§ 4.40 p.m.
§ Clause 42 ["Blowing the whistle"]:
Baroness Seear moved Amendment No. 2:
Page 25, line 37, leave out ("immediately") and insert ("after informing the trustees").
§ The noble Baroness said: My Lords, at previous stages we made it clear from these Benches that we were not at all happy with the limited powers of the regulator and that we believed that he should be given greater powers than are afforded him under the Bill. We are particularly unhappy about the fact that the regulator is relying on whistle blowing by the actuary, auditors and members of the trustees, and that it is on their willingness to whistle blow and to draw the attention of the regulator to what they regard as irregularities or potential irregularities that the regulator must rely.
§ I know well what the Minister will say in reply because he said it at previous stages. I do not suppose that I have been any more successful in changing his mind on this than on any other matter with which we have dealt during the passage of the Bill. However, I should like at least to draw the attention of the House to what seems a most unsatisfactory characteristic of the policy of relying on whistle-blowers. I refer to the fact that they work for the organisation against which they have to blow the whistle. That puts them into a position of conflict of interest which, in my view, is extremely undesirable. It will surely tempt them to turn a blind eye if they possibly can. People will not want to be placed in such a position involving a conflict of interest.
§ It seems to me that the only way in which the auditor and actuary can honourably blow the whistle against the people for whom they are working and by whom they are paid will be if they inform those people that they are proposing to blow the whistle. I know that objections can be raised that, if they do that, steps will immediately be taken to conceal the material that might show that all is not going well. However, it is not necessarily easy to conceal such evidence. The provisions that I am suggesting would at least put the actuary and the auditor into a position that they can honourably accept so that they can work for an organisation at the same time as revealing to the regulator matters that they consider to be unsatisfactory within that organisation. I beg to move.
§ Lord Ezra
My Lords, I support my noble friend in this amendment, which raises a very important issue. I have been in industry all my life—for nearly 50 years—and, whether in the public or the private sector, we have employed auditors. The role of the auditor was not only to perform his audit function but also to advise us when we were doing things which were running counter to the regulations laid down in company law or in other ways. A relationship of trust is therefore built up. I have never experienced a situation in which a company in which I have served, whether publicly or privately owned, did not pay serious attention to its auditor's comments. The last thing that we ever wanted was to have an unfavourable comment when the annual accounts were presented to the shareholders.
1154 Trustees are being asked to serve in a voluntary capacity. That is a difficult situation. If they are to be unaware of the fact that their professional advisers arc likely to blow the whistle, I believe that that relationship of trust between advisers and enterprises could be seriously damaged. If the Government were to propose a similar arrangement to this whereby company auditors could whistle blow without advising their companies in advance, I would regard it as a most reprehensible step.
Like my noble friend Lady Seear, I fail to see how professional advisers can properly undertake their task of responsibility towards those whom they are advising without letting them know in advance if they are doing something which the advisers feel duty bound to refer to the regulator. Most trustees would then immediately set about correcting that difficulty. It is wrong that they should not be given such an opportunity. However, under the clause, I presume that the first the trustees would know about the apprehensions of their professional advisers would be when they received a letter from the regulator stating that he had been advised by the advisers that the trustees had gone wrong. I believe that that is the wrong way to set about this. If we want people to serve as trustees—that is, in a purely voluntary capacity—we must put them in a position of being able to develop trust between themselves and their professional advisers. Therefore, I very much hope that the Government will recognise the force of the argument and either accept the amendment today or agree that a similar amendment should be made in another place.
§ 4.45 p.m.
§ Baroness Turner of Camden
My Lords, I rise briefly to say that we on these Benches support the amendment that has been moved by the noble Baroness, Lady Seear, and supported by the noble Lord, Lord Ezra. I cannot understand any basis for opposing it. It seems entirely sensible that an auditor or an actuary of any trust scheme must first, before giving a written report to the authority on any prescribed matter, inform the trustees about it. If there is to be any opposition to the amendment, I cannot understand of what it can possibly consist.
§ Lord Mackay of Ardbrecknish
My Lords, I have listened with interest to the arguments that have been advanced from the Benches opposite. We have discussed this matter previously and, as I have said at earlier stages, I do not consider that the amendment in the name of the noble Baroness, Lady Seear, is either necessary or wise.
Clause 42 does not actually prevent the auditor or actuary from informing the trustees that he is making a report to the authority. In fact, under the terms of engagement drawn up under Clause 41, his first duty will be to the trustees. I imagine therefore that it would be very rare for an actuary or auditor, when blowing the whistle to the authority, not to report the matter to the trustees at the same time. However, having said that, we see no case for making it a requirement. After all, it might be the trustees who are responsible for the 1155 misdemeanour. In that case, and depending on the circumstances, it might be totally inappropriate to alert them for fear of prejudicing any investigation.
Turning to the word "immediately" which the amendment seeks to remove, I believe that the word is a necessary part of the clause. Our prime objective must be the security of members' pension entitlements. If there is any reason to believe that the statutory requirements are not being met, it is vital that reports should be made to the authority without delay. I am surprised that noble Lords opposite are suggesting that there might be such a delay. The authority can then investigate concerns at the earliest possible opportunity. Surely that is the best way to ensure that members get the protection and security that they need and deserve.
A trust board which carries out its duties properly and responds rapidly to any notification of something going wrong will have nothing to fear from the authority. It should be able to maintain a constructive relationship with the authority while putting things right, and with its auditors and actuaries, and then benefit from getting a clean bill of health from the authority at the end of the day.
