord during previous discussions that officials from our regulation team are meeting officials of other countries who are doing the same job in terms of cross-border schemes and so on to ensure that there is a common understanding of "home" and "host" and how one deals with issues as to where the scheme may be registered in the home country of an employer who may be in a different country with employees in, perhaps, two or three different countries.

Those technical discussions are underway at the moment, but this matter will have to apply in all member states from 2005, whether they like it or not. But we are in the process of trying to obtain consistency of terminology at the moment.

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendments Nos. 286 and 287: Page 241, line 13, leave out "claim or Page 241, line 32, leave out "claim or On Question, amendments agreed to.

Lord Higgins moved Amendment No. 288: Before Clause 294, insert the following new clause—


(1) The Income and Corporation Taxes Act 1988 (c. 1) is amended as follows.

(2) In subsection (1) of section 630 (interpretation)—

  1. (a) in the definition of "personal pension scheme", substitute for the words "or lump sums" the words ", lump sums, or withdrawals from a Retirement Income Fund", and
  2. (b) in the definition of "income withdrawal", insert after the word "annuity" the words "or withdrawal of funds from a Retirement Income Fund".

(3) In section 633 (scope of benefits) after subsection (1)(e) there is inserted— (f) the payment to a member of income from a Retirement Income Fund satisfying the conditions in section 637B".

(4) In section 634 (annuity to member)— (a) after subsection (1), there is inserted— (1A) Subject to subsection (7) below, the annuity must provide the member with an annual income not less than the Minimum Retirement Income set under section (Minimum retirement income) of the Pensions Act 2004."; (b) in subsection (2), the words from "commerce" to the end are replaced by the following—

(c) after subsection (6) there is inserted—

(5) Sections 634(A) and 636(A) are repealed.

(6) Subsection (5) shall not apply to schemes executed before the date of entry into effect of this Act.

(7) After section 637A (return of contributions on death of a member), the following section is inserted—

"637B Retirement Income Fund

(1) Subject to subsections (2) and (3) of this section, a Retirement Income Fund is a vehicle for the reinvestment of savings in retirement, which—

  1. (a) has been established by a person designated by subsection (1) of section 632; and
  2. (b) is a vehicle whose investments are—
    1. (i) investments of a kind described in the Insurance Companies Regulations 1994, Schedule X, Part 1, or
    2. (ii) approved by the Inland Revenue.

(2) Funds held in a Retirement Income Fund as referred to in subsection (1) may be withdrawn from the Retirement Income Fund by the member as and when he elects.

(3) A member may not invest in a Retirement Income Fund unless the requirements of subsection (1A) of section 634, in relation to the Minimum Retirement Income, are satisfied.

(4) A Retirement Income Fund, and any income derived from it, must not be capable of assignment or surrender by the member.

(5) Any withdrawal from the Fund by the member under subsection (2) shall be assessable to tax under Schedule E (and section 203 shall apply accordingly) and shall be treated as earned income of the member.""

The noble Lord said: My Lords, the grouping has gone slightly awry at this point. Amendment No. 288 is grouped with Amendment No. 289. There will then be another debate, after which we shall return to the question of annuities in Amendments Nos. 290A and 290B. It would probably be of convenience to your Lordships if we discussed together all these matters relating to annuities—in effect grouping Amendments Nos. 288, 289, 290A and 290B. Otherwise we shall have a strange interruption with a Liberal Democrat debate in the middle.

The amendments are important probing amendments. It has long been our position in the Conservative Party that we are in favour of abolishing the obligation to take one's pension in the form of an annuity at the age of 75. On two previous occasions I have moved amendments on the Floor of your Lordships' House to bring that about. Your Lordships have agreed with them, but when they went to the House of Commons they were reversed. It is now time that these matters were resolved.

On previous occasions, I think that there was a tendency—although I forget whether it was actually the case—for such an issue to be handled in the other place in the traditional way by saying that it was a matter of privilege. There was then no dispute when the matter came back to your Lordships' House. A little while ago, I mentioned that I was chairman of the Treasury Select Committee in another place for well over a decade, and I do not believe that these amendments—in whatever form we eventually put them at Third Reading—raise the question of privilege. On the one hand, they do not involve the imposition of taxation and, on the other, they do not involve a change in the structure which results in an increase in expenditure. Therefore, I hope that the proposal will not be rejected by the Commons on those grounds. Indeed, I hope that, on reflection, the Commons will believe that these are sensible amendments.

We discussed this matter at considerable length in Grand Committee. Effectively, we are saying that one should not be obliged to take a pension in the form of an annuity at the age of 75 but, at the same time, one should take steps to ensure that one does not become a charge on the taxpayer and dependent on means-tested benefits. Generally speaking, that is what we have sought to bring about in these amendments, and the principle has been reflected in at least two Private Members' Bills in another place.

I want to stress a point which did not come out adequately in Grand Committee and it is a point to which the noble Baroness did not really reply. What is really wrong is that one is forcing a person to make an investment in an annuity which is fixed at the rate at which annuities are available at that moment in time. But one might well feel that it is not the right moment to do so or one might well feel that annuity rates are going up. If I were taking out an annuity at the age of 75, which I am not, I would certainly not wish to do so at present. I believe that the Chancellor is borrowing enormous sums of money. He can borrow greater sums of money only at a higher rate of long-term interest, and that, in turn, will lead to an increase in the annuity rate. Therefore, unless we accept amendments of this kind, people will be forced to take out annuities which they believe will provide a lower rate than they would receive later.

That is the core of the argument, and the simplest of the amendments seeks to deal with it in a very simple way by amending the Income and Corporation Taxes Act 1988 to leave out the expression, or after he attains the age of 75". As your Lordships know, the Act is a fairly substantial document, but that would be a simple way of dealing with the point that I have just mentioned.

Of course, there are other aspects to this question. The Chancellor of the Exchequer himself seemed to become aware that there was increasing pressure in relation to this issue, and he then introduced what I consider to be a quite extraordinary scheme. I find it totally incomprehensible. So far as one can gather, it was introduced in response to representations from the Plymouth Brethren—a relatively small Christian sect—who felt that it was wrong to have annuities because they were effectively a bet on someone's life and, on moral grounds, they were not in favour of betting in such a way. That, apparently, persuaded the Chancellor to introduce this quite extraordinary scheme, which does not meet the point that we are seeking to make in this amendment. If the argument were at all persuasive, I am not sure why the Chancellor did not simply make all annuities illegal. In some ways, that would have been an easier way of dealing with the matter.

Another aspect is that certain outside groups—notably the Association of British Insurers—are strongly against the kind of amendment that I am putting forward. I do not think that that is surprising. After all, they represent an industry which is the sole provider of annuities. If people are obliged to take annuities at the age of 75, the amount that needs to be expended in marketing costs is remarkably small.

Indicative of the whole issue is the fact that there are now only two companies—Prudential and, I believe, L&G—that are still providing annuities on an enormous scale. Therefore, I discount the arguments put forward on that. However, that raised some points; namely, that some of the earlier forms of the amendment might result in people being told that they did not have to take their annuity at the age of 75, but they had to take out an index-linked pension to cover the dangers of going on social security.

