Pensions Bill [Lords]

§ Madam Speaker

I have selected the amendment in the name of the Leader of the Opposition.

§ The Secretary of State for Social Security (Mr. Peter Lilley)

I beg to move, That the Bill be now read a Second time.

I should like to begin by putting the Bill in context. Pensions are a matter on which Conservatives can be proud of their record. Pensioners retiring now are on average 52 per cent. better off than those who retired in 1979, after allowing for inflation. More of them have private pensions than ever before. Their savings produce a flow of £50 billion a year into industry. The success of private pension provision has enabled us to channel an extra £1 billion to help the less well-off pensioners.

We also need to see the Bill in an international context.

§ Mr. David Winnick (Walsall, North)

Will the Secretary of State give way?

§ Mr. Lilley

Perhaps the hon. Gentleman will allow me to make a little progress. He may find that I answer his points.

Throughout the world, more people are living longer and enjoying longer in retirement, but there will be fewer people of working age to support them. How to pay for those pensions is the most important single issue facing every Government. In most countries, the bulk of all pensions is provided by the state. Indeed, that is the approach that the Labour party would always have preferred for pensions in Britain. When the state finances pensions, this year's pensions are invariably paid out of this year's taxes. It is pay-as-you-go. Nothing is saved or set aside for the future. So in most countries, more and more retired people will impose an ever more crippling burden of tax on the declining number of people of working age.

§ Mr. Winnick

The Secretary of State said at the beginning that there had been a substantial improvement in the lives of pensioners, but is he not aware, as he should be as Secretary of State, of the literally millions of people in Britain who are retired and live on a pittance on the state pension and income support? They believe that they have been victimised as a result of the Government's changes of the past few years. The Secretary of State should be aware that, with growing unemployment and the rest, it is difficult for potential pensioners to make safeguards for their retirement.

§ Mr. Lilley

The hon. Gentleman is as ignorant as he is insufferable and I do not know why I gave way to him. He knows full well that every pensioner in Britain is or can be better off. No one need be at the level at which he or she was left by the last Labour Government, who wiped out a quarter of people's savings in a single year of inflation.

526 In Britain, the Conservatives' strategy has been to encourage private pension provision, building on the basic state pension. When people opt for private pensions, their money is genuinely saved. It is invested in industry. It goes into the assets that will generate the profits which will pay for their pensions in 10, 20 or 30 years when they retire, without taxing the economy to death.

Our policy has been increasingly successful. About three quarters of those eligible have opted out of the state earnings-related scheme and invested in occupational or personal pensions. Collectively, funded pension schemes have accumulated £500 billion of assets to pay for future pensions. That is more than all the assets in all the equivalent schemes in the rest of the European Community put together, which is why other countries look enviously at our system as a model for themselves to follow.

§ Mr. John Denham (Southampton, Itchen)

The Secretary of State said a moment ago that when individuals have personal pensions, their money is genuinely saved. Does he agree that a significant number of low income earners, who opted out of the state earnings-related pension scheme, find that all their savings are absorbed by the fees and charges of the private pension companies from which their pensions are meant to be paid?

§ Mr. Lilley

Although the hon. Gentleman did not mention it, he must know about and welcome the fact that the Securities and Investments Board has guaranteed that anyone who has been mis-sold a pension in that way will have redress. He is wrong to try to scare people by suggesting that that is not the case.

When I came to the Department of Social Security, there were four outstanding issues on my desk, all of which are addressed by aspects of the Bill. The first set of problems arose from the gaping hole left in the Maxwell pension schemes by that socialist millionaire who, strangely, is never mentioned when wrongdoing is discussed in the media. Existing pensions were then about to be cut off and remaining assets were about £400 million short of those required to pay for future liabilities. The prospect of prolonged and costly litigation looked set to consume much of any assets regained, and confidence in occupation schemes generally was threatened by fears that the regulatory structure was inadequate.

So I appointed Sir John Cuckney, who has successfully brought about a major settlement of the various Maxwell pension disputes. That was an enormous achievement. He has secured the position of 30,000 of our constituents and put their fears at rest. The House will want to join me in thanking him for what he has so skilfully done.

§ Mr. David Shaw (Dover)

As a member of the Select Committee on Social Security, may I congratulate my right hon. Friend because he set up the Maxwell Pensioners Trust and made the arrangements that made that settlement possible? May I also demand an answer from him as to how one of the people responsible for managing about £75 million of the Maxwell money that went missing is on the Labour Front Bench in the House of Lords?

§ Mr. Lilley

I am grateful to my hon. Friend for his complimentary remarks. I honestly think that his last 527 question should be addressed to the Opposition Front-Bench team, and no doubt those hon. Members will tackle it in subsequent speeches.

§ Mr. John Butterfill (Bournemouth, West)

As honorary adviser to the Mirror Group Newspapers pension trustees, may I put it on record that they are very grateful to my right hon. Friend for the changes that he and his officials made to the regulations, which have enabled them to restructure schemes in such a way as to secure the pensions of all the employees?

§ Mr. Lilley

I am grateful to my hon. Friend. I am also grateful for the helpful advice that I received from him, my hon. Friend the Member for Dover (Mr. Shaw) and others—and, indeed from Opposition Members—when we were in the early stages of trying to tackle the Maxwell pension problem.

To restore confidence in the regulatory regime for occupational pensions, I asked Professor Goode to chair the Pension Law Review Committee. His invaluable report provided the essential framework for the parts of the Bill that deal with occupational pensions, which incorporate all that report's major recommendations. Following the committee's recommendations, the Bill establishes six lines of defence against fraud and misuse of pension scheme assets.

First, the members are given new rights, notably to nominate a third of the trustees. Of course, that is not a panacea—the main Maxwell schemes had 50 per cent. member trustees. None the less, it will ensure that trust boards have a range of different perspectives on the responsibilities that they are required to discharge. That is why we have gone somewhat further than the Pension Law Review Committee recommendations and proposed that the new requirements should apply to all schemes regardless of their size.