I hope that in light of my explanation the noble Baroness will feel able to withdraw her amendment. However, if she does not, I hope that my noble friends will join me in the Division Lobby.
§ Baroness Seear
My Lords, that is the unsatisfactory answer that I had expected from the Minister. Of course, it is all part of the bigger issue that we discussed so frequently in the earlier stages; that is, the real powers of the regulator and the fact that the regulator has inadequate powers and relies on a system of whistle blowing. That is not the way to achieve the results that the Government say they wish to achieve.
The Government are relying on the whistle blower, and, as the Minister just said, it is early when things are beginning to go wrong that it is important that the regulator should be aware of what is happening. I suggest that the regulator will not receive that information. Whistle blowers will not blow the whistle until they are sure that things are going wrong. Let us imagine a situation in which the auditors, thinking that things are not well, blow the whistle, only to find that they were in error in so thinking. I suggest that that is the end of the relationship between the auditor and that company. If they leave it until they are absolutely sure, they have left it until it is too late.
The whole weakness of the Bill is that the regulator himself has insufficient powers to do the job. However, having realised that the Government Chief Whip has done his job with even more than his usual efficiency on this occasion, I do not propose to waste the time of the House in testing the opinion of the House, because it would not be the opinion of the House; it would be the opinion of the hordes who are in and out of the bar and elsewhere—
§ Baroness Seear
My Lords, well a greater proportion of those on the other side, anyway, who will not have 1156 heard the arguments. I just hope that in another place other people will take up this point and deal with it more effectively. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 43 [Other responsibilities of trustees, employers, etc.]:
The Earl of Buckinghamshire moved Amendment No. 3:
Page 26, line 29, at end insert:
("(1A) Regulations must require the trustees of a trust scheme, except in prescribed circumstances—
(1B) The information referred to in subsection (1A) (b) is—
§ The noble Earl said: My Lords, on Report I moved an amendment on custody which my noble friend the Minister unfortunately declined to accept. This amendment is another part of the ratchet to prevent fraud. It would require occupational pension schemes to have a financial control system approved by the scheme auditor, and upon which he reports regularly to the trustees. It may seem odd that there is no such requirement under the present law, and even odder that such a requirement was not recommended by the Goode Committee in the light of the Maxwell affair.
§ The recent Barings difficulties underline the need for all financial institutions and pension schemes that fall into that category to have rigorous financial control systems. Nowhere is that more important than in the case, as I said, of pension schemes.
§ Although the effects of fraud might to some extent be mitigated by the new compensation scheme, the compensation payable will be less than the whole loss. It is still necessary to do our utmost to put obstacles in the way of fraud to try to reduce the number of cases where it happens and the size of the sums misappropriated.
§ I am advised that in the current situation there is a considerable difference between schemes in the way financial controls are applied. Some systems provide a much greater level of protection than others. In certain cases, for example, important transactions involving millions of pounds can still be carried out by telephone by one trusted person, and it could be several days before any flaw in the documentation, or any other problem, was picked up.1157
§ I tried to deal with that matter on Report in my amendment on custody, but, as I said, that was not accepted. Under this amendment, responsibility for approving the financial control system and reporting upon its operation would be placed firmly upon the scheme's auditors, who are the people in the best position to undertake that task. That would be in addition to their normal audit responsibilities.
§ In case it may be thought that the amendment would introduce unnecessary bureaucracy, I should like to point out that a financial control system need not necessarily be complex. It would usually necessitate just a few pages of sensible procedures about the signing of cheques, the authorisation of payments, and other such matters, the system being tailor-made to the particular circumstance and designed to avoid too much power being placed in the hands of one or more persons. On that basis, I beg to move.
§ Lord Mackay of Ardbrecknish
My Lords, as my noble friend explained, the amendment would require trustees to have in place a system of financial controls. Of course, that is not something new. Trustees, as the people responsible under trust law for safeguarding the assets of the pension fund, have always needed to have a sound control system in order to be able to discharge their responsibilities. Indeed, if a scheme did not have adequate financial controls the auditor would presumably say so by qualifying his annual report.
Because it is such a fundamental part of a trustee's duty and because checking that a scheme's financial control systems are satisfactory is a normal part of an auditor's duty, we had not considered it necessary to make specific reference to the matter in the Pensions Bill. Moreover, the Bill itself serves also to reinforce trustees' responsibilities in that respect. We believe, therefore, that this amendment is not necessary to ensure that trustees do exercise control over financial matters.
However, I do recognise the importance of such controls and now that my noble friend has raised it, I will consider carefully whether the position is in fact satisfactory. If, despite my initial view, an amendment along the lines suggested does seem necessary, we will introduce it in another place.
I hope that, in view of what I have said, my noble friend will withdraw his amendment.
The Earl of Buckinghamshire
My Lords, I thank my noble friend for his positive reply. On that basis, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 50 [Minimum funding requirement):
Lord Eatwell moved Amendment No. 4:
Page 31, line 6, at end insert ("which shall allow determination, calculation and verification either—
and if the trustees or managers of a scheme to which this section applies choose the latter a levy must be paid by them to a central discontinuance fund").
§ The noble Lord said: My Lords, we had extensive debates on this question in Committee and on Report. It is essentially a technical matter and not a party political 1158 matter. I shall begin by saying that we on these Benches regard the Government's objectives as entirely laudable. We support them wholeheartedly. The objectives of establishing what is now called a "minimum funding requirement" are to provide the greatest possible protection to the members of pension funds in the event of their company becoming insolvent. That is the role of this requirement.