Clearly, that is undesirable, so as we are determined to return to the matter at Third Reading and press it to a Division, I hope that we can try to ascertain from the Minister which of the three sets of amendments best meets the case. They are technical and there are problems associated with them. It occurred to me earlier, having been in Report stage for some time and with one's mind beginning to consider imaginative possibilities, that one should simply knock out age 75 and insert 105. That would overcome the whole problem and the noble Baroness's objections to what we have in mind here.

Given what the Turner report says about age going up, leaving the age at 75 seems to be a strange thing to do. Of course, the noble Baroness became very incensed and said that it would affect a relatively small number of relatively well off people. That is not the case, for the reason I mentioned. It affects almost everyone who is forced to take out an annuity because people are told when they have to do it. So it is not just the very well off who are affected by this issue.

In Grand Committee, the noble Baroness put forward all kinds of complicated calculations and seemed to envisage that somehow the tax relief that those who had built up a pension fund had enjoyed, should somehow be clawed back if this amendment were accepted. I do not accept that view at all. The fact is that the purpose of tax relief on taking out pensions was designed to ensure that people made provision for their retirement. To that extent, and to the extent that people took advantage of it, it achieved its objective. That is desirable, but it is something in the past. One cannot suddenly claw back that particular tax relief; I do not think that that would be at all appropriate.

In Grand Committee, the Minister also produced a number of startling figures, on this debate or on an earlier one, showing the enormous level at which one's pension pot had to be to float oneself off means-tested benefit. Of course, that has been going up and up. I see the noble Baroness, Lady Turner, agrees with me on that.

I believe that we can devise a form of words that deals with the problems raised by the Minister. I have lifted—I think that is the right expression, and plagiarised is a more unfavourable one—two sets of amendments from earlier attempts to deal with this problem. They relate to the Income and Corporation Taxes Act 1988. I am not sure whether that is the latest piece of legislation dealing with this issue. The noble Baroness indicates that it is not, in which case I shall be interested to hear what is the right piece of legislation so that we can bring the amendments up to date before Third Reading. These issues have been around far too long. The arguments in favour of them are very strong.

I conclude with one other point made in a recent study by Watson Wyatt Worldwide, entitled, Who would buy an annuity? An empirical investigation. That is an extensive survey, containing a graph entitled "Attitudes to annuities". I shall quote only the figures for all respondents: never annuitise, 58.8 per cent; annuitise later, 12.1 per cent. So, over 70 per cent of the people in this really very sophisticated survey did not want to annuitise, or at any rate wanted to annuitise their pensions later. That is a considerable sampling force for the arguments that I have put forward. I beg to move.

9.30 p.m.

Lord Lea of Crondall

My Lords, I simply wanted to ask the noble Lord why he dismissed so readily the idea that taxation has nothing to do with this. Half the tax relief at the moment goes to the top 15 per cent of contributors. We have had this discussion before. Would it not be those sorts of people that would take the greatest advantage of the removal of this requirement? For me, until that point is answered, that tilts the balance of the argument very much in favour of the status quo.

Lord Higgins

My Lords, as I say, the argument about people being forced to take an annuity at the wrong moment applies to everyone, not just to the people at the upper end of the income scale. Of course it is the case that those with larger pensions would have a greater interest; that is a purely quantitative aspect. None the less, I think it is important to stress that they also have lost, compared with what they expected to get, because of the huge drop in annuity rates which has taken place under the Government.

People were incentivised to save by the Chancellor, and the economy has gained by their saving in the mean time. I do not believe that forcing people to do what they do not want to do is justified by the argument that they had tax relief. They had tax relief because the Chancellor of the day believed that it was a good incentive to encourage savings and so on. As has been pointed out, a lot of people did not save all that much. None the less, I think that the arguments I have put forward stand up.

Lord Lea of Crondall

My Lords, the inference that many of us would draw from this interchange is that in principle there may well be a case to be made here, but that, if that case is to be made, it must be accompanied by a total reconstruction of the tax regime for pension contributions. That is the inference that I would draw.

Lord Higgins

My Lords, I am not sure whether that was an intervention or not. Perhaps I may just add that of course the whole thing is massively affected by inheritance tax and the fact that house prices have gone up so much. That brings more people into that structure. Incidentally, I think that the noble Baroness was wrong about capital gains tax and housing; she was certainly wrong about ISAs, which are an alternative to this sort of pension scheme, because they have fallen dramatically. These are broader issues. We can go further into them.

Lord Oakeshott of Seagrove Bay

My Lords, I wonder if this is a private party or whether anyone else is allowed to join in. We support these amendments in principle. Whether we are able to support them in practice will, I am sure, depend on the Minister's answer and the helpful guidance to opposition amendments that certainly the noble Lord, Lord Higgins, seems to be expecting. Obviously we shall listen to her with interest.

The point had also struck me whether it would be simpler, if indeed all these amendments prove to be defective, to raise substantially the limit for the compulsory buying of an annuity. No doubt the noble Baroness can tell us, either now or in correspondence, in what year the limit of 75 years was fixed and what the average age of death was at that time, and update it pro rata. I suspect that we would find that the average is higher. If one fixes a suitable number of years beyond the average age of death—say, it were 85 or 90 now—one would not need to keep revisiting the issue as life expectancy increases. We certainly would be prepared to consider that alternative. But, as I say, in principle, we support these amendments.

Baroness Hollis of Heigham

My Lords, I agree that it is late, and I do not want to revisit everything that we said in Grand Committee. There are three levels of critique which I could apply to the amendments. The first is what I call the "blue sky" level, which was the level at which we discussed the issue in Grand Committee. I made it clear then that none of the proposals had a claim to be considered unless they included at the very least both an annuity to float people off income-related benefits and a full claw-back of the tax-protected regime and advantages, which is what Members of another place sought; otherwise, there would be an unreasonable fiscal burden on the rest of us.

So before I even begin to engage in serious discussion of these issues, those two points must be a given; that is, there must be both an IRB-related annuity and a look at a full claw-back of the tax-protected regime. People are putting moneys into those pots over and beyond what they need for their retirement precisely and only because of the attractiveness of the tax regime. If one is using that money for a purpose other than a pension, one would need to look at that before any further discussions.

That is the "blue sky" level of critique. We could argue who gains and who pays under the whole financial package, as my noble friend has done. However, there is a bottom level of discussion which would involve a very close reading of each of the amendments. I could spend a considerable amount of time showing how technically flawed they are in every particular and so on, but I do not think that that is required.

I shall opt instead for an approach that was known in my graduate classes in Berkeley as "middle-level generalisations", which is the point between those two levels of critique, and show why each of the amendments as constructed has major flaws. They are not just technical details, but major policy flaws which may not have occurred to Members opposite. That is why we cannot proceed with the policy in the way the noble Lord seeks, even if we were persuaded of the "blue sky" arguments, which we are not. I am dealing now not with the little words and the cross-references, but with the substantive problems with the amendments as they stand.

These are important amendments that would abolish the obligation to take an annuity at the age of 75 and instead would require that people purchase a minimum retirement income annuity to ensure that they have sufficient income to avoid relying on income-related benefits. We understand that the intention might also be to require purchase of this annuity from age 65. I understand, as I said, the "blue sky" arguments.

