HL Deb 15 November 2004 vol 666 cc1224-49

Notwithstanding any statutory provision or rule of law to the contrary, the requirement for pensioners to take their pension in the form of an annuity, together with the requirement to do so by the age of 75, shall cease to have effect, provided that the pensioner can demonstrate that he has resources to ensure that he will not become dependent on means-tested benefits."

The noble Lord said: My Lords, this matter has a long history stretching over decades and over the period of debates on this Bill. We have debated the issue both in Committee and at Report stage. I indicated at both stages—we did not vote on it then—that I intended to raise the matter again on Third Reading.

In a more historical context, amendments similar to this, but perhaps not quite as elegantly drafted, have been carried on two previous occasions by your Lordships' House. On each of those occasions the matter was reversed when it went to another place—a regrettable occurrence, certainly for those who have suffered from the effects of the present rule on annuities ever since. The issue is important and if noble Lords decide that it is an appropriate amendment—as I hope they will—perhaps on this occasion it will not be reversed in another place.

The importance of the issue has not been overlooked by the Chancellor of the Exchequer who, in a recent Finance Bill, sought to deal with the matter in a different way. We are told that he decided to deal with it in relation to the representations from a particular Christian sect, which took the view that annuities are a bet on someone's life and, therefore, immoral. There are those who regard annuities as immoral for a number of reasons, but as is typical of the present Chancellor of the Exchequer, his proposals were unbelievably complicated and not understood by a great many people, in the same way that the whole of the tax credit structure is incomprehensible to many people. I have had a number of letters complaining that that system will not come into effect until 2006, and those writing the letters were approaching the age of 75.

At all events, in earlier debates we discussed the various forms in which an amendment on this issue might be drafted. At Report stage we looked at three possible ways of doing it. I believe that the present form should be acceptable from a technical point of view, whether or not from other points of view. I believe that it should be acceptable from all points of view. As a result of our debates in Committee and at Report stage, the issue is now more closely focused than it has been on a number of occasions—including at least the three occasions when Members of the other place sought to deal with the issue by way of Private Member's Bill.

It is important to distinguish exactly how the matter has come into focus. Effectively there are two elements which are both covered in the amendment. First, whether annuities should be taken at the age of 75. That is to say, whether individuals who build up a pension pot—if I may use that expression—should be required, whether they like it or not, to take that in the form of an annuity, even though they take the view that annuity rates may be better on some future date. Therefore, they are forced to use their pension pot at what they regard as a disadvantageous moment of time.

It has been difficult to establish exactly when the rule came into effect. It may be that the noble Baroness can provide illumination. However, what I have managed to establish is that the age ceiling for annuity buy-out from occupational schemes rose from 70 to 75 in May 1994. Personal pensions were introduced in July 1988 with an annuity age ceiling of 75 years, and the retirement annuity age was raised from 70 to 75 in 1976. Ahead of that, there were earlier periods in which a lower limit existed. That is not surprising. I have not been able to establish precisely whether it goes back to Beveridge or even earlier, but what is clear is that when Beveridge introduced much of our pensions legislation immediately after World War II, the life expectancy of a man at retirement age was only two years. That is to say that a man was expected to survive for only two years after the retirement age of 65. For many people taking an annuity at the age of 70 must have been a fairly academic exercise as they would not be around at that time.

Be that as it may, it seems clear that the age of 75 is not consistent with the kind of point made in the recent Turner report about the extent to which people are living a great deal longer. That is the first point. I stress strongly that the present rule forces people to take an annuity at a time when they do not want to. It seems to us that that is quite wrong.

The second aspect of the matter is whether one should be compelled to take an annuity at all. In the course of the earlier debates I referred to a very comprehensive and technically well executed study by Watson Wyatt about people's attitudes to annuities. Over a reasonable sample survey, it came to the view that something like 58.8 per cent of those surveyed never wanted to annuitise their pension pots; and something like 12.1 per cent wanted to do so later than required to at present. Therefore, something over 70 per cent of the people surveyed were against annuitising their assets as the present law requires them to do. All kinds of interesting reasons were given why they take that view; for example, 74 per cent said that they liked flexibility; 45.9 per cent said they could do it better themselves; some were concerned about the so-called "bequest notice"; and quite a number said that they did not believe they would live long enough to get their money back. There is fairly widespread antagonism to the way in which annuities operate generally.

Our amendment would abolish the rule. In a sense this is a very protected market. Those offering annuities scarcely need a sales force, because people are compelled to buy annuities. Therefore, it is not surprising that, for example, the ABI is not in favour of this kind of amendment. However, I think that one should take its interests into account on the matter.

Another relevant point, which the noble Baroness has made on previous occasions, is that this provision will have a dramatic effect on financial markets. I do not think that she is right in believing that the change will be as dramatic as she supposes; it is only the people who are coming up to the age limit, and so on. Anyway many of them may still decide to take an annuity.

The noble Baroness put forward some cogent arguments—I want to make our position clear in this respect—on what happens to the pension pot if it is taken in a form other than as an annuity. Under present arrangements, 25 per cent of the amount is tax free as a lump sum if individuals wish to take it that way. The remainder is taxed. Clearly, if we were to abolish the rule in the way we have suggested, it seems highly likely that the Chancellor of the Exchequer would have a view regarding taxation. We are not suggesting that the whole amount should be tax free; that would be a wrong attitude to take.

The tax relief that people have already had on their pensions is a very important incentive to encourage them to save to ensure that they have resources available for retirement. Over the life of the Government the savings ratio has halved. The noble Baroness shakes her head—it has virtually halved since 1997. It is very important to maintain that particular incentive. In most cases it has achieved its objective. Clearly, people have decided that they need to make adequate provision for their retirement.

In this context, in the earlier debates the noble Baroness gave some extraordinary figures about the amount of money one needs to have in the pension pot if one was not to go on to means tested benefits. That brings me to the next point, which is clear from the amendment. We do not think it is right that people should be able to take the amount, even if it is taxed, spend it and then go on to means tested benefits. That would be wrong in our view. We believe that it should only be possible if adequate provision is made to ensure that individuals do not rely on means tested benefits—massive and complicated though they are—under the present Chancellor of the Exchequer's policy. I shall not go off into other issues about the basic state pension, and so on. So, in our view, this is an appropriate amendment and one whose time has come.

We said at the earlier stage of the debate that the drafting of the amendment was difficult. I believe that in its current form it should be acceptable to the House of Commons; it was drafted with that in mind. No doubt it could be implemented in a future finance Bill—hopefully, the next finance Bill.

One should stress also that there is no reason why the existing arrangements should not continue if individuals wish to take their pension in the form of an annuity at some stage, not necessarily at 75. They will still be free to do that. We seek to establish as flexible an approach as may reasonably be initiated.

I referred to another place. Against the historical background and the economic situation which I have described, I hope that there are sufficient Members in another place who take the view that their constituents are entitled to the provision and support this amendment. I add one caveat to that: it is not unusual for amendments from this place to go to another place and be rejected on grounds of financial privilege. I looked up the relevant parts of Erskine May. I am surprised; my version is only about 10 years out of date, but I see that it has already been substantially rewritten by Mr McKay, a former Clerk to my committee in the other place.

Looking at this issue with the background of having been a Treasury Minister and chairman of the Treasury Committee in another place for well over 10 years, it does not seem appropriate to claim financial privilege on this particular amendment. I certainly hope that view will be shared by Mr Speaker in due course.

This issue has been going on for far too long. It is one where the present limit is clearly out of line with the way in which life expectancy has changed over time. It is clearly out of line with the way in which financial markets could provide a more flexible and better form of finance in retirement for a great many people. This is not simply a question of those who are well off. Although clearly people who have invested more in their pensions are likely to have some advantage, many of the letters I received have been from people who are obviously quite poor but who, none the less, object to having to take their pension in the form of an annuity and to having to do so at a specific age.