§ The fundamental problem that we have faced all along is that the scale of the contributions required, and the type of assets in which those contributions are invested—whether they be gilts or equities—will be different when the fund is valued on a discontinuance or wind-up basis from when it is valued on an ongoing basis. Our problem has been to devise the best security for members on either one or other of those two bases of valuing a fund.
The Government began by imposing a funding standard defined on a discontinuance basis. That is essentially a sort of snapshot approach. It is important to realise that that is at odds with the investment strategy which has been pursued by successful pension funds over the past 30 years. That investment strategy has been based on well over 80 per cent. of contributions being invested in equities, but the very nature of the equity market is that it is subject to fluctuation—sometimes large fluctuation—consequently, using a discontinuance or wind-up criterion, funding will often not be adequate, even though on an ongoing basis the funding is more than adequate. If a discontinuance approach were enforced the result would be that funds would necessarily have to adapt to a different investment strategy, with the result, as Goode recognised, that serious problems could be created. It is worth quoting from the Goode Report on that matter. At paragraph 4.4.31 the report states that a minimum funding requirement of this type,
could force intrinsically healthy schemes to reduce benefits and increase contributions substantially in order to be able to meet liabilities on a hypothetical discontinuance which in the ordinary way would be very unlikely to occur. A scheme's investment managers might feel constrained to move from an equity based to a fixed-interest or index-linked portfolio so as to be certain of covering its wind-up liabilities, with the likelihood that over the long term it would lose both income and the prospects of capital growth, and benefits would go down".
§ That is the fundamental problem with the discontinuance approach.
§ The Government, having decided to back this particular horse, have tried to tackle the problems created by the discontinuance approach by, on the one hand, watering it down and, on the other, by moving steadily towards an ongoing approach. That has seriously weakened the discontinuance approach without, I suggest, producing a truly coherent alternative.
§ Perhaps we may look at the watering down. The Government have decided to define liabilities on the basis of the so-called cash equivalence of benefits of the pension fund determined with respect to the interest rates on long-term gilts. This cash equivalence, as has been mentioned since Second Reading, will not be 1159 enough to purchase an insured annuity; that is, the scheme will not by this definition be truly solvent. The pension is not protected.
§ Secondly, the Government weakened the position still further by permitting very large schemes to evaluate 25 per cent. of their liabilities to existing pensioners with respect to the rate of return on equities, which is typically higher than on gilts. This lowered the cash equivalence further and meant that the pension was less well protected.
§ Having weakened the criterion, the Government then moved slowly towards an ongoing basis. They proposed that asset values should be smoothed over defined periods to try to avoid the arbitrariness of evaluating an equity portfolio on a snapshot basis. It is not at all clear that that will work. On Second Reading, the noble Earl, Lord Buckinghamshire, argued that it would not. I can see it working only if the period over which the smoothing takes place is defined with respect to best actuarial techniques for ongoing funds; that is, if it becomes an ongoing fund and the discontinuance argument is abandoned.
The fourth change was proposed by the noble Lord, Lord Mackay, in a letter to my noble friend Lady Hollis. He said, with respect to large schemes, that,
if their sponsoring employer went into liquidation, [they] would have to be run on as closed funds. They would have the administrative infrastructure to do so. They would, realistically, be able to run on as closed funds, delivering pension benefits as they fall due—reliably and cost efficiently".
§ Quite so; that is an ongoing basis and not a wind-up.
§ Finally, the Government renamed the previous minimum solvency requirement "the minimum funding requirement". Throughout consideration of the Bill, the Government's actions have been an implicit admission that a minimum funding requirement defined on a discontinuance basis will introduce major distortions and create significant difficulties often for well-run funds. That was pointed out in Committee and on Report by the noble Lords, Lord Marsh and Lord Clark.
§ It must always be remembered that the discontinuance funding criterion specified in the Bill is to be applied to thousands of well-run funds in an attempt to catch the few rogues and incompetents in the industry. There is also the obvious danger that the minimum funding requirement, defined in discontinuance terms, will become the standard funding requirement, confirming the prediction of the Goode Report of higher contributions and lower benefits.
§ As I said, we entirely accept the Government's objective and we support it. We want to have the best possible protection for pensioners. The amendment proposes that pension funds be permitted to apply to the regulator on terms to be defined in regulations to define their minimum funding requirement either on a discontinuance basis, if that is most appropriate to that fund, or on an ongoing basis. The appropriateness could be decided in consultation with the regulator. Therefore, the clause would make available the ongoing approach and the advantages of that approach are obvious.1160
§ But what are the disadvantages of the ongoing approach? I have talked about the disadvantage of the discontinuance basis. The key disadvantage of the ongoing approach is that, given the fluctuations in the equity market, a pension fund which adopts a minimum funding requirement on an ongoing basis may be inadequately funded at the snapshot moment when the employer ceases trading. As has been mentioned several times in our debates, that is highly unlikely in the case of a fund that is run on a basis of the best actuarial practice. On several occasions the noble Lord, Lord Mackay, told us that government surveys have discovered that well-run funds typically will not suffer from the problem, but it is a possibility.
§ The way to deal with the problem is by the provision of a central discontinuance fund, which might, for example, be a government agency. In the event of company insolvency, it can keep the fund going so that it achieves its smooth, medium-term valuation. It avoids the folly of a pension fund being forced to wind up at just the moment when the markets are in such a state that wind-up is to the maximum disadvantage of the members.