I turn to the particulars. Amendment No. 288 would force people, apart from those few currently in income draw-down, to buy an index-linked annuity for each personal pension arrangement they hold. That would take away the current right of people to take the annuity that best suits their needs at the time that best suits them up until they reach age 75. For example, it would deny people who are sick the opportunity to achieve higher incomes through the purchase of an enhanced annuity and it would potentially force people to take a low rate rather than delay purchase as they currently can.

In other words, to float them off IRBs, Amendment No. 288 would require members to take their annuity at 65 whether they wish to or not. So in order to help the best off—the 1 per cent or so—one would be reducing the current freedom of the other 99 per cent of people to choose the time between age 65 and age 75 when they might wish to annuitise. That cannot be right.

Amendment No. 288 would have other consequences. I am looking at the firm policy points that are tucked away in the drafting of the amendment. The amendment would ignore the situation of the surviving spouse. The amendment provides no capacity for an annuity to continue on the death of a member. There is no statement on what happens to the retirement fund at death. There is no tax provision for that fund if it is paid out. The amendment would force 99 per cent of people to buy their MIR annuity at 65 instead of having the current freedom to continue until 75 if they wish. It applies only to personal pensions, but to each and every one of them, so that someone with half a dozen pots would be required to meet those needs in respect of each of them.

Leaving aside the situation of spouses and the problems of RPI, Amendment No. 288, by requiring everybody to take an annuity at 65 and requiring the provision to apply not to DC schemes but to every personal pension, would not begin to carry the policy intent that the noble Lord wants. I could outline what would happen to the gilts markets and so on, but I shall not.

Amendment No. 289 requires any withdrawals from the retirement income fund to be taxed at the member's marginal income tax rate. That goes back to my noble friend's point. Initial estimates suggest that we would have to levy tax at 55 per cent to make the change tax-neutral, broadly to recoup the tax fully from the individual's pension contributions, national insurance and tax relief on any employer's contribution, and the pension fund investment relief previously enjoyed. As drafted, the amendments would continue to provide a highly tax-favoured regime that a small number of people would be able to take advantage of. In short, the average, hard-working taxpayer could end up funding the legacies of the better off.

Equally, the amendment does not require withdrawals to be made from the retirement income fund, nor does it provide what happens to any funds remaining on the member's death. But the amendment's rules on non-assignment and non-surrender seem to prevent the retirement income fund paying death benefits to survivors. There will be problems in that respect. The amendments would also make it difficult for trustees or managers of pension arrangements to comply with an attachment order requiring them to pay a percentage of a member's benefits to a former spouse. It would not be possible to make a pension-sharing order, due to the rule embodied in the amendments against non-assignment. So among the many losers from the amendments of the noble Lords opposite would be divorced spouses, mostly women, of individuals who had set up a retirement income fund.

I could talk about leaving the powers with the Chancellor of the Exchequer and so on, but I am sure that the Chancellor could address the issues raised by the noble Lord.

Amendment No. 290A is a very narrow provision. It suspends the age of 75 for personal pensions, leaving other people in a hiatus. It produces a problem for those who will be affected by the rules of 2006, when there will be new rules on amalgamation to create a simple tax regime. The amendment would only have effect until 2006, as it amends the Income and Corporation Taxes Act 1988, which will be repealed by the Finance Act 2004. So it benefits only individuals who have pension savings in a personal pension fund and who reach age 75 on or after 6 April 2005 and die on or before 5 April 2006, when the new, simplified pension tax regime comes into force. This very short-term amendment, which would apply for only one year, cannot be what the noble Lord intends. I could go on.

Amendment No. 290B is the heavyweight among these amendments. It would allow people to acquire an annuity to attain income-related benefit—not just through an annuity; it brings into account any other income they might have. If there were sufficient other income, they would not need to annuitise at all. Then the whole issue of what the fund stood for in the first place would come into question.

Until now, all three amendments have addressed only the issue of personal pensions, but the "biggie" here is DC schemes. That is why in this amendment the noble Lord is seeking to apply Amendment No. 290B to the DC schemes that he cannot get at because of the three amendments which apply only to personal pensions.

9.45 p.m.

The complexity here is huge. We would still need to broaden it further even to begin to make it work. At that point I believe that real problems are presented for the restructuring and relative attractiveness of DB to DC schemes. If somebody in a DB scheme found that if only he had saved in a DC scheme he could have got access to his money in a DB scheme there would then be a stampede from one to the other in order to gain access to the equivalent of the money pot.

All the amendments as they stand have serious policy flaws. I do not mean just technical drafting problems, but serious policy flaws. I have yards of speaking notes on this matter. I have not tried to go into the small level, detailed technical drafting. I have not tried to open up again the big blue sky issues. I am saying that these amendments create far more problems than they solve while none of them does what the noble Lord seeks to do, which is to remove the requirement to annuitise at 75 whether the losers be the 99 per cent who all require to do so at 65 instead of having a choice between 65 and 75 and whether it is simply abandoning the position of divorced spouses who have rights to attachment orders. All these are insuperable problems as regards these amendments.

I do accept that there are real concerns about the issue of an nuitisation and the gamble one takes about the level of annuities as well as the gamble of longevity risks at the age of 75. I do understand why people would want to have access to money they have saved in pension funds. I can see why, if it could be made fiscally neutral, people might think that it was something that was worth looking at further.

I repeat three points. First, these amendments cannot carry the policy of noble Lords opposite. If passed they will not deliver and they will introduce new injustices and anomalies into the system. They are so deeply flawed that unless the Government were willing to take them over, which is a matter for another place as well as this, the amendments cannot do what the noble Lord wishes. It would be a monumental task of drafting given the read-across to all the existing tax legislation. As they stand, they would force everyone to annuitise at 65. The amendments do nothing for divorced spouses and there is no protection for the surviving spouse. Those are three compelling arguments against the amendments. There is no time, even if the Government were so minded, which they are not, to take them over on behalf of noble Lords opposite.

There are real consequences for the Treasury about the differential impact of tax relief taken and enlarged suddenly by the pension pot becoming a savings vehicle. People would certainly be much more willing to invest in a pension pot up to the pension cap ceiling, which they do not do at present, because they know they could access it if they found that it was surplus to what they thought were their requirements. That would have quite complicated cash flow problems for the Treasury. I am not saying that it is an insuperable problem because it could be restructured over time. The pattern of payments and receipts would have to be very heavily reconfigured and that has not been mentioned here today.

Finally, and perhaps most worrying of all, there is a deeper effect on pensions structure. If people have the choice of a DB scheme which they can never access and a DC scheme which they can, particularly if the levels of contribution are not so disparate, why would they ever go for a DB scheme when they could use the DC scheme as both a savings pot and a potential legacy?

More to the point, there would be huge pressure on DB schemes to convert and to be translated into a money pot with the destabilisation of the market that would occur, with pressure moving away from DB schemes onto the annuity markets that would have to provide the base annuity to float people off. At the moment DB and DC schemes with similar levels of investment should produce broadly similar results over a long period of time except that the risk is carried by the employer under the DB scheme and by the employee under the DC scheme. In turn they also have the flexibility of that decade which will be lost with these amendments. I am confident that the relative attractiveness of DB compared to DC schemes would disappear with this amendment. It has repercussions across the whole of pension provision.