The second line of defence is the trustees themselves. Their powers and duties will be clearly defined and they will be responsible, of course, to the scheme. The third line of defence is the professionals—the actuaries, auditors, lawyers and so on, who will report to the trustees rather than to the employer. Actuaries and auditors will have the duty, and other professionals the right, to blow the whistle to the new regulator if they suspect any abuse.

The fourth line of defence is the minimum funding requirement. We have adjusted that in the light of consultation and the arrangements now proposed are as often criticised for being too onerous as for being inadequate, so I suspect that we may have got them just about right.

The fifth line of defence is the new regulator—the occupational pensions regulatory authority. That authority will have all the main powers recommended by the Pension Law Review Committee, but it will not have to get bogged down in the bureaucratic processing of routine forms. It has been suggested that the cost of the regulator should be met from taxation. We believe that a levy on schemes is more appropriate since the benefits of well-regulated schemes accrue only to members and employers. Many taxpayers are not members of schemes, so why should they pay? Finally, if all else fails, we have the compensation scheme, which stands ready to restore up to 90 per cent. of misappropriated funds if an employer is insolvent.

§ Mr. Hugh Bayley (York)

Given that pension funds—occupational pension schemes—exist solely for the 528 purpose of providing pensions to their members and not for the purpose of supporting the companies for which their members work, why does not the Secretary of State accept that those members should appoint 50 per cent. of the trustees of a pension fund? That would ensure that the interests of the members, who are the beneficiaries, were properly represented.

§ Mr. Lilley

The hon. Gentleman will know that all trustees have to act in the interests of the trust and the scheme and not in the interests of any particular section that may have appointed them, whether that be the employer or some particular section of the members. We believe that it is right to insist that a minimum of one third of the trustees be appointed by the members in normal circumstances—it could be more if necessary—to ensure the diversity of backgrounds. It is not the case that members appointed by the employer will represent that individual. Those members have a duty under trust law to look after the best interests of the scheme.

§ Mr. Robert Jackson (Wantage)

My right hon. Friend is aware that the Consumers Association is not happy with the strength of the regulator's powers. In particular, concern has been expressed about the absence of any specification of the duties of the regulator, which exist in other areas where regulators are appointed. Can my right hon. Friend explain why that is the case?

§ Mr. Lilley

As I said, we have included in the Bill all the powers recommended by the Pension Law Review Committee. Some people thought that we would water down those powers, but we have not done so. We have reflected the full powers that the committee wanted us to incorporate. I do not think that anyone need have any worries that the regulatory authority will lack those powers.

After we dealt with the problems arising out of Maxwell, the next big issue was that arising from the European Court ruling in the Barber case. In the 1986 directive on equal treatment and occupational pension schemes, we specifically negotiated the right for occupational schemes to reflect unequal ages as long as they persisted in the state scheme. Unfortunately, the European Court overruled that in the Barber case and required occupational pension schemes to give men and women equal treatment. The appalling prospect that that obligation might be retrospective was ended by the protocol successfully negotiated by my right hon. Friend the Prime Minister at Maastricht and the subsequent Coloroll judgment.

None the less, all private pension schemes had to equalise all rights accruing from the date of the Barber judgment—17 May 1990. That placed British occupational pension schemes in a dilemma. They were simultaneously required, under European law, to offer equal pension ages and, under British law, to mirror the unequal rights that would have accrued had members remained in the state earnings-related pension scheme.

The Bill brings domestic legislation into line with European law and it resolves the dilemma by breaking the links for the future between benefits due under occupational schemes and those due under SERPS. Instead, contracted-out schemes will have to be certified as offering benefits that overall match or surpass those available under SERPS.

529 It is paradoxical, to say the least, that the majority of European Community pension funds are in Britain and only for us are occupational pension schemes a crucial part of pension provision, yet British policy is largely being driven by decisions taken by 15 unelected judges in Luxembourg. For that reason, Conservative Members have no intention to sign the social chapter and extend those powers further. [HON. MEMBERS: "Hear, hear."] Still less are we likely to follow the advice of the Leader of the Opposition and go even further and propose majority voting on subjects such as the environment and the others that he specified.

§ Mr. Nick Hawkins (Blackpool, South)

Will my right hon. Friend give way?

§ Mr. Lilley

I will, but I hope that I shall be able to make some progress afterwards.

§ Mr. Hawkins

Does my right hon. Friend agree that many British companies are delighted with his firm stance on the matter that he has just mentioned? He might be interested to know that, this very morning, I was with representatives of a successful British multinational company who have witnessed the harm that the social chapter has done in continental factories in the ways that he mentioned, and do not want to have any of that nonsense here.

§ Mr. Lilley

I think that such people are even more grateful to my right hon. Friend the Prime Minister for the firm stand that he took in obtaining that protocol and in obtaining the opt-out on the social chapter.

§ Mr. Harry Cohen (Leyton)

Will the right hon. Gentleman give way?

§ Mr. Lilley

I shall make progress, if I may.

The third issue on my desk when I took over was how best to fulfil our election promise to equalise the state pension age. My predecessor had initiated a public consultation about the main options for implementing that. After studying all the evidence, I concluded that the arguments in favour of equalising at the age of 65 were overwhelming.

People are living longer, healthier lives. Women increasingly expect to work and to earn their own pension. The trend worldwide is to equalise at the higher pension age and even to increase that age. The support ratio of people of working age to those above the existing pension age is on course to decline to 2.1:1—only slightly more than two people of working age to one who has passed the present retirement age—by the year 2030. Moreover, by then the cost of equalising at age 60 rather than 65 would be an extra £12 billion a year; hence our decision to equalise gradually between 2010 and 2020, so that no woman born before 1950 will be affected by that decision.

At present, people can defer drawing their pension for up to five years after they reach the basic state pension age, and in return they receive an extra 7.5 per cent. on their subsequent pension for each year of deferral. In future, we shall extend that period of flexibility indefinitely and boost the increment to 10 per cent. for each year of deferral.