§ Perhaps we may consider the disadvantages of a central discontinuance fund. What are the arguments against it? An argument that has been put forward is that a central discontinuance fund will mean that well-run funds will subsidise badly-run funds. That is nonsense. The case is that a company has ceased to trade. Such a company may have a fund which is run perfectly well and competently; it is a free-standing element. We have heard in debates about companies which have ceased to trade and have left pension funds behind them; for example, public sector companies, when privatised, ceased to trade as a public sector company and their pensions fund were left behind. No one has suggested that those pension funds were run badly. They have continued as closed funds. The argument about the well-run fund subsidising the badly-run fund is nonsense.
§ Secondly, it has been argued that this is in some way an alternative to a minimum funding requirement. That too is nonsense. The two issues need to go together; we want a minimum funding requirement defined on an ongoing basis and then, in the unhappy event of the employer ceasing to trade at just the moment when the stock market is down, a central discontinuance fund keeping the fund going until the market recovers. Therefore, one will avoid the nonsense of winding up the pension fund at the worst possible moment.
§ A third argument made against a central discontinuance fund is that it might be unable to meet its obligations. That is provided for in the amendment by those pensions funds which opt for valuation on an ongoing basis being required to make a contribution. Given the Goode prediction that on an ongoing basis general pension funds' contributions will be lower and benefits higher, the small contribution to sustain the central discontinuance fund seems to be a reasonable price to pay.
§ Finally, the noble Lord, Lord Mackay, mentioned on Report the problem of the heterogeneity of liabilities of various funds which might be amalgamated into the 1161 central discontinuance fund. I suggest that it is not a problem. The central discontinuance fund could provide a standard set of benefits, the scale of which would be linked to the minimum funding requirement. The central discontinuance fund could also have the additional benefit that, as the Government Actuary proposed, the scheme could be used as a device for facilitating mobility between occupational pension schemes, which surely is the fundamental weakness of the entire occupational pensions industry.
§ This is a belts and braces amendment. It is designed to maximise security while minimising disruption. It makes available the two approaches; that is, discontinuance and ongoing. As will be clear, I have doubts about the strength of the discontinuance criterion as now applied by the Government and as watered down. However, I am prepared to believe that the Government are doing their best on this matter. I believe that they have made the best of a bad job with respect to the discontinuance requirement. Indeed, it may be appropriate for some funds.
§ If the amendment were accepted it would give members confidence in their pension funds without reducing the value of their pensions. It would allow employers to adopt the most efficient funding strategy for their pension funds. As is often the case in moving amendments, I am totally at a loss as to why the Government should possibly resist this amendment. In their amendments to the late and—perhaps I may suggest—unlamented minimum solvency requirement, the Government have moved steadily towards valuation on an ongoing basis. The approach which we have adopted is based on the recommendations of the Government Actuary. It also has wide support in the industry. I wish that the Government would accept the logic of their own position and support the amendment. I beg to move.
§ Lord Ezra
My Lords, I have much pleasure in supporting the amendment moved so ably by the noble Lord, Lord Eatwell. He has pointed to a fundamental issue in our deliberations. As we have noted as we have gone through our considerations on the pension industry, it contributes some 30 per cent. to investments on the Stock Exchange. It is of vital importance that that contribution to our industrial welfare should continue. We must reconcile continued investment . in the industrial strength of the country on the one hand and the security of pensioners on the other.
The noble Lord has drawn a distinction quite rightly between the discontinuance basis of valuing pension funds which could jeopardise the continued investment in equities and minimise the risk which they take in their investments and the ongoing basis which runs the risk that, at a particular point in time when a business ceases to operate, the valuation of their investment in the Stock Exchange might be very low.
I believe that the noble Lord has suggested a quite ingenious way out. It is a way out which many other countries have adopted. The Government would be well advised to take this seriously and to reconcile those two issues: maintenance of the investment of pension funds in the equity market on the one hand and safeguarding 1162 the security of pensioners or members of schemes on the other. I hope that the Minister will take this matter very seriously.
§ Lord Finsberg
My Lords, the noble Lord, Lord Eatwell, has made a very interesting case. I declare my interest as a trustee of a major pension fund and as a former trustee of the parliamentary pension fund. That fund could never be valued on a discontinuance basis, or at least I hope that it would not be, otherwise some of us in this House would be uneasy.
This is a very complex issue and the House is grateful to the noble Lord, Lord Eatwell, for the clear way in which he has explained the amendment. His argument for giving an option for the fund to be either on a discontinuance basis or an ongoing basis is one with which I certainly go along. I hope that the Minister will agree to look with some care at that matter. I hope that he will not ask us to dismiss it today.
However, I do not go along with the idea of establishing a discontinuance fund. That adds an unnecessary piece of bureaucracy and will impose costs of one kind or another on other schemes. I should be very uneasy about that. I endorse the idea of giving an option to the fund to decide whether it wishes to be on an ongoing basis, which I favour, or on a discontinuance basis, about which I am uneasy. Therefore, I hope that my noble friend will indicate that amendments will be brought forward in another place to cover paragraphs (a) and (b) but that he will not accept the last three lines of the amendment.
§ 5.15 p.m.
The Earl of Buckinghamshire
My Lords, I congratulate the noble Lord, Lord Eatwell, and the noble Lord, Lord Ezra, on bringing forward what is a very clever amendment. Indeed, I congratulate the noble Lord, Lord Eatwell, on his conduct as regards the whole debate on the Pensions Bill.