As I have said, I have not sought to engage seriously in the blue-sky stuff; I have not sought to do low-level techy stuff. As drafted, these amendments have really substantial policy flaws in them. I cannot say to the noble Lord, "If you go for this one, this will work and the others won't". Bluntly, all the amendments would need government consent in order to find the time and parliamentary counsel willingness to redraft across the board an elaborate array of tax legislation and so forth. That certainly cannot be done in the immediate future; that is, in the next 10 days or so.

Given that, I am sorry not to be able to help the noble Lord on which of the amendments might have some chance of staying power and robustness. The truth is that none of them will. Whether the noble Lord or noble Lords opposite can come up with an amendment that has more staying power at Third Reading, I do not know. That will be for them to determine. I emphasise that we could not even begin to consider any of that unless it is not only fiscally neutral but also addresses the issues, as I have said, of the reconfiguration of Treasury cash flow and the deeper consequences for the existing structure of our pensions system—DB and DC schemes. That cannot be pulled out in isolation, as noble Lords seem to think.

I have tried not to repeat what I said in Grand Committee. With those remarks, I invite the noble Lord—as he has already indicated—to withdraw his amendment.

Lord Oakeshott of Seagrove Bay

My Lords, before the noble Baroness sits down, I asked a question about when the limit of 75 years old was fixed. If she does not have that information, perhaps she may write to me.

Baroness Hollis of Heigham

My Lords, I shall do my best to find out, but I do not know the answer to that.

Lord Higgins

My Lords, I think that the answer is time immemorial. Certainly, in the light of the Turner report and the latest figures available, the 75 years-old is inappropriate. It may not need to be raised to 105 years old but an uprating at the very least would be appropriate.

I am most grateful to the noble Baroness for that very thoughtful and extensive reply. I obviously have quite a lot of work to do between now and Third Reading. As regards the point that she made about the change in structure, in a sense, she knocked down her own argument. As she rightly pointed out, in a defined benefit scheme the risk is taken by the employer. In a defined contribution scheme, the risk is taken by the individual, which is why it is such a tragedy that we have seen the changes that we have from one to the other. Given the rate at which defined benefit schemes are declining, I am doubtful about the relevance of that argument.

Crucially, we should convince the Government that the arguments on this are right. However it is drafted, there is widespread concern. People are being forced to make investments that they do not want to make at a particular time, which is wrong. In a way, the number of people who are affected is more important than the argument about whether someone gets a legacy.

The noble Lord, Lord Oakeshott, will know more about the effect on financial markets than me; I view those arguments with some scepticism. But this has been an extremely helpful debate. I shall throw away my Income and Corporation Taxes Act 1988, which will help the environment by way of recycling, and look up the one to which the Minister referred.

Certainly, none of these amendments are as "crackpot" as the scheme that the Chancellor of the Exchequer came up with, which I do not think anyone understands other than the Plymouth Brethren who no doubt are delighted about it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 289 to 290B not moved.]

Baroness Turner of Camden moved Amendment No. 291:

After Clause 295, insert the following new clause—


Women whose national insurance contributions would otherwise be insufficient to entitle them to a full Category A retirement pension may become entitled to receive such a pension, subject to a United Kingdom residency test in accordance with regulations to be devised by the Secretary of State."

The noble Baroness said: My Lords, in Grand Committee my noble friend Lady Dean introduced an amendment, the text of which had been supplied by the EOC, attempting to deal with the pension entitlement of people acting as carers. It was understood that it would apply mostly to women, and attempted to cover the situation of people who had more than one low-paid, part-time job. The idea was that such a person would be entitled to a category A retirement pension whether or not national insurance contributions had been paid on earnings above the lower earnings limit, provided that certain conditions were met.

The Minister did not accept the amendment, although I think that she expressed some sympathy for it. It was felt that the proposals were rather complicated. In fact I think the EOC accepts that devising an amendment to deal with low pension entitlement among so many women is a complicated matter.

Sixty-four per cent of retired people are women, but their income in retirement is just 57 per cent of that of men. Poverty in old age is mostly found among women, one of the reasons being that many women spend time out of the workforce as carers of children, sick relatives, the disabled and, later, often of their spouses. But those are not the only reasons. Another reason is that 1.4 million women are prevented from making contributions to their state pension because they earn less than £77 a week. Someone working for 16 hours a week on the minimum wage does not earn enough to qualify for a state pension.

The majority of people in low-paid, part-time work are women. Under the current system, anyone who earns less than the lower earnings limit from a single employment makes no national insurance contributions. Our system is based upon contribution payments. I have always supported that idea. It stems from the original programme based on the Beveridge concept, to which most of us gave complete support. But more recently it has been questioned, and this is particularly true so far as women are concerned. Has the time arrived for a completely new look at the way we seek to ensure that women do not suffer poverty in old age?

We now have a significant number of low-paid workers who are immigrants. In my view much more should be done, including by unions, to ensure that they are more successfully integrated into the workforce and are not simply used as cheap labour. But that is another argument. In the mean time, they may be here for many years and have no entitlement to pension benefits when they can no longer work. Devising a system that deals with women in caring roles can be a complicated matter as well.

The time has come to look at the whole issue again. Indeed, it seems from statements made recently that my right honourable friend the new Secretary of State is already thinking about it. I do not know whether this amendment is the right way forward. I know only that it is time for us to look at the whole matter of women and pensions with particular reference to those who, for no good reason and through no fault of their own, are quite unable to comply with the present contribution requirements.

My amendment is grouped with Amendment No. 297A, tabled by the Liberal Democrats. Their amendment goes rather beyond mine, which concentrates on women. The Liberal Democrat amendment addresses that party's more general policy in support of a citizen's pension. No doubt the case will be made for that. In the mean time, my amendment is directed quite specifically at low-paid women and at the need to take an entirely fresh look at the problems. I beg to move.

Lord Oakeshott of Seagrove Bay

My Lords, in view of the lateness of the hour, I shall not be moving the Liberal Democrat amendment grouped with Amendment No. 291, but I am delighted to support this amendment. The noble Baroness, Lady Turner, has rightly pointed out that it is consistent with the Liberal Democrat policy regarding a citizen's pension.

A woman is waiting for me at the Liberal Democrat ball tonight. I hope to get at least one dance before the glass coach turns into a pumpkin. I am happy to support the amendment.

Lord Hoyle

My Lords, before my noble friend rises to respond, I wish to support this amendment. While I understand that there are difficulties with the amendment, we ought to look at how they can be resolved. We should not have such women living in poverty. They were exploited while they were working because they earned such low pay. I hope that my noble friend will come up with a solution.

10 p.m.

Baroness Hollis of Heigham

My Lords, like everyone else, I shall try to be brief. I am very interested in this subject and, as my noble friend said, my Secretary of State has a genuinely open mind about it. He finds aspects of it very attractive, particularly insofar as it deals with the situation of women. So, in that sense, there is a consensus of minds around the problems that women face if they undertake the caring responsibilities and so on that we, as a society, ask of them, and that they, as individuals, are more than willing to embrace.