530 The decision about equalising the state pension age is of enormous importance; in terms of expenditure, it is almost certainly the biggest single decision taken during this Parliament, so it is reasonable to ask the Opposition where they stand. [HON. MEMBERS: "Hear, hear."] As usual, the Opposition have refused to commit themselves to a clear policy. Usually, there is a total vacuum. In this case, we have a profusion of policies.

The Labour party's most recent manifesto promised to equalise the state pension age at 60.

§ Dr. Norman A. Godman (Greenock and Port Glasgow)

Will the Secretary of State give way?

§ Mr. Lilley

May I make a little more progress before I—as always—give way to the hon. Gentleman?

Last year, the Labour party's annual conference reaffirmed that commitment to equalise at 60. That is a £12 billion spending pledge—not bad for starters.

§ Mr. Alistair Darling (Edinburgh, Central)

The right hon. Gentleman just said that we did not have any policies.

§ Mr. Lilley

I said that the Opposition had a profusion of policies in that area.

Labour's Commission on Social Justice, on the other hand, has supported the Government pretty unequivocally. It says that it is quite reasonable to start phasing in a common pension age of 65 in the next century.

The hon. Member for Glasgow, Garscadden (Mr. Dewar) has attempted to hedge his bets. In an article in The Independent, he argued that it should be possible to draw a pension at any time between 60 and 70. He stated: The argument points to 63 as a pivotal age at which people draw their full pension. But the hon. Gentleman needs to explain three things about flexible decades. First, in practice, nearly everyone opts to take his or her pension the first year that he or she can. That is certainly the case at present—well over 90 per cent. of people do so. Secondly, a pivotal age of 63 for when people would receive the full basic pension at its present value implies that the pension available at 60 would be about one quarter less than the current pension. Thirdly, because people would retire earlier, the hon. Gentleman's scheme would result in up-front costs in the early years of £5 billion a year more than under our proposals.

Therefore, in practice, the hon. Gentleman's suggestion means that the majority of pensioners would take their pension at the beginning of the decade, at age 60, but at a lower level than is currently available, and struggle into old age on pensions smaller than they currently receive. As usual, however, the hon. Gentleman will not commit himself firmly to that or to any other of the array of policies in the Labour party's portfolio.

The House will want a clear answer today to the £12 billion question. What would Labour do in government? Would they equalise the pension age at 60, 63 or 65? I shall give way to the hon. Member for Garscadden now if he cares to put us out of our misery and end our uncertainty. He obviously needs more time to think.

§ Mr. Bayley

rose—

§ Mr. Lilley

I do not think that the hon. Gentleman has yet made the Front Bench, although that promotion will doubtless come.

531 The Government's policy intentions on pensions are clear. We want a system that offers the best chance of security to pensioners while not placing unsustainable burdens on future taxpayers. The Labour party's pension policies are a study in vagueness, ambiguity and evasion. The reasoned amendment that it has tabled today is devoid of reasons, opaque as to meaning and in breach of assurances that the hon. Member for Garscadden previously gave the House. When I announced my pension plans in the White Paper, the hon. Gentleman promised:

No one in the House will deny the need for urgent reform."—[Official Report, 23 June 1994; Vol. 245, c. 362.] However, in its reasoned amendment the Labour party seeks flatly to refuse to give the Bill a Second Reading. The reform that it previously accepted as urgent, it now wishes to put off for another year. The reasons given for that volte face are so opaque that I genuinely cannot understand what the Labour party is getting at in the reasoned amendment. I offer the hon. Member for Garscadden the opportunity to explain his reasons.

§ Mr. Andrew Miller (Ellesmere Port and Neston)

Will the Secretary of State give way?

§ Mr. Lilley

No, I must make further progress.

The Bill addresses the issue of giving more choice in pension provision, as we promised in our manifesto. The Government have done a great deal and the Bill further extends that choice.

§ Mr. Miller

rose—

§ Mr. Lilley

I think that I am answering the hon. Gentleman's point and he will have to be content with that.

It is important to continue to encourage the provision of personal pensions. For those who change jobs frequently or whose employers do not run pension schemes, personal pensions can be by far the best way to build up savings for retirement—indeed, for the latter group, they are the only way. But as people grow older, their funds have less time to grow, so under the present system, personal pensions become less attractive than SERPS for those above a certain age. The Bill solves the problem by introducing an age-related rebate to make it equally attractive for people of all ages to stay opted out of the state scheme.

We also propose to allow individuals on retirement to withdraw an income from their personal pension fund while deferring the purchase of an annuity until the age of 75. That extra flexibility will allow personal pension holders to time the purchase of their annuity to obtain the best possible income in retirement.

I now refer to some of the amendments introduced during the Bill's passage through the House of Lords.

§ Mr. Miller

I am grateful to the Minister for giving way. I was waiting with bated breath for his fourth point, because I assumed that it would be a response to the commitment that his Department gave to me on 10 December 1992, when I sought to introduce a private Member's Bill on the subject of takeovers. The Minister at the time said: I can confirm my support for the general intention of your Bill 532 and he went on to praise the intentions of my Bill. Where are takeovers addressed in the Government's Bill? Are the six principles of my private Member's Bill in the legislation? If they are not, I hope that the Minister will find a place to insert them.

§ Mr. Lilley

I appreciate that the hon. Gentleman is using this opportunity to remind me about his measure. However, it was not one of the four most important items in my in-tray when I assumed responsibility for the Department. My hon. Friend the Minister for Social Security and Disabled People will refer to the specific points that the hon. Gentleman has raised when he has found out what it is all about.

In this 50th anniversary year of the end of the second world war, the whole nation wants to recognise those who sacrificed their lives so that we could be free. This country has rightly long made generous pension provision for the war widows whom they left behind. Nearly all war widows receive almost £143 a week tax free, which is not means-tested, for life unless they remarry.

However, as a result of debates in the House and in the other place, it has become clear that the position of some former war widows who lose their second husbands is unacceptable. I have decided that the war widows pension should be restored to war widows who are widowed a second time, divorced or legally separated. The change will benefit an estimated 16,500 war widows and it will cost about £40 million in a full year. It will be one of the first measures in the Bill to come into effect. Subject to the Bill's progress, claims will be dealt with from this October. I am sure that that announcement will be well received by the whole country as it demonstrates this nation's recognition of the debt that we owe to so many.