I think this amendment should commend itself to your Lordships. I hope it will. I hope that it will also commend itself to those at the other end of the building I beg to move.

4.45 p.m.

Lord Oakeshott of Seagrove Bay

My Lords, noble Lords on these Benches support the amendment and are happy to put our names to it. This is clearly an area where life, work patterns and financial markets have moved on a great deal since the legislation was framed and the limits were fixed.

The noble Lord, Lord Higgins, used a rather nice phrase from the Telegraph today about the origin of this being lost in the "mists of time". We on these Benches have been doing our best to peer into the mists of time. The advice from friends on our working group, which has recently been drawing up our policy, is that they believe these provisions started about 1956 when there was an age limit of 70. I raised the matter with the noble Baroness the other day. We look forward to her giving us the official background before 1976.

If one looks just to 1976—in the letter the noble Baroness kindly sent us—when the limit was raised from 70 to 75, my figures are that the average age of death in 1976 was about 70 for men and 75 for women. So the limit at that stage was raised to five years above the average age of death. The latest official projections for next year, when obviously the Bill would come into effect—as amended we hope—are that the average age of death for men is 76.4. As we know, it is going up rapidly. So we move from a position where effectively the limit was five, years below the average age of death to that of one and a half years the other way.

I defer to other noble Lords on financial privilege. I have no view on that, but I hope that the noble Lord, Lord Higgins, is right. Even so, it seems quite clear to me that the limit at the age of 75 is well out of date. Furthermore, whatever the reasons were for fixing the limit previously—and no doubt they were good ones—there should, at the very least, be a substantial increase in the limit.

As I say, we would prefer no limit at all. The fixed limit is a disincentive to people making retirement provision for themselves. We are all in favour of much more flexibility in retirement and of people working longer. It seems wrong that somebody should run up against the buffers of having to use all or most of his pension pot at 75, which is now an age at which many people still work and earn. Surely, we should encourage that.

For all those reasons I support the amendment. At the very least we feel that there is a strong argument for an increase in the limit to 80, if the principle of abolishing the limit altogether is not accepted.

Lord Fowler

My Lords, I, too, strongly support what my noble friend Lord Higgins said. As the Minister's note makes clear, retirement annuity was raised from age 70 to 75 in 1976, so even on that reasoning, there should be a big increase in the age. The Minister mentioned that when personal pensions were introduced, it was not raised. My comment on that is that in 1986–88 it was not the issue that it is today.

The fact is that the level of annuities then being paid was greatly more than the level of annuities today. Annuities have gone down and down in value. That is what is of public concern at present, which is why there is so much strong public support for this change. That is not surprising. The truth is that today, more and more people approaching the age of 75 realise that the requirement to take an annuity is not a good deal for them.

This weekend, there was a piece in the Sunday press, in which the example given was that at the end of the 1980s—in 1988, as it happened—a person of 65 could get an annuity of 10.8 per cent. Today the figure is 6.8 per cent: 4 per cent less, and set by all predictions to go lower. If you want an annuity that gives full widow's rights and inflation-proofing, you will probably have to settle for less.

People who are retiring can get a decent income in other ways, using other products open to savers, but with the enormous benefit that they keep their capital. Under the Government's rules at present, they get a reduced rate of interest and lose their capital as well. That is what is at the heart of so much objection to the measure and I think it unacceptable, especially if, as my noble friend Lord Higgins said, the individual can establish beyond reasonable doubt that in no way will he come back for support from the state.

So I do not understand why the Government so stubbornly refuse to move on the issue. I cannot understand whom the rules help, apart from the annuity companies. I accept that people have had tax relief, but their expected yield has been reduced and payments from their fund will be subject to tax in any event. Frankly, this Government have done quite enough to take from pension funds the tax due to them, and much more.

The policy is also serious in the following way. We know that final salary schemes are closing down. There is no question about that: evidence establishes that that is the case. We know that money purchase schemes will be the way forward for the vast majority of people in the private sector, if not in the public sector. We know that we want to encourage as much private saving as possible. The policy on annuities goes smack against that central policy. That rule is unjust to savers. It works against a sensible pension policy. It should be scrapped without more ado.

The Minister may resist the amendment today and, as my noble friend said, the Government may get their way on the Bill. But I tell her this: in the end—I hope sooner rather than later—that rule will be swept away because it is insupportable.

Lord MacGregor of Pulham Market

My Lords, I, too, shall speak briefly in support of the amendment. I do not need to repeat all the arguments that have already been made about greater flexibility, removal of inflexibility, and greater incentives for savings for one's old age—not through defined benefit schemes, because I agree that they will be much less influential in future. I accept all those arguments. I just want to add one or two points.

I say to the noble Lord, Lord Oakeshott, who gave the average age of death, that the relevant figure is life expectancy after the age of 65, because that is what we are talking about: people who have pensions and life expectancy beyond that. In the excellent report that we debated last Friday from the Select Committee on Economic Affairs on Aspects of the Economics of an Ageing Population, there is a table that I believe originally comes from the Department for Work and Pensions, which shows that, for men aged 65 in 2002, life expectancy was another 16 years and for women another 19 years. So we are well beyond the age of 75 and, increasingly, as longevity increases year after year, many people will have many years beyond the age of 75 in which they will want the flexibility to make their own arrangements for retirement.

My only other point is this. Perhaps the Government are concerned that, given the tax incentives for taking up personal pension schemes and so on, somehow individuals will not be taxed at all on the benefit that they get after they have retired. If so, the majority of people who will be able to benefit from not having to take out annuities beyond the age of 75, given the qualification that my noble friend Lord Higgins mentioned of having enough funds to be above the means test from then on, will, however they deploy their assets after the age of 75, be paying inheritance tax at the full 40 per cent, given the current high rate of, not least, house prices. The argument that somehow they will be able to evade tax on their assets if they do not have to move to an annuity at age 75 no longer applies under current conditions.

I strongly support the amendment. Its Lime has come.

Baroness Hollis of Heigham

My Lords, we return to a topic that we have debated not only during the past few years but also during the past few weeks in your Lordships' House. In Committee, we discussed at a blue sky level, to use a phrase that I was teased by the noble Lord, Lord Skelmersdale, for over-using, the arguments for and against the proposal. At Report, the noble Lord, Lord Higgins—unusually; I do not think I have seen this before—produced three different versions to get rid of the annuitisation rule at 75, I think in the hope that he would find out which of those was most robust, so that he could have a go at it on Third Reading.

In the process, I think that the noble Lord accepted that there were serious policy flaws, not merely technical drafting problems. He shakes his head but he has to—"He would, wouldn't he?", as they say. As a result, he decided not to recycle any of those amendments today. So we now have a new version.

The current rules on annuities require members of personal pension schemes to purchase an annuity by age 75 and members of occupational pension schemes to receive a pension by age 75. I was pressed about dates. We circulated what we knew and have done more research since then. As I understand it, it was from 1921 that there was a general assumption that there would be annuitisation of pots at retirement. In 1956, that figure was defined as 70; in 1976, as 75.

The noble Lords, Lord Higgins and Lord Oakeshott, made much of the point about life expectancy, but the noble Lord, Lord MacGregor, made the point that I wanted to make: that the reason life expectancy back in 1921 and 1931 was so low was high infant mortality. Therefore, the gap between life expectancy at age one and at age 65 was very wide. Now, with, fortunately, very reduced infant mortality, any gains in average life expectancy are because people are actually living longer, as opposed to fewer infant deaths.