Having said that, I call this the Morton's Fork amendment because I think you are damned if you do and damned if you do not. I find myself in some difficulty because, rather like my noble friend Lord Finsberg, there are some superficial attractions to the amendment.
On the surface the amendment provides a straight choice between funding for discontinuance and funding for ongoing liabilities. If the latter is chosen, as the noble Lord, Lord Eatwell, said, the company would be asked to pay a levy into a central discontinuance fund. I know that the noble Lord, Lord Eatwell, defined discontinuance liabilities when he was describing the impact of the minimum funding requirement but I am not entirely sure that I understand what he means in that context about discontinuance liabilities. If it means funding to meet the liabilities of a defined benefit plan, we are back into the old discussions about how to meet those liabilities, given the impossibility of the market at present to provide that as a means of liquidating the liabilities on a wind-up.
There are major difficulties in funding for discontinuance liabilities. That goes back and is linked to investment policy. It would lead inexorably towards 1163 investing almost totally in gifts. Future increased pension liabilities would be matched by index-linked gifts but it would not be possible, if funding for discontinuance liabilities, to invest for growth. On that basis, the results of that investment policy are likely to lead to an increased and volatile cost about which companies are not likely to feel very comfortable.
The next stage of the amendment deals with funding for future liabilities on an ongoing basis. That is something with which we are very much more familiar and comfortable. Defined benefit plans are linked to salary inflation and, as the noble Lord, Lord Eatwell, said, it is possible to justify more easily a high equity content in investment policy. But your Lordships should be aware that it is technically possible to be solvent on an ongoing basis and insolvent on a discontinuance basis. That is a very important point to grasp.
If one follows the ongoing basis of funding, the solution is to cover the insolvency situation by the payment of a premium, as I understand it, to a central discontinuance fund. I shall be interested to know whether the noble Lord, Lord Eatwell, agrees that there is a selection against the central discontinuance fund because the company will be able to opt for the basis on which it wishes to proceed. Therefore, there could be selection and an increase in what I describe loosely as a moral hazard.
On the surface, that second option seems to be attractive. You can invest for growth via equities; and you are not faced with a minimum funding requirement which requires an injection of cash or funds when things go wrong. On Report the noble Lord, Lord Eatwell, mentioned Finland and Japan as examples of countries which had central discontinuance funds. While that is true, I suggest that the USA may be a more relevant example at which to look in relation to that type of fund. It goes under the initials of the PBGC.
In the US, the PBGC is under very serious scrutiny at present within Congress. Your Lordships can perhaps take a considerable amount of comfort from an article which I recently read which said that the PBGC's deficit is 2.9 billion US dollars. It goes on to say that there is none. It seems that, even in the US, the actuaries cannot agree what is a deficit and what is a surplus. I am not sure whether that is a matter of comfort to your Lordships. It seems to me that the whole issue is quite difficult to grasp.
I appreciate that the noble Lord's amendment is offered in a constructive and probing manner to my noble friend the Minister. However, I believe that there are considerable dangers in going down that route. I do not believe that it has been fundamentally researched. Although I am quite sure that the amendment of the noble Lord, Lord Eatwell, will produce a considerable number of articles from my colleagues in the actuarial profession, I believe that there are difficulties with it.
1164 I can commend to your Lordships an article from The Brookings Review entitled, "Avoiding the Next Guaranteed Bailout". I should like to read to the House a short extract from it. In essence, there are issues in it about which we should be aware. The article says:Government as we have come to know it—that mother of all insurance agencies—has expanded far beyond the confines of the welfare state. In fact, we now live in what can be more accurately described as a modem insurance state. The purpose of the PBGC and the plethora of other programs like it is the very political, but limited, goal of shifting risk".When talking about the PBGC the article asks:How much do claims exceed expected revenues?".The answer is:No one knows. Companies are permitted to use actuarial assumptions that greatly understate the cost of retirement benefits, and even the limited information required by the PBGC becomes available only after long delays. Not surprisingly, the agency has discovered that the unfunded liabilities accumulated by terminating plans tend to be much larger than plan sponsors previously reported".I am quite sure that when we put in—if we ever do—a central discontinuance fund, we shall of course get it right without any problems. However, there are some major difficulties connected with such a fund.
I have also found another quote which I quite like. It is one from Schumpeter. Just to show off, I should tell your Lordships that Schumpeter taught that capitalism is an evolutionary process of creative destruction.
When looking at the amendment, I hope that we do not drive our own pension funds into imminent destruction. It is an interesting amendment. However, I should prefer my noble friend to stick with his own policy but accept in full the amendment put forward on Report by my noble friend Lord Clark of Kempston as a means of coping with the matter of the injection of funds at awkward times.
§ Lord Mackay of Ardbrecknish
My Lords, we have had a most interesting debate on a very difficult and complex subject. Listening carefully today to the noble Lord, Lord Eatwell, who accused me of moving a little towards him, I almost began to detect, unlike at the Committee and Report stages, that he was moving a little towards the minimum funding requirement. Indeed, perhaps the noble Lord is thinking that we might meet somewhere in the middle. I have no great objection to meeting in the middle, so long as it is not a muddled middle and so long as the objectives which I believe we both have to ensure security in pension schemes are not compromised by trying to find a comprise between two ideas which does not really exist on a firm basis.
I believe that the noble Lord continued to imply today—as, indeed, he did on the two previous occasions when we debated the matter—that we have moved from a position of offering an absolute guarantee to little more than an arbitrary test and that somehow that test would manage to increase costs and drive down funding levels. We have today been offered further glimpses into exactly what the noble Lord intends. To be fair to him, I believe that the noble Lord has gone a good deal further as regards putting clothes on his proposals than he did in Committee.