§ Mr. Winston Churchill (Davyhulme)

I am grateful to my right hon. Friend for that announcement and I am grateful to the Government for agreeing to the amendment proposed in another place by the noble Lord Freyberg. It will go a long way towards alleviating the pain, hardship and unfairness endured by those who have suffered under the present arrangements. On their behalf and on behalf of all those who have been involved in the campaign in both Houses of Parliament, I express my appreciation of the Government's attitude.

§ Mr. Lilley

I am grateful to my hon. Friend, who played a not inconsiderable part in highlighting the problems in that area. I hope that the whole House will be content with the change that we have announced.

§ Mr. Donald Dewar (Glasgow, Garscadden)

I welcome the Minister's announcement on behalf of the Opposition. The amendment that he has accepted was backed by the Labour Front Bench in another place. As far as I am aware, the only hon. Members who voted against it were those on the Government Front Bench. Why was that so?

§ Mr. Lilley

I am sorry that the hon. Gentleman has tried to make a party political point about a matter of national importance, which will alter rules that have been in force for 50 years under a variety of Governments, at such an inappropriate time.

I refer to another amendment that was also introduced in the House of Lords. We are aware of the strength of feeling about the issue of equal treatment of pensions upon divorce and we have listened to the concerns 533 expressed. It is a complex issue and we believe that the courts already have powers to offset pension rights against capital assets in divorce settlements. We have responded in the House of Lords with proposals that re-emphasise the courts' ability and that enable the courts to value those pensions.

The amendments carried in the other place will allow pension payments to be included in a deferred maintenance order. They will also allow courts to require pension schemes to make payments under deferred maintenance orders rather than require individuals to pay their former spouses. We accept the intention behind the amendments, although their details will have to be resolved in Committee and there may be further technical amendments to achieve the required effect.

§ Mr. Butterfill

Does my right hon. Friend agree that it would be preferable if those arrangements could be more immediate and if the separation of assets was made at the time of divorce? Would not it also be better if they reflected the number of years that the couple concerned had been married?

§ Mr. Lilley

The amendments are enabling, not requiring. They do not require the courts to make such orders in any or all cases, but enable the courts to do so when they think that that is right in the circumstances. In general, the courts have preferred to make clean-break settlements. If my hon. Friend is referring to the possibility of the courts having power to split the assets in the fund, that extremely complex issue certainly could not be resolved in the time span of the Bill. When hon. Members study the details, as I have done, they will see that the problems are far greater than at first sight. The cost could be considerable, with something like £300 million in tax revenues forgone. The reason is that a divorced couple would effectively be in a more privileged tax position than a married couple. I do not believe that the House wants to create a tax advantage on divorce. Perhaps the Opposition will say if they want to do so.

§ Mr. Dewar

Will the right hon. Gentleman give way?

§ Mr. Lilley

I shall, but the hon. Gentleman is always more interested in making partisan points than in informing the House of Labour's policies in response to my questions.

§ Mr. Dewar

I assure the right hon. Gentleman that I shall say something about that issue when I make my contribution to the debate. There will be some disappointment at the Secretary of State's remarks about the possibility of splitting the pension fund at the time of divorce. I shall return to that point. I want to ask him a specific question. If it is to be a form of deferred maintenance, with the pension split in payment between the ex-spouse and the pension holder, a proposition that found favour in the House of Lords was that the duty to pay should be on the pension provider and not on the pension holder. Do the Government accept that, or do they intend to reverse that policy?

§ Mr. Lilley

I was explaining that we shall accept that and make it technically more feasible.

§ Mr. Cohen

Will the right hon. Gentleman give way?

§ Mr. Lilley

I want to make progress. I have given way a number of times on that and other issues. The hon. Gentleman will be able to make his points in his own speech.

§ Mr. Cohen

I had a ten-minute Bill on the subject.

§ Mr. Lilley

I am sorry. I did not realise that the hon. Gentleman has been pursuing the issue. I am happy to give way to him.

§ Mr. Cohen

I am grateful for the general principle of accepting the division of a pension on divorce, but as my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) said, there will be disappointment that the courts will not be given the power to split the fund money. Why not give the courts that power in principle? That proposal is supported by the Pensions Management Institute. The cost could be met by the couple themselves.

§ Mr. Lilley

The Pensions Management Institute and others discovered how complex the issue is when they examined it. The more that one does, the more complex it becomes. For example, what would be the treatment of SERPS, especially when one does not know the rights that an individual will have until the end of the whole period, because of various allowances for years off and the interaction between husband and wife? The matter is far more complex than it even struck me at the beginning. The more that one studies it, the more one realises that a snap, off-the-cuff judgment would be the wrong way to approach such a serious issue.

§ Mr. Alan Howarth (Stratford-on-Avon)

I am sure that the House agrees with my right hon. Friend that there should not be financial advantage in divorce. I welcome his desire to ensure a fair deal for occupational pensioners, but I invite him to agree that we ought to act to remedy a wholly unsatisfactory state of affairs in this respect. If a married person enters long-term residential or nursing home care, the local authority is entitled to take the whole of that person's occupational pension, leaving the spouse—most often a wife—worse off than if she or he were divorced or widowed. Will my right hon. Friend agree that we ought to act to remedy that state of affairs and provide that, in such circumstances, the spouse should be entitled to half the occupational pension?

§ Mr. Lilley

I know that that is a matter of concern, but the Government give advice to local authorities, which have some discretion in that matter. I hope that local authorities will act in the spirit of that advice and not as my hon. Friend and a number of others have suggested they do. We are talking usually about Labour authorities, which could perhaps be influenced by Labour Front Benchers.

§ Mr. Dewar

No partisan points.

§ Mr. Lilley

The hon. Gentleman brought them in first.

Another point endorsed by Labour Front-Bench Members in the House of Lords was to be found in the amendment to the way in which the state earnings-related pension scheme will be calculated. The amendment stated that SERPS should be based on the best 44 years of earnings instead of on a full working life. The amendment would increase expenditure in a poorly targeted way and would cost more than £2.5 billion a year by the middle of the next century.