As the noble Lord, Lord MacGregor, said, if we take the figures for 1921, those people who lived to 65 went on to live another 11.5 years, compared to 16 now. Although the average life expectancy was only 67, those who lived to 65 would have lived to 71, 72 or 73, on average. That makes the point made by the noble Lord, Lord MacGregor, very telling. So, overall, life expectancy from the age of 65 has not changed as dramatically as life expectancy from birth.

Lord Oakeshott of Seagrove Bay

My Lords, accepting that point, what was life expectancy at age 65 in 1976, when the level was last raised?

Baroness Hollis of Heigham

My Lords, in 1971, for men, it was 12.3; in 1981, it was 13. So it was about 12 and a half years and is now about 16, so far as we can tell.

5 p.m.

Lord MacGregor of Pulham Market

My Lords, I think that the noble Baroness will draw the opposite conclusion from the one that I draw. Increasing longevity over the age of 65 makes this change relevant. Does she not also agree that, compared with 1921, 1960 or whenever, many more people have personal pensions than previously, and therefore removal of the obstacle at 75 is much more relevant today?

Baroness Hollis of Heigham

My Lords, I do not dispute that. I was trying to address a new point, introduced at Third Reading, about changing life expectancy, on which the noble Lords, Lord Higgins and Lord Oakeshott, had not previously argued. I was saying that there was a fallacy in that argument. I was anxious to explore that.

The second argument, raised by the noble Lord, Lord Fowler, was annuity rates in 1988 and concern that they had fallen. The noble Lord said that annuity rates then were around 10 per cent. He is right; annuity rates have halved since then. But he must accept that that was a reflection of high inflation at the time. One of the differences is that inflation at 5 per cent halves the value of an annuity in 14 years; at 10 per cent, it halves the value of an annuity in nine years; given current inflation rates, today it would halve the value of an annuity in around 30 years. For women, who are likely to live longest, the level of inflation is at least as important a determinant of the value of their income being protected over time as the nominal annuity rate, as I am sure the noble Lord will accept.

Perhaps I may return to the substantive arguments. Why do we require people to take an annuity at 75? It is to ensure an income stream in retirement. To encourage that form of saving for retirement, current tax legislation is very generous in the concessions granted towards contributions. In other words, the pension regime could be regarded as a tax haven for retirement savings.

It is generally accepted that 75 is the age at which further delaying annuitisation could be harmful to retirement income, as the investment returns required to exceed those from taking an annuity become unrealistically large. It has been the maximum age since 1998 and has been applied to occupational pension schemes from 1994. Not only does the age of 75 seem reasonable, but the huge majority of pensioners—almost two thirds—buy their annuity when they retire. If they decide to defer, they normally purchase an annuity long before they reach age 75. It is widely recognised that annuities are the most suitable vehicle for ensuring a regular stream of income throughout the period of retirement, no matter how long or short it may be. None of us can predict what our life span will be.

The amendment tabled by noble Lords opposite would remove the requirement on members of personal pension schemes to secure an income stream by purchasing an annuity as well as the requirement to do so by age 75, but only if they can "demonstrate"—the word used in the amendment—that their existing resources would enable them to avoid any reliance on means-tested benefits.

Who would benefit from the removal of the need to purchase an annuity? Clearly, the wording of this new amendment makes it more apparent than previously that, frankly, it is concerned with those in our society who are well off—in many cases, very well off. By imposing a condition that a member has to, demonstrate that he has resources to ensure that he will not become dependent on means tested benefits the amendment creates an option that at present would be readily acceptable only to the richest 4 per cent of annuitants in the personal pensions market. We do not know yet how they would demonstrate the fact that there would be no fall-back on benefits at a future date, nor does the amendment provide any guidance on the level of resources that would be required to give such an assurance.

How long could such members' level of income be sustained, bearing in mind that none of us knows how long we will live? How long would their levels of private investment continue to generate their current income? What are the future levels of state pension and benefits? What happens if their savings vehicle collapses? We all have that in mind. I know that one very big case will have affected many noble Lords.

Would there be an initial form of means-testing to decide whether the conditions imposed by the amendment were satisfied? I am intrigued that the noble Lord, Lord Higgins, who so vigorously denounced the extension of what he calls "means-testing" on those who are less well off, should now seek to apply the equivalent means-testing to those who are better off to ensure that they stay free of benefits.

Lord Forsyth of Drumlean

My Lords, I am grateful to the Minister; perhaps she can help me. I do not understand her point that the amendment favours those who are best off or well off. Surely the people who have suffered are those with comparatively small pension funds, which have been reduced by the Government's imposition of a tax on their dividends, and who are forced to buy an annuity at a time when annuities produce less income. Surely it is people just slightly above the benefits level, having saved throughout their lives, who now have no income because annuities do not provide it. The Minister has made the case for buying an annuity. Why do the Government not leave it up to those people themselves to decide whether to buy an annuity?

Baroness Hollis of Heigham

My Lords, we welcome the noble Lord, Lord Forsyth, to these debates. Of the people who take annuities, half of all pension pots are under £40,000. We estimate that about 1 per cent of all annuitants—around 20,000 to 30,000—would have an annuity worth more than about £250,000 that would therefore float them into being able to take advantage of this amendment. The noble Lord presses me about why I say that only the best off would benefit. Perhaps only 1 per cent would have a sufficiently large annuity pot to run an income sufficient to float them off income-related benefits. We explored that subject fairly thoroughly on Report and in Committee.

I know that the noble Lord, Lord Higgins, is aware of all these issues and unanswered questions. I am equally sure that he will say that it is for the Government to sort out the drafting, but I do not think that we can do so at this stage. By introducing the amendment in this manner and without the necessary changes to the Income and Corporation Taxes Act 1988 and the Finance Act 2004, the clause would simply stand in isolation. It would not be usable by either pension schemes or providers. It would certainly not deliver the results that the noble Lord hopes to achieve.

I wish to repeat the arguments that the Government advance. The amendment would benefit only a tiny fraction of people, and possibly against their own self-interest. As it stands, it would not carry the Government's policy intent. The amendment also ignores the fact that people wish to get access to the pension pot precisely because it has been so enhanced by the tax contributions of the rest of us. Probably over half the value—we calculate 55 per cent—of an annuity pot has been contributed in various ways by the taxpayer. It is not surprising that the individual would like to see the pot as a pensions pot, a savings pot and a legacy. But they wish to do so because the taxpayer has built it up, for use neither as a savings pot nor as a legacy, but to provide a secure income in retirement. That is why the pot enjoys the privileges that it has. To extract the income-related benefit requirement, on the one hand, and the tax privileges, on the other, would leave such a small pot that not just 1 per cent but probably far fewer people would see real cash in hand as a result.

I understand where the amendment is coming from. The new argument advanced today, which is attached to life expectancy, is that what matters is life expectancy after 65, as the noble Lord, Lord MacGregor, said—he did not say that exactly, but I shall put a gloss on his words. It does not carry the argument that the noble Lord makes. Technically the amendment does not carry the position that the noble Lord advances. If it were passed and nothing else happened, nothing else would happen, because the Government have to own it through changes in tax legislation.

The bulk of the argument is that the annuity pot is so attractive to people and they wish to gain access to it precisely because it enjoys the tax privileges, tax shelter and tax haven provided by the taxpayer to give an income in retirement.

I have one final argument. At the moment, anybody in a final salary scheme does not have access to the size of the pot, except perhaps with regard to a lump sum. Somebody now entering a pension scheme would, if the amendment were made and there was no annuitisation requirement, have a choice between a pension scheme that paid final salary benefits and a pension scheme that produced a pot to which they would have access whenever they wanted after the age of 65, regardless of whether the full tax privileges had been stripped out. Which do your Lordships think people would choose? I suggest that they would choose the DC scheme, the money purchase scheme. That would destabilise the complicated existing regime, which seeks to sustain DB final salary schemes, while allowing people the choice of when to annuitise under money purchase schemes. Such a change could not be made in isolation from the whole field.