None the less, they then get punished for doing what is right. They find that, as a result, their pensions are very often incomplete and inadequate in retirement. I could go on at very considerable length about this, but I will not do so.

There is a series of very real issues associated with the desirability of a universal citizens' pension. There is an issue of cost but I do not wish to concentrate too much on that. Clearly, whether you are talking about gross or net costs, the trailing of benefits and women's HRP will help, over time, to bring more and more of them into the basic state pension system. That is important.

It is also the case that although 50 per cent of women have a full BSP, most are widows who enjoy the BSP by virtue of their husband; only 14 per cent of recently retired women have a BSP in their own right. So, as marriage will increasingly not carry protection in retirement for women, there is an issue there.

There is an issue of costs, an issue of trying to see where the future may lead, and an issue of whether individuals rather than relationships should carry pension provision. There is also an issue of the transitional arrangements. Above all, there is the very real issue about what happens to the basis of the Beveridge settlement, which is that there is a contributory pension to which people believe they have a right and an entitlement. So there are bigger issues.

Unless, until and if there is to be consensus about the future of the contributory principle and whether it can be maintained, we must continue to debate how it equates into a language of rights and responsibilities, what is earned and what one is entitled to, as well as the practical issues of costs, coverage, redistributional effects and transitional arrangements. There is still a great deal of debate to be undertaken.

My right honourable friend the Secretary of State, Alan Johnson, recognises the situation in which too many women find themselves, even today. Pension credit was designed to address their immediate problems and, if I may mix my metaphors, there has been the beginning of a sustained debate on whether pension credit will carry all the obligations towards women that we seek to impose on it.

We have done a great deal to help poorer women, but over the next few years we have to try to get our responses right. We have to consider whether the basic state pension, our provisions on HRP, our provisions on pension credit, our provisions on S2P and so on will fully address the dilemma that women face in caring not only for their children but also for older people as we live longer. That debate is only just beginning.

I have to ask my noble friend to withdraw her amendment today. The time is not right. I ask her to do so not by saying that the Government will not contemplate it—on the contrary, the Secretary of State has said that he is attracted to it but that there are very profound issues to address before the issue can be taken further. There are not only practical and administrative issues; we need to consider what the pension settlement that will take over from Beveridge should be asked to do. All of these issues will require much more work than has so far been done on them.

With that not unsympathetic response, I hope that my noble friend will feel able to withdraw her amendment.

Baroness Turner of Camden

My Lords, I thank my noble friend for that response. As I anticipated, she has been very sympathetic to the idea behind my amendment. Of course I appreciate that there are considerable problems involved, such as transitional problems, the fact that most people are committed to the notion that you get what you pay for through the contributory system, and a number of other considerable problems. However, I am very grateful for the assurance that the Government are well aware of the difficulties facing many women who have nothing much to look forward to in retirement except poverty, and that pension credit has not been the answer to everything, as we perhaps hoped.

Baroness Hollis of Heigham

My Lords, I am going to ask my noble friend to allow me to intervene. I would not wish anything that I have said to he a criticism of pension credit. I genuinely believe that pension credit has been brilliant at addressing the problem of pensioner poverty that we inherited. However, I have tried to suggest that that does not necessarily mean it should be the long-term solution many years down the line.

Baroness Turner of Camden

My Lords, I am grateful for that intervention.

As my noble friend rightly surmised, it is not my intention to press the amendment to a vote this evening. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Skelmersdale moved Amendment No. 292:

After Clause 295, insert the following new clause—

"THE STATE SECOND PENSION AND PARENTS In section 44A(2)(c)(i) of the Social Security Contributions and Benefits Act 1992 (c. 4) (deemed earnings factor), for "six" substitute "twelve". The noble Lord said: My Lords, to some of your Lordships, this amendment may seem slightly opaque. We got into this in Grand Committee; the noble Baroness, Lady Hollis, opened her response by saying that the amendment was generous in spirit but also generous in cost. I shall explain in a moment why I disagree with her.

The objective of the amendment is to extend entitlement to the state second pension to people who are not in paid work or who are in low-paid work, and who receive child benefit for at least one child under the age of 12. The current provision is for children under the age of six.

There is a rationale for change. School hours tend to increase when a child goes to secondary school, and it is easier for the caring parent to seek paid employment. The idea also has a reputable history: during the passage of the Child Support, Pensions and Social Security Act 2000, my party favoured amending the Bill in this way. The Labour MP, Dr Lynne Jones, also supported this type of reform. This year, my right honourable and honourable friends in another place sought to amend the Pensions Bill as an alternative way of achieving the same objective.

Many people who would earn a new entitlement to the second state pension under the proposed new clause would have been entitled to additional means-tested benefits in place of the higher second pension anyway. However, under this proposal, they would be paid the money as a contributory benefit instead of as a means-tested benefit, and the problems of low take-up and stigma would correspondingly be much reduced. I should also add that the Equal Opportunities Commission, an organisation much favoured by the noble Baroness, Lady Turner, has indicated that it supports the spirit of the amendment.

The rules are much harsher for the second state pension, as I have indicated. In order to benefit from home responsibilities protection, the children for whom child benefit is received must be under six. If entitlement to home responsibilities protection as it relates to the second pension was extended so that it more closely matched the rules of the basic state pension, this would help millions of people, the vast majority of whom are, by definition, women.

It is interesting to note that when he was pensions Minister, the noble Lord, Lord Rooker, told Parliament: The number of additional people who would be brought into State Second Pension by the suggested changes"— in order to align the rules for HRP to S2P—the noble Lord was using shorthand in exactly the same way as the Minister has been doing all day— is likely to be negligible".—[Official Report, Commons, 27/1/00; col. 257W.] What has changed?

In 2000, the Government estimated that the cost of extending HRP to the second state pension to those with children under 11 would cost £1.3 billion a year in 2050. Since then it could be expected—quite reasonably—that the net cost would have fallen significantly because of the increase in means-tested benefits, the introduction of pension credit and higher employment rates, for example, among lone parents.

However, in Grand Committee the noble Baroness, Lady Hollis, repeated the £1.3 billion figure, although she did not provide us with any information on exactly how the figure had been calculated, or indeed, whether it had been recalculated, whether it was net or gross, and how it related to the statement made by the noble Lord, Lord Rooker, which I have just repeated.

Moreover, although it is not a small sum, £1.3 billion is only 2.6 per cent of estimated expenditure on the second state pension in 50 years' time, when the entire expenditure on that pension is forecast to be £49.8 billion or 1.7 per cent of gross domestic product. In other words, the additional expenditure arising as a result of the amendment represents a measly 0.04 per cent of GDP by the middle of the century. Even that is probably generous because it is not clear how realistic the Government's assumptions for future spending on the state second pension are.

An appendix to the Turner report makes very interesting reading because it notes that current indicative indexation plans for the lower and upper earnings limits, if pursued over the long term, would involve a reduction in the amount of compulsory earnings-related pension provision/saving within the United Kingdom system. It is open to question whether any government would allow that situation to persist, and many current trends are in the opposite direction.

We know that the Government will not make any decisions on what was in the first Turner report until after the second report is published and they have had time to consider it. No doubt your Lordships will want to debate it at some length.