535 I believe that my proposals provide for a viable and affordable SERPS in the longer term, and I shall therefore be asking the House to reverse the effects of that costly Labour amendment.

As I said at the beginning, pensions are a Tory success story. Pensioners' incomes have risen nearly as much every year under this Government as they did in the entire four years of the Labour Government. That is because we have routed inflation, which was destroying pensioners' savings at the rate of 25 per cent. a year under Labour, and we have encouraged an ever rising proportion of people to make pension provision for themselves by means of occupational and personal pension schemes.

§ Dr. Godman

rose—

§ Mr. Lilley

I shall try in future to give way to the hon. Gentleman: he is a regular.

In 1979, 43 per cent. of pensioners had occupational pensions. Among those currently retiring, the proportion is nearer 70 per cent. The Labour party is in a state of confusion and disarray over its pensions policy, as I have shown. The Opposition cannot make up their minds, because their political instincts are in conflict with their electoral calculations. Instinctively, the Opposition still hate private pension provision. They seize on any problems with relish and they pour scorn on successes. They would prefer compulsory monopoly state provision; but they know that the British electorate will not stand for it and that the taxpayer cannot afford it.

By contrast, this Conservative Government have a clear, coherent and successful strategy. It is being copied abroad and has been endorsed by the World bank. The recent Federal Trust report makes it a paradigm for pension provision throughout Europe.

When the Bill is enacted, I believe that we can give a fresh impetus to the pension-owning democracy in Britain—safer occupational pensions, more group personal schemes and more flexible personal schemes. The Bill will bring greater security, equality and choice to our pensions, and I commend it to the House.

§ Mr. Donald Dewar (Glasgow, Garscadden)

I beg to move, to leave out from "That" to the end of the Question and to add instead thereof:

That this House declines to give a Second Reading to the Pensions Bill [Lords] because although it contains some welcome proposals drawn from the report of the Pensions Law Review Committee intended to strengthen the regulatory framework within which occupational pension schemes operate, it does not fully reflect the importance of pensions as a form of deferred pay, takes too rigid an approach to the equal treatment of men and women under the State pension scheme, and includes a range of proposals designed to undermine the State Earnings-Related Pension Scheme and disadvantage occupational as against private pension provision. I am afraid that I may occasionally stray into what the Secretary of State will call a partisan point—but his own record of the past 40 minutes allows me that luxury.

I start, non-contentiously, by repeating our welcome for what the right hon. Gentleman said about war widows pensions. I welcome the decision to accept the amendment moved in another place. It was agreed to after considered debate, and I shall no doubt raise the Secretary of State's ire when I say that he is now making something of a virtue of necessity. According to the newspapers, there was a battle in the Cabinet Committee between the Treasury and 536 the DSS. Perhaps, therefore, I should congratulate the right hon. Gentleman on beating the Chancellor—although I do not know whether he would welcome that accolade. I suspect that the decision had a lot to do with the approaching anniversary; that, too, was mentioned in the reports. Nevertheless, I welcome the decision; it is a change that will mean something to an important group in the community.

The Secretary of State made a somewhat slighting reference to the fact that we are to vote tonight. I concede that it has not been entirely easy, because there is a balance to be struck, there are points to be made and there are points of importance, which I shall come to, but that does not detract from the fact that the Opposition support much of what is in the Bill. The regulatory framework for occupational pensions needs strengthening. It is all too clear in the aftermath of the Maxwell disaster that that is so. It is not just a matter of Maxwell. There has also been an enormous increase in the amount of litigation over pensions, which reflects the unhappiness about the way in which the system has been working. There is an increasing public awareness, which I welcome, of the importance of pensions as assets of the individual. For all those reasons, there has been a spotlight on the regulatory framework, and it is clear that it needs strengthening, hence the Goode committee report, which Opposition Members have consistently welcomed.

The Bill undoubtedly goes some way—although I am not convinced that it goes far enough—to meet the requirements. We welcome what we have, but for reasons that I shall explain I think that there is a case for more.

We have tabled an amendment because the Bill departs from the Goode agenda and moves on to a darker side when it feeds on what I believe are the Government's prejudices. I was asked recently by a brave optimist whether I could send him a copy of the Bill, because he wanted to read it and know what was intended. I have met many optimists in my time, but I fear that he will learn little from reading the text. Hon. Members may remember that Alice in Wonderland thought that no book without conversation and pictures was worth reading. The Bill certainly fails that particular test. It is a peculiarly opaque document.

§ Mr. Gyles Brandreth (City of Chester)

Will the hon. Gentleman give way?

§ Mr. Dewar

No, I wish to make a little progress.

One of the problems is that this is very much government by regulation—enabling and empowering, not the people, but certainly the Secretary of State. That concern was mentioned in many of the representations that we have had. The Bill prescribes change in the balance of the system. That is one of my concerns. It is a change that has been largely unnoticed, but it is undoubtedly a change of intent. The arithmetic has been weighted in a number of ways and there is an undermining of rights on a scale that demands debate. It will be of major interest for hon. Members who are fortunate enough to obtain a place on the Standing Committee—I can hear the rush of tiny feet from Conservative Members.

Perhaps the easiest way to illustrate the point is to draw the attention of the House to the Government Actuary's report on the Bill—Cm 2714. It contains some helpful tables and projects the expenditure on the state earnings-related pension scheme to 2050. It shows it as it was and as it will be after the Bill is enacted. There are some 537 revealing facts. In 2050, for example, it is envisaged that SERPS will be worth, or that it will cost the Treasury—whichever way one likes to put it—some £19.3 billion. After the Bill is on the statute book—admittedly, we are talking about a long-term time scale—that sum falls to £9.9 billion. It is almost halved. That fact does not appear on the face of the Bill, in the explanations or in the briefings. No one could accuse me of being partisan if I said to the House that there is a very strong case for a genuine debate about what is happening in that area, why it is happening and what it means. We are determined to have such a debate.