For technical reasons, reasons of longevity, reasons of fairness, reasons of taxpayer's privilege and reasons relating to the implications for the rest of the pensions situation, I hope that your Lordships will not accept the amendment.

Lord Higgins

My Lords, the noble Baroness said that the amendment was an attack on final salary schemes. That is a bit thick, when the Government's imposition of a sum of £5 billion a year has resulted in the demise of a huge percentage of final salary schemes.

Our proposal would not be to the advantage only of the rich. From the letters that I have received it is clear that many people who are in no sense rich object to being forced to take an annuity, to which many object in principle, and being forced to do so at an age when they do not think that it will be to their advantage. It is true that there has been considerable tax relief to encourage people to save for retirement. They have responded accordingly. However, as my noble friend Lord Fowler and others pointed out, the results have been disappointing, because of the enormous reduction in annuity rates over recent years.

Many of the arguments made by the noble Baroness just now are objections to the idea that the people of this country should have a choice in the matter. On this side, we believe in choice. For the reasons that have been given in all parts of the House, we believe that the position ought to be changed now. I hope that my noble friends will take that view and support the amendment in the Lobby.

5.12 p.m.

On Question, Whether the said amendment (No. 65) shall be agreed to?

*Their Lordships divided: Contents, 198; Not-Contents, 144.

Division No. 1
CONTENTS
Addington, L. Bowness, L.
Alderdice, L. Bradshaw, L.
Alliance, L. Bridgeman, V.
Ampthill, L. Bridges, L.
Anelay of St Johns, B. Brittan of Spennithorne, L.
Attlee, E. Brooke of Sutton Mandeville, L.
Avebury, L. Brougham and Vaux, L.
Baker of Dorking, L. Burnham, L.
Barker, B. Byford, B.
Beaumont of Whitley, L. Caithness, E.
Bell, L. Campbell of Alloway, L.
Biffen, L. Carlile of Berriew, L.
Blackwell, L. Carlisle of Bucklow, L.
Blatch, B. Carnegy of Lour, B.
Bledisloe, V. Cavendish of Furness, L.
Bonham-Carter of Yarnbury, B. Chan, L.
Chorley, L. Mar, C.
Clement-Jones, L. Mar and Kellie, E.
Colville of Culross, V. Marsh, L.
Colwyn, L. Mayhew of Twysden, L.
Cope of Berkeley, L. [Teller] Mathuen, L.
Craigavon, V. Michie of Gallanach, B.
Crathorne, L. Miller of Hendon, B.
Crickhowell, L. Monro of Langholm, L.
Cuckney, L. Monson, L.
Darcy de Knayth, B. Montagu of Beaulieu, L.
Dixon-Smith, L. Montrose, D.
Donaldson of Lymington, L. Moore of Lower Marsh, L.
Dykes, L. Morris of Bolton, B.
Eccles of Moulton, B. Mowbray and Stourton, L.
Eden of Winton, L. Murton of Lindisfarne, L.
Elis-Thomas, L. Naseby, L.
Elles, B. Newton of Braintree, L.
Elliott of Morpeth, L. Noakes, B.
Elton, L. Northesk, E.
Erroll, E. Northover, B.
Ezra, L. Oakeshott of Seagrove Bay, L.
Falkland, V. O'Cathain, B.
Falkner of Margravine, B. Palmer, L.
Fearn, L. Palumbo, L.
Feldman, L. Park of Monmouth, B.
Ferrers, E. Patten. L.
Fookes, B. Peyton of Yeovil, L.
Forsyth of Drumlean, L. Phillips of Sudbury, L.
Fowler, L. Prior, L.
Garden, L. Quinton, L.
Geddes, L. Razzall, L.
Gilmour of Craigmillar, L. Reay, L.
Goodhart, L. Redesdale, L.
Goschen, V. Rees, L.
Greenway, L. Rennard, L.
Hamwee, B. Renton, L.
Hanham, B. Roberts of Conwy, L.
Harris of Richmond, B. Roberts of Llandudno, L.
Hayhoe, L. Rodgers of Quarry Bank, L.
Henley, L. Roper, L. [Teller]
Higgins, L. Rotherwick, L.
Hodgson of Astley Abbotts, L. Russell-Johnston, L.
Hogg, B. Ryder of Wensum, L.
Hooson, L. Saatchi, L.
Howe, E. St. John of Bletso, L.
Howe of Aberavon, L. St John of Fawsley, L.
Howe of Idlicote, B. Saltoun of Abernethy, Ly.
Howell of Guildford, L. Scott of Needham Market, B.
Hunt of Wirral, L. Seccombe, B.
Hurd of Westwell, L. Selborne, E.
Inglewood, L. Sharp of Guildford, B.
Jacobs, L. Sharples, B.
Jenkin of Roding, L. Shaw of Northstead, L.
Kalms, L. Shutt of Greetland, L.
Kimball, L. Simon of Glaisdale, L.
Kingsland, L. Skelmersdale, L.
Laing of Dunphail, L. Skidelsky, L.
Laird, L. Slim, V.
Lamont of Lerwick, L. Smith of Clifton, L.
Lane of Horsell, L. Soulsby of Swaffham Prior, L.
Lawson of Blaby, L. Stevens of Ludgate, L.
Lindsay, E. Stewartby, L.
Listowel, E. Strange, B.
Liverpool, E. Sutherland of Houndwood, L.
Livsey of Talgarth, L. Swinfen, L.
Lucas, L. Taverne, L.
Luke, L. Tebbit, L.
Macfarlane of Bearsden, L. Tenby, V.
MacGregor of Pulham Market, L. Thatcher, B.
Thomas of Gresford, L.
Mackie of Benshie, L. Thomas of Swynnerton, L.
MacLaurin of Knebworth, L. Thomas of Walliswood, B.
Maclennan of Rogart, L. Thomson of Monifieth, L.
McNally, L. Tope, L.
Maddock, B. Tordoff, L.
Mancroft, L. Trefgarne, L.
Trumpington, B. Walmsley, B.
Tugendhat, L. Walpole, L.
Vinson, L. Wilcox, B.
Waddington, L. Williams of Crosby, B.
Wade of Chorlton, L. Williams of Elvel, L.
Williamson of Horton, L.
Wakeham, L. Wilson of Tillyorn, L.
Wallace of Saltaire, L. Young of Graffham, L.
NOT-CONTENTS
Acton, L. Haskel, L.
Ahmed, L. Haworth, L.
Amos, B. (Lord President of the Council) Hayman, B.
Henig, B.
Andrews, B. Hilton of Eggardon, B.
Archer of Sandwell, L. Hogg of Cumbernauld, L.
Ashton of Upholland, B. Hollis of Heigham, B.
Bach, L. Howie of Troon, L.
Barnett, L. Hughes of Woodside, L.
Bassam of Brighton, L. Hunt of Chesterton, L.
Berkeley, L. Hunt of Kings Heath, L.
Bernstein of Craigweil, L. Janner of Braunstone, L.
Bhattacharyya, L. Jay of Paddington, B.
Billingham, B. Jones, L.
Blood, B. Jordan, L.
Borrie, L. Judd, L.
Bragg, L. King of West Bromwich, L.
Brookman, L. Kirkhill, L.
Brooks of Tremorfa, L. Layard, L.
Burlison, L. Lea of Crondall, L.
Burns, L. Leitch, L.
Campbell-Savours, L. Lipsey, L.
Carter, L. Lockwood, B.
Carter of Coles, L. Lofthouse of Pontefract, L.
Christopher, L. McDonagh, B.
Clarke of Hampstead, L. McIntosh of Haringey, L.
Clinton-Davis, L. McIntosh of Hudnall, B.
Cohen of Pimlico, B. MacKenzie of Culkein, L.
Corbett of Castle Vale, L. Mackenzie of Framwellgate, L.
Crawley, B. McKenzie of Luton, L.
David, B. Mason of Barnsley, L.
Davies of Coity, L. Massey of Darwen, B.
Davies of Oldham, L. [Teller] Merlyn-Rees, L.
Dean of Thornton-le-Fylde, B. Mishcon, L.
Dearing, L. Morgan, L.
Desai, L. Morgan of Drefelin, B.
Dixon, L. Morgan of Huyton, B.
Drayson, L. Morris of Manchester, L.
D'Souza, B. Patel of Blackburn, L.
Dubs, L. Paul, L.
Elder, L. Pendry, L.
Evans of Parkside, L. Pitkeathley, B.
Evans of Temple Guiting, L. Plant of Highfield, L.
Farrington of Ribbleton, B. Portsmouth, Bp.
Faulkner of Worcester, L. Prosser, B.
Filkin, L. Prys-Davies, L.
Fitt, L. Randall of St. Budeaux, L.
Fyfe of Fairfield, L. Rendell of Babergh, B.
Gale, B. Richard, L.
Gavron, L. Rooker, L.
Gibson of Market Rasen, B. Rosser, L.
Giddens, L. Royall of Blaisdon, B.
Gilbert, L. Sawyer, L.
Golding, B. Sewel, L.
Goldsmith, L. Sheldon, L.
Gordon of Strathblane, L. Simon, V.
Goudie, B. Smith of Leigh, L.
Gould of Brookwood, L. Snape, L.
Gould of Potternewton, B. Stoddart of Swindon, L.
Graham of Edmonton, L. Strabolgi, L.
Greengross, B. Symons of Vernham Dean, B.
Grocott, L. [Teller] Taylor of Blackburn, L.
Harris of Haringey, L. Temple-Morris, L.
Harrison, L. Thomas of Macclesfield, L.
Hart of Chilton, L. Thornton, B.
Tomlinson, L. Wall of New Barnet, B.
Triesman, L. Warner, L.
Truscott, L. Warwick of Undercliffe, B.
Tunnicliffe, L. Whitaker, B.
Turnberg, L. Whitty, L.
Uddin, B. Wilkins, B.
Varley, L. Woolmer of Leeds, L.