There is a final point that I should make. The reasons given by the noble Baroness, Lady Hollis, for rejecting the amendment in Grand Committee were not only on the ground of cost but also on the ground that the second pension was designed, to give those who were in the labour market an alternative pension that was more generous than SERPS". She went on to say: It was therefore deliberately linked to being in the labour market".—[Official Report, 18/10/04; col. GC166.]

That is very strange. Given how the state second pension extended additional pension entitlement to carers and people with long-term illnesses or disabilities, it is at the very least arguable that the benefit is at least as much about helping people who have good reason to be out of employment as it is about helping people in employment. The amendment is therefore most definitely in tune with the spirit of the state second pension as originally formulated.

For all those reasons I believe that we ought to be extending the home responsibilities protection in that area from six years to 12 years as the amendment, slightly opaquely, suggests. I beg to move.

Baroness Hollis of Heigham

My Lords, I am sure that the noble Lord did not intend to, but he marginally misquoted me from Grand Committee, as I was very clear about what I was saying.

I could revisit the argument about costs and the £1.3 billion and say that if I had that sort of money to spend on pensions, that is not where I would necessarily spend it. The figure of £1.3 billion each and every year is not negligible.

I could run other arguments: that between the ages of six and 12, children are usually in a school day that runs from 9 until 3.30 p.m. or thereabouts. To qualify and to be over the lower earnings limit and come up to the S2P, one has to work 16 hours a week, which would be, say, four hours a day for four days. That could be easily levered into a child's school day.

Perhaps I may make my point rather more fully. I can see where the noble Lord is coming from. He is seeking through his amendment to make S2P resemble ever more closely BSP—the basic state pension. I believe that he is profoundly wrong in that. The very debate that we were having earlier about the role of BSP and the extent to which all people, including women, might have access to it, denotes our reading of BSP as a pension to which as many people as possible should be entitled. Over the years since Beveridge, we have stretched it and stretched it, through credits and home responsibility payments, to bring more and more people within its coverage. S2P had a completely different history, and it does no kindness not only to BSP but to S2P to try to replicate the BSP function.

S2P was designed in recognition of the fact that people with earnings of more than £25,000 a year or so were likely to be in an occupational pension. We were running stakeholder schemes for those with incomes between about £12,000 and £13,000 a year and about £25,000. As your Lordships know, in the Pensions Bill we are trying to make employers more likely to contribute towards those schemes than they have done in the past. But we also accepted that very many people on very modest earnings, who worked 16 or 18 hours a week at minimum wage, would take home incomes of £5,000, £6,000 or £7,000 a year. Those people were in the labour market and working but, for them, a funded occupational pension was a dream. It was not possible, although they were working 16, 17 or 18 hours a week and trying to combine that with home life.

With S2P we were trying to produce an alternative occupational pension—and some of your Lordships were present when we developed it. That alternative not only built on SERPS but was more generous than SERPS, because it meant that whether one was earning £6,000 or £11,000 a year, one would get the same S2P. But the condition of that was that it was a reward for being in the labour market, and a compensation at that level of earnings for having no access to an occupational pension scheme. It was attached to the labour market. In that sense, the more that BSP moves away from the contributory principle, as it has to some degree with issues such as HRP, the more important it is to protect S2P as a contributory pension to which people have added their contributions over the years through the national insurance principle. Without that, we will have very real difficulty in sustaining a second pension distinct from that of the basic state pension.

With S2P, we agreed that there were some people who could not enter the labour market—disabled people—and some who were getting carer's allowance because the element of caring was so substantial that it was unwaged work, which would not be alleviated because they were dealing with people with a middle or high-rate DLA, whose condition might very well deteriorate over time, although that was not invariably the case.

Therefore, S2P was for those in the labour market and unable to gain access to an occupational pension because of the poverty of their earnings, or for those who could never enter the labour market but who were, particularly as carers, doing the equivalent of a non-waged, full-time job. But we were clear that it was never an optional pension for those free to make choices to enter the labour market, even at the modest level of 16 hours a week.

I firmly believe, with all the work that we have done on the new deal for lone parents and the rest of our strategies, that we are helping women, including lone parents, back into the labour market. There need be no problem for women who wish to enter the labour market to reach the lower earnings level with children between the ages of six and 12 at school—and they do. Hosts of them do. It would be quite wrong to extend this provision to people caring for children up to the age of 12, thus increasingly aligning what is meant to be a contributory labour market occupational pension, and to seek to turn it into a diluted version of basic state pension. That is what this amendment would do, and I think that is profoundly wrong.

I could go on at greater length but I hope that the noble Lord will recognise or accept the force of that argument. If he continues in the way that he is going, we would end up, as I say, breaking the connection between S2P and waged work for a whole swathe of people for whom we should not break that link. If we do that, the whole justification of S2P itself becomes increasingly shaky. I hope that with those comments the noble Lord will feel able to withdraw his amendment.

Lord Skelmersdale

My Lords, the noble Baroness is quite right; the whole basis of S2P is extremely shaky, especially when she says that the rationale for allowing carers of disabled people to claim HRP is because it is a state's recognition of unwaged work. Surely to goodness, being a parent is unwaged work.

Baroness Hollis of Heigham

My Lords, I made the point that a carer would be eligible for the provision only if he or she was on carer's allowance. The passport on to that is middle or higher rate DLA. The noble Lord knows about the conditions for DLA. He has been involved in debates on that. He knows that they involve frequent and, if necessary, continuous supervision, support and assistance to a disabled person. It is a full-time job; you need to be there. It is not a situation where a disabled person is out of the house for five, six or eight hours a day and one can fit in work. I am talking about a situation where a person is with that disabled person in the home. It is work that, sadly, is all too often under recognised and, frankly, under financed by society as a whole. It is a totally different situation from a parent with a non-disabled child whose child goes off to school at half-past eight in the morning and comes home at half-past four in the afternoon. The noble Lord will not persuade me that such a parent cannot in any sense go into the labour market for four hours a day.

That is not to undervalue parenting and it is not to say that being a parent is not the most important job in our society. As a parent myself I believe that it is. However, I am saying that such parents can perfectly properly be full and proper parents while going into the labour market and acquiring an entitlement to S2P within the hours that a child is at school without strain and without problem.

Lord Skelmersdale

My Lords, the noble Baroness also claimed that it was quite possible—indeed, she repeated that just now for a mother in this situation to work for 16 hours a day.

Baroness Hollis of Heigham

A week, my Lords, but she probably will work for 16 hours a day.

Lord Skelmersdale

My Lords, I apologise, 16 hours a week, although, as the noble Baroness says, she probably will work for 16 hours a day. However, that is an argument which the noble Baroness has just sought to refute regarding a parent working on behalf of the child. But surely to goodness the fact of the matter is that children have illnesses and the mother has to go off work. Children have half-terms and the mother has to go off work. Children have school holidays and the mother has to go off work. Teachers have training days—I do not know what they are called—and the mother has to go off work. If you average it out over the year I find it very difficult to bring myself to believe that what the noble Baroness has said regarding 16 hours a week regular employment is a possibility.