§ Mr. Tim Smith (Beaconsfield)

What significance should we attach to the figures that the hon. Gentleman has just given to the House, when the oldest person who will be affected by what he has just announced is aged 10 at present?

§ Mr. Dewar

That is a very interesting view: the House of Commons is not to bother about what happens to our children. Now there is a piece of Conservative philosophy that is quite remarkable. I am almost moved to agree with the hon. Gentleman, because he could have a word with the Secretary of State, who looks at any changes that are proposed over that time scale and immediately takes them as a pledge of spending intent for the next five years. The Government cannot have it both ways. Although the shift will occur over a lengthy period, it starts quite quickly and it will involve many people in this House and many of our friends, colleagues, children and successors. It would be blind prejudice were we simply to take what is before us without proper inquiry.

There is a fallacy that savings are painless and good. In fact, there is a converse, which is that almost always savings are at the expense of someone or something. That must be balanced in the equation, but it seems to be lacking in this Bill. For example, the Bill dealing with incapacity benefit will result in substantial savings, but they have been clawed out of the budget for the long-term sick and disabled. I do not sneer at savings; I accept that the Treasury has a natural interest in controlling public expenditure—that is the business of every Government. However, balances must be struck and in the immensely important area of pension provision we have a duty to consider these matters.

At least arguably under attack are contributions that are currently being paid and that will be paid in future—investments in people's futures which are the result of thrift and proper provision through the state pension scheme, which I would have thought the House would hesitate to reduce in the way now proposed.

The proposed reduction is dramatic. I remind the House of the proposed change to the SERPS calculation—a highly technical matter. Currently, we value the total earnings for each year in line with the increase in average earnings and then deduct the annual lower earnings limit for the last complete tax year to produce the surplus on which the pension is based. In future, the annual lower earnings limit will be deducted before revaluation takes place each year. So what? Over the projection period I have mentioned, that will reduce the value of SERPS by £2.7 billion annually. It is an enormous change and an enormous deduction.

There is the equally difficult and technical matter of the contracting-out provision and the consolidation of female 538 SERPS entitlements, which will be aligned with those for men. The Government Actuary reckons that by 2050 that will mean taking £4.2 billion annually from the value of SERPS.

Those are enormous sums, but they have been nodded through in the fine print without any of us having had the opportunity to raise and debate the issue. I give the Secretary of State fair notice—which I hope he will take in the spirit in which it is offered—that we will want to look closely at this area in Committee. I know that he will not personally be in Committee, but I hope that he will receive reports and closely monitor what emerges. There is no doubt that the drop from £19.3 billion to £9.9 billion, at a time when national insurance contributions have just risen to 10 per cent., is a remarkably serious matter that is worth a thought and a pause for further reflection.

I am aware that the Government have not established a major reputation for keeping their promises, but they have kept one promise. This point will be especially important to the right hon. Member for Sutton Coldfield (Sir N. Fowler). When he halved the value of SERPS—to put it in shorthand—it was promised that there would be no further devaluation until the year 2000. The Government have kept their promise—the changes will come into effect on 6 April 2000. The Government have not hung around in the general task of dismantling and demolishing, although I stress that they have kept to the letter of their promise.

The Bill represents a major shift. The Secretary of State fairly said that we live in a pay-as-you-go system. That produces difficulties and burdens that have to be shouldered. However, I object to the fact that the Government are altering the inter-generational contract by stealth, in a way that I do not think is defensible. It represents a substantial shift, which is something that we must take into account.

I raise another case of a little local difficulty for the pension industry.

§ Mr. Bernard Jenkin (Colchester, North)

Does the hon. Gentleman accept that SERPS was originally established in the mid-1970s on a completely unsustainable basis, and that the changes that have been made in the 1980s by my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler), and subsequently in the Bill, put Government finances and pensions on a more sustainable basis? What robs pensioners is financial irresponsibility such as the high inflation that we had under the Labour Government.

§ Mr. Dewar

None of us enjoys inflation's impact on any fixed income or any savings—I concede that. I shall not fight the battles that were fought in the late 1980s with the right hon. Member for Sutton Coldfield—that is history. If, however, the hon. Member for Colchester, North (Mr. Jenkin) is saying that we must do this to SERPS because we cannot afford to provide for pensions, I would question that. I think he is saying—certainly the Government are saying—not only that we cannot afford to provide those pensions, but that we must provide for more. The question is how we do it. Should it be through SERPS or some other form of state-provided scheme, or should it be through personal pensions in particular? Admittedly, risks are involved in both solutions, but, given the history of recent years, no great confidence exists that private pensions are the obvious way forward.

539 The argument must be conducted in that way. It is fallacious and totally irresponsible to say that we must knock down SERPS because the community cannot afford to pay for decent retirement in old age. If we take that view, we will not provide for that in the private sector either, and we are all in trouble. Let us fight on the argument seriously, sensibly and on the grounds on which it must be contested. We should not put up bogey men in the way that is far too common.

Let me turn, because it is important, to the second level playing field argument. I was talking about private and public. Let us consider occupational pension schemes and private pension schemes—approved private pensions and private pensions themselves. In the time available to me, I cannot go into details—again, that will happen in Committee—but burdens exist on occupational pension schemes in terms of indexing, for example, and in terms of the pension level that they must provide, where no equivalent exists in the personal pension sector.

I see the hon. Member for Bournemouth, West (Mr. Butterfill) nodding at least in partial agreement. I do not want to pin him down too completely, but he recognises that point, and well he might as he is connected with the industry, and he knows that the National Association of Pension Fund Managers and a number of other organisations feel anxious and, in some ways, angry about what they regard as the further weighting of the balance against occupational pensions and in favour of personal pensions. Again, having considered the record, I ask: is this the right time and does any justification exist for a further weighting of that sort? Let me give an example.

I read the story—I think first in the Financial Times in an article by Norma Cohen—that, when the contracting-out settlement was made, and when the framework for contracting-out payments was redrawn, a heavy weighting would be introduced in favour of personal pensions, which would receive an administrative payment within the contracting-out payment three or four times greater than that given to occupational pension schemes. The Government were saying that the taxpayer should pick up the tab for the charges and the commissions of selling private pension schemes. I did not believe the story. I did not think that that would happen because it seemed such a preposterous proposition, but it has happened.