[*See col. 1253]

Resolved in the affirmative, and amendment agreed to accordingly.

5.25 p.m.

Clause 287 [Financial assistance scheme for members of certain pension schemes]:

Lord Higgins moved Amendment No. 66:

Page 241, line 28, at end insert—

"( ) New qualifying members shall continue to be eligible for membership of the financial assistance scheme until such time as they could, instead, qualify for the Pension Protection Fund."

The noble Lord said: My Lords, in moving Amendment No. 66, I think that it will also be convenient to debate Amendment No. 67 and government Amendment No. 68. In previous debates, we referred to the problem that exists because the Bill contains two separate systems; namely, the original pension protection fund, which was set out in the Bill when it was debated at Second Reading in another place, and the financial assistance scheme, which was introduced at the very last moment in another place before coming to your Lordships' House.

As your Lordships are aware, the financial assistance scheme is financed by the Treasury from a sum that is apparently limited to £400 million, which would be spread over 20 or more years. Therefore, the present value is probably something like £250 million. We have no idea from where that figure came: it appears to have been taken out of the air by the Chancellor in an attempt to buy off Labour Members of Parliament who were otherwise going to revolt against the problems faced by their constituents. Indeed, they were supported by Conservative Members who had suffered from their pension funds going bust.

The crucial question here is whether the financial assistance scheme, which will come in for schemes that are already bust, overlaps with the pension protection fund; or, alternatively, whether there is a gap in time between the two. I think that I would be right to say that it is common ground between the noble Baroness and those of us on this side of the House that the right structure for the Bill is to have neither a gap nor an overlap between the financial assistance scheme and the pension protection fund; that is, the one fund should cease to have new members at the moment where they are able to enter the second fund.

If that is the intention, it is not clear from the Bill as it currently stands. My two amendments seek to make that clear. Amendment No. 66 states: New qualifying members shall continue to be eligible for membership of the financial assistance scheme until such time as they could, instead, qualify for the Pension Protection Fund". Amendment No. 67 effectively states that there cannot be benefits under both schemes.

The Government have tabled an alternative amendment, which is much more esoteric in character. It may achieve the same end, but I am not clear whether it does. There are a whole series of related problems to be referred to otherwise, which arise because, quite clearly, the financial assistance scheme will be less favourable than the pension protection fund.

Therefore, there is some danger in two ways: on the one hand, that the Government will seek to alter the situation so that people become a burden on the fund's levy rather than on the Government's financial assistance scheme; or, on the other hand, that individual companies may seek to arrange their affairs in such a way that they delay being qualified for the financial assistance scheme in order to become entitled to benefits under the pension protection fund.

Essentially, these two amendments seek to clarify the position. As I said, I believe that the Government's amendment is designed to achieve the same end. If that is so, it may be better drafted than mine, although I hope that mine also has the same effect. We look forward with interest to what the noble Baroness has to say. But we think that this is an important issue. Unless we receive a satisfactory answer, we may wish to vote on our amendments. I beg to move.

5.30 p.m.

Baroness Hollis of Heigham

My Lords, I said on Report that I appreciated the intention behind the amendment then brought forward by the noble Lords, Lord Higgins and Lord Skelmersdale. It would make explicit on the face of the Bill that the financial assistance scheme would cover schemes winding up between May 2004 and the start of the PPF. However, I argued that it would not be right to announce a decision now on the inclusion of these schemes before we have had an opportunity to assess their circumstances further, and until moral hazard risks are minimised.

This was and remains a finely balanced judgment. The recent statement on PPF eligibility clarified that schemes sponsored by employers currently involved in insolvency proceedings may under certain circumstances still qualify for PPF compensation—referring back to an earlier debate on Amendment No. 39 and the government amendments grouped under Amendment No. 40—if they do not start to wind up until after the introduction of the PPF. That was why I argued that in our written statement we sought to clarify the situation rather than change the starting points of each of the two schemes.

The statement on the PPF has been made to help trustees make informed decisions, particularly when considering compromise agreements or revised contribution schedules tabled by employers. It provides clarification, for example, that when an employer is in administration and has tabled a one-off compromise agreement, a scheme may receive PPF compensation if the trustees reject that agreement and then do not start wind-up until the PPF is introduced. This is subject to the employer having a further insolvency event after the introduction of the PPF.

This has always been the policy of the PPF, but the recent statement has removed any uncertainty for trustees and employers, in particular the commitment not to use the power in Clause 128(3)(c). We are committed to ensuring that trustees are able to make informed decisions about the future of their pension schemes, particularly in those cases where the sponsoring employers are currently in financial difficulty.

In the light of this, and in the light of the views expressed by noble Lords on Report, we have now taken a decision which I hope will be welcome to the noble Lord, Lord Higgins. It will meet the concerns he raised in Committee, on Report and again today at Third Reading. We have taken the decision that the balance of the argument is now in favour of making the position clearer in respect of schemes which have started to wind up after May 2004 or which will start to wind up between now and the start of the PPF.