However, that said, it is very rare that the noble Baroness and I antagonise each other to quite such an extent as we have on this amendment. I am sorely tempted indeed to divide the House but I will not do so because we are on Report and all that would happen is that I would give the Government a very easy victory on something that I believe in very deeply. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 11 [Deferral of retirement pensions and shared additional pensions]:

Baroness Hollis of Heigham moved Amendment No. 293:

Page 325, leave out lines 34 to 37 and insert—" (3) Regulations—

  1. (a) may enable a person who has made an election under subparagraph (1) (including one that the person is treated by sub-paragraph (2) as having made) to change the election within a prescribed period and in a prescribed manner, if prescribed conditions are satisfied, and
  2. (b) if they enable a person to make an election under subparagraph (1)(b) in respect of a period of deferment after receiving any increase of pension under paragraph 1 by reference to that period, may for the purpose of avoiding duplication of payment—
    1. (i) enable an amount determined in accordance with the regulations to be recovered from the person in a prescribed manner and within a prescribed period, or
    2. (ii) provide for an amount determined in accordance with the regulations to be treated as having been paid on account of the amount to which the person is entitled under paragraph 3A."

The noble Baroness said: My Lords, in moving Amendment No. 293 I wish to speak also to Amendments Nos. 295 and 296 with which it is grouped.

They concern the provisions in Schedule 11 that would allow a person a short "cooling off" period after they have chosen between increments and a lump sum at the end of their deferment. We intend to set that cooling-off period at three months and allow people to revisit the choices if they wish. The provisions are benign; it is late at night; I hope that noble Lords will accept that the amendments are desirable. I beg to move.

Baroness Barker

My Lords, it is late at night, but I want to ask the noble Baroness to explain why the Government have chosen three months. We talked at some length about lump sums in Grand Committee, and we will talk a little more about them on the next amendment. We talked about the enormity of the decision for some people. Without going over all the arguments again, people are essentially betting against the Government when they choose to defer.

In Grand Committee, the noble Baroness talked about reasons why people might want to change their mind on election to defer, such as discovering that they had a serious illness. In such circumstances, three months does not seem a particularly generous length of time on the part of the Government; in fact, it seems quite arbitrary. How did the Government come to the figure of three months?

Baroness Hollis of Heigham

My Lords, I do not deny that there has been a decision to go for three months. The noble Baroness should remember that we are talking about the choice that people will have after they have deferred on how to take the extra value to their basic state pension. They will have been working for perhaps two or three years and acquired increments that, at the point of retirement, they can decide to convert into either additional increments on their basic state pension or a lump sum. While they have been working beyond state pension age and choosing not to draw down their pension, I do not believe that they will not have been considering and reflecting on that.

Once they retire, they make that choice, having no doubt considered what for them makes best sense all the time that they have been working. We could assume that choice to be irrevocable unless there is good cause. We do not; we are doing something else. We are not giving people a long-term guarantee against risk or whatever, so that they can revisit it in two or three years' time, but people will presumably have taken the extra period with a presumption of which way they want to cash the extra value. When it comes to their retirement, they make their choice but, instead of it being irrevocable, if on reflection they decide that they have made the wrong choice they can revoke it within three months. That is really rather generous, relatively speaking. It is more generous than applies to many such choices, when one thinks about the amount of time that one has to reconsider commercial contracts and so on.

We are allowing people to revisit a choice that they will have made, possibly fully and certainly in good faith, if they so wish. Clearly, the length of time in which they can revisit the choice cannot stand open-ended. There would be questions then of repayments and all the rest of it. We think that three months gets the balance about right.

Baroness Barker

My Lords, would the Minister agree that, in the circumstances that she outlined, the main reason why someone might change their mind is because they have had a serious life-changing event such as illness? I am not for one moment suggesting that the period ought to be open-ended, or that it necessarily need be a great deal lengthier than what she outlined. I would merely like to see some basis on which the length of time can be aligned to what happens in people's lives. I suspect that, in those circumstances, things might be different.

I would be interested to know in due course whether, if the provision remains—I suspect that it will—it will be monitored to see how arbitrary it is and the extent to which it mirrors the people who make changes and decisions for those reasons. My reasons are not of dogma or principle, they are of pragmatism.

10.30 p.m.

Baroness Hollis of Heigham

My Lords, I take the point regarding monitoring. I am perfectly happy to give the noble Baroness an assurance that I shall do my best to monitor the situation. Obviously, if we discover situations with an unacceptably high number of what I would call good causes that would properly be of concern, we might revisit the matter, I suppose. But I will monitor it, because we certainly do not wish to have a situation where people are making inappropriate choices which are too late. Equally, one cannot, as the noble Baroness accepts, say a year or two down the line, "My circumstances have changed and now I want to do something different", because otherwise the Government would be being asked permanently to guarantee or second-guess peoples' choices—in other words, insure them against the bad choices that they might have made because they did not know what might happen to their health.

There is a balance to be struck. We believe that three months is generous, but I shall seek to ensure that the situation is monitored. If the noble Baroness's fears are valid and take place, I am sure that she will be one of the first to raise concerns and to draw them to our attention.

On Question, amendment agreed to.

The Deputy Speaker (Lord Geddes)

My Lords, before calling Amendment No. 294, I must advise the House that if it is agreed to, I cannot call Amendment No. 295, by reason of pre-emption.

Baroness Barker moved Amendment No. 294:

Page 328, line 8, leave out paragraphs 9 to 11 and insert—

"9 After paragraph 3B (inserted by paragraph 8 of this Schedule) insert—

"Treatment of lump sum of deceased pensioners

3C Where a person has accrued a right to a lump sum payment under paragraph 3A of this Schedule the value of the lump sum accrued by the time of death shall be payable to the estate of the deceased.""

The noble Baroness said: My Lords, as I said a moment ago, in Grand Committee we discussed the matter of deferments and lump sums, principally on the grounds that we thought, and still feel, that the provisions of the Bill were open to charges of discrimination in that they related only to spouses and to people who were married. We did not find the Minister's answers convincing at that point.

Nevertheless, there is another element about which we think that the Government's proposals regarding deferral of lump sums may be open to challenge under Article 1 of the first protocol of the ECHR, about the right to enjoy one's possessions. We had a discussion in Grand Committee, although not a particularly satisfactory one in terms of the Minister's response, about whether or not a deferred pension could or would be considered to be a possession and, therefore, something that should be treated as part of an individual's estate.

At this time of night, I do not wish to enter into much detail about the case of Muller v Austria in 1975, except that although in that case it was held that a state pension was not protected as such by Article 1, a property right might arise from making compulsory contributions to a pension fund. The basic state pension in this country requires compulsory contributions. The entitlement to a state pension depends on previously made national insurance contributions.

When reaching state pension retirement age, pensioners have a legal right to receive those state benefits. On these Benches, we believe that a lump sum should be made up of past entitlements to pension payments to which there has been a clear legal right. Therefore, the deferred pension sum is as much the property of an individual as if he had taken the money when he was entitled to it and put it in a deposit account in his own bank. We therefore believe that, as the Bill stands at present, it is open to challenge on those grounds, and that is the reason for raising the matter again. I beg to move.