1165 Interestingly, the merits of the best practice approach, which underlines what the noble Lord feels we ought to do, were that it,would provide extremely good protection against the possibility of employer insolvency".It seems to me that hidden behind the noble Lord's tentative proposals was a recognition of my central argument that any measure to improve security must look at the position of the scheme on discontinuance in some way. Therefore, I believe that we may at least be agreed on that point.
It remains for us to consider the most appropriate way of providing security on discontinuance. I have already, several times, given extensive explanations and descriptions of what the Government's proposals will achieve. During the preparation of the Bill the minimum funding requirement has been debated widely by actuaries, employers, investment managers and financial advisers. It has been tested; we have carried out detailed analysis, and we have published our findings. Yet the noble Lord, Lord Eatwell, seems prepared to dismiss all of that and suggest that there is a better alternative. The noble Lord certainly seemed to derive some enjoyment when we changed the title, as we were requested to do by a great many people in the field, to a minimum funding requirement.
This afternoon I should like to look at the alternative which is before us. I take it that the amendment is now a serious policy proposal and no longer the tentative idea that it seemed to be during the earlier stages of our discussion. We need to examine what it would mean for members, for employers and, ultimately, for taxpayers. I suspect that, deep down, there may be other matters which ought to concern general taxpayers.
As I understand the amendment, schemes would appear to have a choice—to fund either on a discontinuance basis or on an ongoing basis. I wonder whether the noble Lord is saying that, if they choose discontinuance, they would have to hold sufficient assets to buy out all benefits with insurance company non-profit annuities. During his speech on the issue last week and again today he argued that that was an unrealistic proposition. He quoted the Government Actuary as saying that it was unrealistic. Indeed, the Government Actuary seems to figure a good deal in our debates, although he is usually quoted against me. "Your actuary" are normally the words used. But I did not notice them today.
The noble Lord has no need to argue the point: the Government have always agreed, as did the PLRC. However, what puzzles me now is why it is proposed in the amendment that there should be a choice. Presentationally, it may look fair and reasonable to offer a choice. But, seriously, what kind of choice is there between option (a) and (b) if everyone agrees that (a) is unrealistic?
I turn now to option (b). If schemes were to decide to take the ongoing funding option—if, indeed, and as I have mentioned, they have any option—they must also pay a levy to a central fund. The noble Lord has told us that ongoing funding, if it is to provide security for members, must require contributions to be paid 1166 according to best actuarial practice. It would be interesting to know what he understands by "best practice".
We know from our consultation exercise on the minimum funding proposals that there are schemes that are weakly funded on an ongoing basis. But they and their actuarial advisers may well take the view that they do in fact adopt "best practice" when deciding on their funding levels. "Best actuarial practice", depending on your point of view, might range from very prudent assumptions to the most optimistic. So a statutory best practice, if prudent, would increase costs for some schemes—potentially considerably. Moreover, if more optimistic or aggressive assumptions were used it would drive down funding levels and make schemes less secure. Either way, there would be no clear idea of what members should, as a minimum, expect if the worst happened and their employer went out of business.
Any central fund would have to set transfer terms to be able to pay pensions as they became due. Those transfer terms would no doubt become a statutory basis for ongoing funding. Who knows what the cost implications of that might be? The basis would presumably need to be fairly rigorous to ensure that the central fund itself was fully protected. Otherwise there would be a greater risk of it being unable to pay benefits and of taxpayers being expected to make up a shortfall.
What would it mean for members if their scheme was not able to pay the transfer terms? The noble Lord referred to a report that the Government Actuary made to the PLRC in December 1992 on the idea of a central discontinuance fund. He failed, however, to mention that the Government Actuary had pointed out that if the central fund were to operate effectively there would need to be a system of strict supervision of all schemes. The report said:it would be essential for the system to be backed by adequate supervision to ensure that schemes were soundly administered and financed and that funding was targeted at an appropriate level".The last GAD survey of occupational pension schemes indicated that there are some 37,500 defined benefit schemes. A new external system set up to investigate all pension schemes, including supervision of their funding levels and investments, would surely be very expensive to administer.
The Government Actuary also suggested that an insurance system could be set up to protect against schemes being underfunded and unable to pay transfer terms. This again would require detailed investigation of each scheme. To avoid the risk of schemes being purposely underfunded, knowing that the central fund was there as a safety net, premiums would have to create the right incentives. Thus, weakly funded schemes would be charged higher premiums than the more secure schemes. When deciding the appropriate premium, judgment would need to be made about the adequacy of the scheme's ongoing funding level, taking account of the nature of the scheme's liabilities and how risk averse the trustees were in setting investment policy. Judgment might also need to be made about the financial or trading position of the employer company.
1167 One could go on building a more and more elaborate system of protection and controls. But how much would it all cost? Would employers be prepared to pay a levy to support a supervisory machinery that would be many times more intrusive than OPRA? Is what we have here really a backdoor means of achieving the intrusive regulatory authority which the Opposition failed to persuade your Lordships we should have in OPRA itself? What would be done to control costs? Should well run schemes be expected to bail out weaker schemes? And who, finally, would be expected to stand behind a central fund set up by statute? The answer is the taxpayer may be expected to back all this, and we would have to question how reasonable that would be.