As my colleague the Minister of State for Work and Pensions said on Friday, this amendment is, good news for hard hit individuals in those schemes that have found themselves in difficulty". At this point I should like to give a brief description of the technical effect of the government amendment, if that is what the noble Lord, Lord Higgins, would wish. It may help the noble Lord to judge whether we have met his concerns. Amendment No. 68 is an amendment to the definition of a "qualifying pension scheme" under Clause 287. The definition of a "qualifying pension scheme" currently provides, among other things, that such a scheme must have begun winding up during such period "as may be prescribed". Under the amendment, I propose that this part of the definition is changed.

Under the amendment, for a pension scheme to qualify under the financial assistance scheme it must have begun winding up during the prescribed period ending immediately before the day appointed under Clause 127(2). This too requires some explanation. Clause 127(2) provides that a scheme is not eligible for the PPF if it is being wound up immediately before the day appointed by the Secretary of State. The amendment would mean that in order to qualify for the FAS, a scheme must have begun winding up during a prescribed period which ends before this date, which we hope will be in April 2005. Any scheme which begins winding up before that date may be eligible for assistance from the FAS, subject to other FAS eligibility conditions being satisfied. Moreover, any scheme which begins winding up after this date may be eligible for consideration by the PPF. So before the date, consideration by FAS, and after, consideration by the PPF, subject in both cases to the usual rules about eligibility—whether the employers are solvent or insolvent, wind-up capacity and so forth.

To recap, our proposed amendment meets our commitment to provide assistance to those hardest hit by their pension schemes winding up underfunded. As noble Lords have recognised, it would be wrong to leave such members and the trustees of their schemes facing uncertainty because of the date on which their scheme starts to wind up. So I hope that I have met in full the concerns of the noble Lord and that, as a result, he will feel able to withdraw his own amendments and to accept the government amendment.

Lord Higgins

My Lords, this is quite a complicated issue. Is there in effect a single date or cut-off point, call it what you will, on which schemes, depending on when they wind up, cease to be eligible for the FAS and become eligible for the PPF? Am I right in thinking that a single date will be specified in the order? If that is so, I presume that there will be neither an overlap nor a gap.

Baroness Hollis of Heigham

My Lords, yes, there will be neither an overlap nor a gap. I hesitated because rules of eligibility will still need to be met under both schemes, but they will be seamless in that the PPF will kick in where the FAS stops.

Lord Higgins

My Lords, if I understand the situation correctly, the government amendment will achieve what we seek. I presume the implication is that it also covers our amendment, Amendment No. 67, specifying that members would qualify under one scheme or the other but cannot qualify in any way for both. However, provided that all the eligibility criteria are met and that they fall later than the amended start date we discussed in our earlier debates, they will all be entitled to one or the other. I see that the noble Baroness is nodding her head. If that is so, the government amendment will set to rest the problem before us. It has at least settled one of the points about which we have been unclear in the single clause covering the FAS which even now is only partially clarified. That is an advantage from everyone's point of view and I hope that the scheme will work satisfactorily.

As the noble Baroness said, there may still be a tendency for people to delay winding up, although it seems that despite the criteria for eligibility, the wind-up date will be the crucial one. On the assumption that all that is so, I beg leave to withdraw my amendment and I shall not move the subsequent amendment. I presume that in due course the House will agree to Amendment No. 68.

Amendment, by leave, withdrawn.

[Amendment No. 67 not moved.]

Baroness Hollis of Heigham moved Amendment No. 68:

Page 242, line 8, leave out "such period as may be prescribed" and insert "the prescribed period ending immediately before the day appointed under section 127(2)"

On Question, amendment agreed to.

Lord Oakeshott of Seagrove Bay moved Amendment No. 69:

Page 242, line 22, at end insert—

"( ) Schemes where the qualifying pension scheme was wound up while the sponsoring employer was solvent shall be qualifying pension schemes for the purpose of this section"

The noble Lord said: My Lords, this amendment, tabled in my name and that of my noble friend Lady Barker, seeks to make it clear that, Schemes where the qualifying pension scheme was wound up while the sponsoring employer was solvent shall be qualifying pension schemes for the purpose of this section", which means that they would he eligible for inclusion in the financial assistance scheme.

This covers a small number of people, but a group which in our view rightly feels a burning sense of injustice. We think that just under 4,000 people had their schemes wound up while the company was still solvent—in many cases solvent but probably very shaky; and in other cases the company has become insolvent and so is no longer in a position to help its pensioners. It is our intention, as I hope the amendment clearly implies, that this should apply only to funds which were wound up before 11 June 2003 when the relevant statutory instrument came into effect following the Maersk case.

When we discussed this in Committee there was a good deal of talk about moral hazard, to which I make two responses. First, I do not think that there is any moral hazard here, or it is a rather odd form of retrospective moral hazard because we are talking about a clearly defined group of people in the past, rather than anything that may happen in the future. Secondly, so far as concerns the pensioners of these companies, it makes no difference to them, when their fund is in serious deficit and they have lost a large part of their pensions, whether years ago the employer technically was or was not insolvent.

For all these reasons, we believe that this is a small but appropriate action to take. In Committee, the Minister tended to ask us not to tie her hands and not to chip away at the structure of the FAS. We believe that it would be wrong to exclude this small group of people from eligibility for the FAS, however modest the FAS benefits eventually turn out to be.

We were struck by the similar remarks made by the noble Baroness, Lady Turner, in Committee. I hope that she will feel able to support the amendment. I beg to move.

Baroness Turner of Camden

My Lords, I spoke to a similar amendment in Committee. Like many noble Lords who have been involved with the Bill, I have received a great deal of information from a small group of people who have been adversely affected because they seem to be excluded from any kind of assistance at all. As was said in Committee, it is a very small group of people involved in a "once only" situation. I hope that my noble friend will feel able to respond sympathetically.

Baroness Hollis of Heigham

My Lords, I am not sure I shall be able to do that. Amendment No. 69 seeks to ensure that assistance from the financial assistance scheme may be given in respect of members of pension schemes with solvent employers. We had an extensive and helpful debate at Report stage on this point. The debate underlined that there are real and important principles at stake which are not easily reconciled.

The noble Lord, Lord Higgins, made some apposite remarks at the time. He said: 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".—[Official Report, 8/11/04; col. 707.] Further, if all solvent employers renege on their promises, the cost on the financial assistance scheme will be considerable and the taxpayer would be picking up the tab. That was the argument and I agree with every word.

Noble Lords also discussed cases where a company may be insolvent but has a parent company or other connected company which is solvent and well able to contribute to the pension scheme. On the other hand, the noble Lord, Lord Oakeshott, also drew the House's attention to the situation where an employer is technically solvent but still in a very weak financial position in respect of funding the pension liabilities.

The range of views expressed shows how complex the issue is. The Government's starting point is the principle that solvent employers should be responsible for the occupational pension schemes they provide. If they make that promise they should, if their finances permit because they are solvent, deliver it. They should not ask other people, whether as taxpayers through FAS or levy payers through the PPF, to deliver it on their behalf because the pension promise is now inconvenient to some degree.

However, we are aware that the blanket term "solvent employer" covers an enormous variety of different circumstances. The purpose of our ongoing consultation and research is to understand what these are and whether and to what extent there may be sensible, workable distinctions to be drawn in the detail of the regulations while protecting the principle that neither the taxpayer nor the levy payer should stand behind an employer's voluntary pension promise.

Now that we have announced—this refers back to our previous discussion—that there will be no gap between FAS and PPF, the principle is even more important. Let us consider the position of a solvent employer and pension scheme trustees, tomorrow, who are negotiating a compromise agreement relating to an underfunded pension scheme. Let us assume that they believe they could find 70 or 60 per cent. If they know that FAS will include schemes with solvent employers up until April 2005, the trustees will have less incentive to press for a high level of employer contribution and the employer has less incentive to agree to a high level. Therefore, instead of settling at 50, 60 or 70 per cent, they might very well compromise at a much lower level, expecting FAS to take up the strain.