Baroness Hollis of Heigham

My Lords, the noble Baroness, Lady Barker, has helpfully returned to what I would call the legal arguments of the issue and she has invited further contributions. Again. I am trying to avoid repeating what I call the "blue sky" arguments that we entered into in Grand Committee.

The noble Baroness raised two main issues. The first concerns the legality of the proposed inheritance arrangements for the lump sum. These extend the rules that already apply to increments and would allow a surviving spouse—but no one else—whose married partner died while still deferring his pension to choose a lump sum payment derived from the deceased's deferment.

The question put forward by the noble Baroness is whether the lump sum constitutes a possession before the person deferring his pension makes a claim for it. If it does, then by restricting the payment of any lump sum to a surviving spouse if the deferrer dies before claiming, it is argued by the noble Baroness that we are at risk of being found to be in breach of Article 14, read in conjunction with Article 1 of the First Protocol of the European Convention on Human Rights, or, indeed, in breach of Article 1 of the First Protocol alone; that is, as the noble Baroness said, we are interfering both with the person's enjoyment of his possessions—I presume by not allowing him to dispose of it freely on his death, which is a little strained—and we are also discriminating against unmarried couples.

We do not accept those arguments. It is a well established principle in social security legislation that entitlement to benefits requires a claim to be made by the person. That principle has also been upheld in the European Court of Human Rights. In our view, therefore, the deferrer's right to a lump sum cannot precede his claim for it any more than his right to obtain his normal weekly pension cannot exist separately from the requirement to claim it.

Therefore, while a person may have an expectation that he will receive a payment as a result of contributing to the National Insurance Fund, we do not agree that that creates an obligation on the part of the state to make any payment of that benefit or that it creates an expectation on the part of the individual that he will receive a payment before a claim for it is properly made as required by law. Indeed, the deferrer is free to make a claim at any time, and naturally we would not be in any position to second-guess what the deferrer might choose by way of reward, be it a lump sum or increments, once he does make a claim.

The noble Baroness made the point that a person who defers is in no different a position from one who has drawn his pension and banked it and that therefore the accruing amount should be treated in the same way. As I hope I have made clear, we consider that there is a difference. The one has claimed his pension and is therefore entitled to do what he wants with it; the other has not. If we are right on this point—I am assured that we are—it therefore follows that we are not unreasonably interfering with the person's peaceful enjoyment of his possessions because, until such time as he has claimed his pension and chosen his lump sum, it is not his to enjoy.

On the issue of discrimination between married and unmarried couples—however cross he was about the previous amendment, I think that the noble Lord, Lord Skelmersdale, will support me on this—I simply say that we are doing no more or less than we do now with respect to the other elements of the state retirement pension.

As I have already said, we accept that an argument of principle is involved here, but it does not turn on the lump sum in isolation. The lump sum is intended to be an alternative form of taking the rewards of deferring the state pension. In that context, what would be the rationale for paying the lump sum to an unmarried partner but not the increments? As the noble Baroness knows, unmarried partners are not entitled to increments or even the basic state pension by virtue of their relationship to their partner. That applies only to married couples, and that is the law as it stands. Therefore, in our view, it makes no logical sense to separate the one element from the other.

I could continue, but I have tried to address the two points raised by the noble Baroness. One is the legal status. I have gone into that at some length in order to give the noble Baroness the legal basis and the considered legal view that we have sought. With regard to the second, concerning the unmarried partner situation, I have tried to suggest that what we are doing here is entirely fair. We are treating the lump sum as we will treat increments—no more and no less—and it applies to the spouse or the bereaved spouse and not to unmarried partners in either circumstance. To do the one rather than the other would produce new anomalies and new unfairnesses. I am afraid that I cannot accept the noble Baroness's amendment.

Lord Skelmersdale

My Lords, before the noble Baroness sits down, does she accept that there is no entitlement to a lump sum until it is asked for at the end of an extended retirement period and, therefore, by definition, the noble Baroness, Lady Barker, is asking for an ephemeral thing? Does the Minister further accept that this is the first time today that I have been in total agreement with what she says?

Baroness Hollis of Heigham

My Lords, that was such a splendid intervention. I have never yet heard of a basic state pension being called an "ephemeral thing". I was relishing that phrase and wondering how I might enlarge on it, but then the noble Lord spoilt it by saying that this is the first time we have been in agreement.

Lord Skelmersdale

My Lords, I said total agreement. There is a difference.

Baroness Hollis of Heigham

My Lords, let us hope that that is a difference without a distinction. With that, I hope that the noble Baroness will feel able to withdraw her amendment.

Baroness Barker

My Lords, I thank the noble Baroness for her full and timely response to the points that I raised. I too find myself in complete disagreement with the noble Lord, Lord Skelmersdale. I do not believe that a basic state pension lump sum is ephemeral—far from it.

I thank the noble Baroness for the points that she made about discrimination against unmarried couples. Perhaps that is a fight for another day on another Bill when we may return to the matter and have more agreement between us than now.

On whether a deferred lump sum is a possession that should go to someone's estate, I still believe that the Government will find themselves open to challenge on that. Whatever the legal status of the matter, the noble Baroness has finally and comprehensively made the case against deferral. I do not believe that was in the Government's interests either. I see absolutely no reason why anyone in their right mind would wish to defer their state pension at all.

On that note, I thank the noble Baroness for putting those arguments on record, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham moved Amendments Nos. 295 and 296: Page 328, leave out lines 29 to 32 and insert— (4) Regulations—

  1. (a) may enable a person who has made an election under subparagraph (2) (including one that the person is treated by sub-paragraph (3) as having made) to change the election within a prescribed period and in a prescribed manner, if prescribed conditions are satisfied, and
  2. (b) if they enable a person to make an election under subparagraph (2)(b) in respect of a period of deferment after receiving any increase of pension under paragraph 4 by reference to that period, may for the purpose of avoiding duplication of payment—
    1. (i) enable an amount determined in accordance with the regulations to be recovered from the person in a prescribed manner and within a prescribed period, or
    2. (ii) provide for an amount determined in accordance with the regulations to be treated as having been paid on account of the amount to which the person is entitled under paragraph 7A."

Page 332, leave out lines 1 to 4 and insert— (3) Regulations—

  1. (a) may enable a person who has made an election under subparagraph (1) (including one that the person is treated by sub-paragraph (2) as having made) to change the election within a prescribed period and in a prescribed manner, if prescribed conditions are satisfied, and
  2. (b) if they enable a person to make an election under sub-paragraph (1)(b) in respect of a period of deferment after receiving any increase of pension under paragraph 2 by reference to that period, may for the purpose of avoiding duplication of payment—
    1. (i) enable an amount determined in accordance with the regulations to be recovered from the person in a prescribed manner and within a prescribed period, or
    2. (ii) provide for an amount determined in accordance with the regulations to be treated as having been paid on account of the amount to which the person is entitled under paragraph 4."

On Question, amendments agreed to.

[Amendments Nos. 297 and 297A not moved.]

Clause 314 [Parliamentary control of subordinate legislation]:

Baroness Hollis of Heigham moved Amendment No. 298:

Page 257, line 30, at end insert— ( ) an order under section 241(A1) (power to provide for minimum fraction of member-nominated trustees or directors to be one-half); On Question, amendment agreed to.

Forward to