I protest that we are picking up the tab for charges that I think most of us believe should be minimised—not feather-bedded—in the interests of the public. It is another example of the lack of a respective and level playing field. It has been tilted on the basis of prejudice. We have a duty to examine it and it justifies the reasoned amendment that I and my right hon. and hon. Friends have tabled today.

§ Mr. Butterfill

I know from having shared platforms with the hon. Gentleman that he recognises the importance of occupational pension schemes. I hope, however, that he will not be tempted to go down the road that some trade union colleagues are urging him to go down in terms of imposing additional burdens on occupational schemes through the Bill, and then damaging them in the way that has occurred in the United States of America, where they have virtually disappeared.

§ Mr. Dewar

The hon. Gentleman and I have shared platforms at what I might call trade gatherings, if those people who were at them do not mind the term. I said then and I will say now that I recognise that there is a 540 trade-off, a balance to be struck. Of course, I do not want to frighten employers out of, for example, the provision of defined benefit schemes. I am clear, in my own mind at least, about that and I will perhaps say a word or two about it when we discuss the difficult matter of the minimum funding level, in respect of which that trade-off is peculiarly painful and difficult to adjust.

I do not believe that we should again artificially encourage private pension provision, but not because I believe that there is no market for it. I believe that there is a market for it and I hope those who would benefit from it will use it. However, the advertising campaign in the late 1980s, and the 2 per cent. premium that was offered, showed how it was possible to stampede many, many people, who were rather uncritical in their enthusiasm, into buying pensions that were totally unsuited to their needs and which those people imagined were building up an entitlement for their retirement when they were not.

I was interested in the exchange between my hon. Friend the Member for Southampton, Itchen (Mr. Denham) and the Secretary of State. I presume that the right hon. Gentleman misunderstood my hon. Friend, although that would have been difficult, but it is not, I fear, true that the Securities and Investments Board, the Personal Investment Authority, the Investment Management Regulatory Organisation or any other regulatory body has given a guarantee in the cases of many hundreds of thousands, perhaps millions, of people who are buying personal pension plans, sometimes in disregard of the opportunity to enter an occupational pension scheme, and who are contributing the minimum contracting-out payment and building up almost no reasonable entitlement. I would be delighted if the sort of guarantee that is being offered on the mis-selling of transfers and opt-outs was being offered on that wider basis, but it is not. I ask the House to bear those matters very much in mind.

I do not have time to say anything about the guaranteed minimum pension but I mention it at this point simply because it is another matter that was not covered by the Goode report.

§ Mr. Brandreth

Earlier, the hon. Gentleman set himself, rightly, against opacity. Now that he has mentioned the guaranteed minimum pension, perhaps he could clarify this point, which was raised with me at the weekend by a constituent who understood that the Labour party's Commission on Social Justice favoured a guaranteed minimum pension and that that has been endorsed—I did not know this—by the Leader of the Opposition. Is that the case and, if so, would the hon. Gentleman, in the interests of setting himself against opacity, make clear the level of the guaranteed minimum pension?

§ Mr. Dewar

I have to say to the hon. Gentleman, in no hostile sense, that his question shows a misunderstanding. We have, of course, been considering a scheme for a minimum guaranteed pension, but I am talking about the guaranteed minimum pension in the present legislation. I am sure that the hon. Gentleman understands that distinction. The importance of the guaranteed minimum pension is that it gives protection.

When the Maxwell crash happened, the Government made a great virtue—and perhaps I would have done the same—of the fact that they were giving the pensioners a guaranteed minimum pension. That was a statutory need. It is, therefore, a protection in hard times.

541 Even with the compensation fund in place, there may be examples where there has not been theft, fraud or misappropriation and, in those circumstances, the guaranteed minimum pension, together with its indexing, may be an important safeguard. That is why we believe that the guaranteed minimum pension should be retained. However, if the hon. Gentleman is volunteering for the Committee, he will have lots of time to discuss that with me and many of my hon. Friends in the weeks ahead.

May I now move on—

§ Sir Norman Fowler (Sutton Coldfield)

Swiftly.

§ Mr. Dewar

Not at all swiftly. I am not usually accused of being swift when I am on my feet. However, I will do my best to push on at this stage.

I now turn to the Goode agenda which is enormously important. Many people have congratulated Professor Goode and his colleagues; perhaps it is now time for sober thanks. To be fair, they must take some satisfaction from seeing many of their recommendations being implemented. There is much to endorse without reservation, but there are some gaps and difficulties and I hope that the House will not forget our general endorsement if I move on to talk about some of them.

The hon. Member for Wantage (Mr. Jackson), who has now left us, made the fair point that there were anxieties—he instanced the Consumers Association—about the role of the regulator. Some are the fault of the Secretary of State. I notice—I have referred to this before in his presence and I shall do so again—that he uses in the White Paper, presumably with much thought, the word "long-stop" as a description of the regulator's role. Coming from Scotland, I have little experience of cricket although I occasionally tried to play it. I used to be sent to field at long-stop on the ground that that was out of sight and out of mind. I later rose to be scorer, which showed a certain political aptitude, and got myself out of those embarrassments. The very idea of the regulator as a long-stop has reinforced a number of fears.

We have had reassuring noises from, for example, the hon. Member for Wanstead and Woodford (Mr. Arbuthnot), the Under-Secretary of State. I cannot think of anyone better qualified to make reassuring noises than him; his manner is custom built for it. I am sure that, in a sense, his comments are well meant.

There is, however, a case for looking at what is not there. The Secretary of State said that the Government had implemented Goode. I think that we were all meant to sit back relieved and to cast away our worried frowns. One has only to look at the role of the regulator to see that there are gaps. I take one example, albeit not a dramatic one. Goode recommended in paragraph 83 that the annual certificate of solvency should go not only to the pension fund concerned, but to the regulator. The Government said that that was not necessary. Clearly, they do not think that the regulator should be bothered with that.