The impact could extend to solvent employers with ongoing pension schemes. Solvent employers would know for certain that FAS assistance will be available to them only up until April 12005 as, being solvent, they will not qualify for the PPF. So it could encourage solvent employers to decide to start winding up underfunded schemes before April 2005, compromise their debt at artificially low levels—20, 25, 30 per cent or whatever—and obtain FAS assistance. The additional demands on FAS in these circumstances could be vast.

I appreciate the desire for clarity on the position of schemes with solvent employers and I have given assurances that issues around employer solvency remain under consideration. We are not closing the door entirely. However, I hope that I have demonstrated that the price of making that decision now is unacceptably high. Given the very real moral hazard issues that would follow, I ask the noble Lord, Lord Oakeshott, to withdraw the amendment.

Lord Oakeshott of Seagrove Bay

My Lords, I do not feel able to withdraw the amendment. I am sorry if I was not as clear as I should have been but I did not hear the Minister reply to the point that I made at the beginning. I was specifically referring only to funds that were wound up before 11 June 2003, so the very interesting and persuasive arguments that the noble Baroness has made about moral hazard do not apply.

Effectively, this is water under the bridge. The schemes were wound up in a period when there was no FAS and no PPF. The world has moved on and these poor people are left in a situation where, unless we insist on the amendment, they will qualify for neither the FAS nor the PPF. That cannot be fair and I wish to test the opinion of the House.

5.46 p.m.

On Question, Whether the said amendment (No. 69) shall be agreed to?

Their Lordships divided: Contents, 64; Not-Contents, 134.

Division No. 2
CONTENTS
Alderdice, L. Harris of Richmond, B.
Alliance, L. Hooson, L.
Avebury, L. Jacobs, L.
Barker, B. Livsey of Talgarth, L.
Beaumont of Whitley, L. Macfarlane of Bearsden, L.
Bonham-Carter of Yarnbury, B. Mackie of Benshie, L.
Bradshaw, L. MacLaurin of Knebworth, L.
Carlile of Berriew, L. Maclennan of Rogart, L.
Clement-Jones, L. McNally, L.
Dykes, L. Maddock, B.
Elis-Thomas, L. Mar and Kellie, E.
Falkland, V. Methuen, L.
Falkner of Margravine, B. Michie of Gallanach, B.
Fearn, L. Miller of Chilthorne Domer, B.
Fowler, L. Monson, L.
Garden, L. Newby, L.
Glentoran, L. Northover, B.
Goodhart, L. Oakeshott of Seagrove Bay, L. [Teller]
Greengross, B.
Hamwee, B. Palumbo, L.
Park of Monmouth, B. Slim, V.
Phillips of Sudbury, L. Smith of Clifton, L.
Razzall, L. Sutherland of Houndwood, L.
Redesdale, L. Taverne, L.
Rennard, L. Thomas of Gresford, L.
Roberts of Llandudno, L. Thomas of Walliswood, B.
Rodgers of Quarry Bank, L. Thomson of Monifieth, L.
Roper, L. [Teller] Tope, L.
Tordoff, L.
Ryder of Wensum, L. Wallace of Saltaire, L.
Saltoun of Abernethy, Ly. Walmsley, B.
Sharp of Guildford, B. Williams of Crosby, B.
Shutt of Greetland, L. Williamson of Horton, L.
NOT-CONTENTS
Acton, L. Harrison, L.
Ahmed, L. Hart of Chilton, L.
Amos, B. (Lord President of the Council) Haskel, L.
Haworth, L.
Andrews, B. Hayman, B.
Archer of Sandwell, L Hilton of Eggardon, B.
Ashton of Upholland, B. Hogg of Cumbernauld, L.
Bach, L. Hollis of Heigham, B.
Barnett, L. Howie of Troon, L.
Bassam of Brighton, L. Hughes of Woodside, L.
Berkeley, L. Hunt of Chesteron, L.
Bernstein of Craigweil, L. Hunt of Kings Heath, L.
Bhattacharyya, L. Hylton, L.
Billingham, B. Janner of Braunstone, L.
Blood, B. Jay of Paddington, B.
Borrie, L. Jones, L.
Bragg, L. Judd, L.
Brooke of Alverthorpe, L. King of West Bromwich, L.
Brookman, L. Kirkhill, L.
Burlison, L. Lamont of Lerwick, L.
Campbell-Savours, L. Layard, L.
Carter, L. Lea of Crondall, L.
Carter of Coles, L. Leitch, L.
Chan, L. Lipsey, L.
Christopher, L. Lockwood, B.
Clarke of Hampstead, L. Lofthouse of Pontefract, L.
Clinton-Davis, L. McDonagh, B.
Cohen of Pimlico, B. McIntosh of Hudnall, B.
Corbett of Castle Vale, L. MacKenzie of Culkein, L.
Crawley, B. McKenzie of Luton, L.
Darcy de Knayth, B. Mason of Barnsley, L.
David, B. Massey of Darwen, B.
Davies of Coity, L. Merlyn-Rees, L.
Davies of Oldham, L. [Teller] Morgan, L.
Dean of Thornton-le-Fylde, B. Morgan of Drefelin, B.
Desai, L. Morgan of Huyton, B.
Dixon, L. Morris of Aberavon, L.
Drayson, L. Morris of Manchester, L.
D'Souza, B. Patel of Blackburn, L.
Dubs, L. Pendry, L.
Elder, L. Pitkeathley, B.
Evans of Parkside, L. Plant of Highfield, L.
Evans of Temple Guiting, L. Prosser, B.
Farrington of Ribbleton, B. Prys-Davies, L.
Faulkner of Worcester, L. Randall of St. Budeaux, L.
Filkin, L. Rendell of Babergh, B.
Fitt, L. Richard, L.
Fyfe of Fairfield, L. Rooker, L.
Gale, B. Rosser, L.
Gavron, L. Royall of Blaisdon, B.
Gibson of Market Rasen, B. St. John of Bletso, L.
Giddens, L. Sawyer, L.
Gilbert, L. Sewel, L.
Golding, B. Sheldon, L.
Gordon of Strathblane, L. Simon, V.
Gould of Brookwood, L. Smith of Leigh, L.
Gould of Potternewton, B. Snape, L.
Graham of Edmonton, L. Symons of Vernham Dean, B.
Grocott, L. [Teller] Taylor of Blackburn, L.
Harris of Haringey, L. Thomas of Macclesfield, L.
Thornton, B. Wall of New Barnet, B.
Tomlinson, L. Warner, L.
Triesman, L. Warwick of Undercliffe, B.
Truscott, L. Whitaker, B.
Tunnicliffe, L. Whitty, L.
Wilkins, B.
Turnberg, L. Williams of Elvel, L.
Uddin, B. Woolmer of Leeds, L.

Resolved in the negative, and amendment disagreed to accordingly.

5.56 p.m.

Baroness Turner of Camden moved Amendment No. 70:

Page 243, line 20, at end insert—

"( ) The scheme established under subsection (1) shall be subject to annual review by Parliament, with a view to ensuring that the money provided is adequate to meet liabilities as set out in subsections (3) and (4)."

The noble Baroness said: My Lords, I normally try to adhere to the requirement that amendments at Third Reading should be limited only to items of overriding importance or to items on which it has not been possible to obtain a reasonable response earlier in discussions. I must say that I might not always have agreed with the Minister's response to most of my amendments, but she has always presented a reasonable argument.