At the Report stage I referred to the central discontinuance fund in America. My noble friend Lord Buckinghamshire has referred to some other problems that have arisen with the central discontinuance fund in America. These are all serious matters. Last week I was accused of presenting a caricature of the central discontinuance fund. I suspect that happened because I chose America rather than Finland or Japan. I deny that. The idea of a central discontinuance fund clearly was developed as a means of protecting scheme members and has been seriously considered. But so have a lot of other ideas. The minimum funding requirement we now propose is an honest attempt to ensure that pensions in payment will continue as expected, and that younger members will have a means of securing their accrued pension rights and indeed building on them with future contributions.
The noble Lord, Lord Eatwell, suggested that a minimum funding requirement on a discontinuance basis will lead to higher funding levels for most schemes. I am afraid I think that is based on a misconception. Ongoing funding will normally include discretionary benefits and a past service reserve to reflect the fact that further service will increase the value of past rights. The survey we conducted last year showed that the minimum statutory requirement for most schemes would be below their ongoing funding level. Therefore, our proposal for an MFR will not increase costs for most schemes. However, what it will do—by contrast to the amendment of the noble Lord, Lord Eatwell—is to provide a greater degree of certainty for the members of schemes that the rights they have accrued at any point in time will be adequately secured.
I am sure I do not need to remind your Lordships of the importance of maintaining a balance between costs and a fair degree of security. The noble Baroness, Lady Turner, said when we debated these clauses in Committee that we needed to ensure that we maintain the right balance. I suggest that the amendments before us today would not maintain and secure that proper balance and that the minimum funding requirement is the position we have reached after—as I have explained —the announcement made by my right honourable friend the Secretary of State last December. I hope that went some way to help with the problem identified on a number of occasions by the noble Lord, Lord Ezra—namely, the shift from equities to gilts—and also the concern some noble Lords have expressed 1168 about valuing on one single day, which has now been removed. We are also allowing for a much longer time period to restore a fund to the minimum funding requirement.
We are proceeding carefully on this issue and listening carefully to what people are saying. We are changing and amending provisions as we did last December. I am sure that is the sensible way to proceed. I hope I have persuaded your Lordships that the ingenious proposal put so eloquently, as always, by the noble Lord, Lord Eatwell, is not one that should seduce us. I invite the noble Lord after this excellent debate—I have no doubt there will be a few more comments from him—to withdraw his amendment. But if he wishes to put it to the test, I hope that my noble friends will support the minimum funding requirement as we have outlined it in the Bill.
§ 5.30 p.m.
§ Lord Eatwell
My Lords, I am grateful to the Minister for that somewhat obscure reply. I thank noble Lords who have taken part in this discussion. I wish to draw out a couple of points because I regard this matter as an enormously serious technical matter which affects pension funds and the pension future of millions of people. This is not a party political matter; it is a matter where we have tried to tease out the complicated technical issues.
It is important to remember what the noble Lord, Lord Ezra, said in bringing out the implications of the introduction of the Government's discontinuance system for the macro-economy and for the performance of the equity market. That is an important point. It would be appropriate in another place to hear Treasury Ministers speak on this matter. It is not a matter for the Department of Social Security; it is a matter for the Treasury. It is worrying that the macro-economic issues have been ignored.
I wish to refer in particular to the point brought out by the noble Lord, Lord Finsberg, who said, with respect to the parliamentary fund of which he used to be a trustee, that it would not have to be valued on a discontinuance basis, presumably because we have confidence in the mother of parliaments. But the point is, under this Bill it will have to be valued on a discontinuance basis even though we can be totally confident that it will never be discontinued. That is the fundamental problem with the Bill.
As regards the comments of the noble Earl, Lord Buckinghamshire, I have also read the article in the Brookings Review. That article is opposed to defined benefit schemes altogether. We are trying to devise ways in which defined benefit schemes can be maintained with appropriate security. Therefore, I do not feel that the position I have mentioned would be acceptable, given the success and importance of occupational pension schemes within the British system.
As regards the difficulties of the American PBGC, as I pointed out on Report a lot of those were due to companies which were still solvent dumping pension funds on the PBGC. That could be prevented here simply by relating use of the central discontinuance fund 1169 to corporate insolvency or ceasing to trade. I am afraid that I found the Minister's comments extremely muddled. He said that the whole purpose of the Government's approach was to provide, in his words, "security on discontinuance", but he then attacked me for writing into the amendment that there should be a discontinuance basis, and went back to talking about insured annuities which we dropped long ago—when I say "we" I refer to us as a collective House—in discussing this whole problem. I could not work out what the devil he was trying to say.
As regards an ongoing basis, he said that an ongoing basis, as defined, may raise some contributions and lower others. Of course it would. We want to catch those rogues who are not paying enough and they will have to raise their contributions. The Minister also said that I had argued that under the Government's discontinuance approach funding costs would rise. I did not argue that; it was the Goode Report which argued that funding costs would rise.
I am afraid that I do not believe that the Minister or the Department of Social Security have really grasped what the issue is about. There is no evidence in his argument of a clear understanding of the problems of evaluating ongoing pension funds, such as the parliamentary pension fund, which will have to obey a discontinuance criterion. That is the nonsense of the Bill and of applying only the discontinuance criterion.
The amendment I put forward sought to provide the regulator and the industry with the option of defining a funding requirement in a way that would provide security for pensioners and be appropriate to maintaining efficiency in the provision of adequate pensions.