There was an important point about surpluses in which Goode recommended a role for the regulator. The committee said that he should have to give permission if there was to be a transfer of funds in strictly defined circumstances. That is gone and scored out; it is not now the business of the regulator.

542 There is also a great argument about whether the expenses should be met by the state or by a levy on the industry. The House will remember that Goode said: most fundamentally, we believe that the protection of individual rights is properly the function of government and that the disinterested status of the Regulator will be best protected through government funding. The industry feels strongly about that and, to be fair, its concern goes beyond merely wanting to avoid a £10 million levy for the regulator's expenses. The recommendation was rejected despite the tremendous weight that Goode put on it.

Obviously, we shall have to probe these matters in Committee. However, I point out to the Secretary of State that there are reasons for worry. The regulator is seen as someone who waits for trouble—an ambulance party sent in to pick up the casualties—rather than someone who is trying to prevent the trouble at source. It is important that we get the matter straightened out to the best of our ability and we shall look for suitable amendments to achieve that.

My next point concerns the number of trustees. The Government have accepted the recommendation that one third should be selected by the active members. Strangely, they have not accepted Goode's point about money purchase schemes where two thirds of the trustees should be selected by the active members. Again, that is something for the Committee to think about. We have consistently taken the view—it was the Goode committee's declared intention—that the Government should put best practice into legislative form. We shall try to persuade the Committee, and ultimately the House, that the one third figure should increase to 50 per cent. It is a figure that is used widely by some of the best blue-chip companies in Britain, which tell me that it works to their total satisfaction. To use the 50 per cent. figure would also be an important symbolic reflection of the fact that, as European courts consistently maintain, a pension is a form of deferred pay. We shall also look at the possibility of a pensioner trustee as well.

Hon. Members may say—I would understand it—that this is all rather foolhardy optimism because the Government are unlikely to concede anything in this area. However, I turn with hope to the Minister of State, who will serve on the Committee. I read with great interest his remarks in the August 1994 edition of Pensions World when he was interviewed by the editor, Stephanie Hawthorne. He was asked: Why did you settle for one third only of member trustees? The answer was interesting and the Minister will remember it. He said: "To avoid additional complexity." Obviously, a third is easily understood, but 50 per cent. gives rise to additional complexity. All that, no doubt, can be explained when we come to it. The Minister went on to say: The main point about trustees is that some should not be appointed by the employer. The precise proportion doesn't probably matter that much. If that is the Minister's view, I hope that he will listen to those who believe that the proportion matters quite a bit and that he will give way on that issue. We look forward to later comments.

§ Mr. Alan Howarth

May I put to the hon. Gentleman an admittedly somewhat tangential point about trustees? Does he agree that many trustees of pension funds are in one capacity industrialists, who routinely complain about 543 City short-termism, and in another capacity are for ever applying pressure on pension fund managers to deliver short-term performance? Will he say something about how the Labour party would ensure that the massive resources of pension funds—of the order of £500 billion—are invested not only in the best interests of pensioners, but in the best long-term interests of the economy as a whole?

§ Mr. Dewar

I have a great deal of sympathy for that point, and it would be a fascinating road down which to go, but I am already up against certain time constraints. It is important that trustees remember their legal duty and their role under trust law. That goes for those who are appointed by employers or those who may be selected by active members. In Committee, we should certainly look at the training arrangements and the need to give a sophisticated and balanced view on important matters of the kind to which the hon. Gentleman has referred, but I hope that he will spare me criticism if I say that it would make it impossible to deal with other points if I went down that road.

§ Mr. Jenkin

Will the hon. Gentleman give way?

§ Mr. Dewar

No. May I make a little progress, since I really am up against time?

I shall briefly consider another area: the famous minimum solvency requirement argument. I was at one time in the market for jokes about the Pensions Bill; it was a rather unrewarding market which produced very little despite the demand. It was an imperfect market, if I could put it that way. I went to a seminar just after the Barings collapse, at which a very learned actuary explained that if one wished to adjust one's portfolio to track the minimum solvency requirement profile, a little hedging in the derivatives market was recommended. That certainly raised a laugh. I heard a gentleman at another conference say that minimum solvency requirement meant what it said, but he has been upstaged by the fact that it has become minimum funding requirement, although nothing else has changed.

I referred to the matter in response to the hon. Member for Bournemouth, West and I mean it when I say that it is extremely difficult to get the balance right because there are clearly competing priorities. Security must be given a very high priority, but I recognise that there are dangers of putting burdens on employers which may persuade them to withdraw and simply to hand over to either group money purchase or individual contracted-out money purchase schemes. That is a genuine danger which we must keep in mind.

We must consider a compromise. The name of the hon. Member for Bournemouth, West has become—I suppose—a sort of shorthand. The Butterfill letter contains the present compromise arrangements. He has achieved a sort of passing immortality thanks to the Minister. We must consider very carefully whether that formula, with its assumption that 25 per cent. of the pension liability should be calculated on the basis of equity returns, is right or whether we can do better.

There was some debate in the House of Lords, which I take seriously and perhaps more so today having talked to a number of parties about it, about the possibility of a contributions approach; the idea of trying to obviate the possibility of a gap appearing with a comfortable thought that at some future date there could be an injection of 544 capital. If something goes wrong and there is a gap, everyone is in trouble. That gap may be able to be obviated by a contributions schedule, actuarially calculated, which would ensure that the gap was minimal, if gap there be at all. We should consider that in Committee, as well as looking at the possibility of a discontinuance fund of the kind practised, I understand, in some Scandinavian countries and in America.

I am not so arrogant as to imagine that I know the right answer. I am consoled by the fact that, having attended several actuaries conferences which have discussed the subject at length and with learning, I came to the conclusion that they were not very sure about it either. I hope that, in that spirit, the Minister will be prepared to consider matters in Committee.

§ Mr. Lilley

rose—

§ Mr. Dewar

May I say a word or two about the retirement age, unless the Secretary of State wants to intervene?

§ Mr. Lilley

My point was not relevant to that.

§ Mr. Dewar

The right hon. Gentleman says