We know that in the matter of the FAS, a great deal has been left deliberately vague, and that I understand. However, in the past couple of days, a report has appeared widely in newspapers, including on the front page of the Financial Times, saying that specialists in the field were very doubtful whether the fund being established would be sufficient to meet the demands that were certain to be made on it. We are not talking about a tabloid, where scare stories are endemic—this was the lead story in the Financial Times, with headlines on the front page. I certainly thought that it was something that should be taken very seriously. It would be disastrous if members of failed schemes, having been led to believe that a rescue was imminent, should find that, after all, there was little for them in the FAS.

The amendment I have devised puts matters in the hands of Parliament. It seems reasonable; it is, after all, MPs who will be lobbied by angry constituents if the FAS is seen to be failing their needs. My amendment would require Parliament to look annually at the fund to make sure that it is adequate to meet the liabilities referred to in the legislation.

I hope that the Minister will agree that this is reasonable. The fund will, after all, be in the hands of elected Members of Parliament, who will know from their constituents whether or not it is working well. We know, of course, that pensioners, whether state or occupational, are not backward when it comes to lobbying Parliament.

We have to make sure that the FAS really is able to meet the requirements of the legislation and that people are not desperately disappointed after having their hopes raised. I beg to move.

Lord Higgins

My Lords, the noble Baroness has made a very important point. There is a case for having such an annual review. She indicated very clearly in her opening remarks, in referring to the article in the Financial Times, studies by Ros Altmann, and so on, that the scheme was starting off on an unsound basis.

We have complained all the way through the Bill's proceedings that we really do not know what the detail of the scheme is. In fact, apart from the various amendments we have managed to make in the course of our deliberations, which have gone some way towards putting flesh on the skeleton of the single clause in the Bill covering the FAS, a huge amount is still obscure.

By now, it should be possible for the Government to give some idea of to what extent they think that the provisions that are made for the FAS are adequate. The Chancellor, in response to a panic when it looked as if the Government might be defeated in the Commons on providing support for those whose pension schemes had gone bust, came up with a proposal at the very last minute, before it arrived at your Lordship's House, saying that there would be a sum of £400 million. However, that is not £400 million immediately, but spread over 20 or so years. It will therefore probably have a discounted present value of about £250 million, which is a tiny amount compared with many other items of government expenditure.

Of course, it is not only that amount; the assets of the schemes that have collapsed should presumably be taken into account so that the figures arrived at simply by dividing the £400 million spread over 20 years by the number of possible claimants is not the precise figure that is needed. Surely, by now, the Government have done some calculations to establish whether the funding is likely to be adequate. It is generally agreed that something like 65,000 people are likely to qualify, and they are members of a considerable number of schemes which we believe are going to be entitled to help under the FAS. Allowing for the assets and dividing the number of people into the amount of money, it seems that the likely benefit will be very small indeed.

We still have absolutely no indication at all about how the Government arrived at the figure of £400 million—none whatever. As far as we can see, it was plucked out of the air in a panic measure to buy off a revolt. Even at this late stage—it certainly is a late stage; this is almost the last trump as far as this Bill is concerned—we may get an answer. However, all the indications are that false hopes are being raised. I hope that when the Bill, with its various provisions, returns to another place, those who went along with the Government on the basis of this promise, which sounded a nice round figure and generous at the time, will reappraise their positions. In our view, the sum is not likely to be adequate and I hope that the Minister can give us some idea why she thinks that it is.

Lord Lea of Crondall

My Lords, the noble Lord's critique of the £400 million is now a critique that has one or two extra features. It is the first time that I have heard this notion that the discounted present value of that £400 million is £250 million. Is that what the noble Lord said?

Lord Higgins

My Lords, I have said the same thing time and again throughout the deliberations, and the noble Lord very assiduously attended throughout.

Lord Lea of Crondall

My Lords, £250 million?

Lord Higgins

Yes, my Lords.

Lord Lea of Crondall

My Lords, well that is my mistake. However, I understand that the question of how the £400 million is interpreted, how the sum is administered and how it can be reported on has yet to be pinned down. Certainly, it is unreasonable to suppose that it would be possible, on the face of the Bill, to specify that £400 million means X, Y and Z. With his experience as a Treasury Minister, the noble Lord should not have expected that to happen. He is trying to have his cake and eat it with his argument about this being a rather obscure matter.

Some of us have difficulty in accepting the noble Lord's critique and are sympathetic towards my noble friend's amendment. Let us see what the Minister has to say, but it is not quite as simple as saying that £400 million must nevertheless equal 20 times 20. There are several ways of skinning this cat, if I can use a different metaphor, and I want to query that there is only one way of viewing this arithmetic and it is the way asserted by the noble Lord, Lord Higgins. I am sure that I could come up with three or four different ways in which the figure could be interpreted, and we are not actually at that point. That is why I do not think that his critique should necessarily be accepted as a factual description.

Lord Oakeshott of Seagrove Bay

My Lords, this is not the time or place to have a general discussion about the adequacy or otherwise of the FAS. Views are pretty widely known. We said from these Benches that it was a cruel deception when the figure was announced. Since then, the experts have got to work—people such as Ros Altmann—and her remarks over the weekend were virtually unprintable. It is fair to say that almost all independent experts believe that it will be only a drop in the bucket.

However, we are discussing the amendment moved by the noble Baroness, Lady Turner. I support it. It would be churlish not to, given that it is on similar lines to the one for triennial reports on adequacy that we moved and just lost at Report. It is a sensible amendment and I support it.

Baroness Hollis of Heigham

My Lords, we have had constructive discussions on the subject of future FAS accountability both in Grand Committee and at Report. I supported and still support the principle that the FAS must be accountable to Parliament and that regular reports on objective questions such as how many people have been helped and how much assistance they have been given ought certainly to be made available. The noble Lord lost his amendment partly because he did not accept my offer. None the less, we would still expect the information to go to Parliament and think that it is right that it should.

We have discussed at length the ongoing work that we are doing to determine how financial assistance will be provided—when, and to whom. I understand noble Lords' frustration at the lack of detail in the Bill today. But long before we begin making assistance payments, we will of course have a much clearer picture of how the FAS will operate and, when we do begin making payments, we want to ensure that the process is transparent and open to public scrutiny, and above all that we are able to keep the promises that we have made about this assistance.

Two other bodies which are being set up through this Bill—the Pensions Regulator and the Pension Protection Fund—will also be open to public scrutiny. Under provisions in Clauses 12 and 120, both the regulator and the board of the PPF will be required to produce reports and to send them to the Secretary of State, who must then lay the reports before each House of Parliament. We can make the same provisions with FAS under powers at Clause 287(4)(j) as well. I can confirm that we will do this to ensure that the arrangements for FAS reports are made in regulations. The detail of the new arrangements will of course depend on future decisions on the Government's arrangements for FAS, but I hope that this will satisfy my noble friend on that matter.

I will return to the concerns that I expressed at Report regarding amendments that refer to the "adequacy" of the assistance provided from the FAS. The problem is against whose judgment will "adequacy" be measured? We are discussing an assistance scheme; the FAS will not, as the amendment seems to imply, have "liabilities" as such, nor is there any reference to such liabilities in subsections (3) and (4). I therefore cannot accept the amendment as drafted. I hope that my noble friend will accept my assurances that we have the powers to require reports to be prepared and laid before Parliament on FAS in regulations. We plan to use them to ensure that FAS will be administered in a transparent and accountable way. With those assurances now in Hansard, I hope that my noble friend will withdraw her amendment accordingly.

Baroness Turner of Camden

My Lords, I thank my noble friend for those assurances and I am glad to learn that the intention is to ensure that the promises that have been made will be kept. I have made a careful note of that. I am glad that transparency is the objective and that the information will be publicly available as well as being available to Parliament. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Barker moved Amendment No. 71:

Before Clause 297, insert the following new clause—