I hope that the Minister and his honourable and right honourable friends in another place will come back to the issue and consider it very carefully. The provision has been amended considerably since we began considering the Bill, and I am grateful to the Government for that. However, I feel that they still have not got it right and will need to return to the matter. Having said that, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 57 [Equal treatment rule: supplementary]:
Baroness Hollis of Heigham moved Amendment No. 5:
Page 35, line 46, leave out ("a description or category of") and insert ("an").
§ The noble Baroness said: My Lords, after that tour de force I turn to a very minor amendment. I shall be brief. We seek clarification. The effect of the amendment would be to set a time limit for claims of six months from the date of leaving the employment to which the scheme relates. The reason for tabling the amendment is not that we believe that the time limit should be even more stringent than that proposed by the Government; we simply have some doubts as to what the Government intend.
§ So far as our legal advisers can tell, the words "description or category of employment" do not appear in any other employment legislation. What is meant by 1170 it? Does it mean moving from part-time to full-time employment, or from the banking to the retail sector? What will the Government do to ensure that women are not inadvertently caught by time limits as they move jobs or, as the Government have it, move description or category of employment? We should be grateful if the Minister can help us. I beg to move.
§ Lord Mackay of Ardbrecknish
My Lords, perhaps I would be wrong if I assumed that the noble Baroness, Lady Hollis, referred to my speech as a tour de force. I suspect that it was her noble friend's speech which she regarded as a tour de force. I am happy to try to explain what on the surface appears to the noble Baroness to be legalistic wording. As she explained, the amendment seeks to simplify the wording of Clause 57(4) (c) concerning the period for bringing claims under the equal treatment rule. It would refer to,an employment to which the scheme relatesrather than to,a description or category of employment to which the scheme relates".Clause 57(4) (c) was inserted at Report stage and is intended to replace Section 2(4) of the Equal Pay Act 1970 for the purposes of Clause 57. As noble Lords will know, much of the equal treatment provisions are to be read as one with the Equal Pay Act. However, in this instance we were concerned that without this particular change there might have been confusion about the operation of Section 2(4) of the Equal Pay Act in the context of pensions.
I have some sympathy with the amendment moved by the noble Baroness because it appears to have the benefit of simplifying the rather legalistic wording of the original. However, we have concluded that the original wording is the most appropriate. We have taken that wording from the definition of an occupational pension scheme in Section 1 of the Pension Schemes Act 1993. The definition is framed so as to include not only schemes which are operated by one employer solely for the benefit of his own employees but also schemes which provide benefits for groups of employees who may not have the same employer, such as sectoral or industry-wide schemes.
We believe that we should keep to the current wording of Clause 57(4) (c), both for consistency with the Pension Schemes Act and, more importantly, to ensure that all scheme members are treated in the same way regardless of the nature of the scheme. I hope that with that explanation of why we feel that the rather more complex wording is best, the noble Baroness will feel able to withdraw her amendment.
§ Baroness Hollis of Heigham
My Lords, I thank the Minister for that reply. We shall study it. With the permission of the House, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.1171
§ 5.45 p.m.
§ Clause 60 [Equal treatment rule: effect on terms of employment, etc.]:
§ The noble Lord said: My Lords, I am pleased to be able to move the amendment. As those noble Lords who are season ticket holders will know, it is normally my noble friend Lord Lucas who moves government amendments. In this case I am moving the amendment because it results from a weakness highlighted by the noble Baroness, Lady Hollis, in Committee. I undertook to consider the points that she raised, and I an) pleased to be able to redeem that pledge this afternoon.
§ As the noble Baroness explained at the time, the purpose of the amendment is to bring the equal treatment provisions of the Bill within the ambit of Section 4(1) of the Sex Discrimination Act 1975. That section currently deals with protection against discrimination by way of victimisation in relation to persons bringing proceedings under the Sex Discrimination Act or Equal Pay Act. The amendment would extend that protection to those bringing claims for equal treatment under Clauses 56 to 59 of the Bill.
§ I congratulate the noble Baroness on spotting the need for the amendment. I beg to move.
§ Baroness Hollis of Heigham
My Lords, we are obviously delighted that the Minister has responded to our point. I claim no credit for the amendment which, needless to say, is an extremely technical one. I only wish that the Minister's conciliatory stance had been so generously extended to many of the other amendments on which we sought to persuade him.
§ On Question, amendment agreed to.
§ Clause 67 [Preferential liabilities on winding up]:
The Earl of Buckinghamshiremoved Amendment No. 7:
Page 41, leave out lines 39 and 40 and insert:
("(b) any liability for—
§ The noble Earl said: My Lords, in moving Amendment No. 7 I shall speak also to Amendment No. 8. Amendment No. 7 is intended to protect the position of those who are already drawing their pension on the date when the provisions within the Bill come into force. I should like your Lordships to consider the situation on the winding up of a pension scheme in a few years' time 1172 when, regrettably, them is not enough money to meet everyone's benefits in full. Such circumstances may continue to arise, even though the new minimum funding test should help to reduce the number of occasions when they occur.
§ At present, if those unfortunate circumstances arise, the trust deed of a pension scheme is the document which sets out the order in which the claims on the funds are to be satisfied. Those people who are higher up the queue will usually receive more than those who are lower down. Indeed, most trust deeds give priority to those who are already drawing their pension at the date of the wind up. This should usually enable those pensioners to receive not only their pension at the current level of payment but also any future guaranteed increases which are provided under the scheme.
§ Frequently, the pensioners' benefits, including future guaranteed increases, particularly in smaller schemes or when the benefits were bought out at times when the markets were right, have been secured by purchasing a suitable insurance policy out of the fund's assets. The future increases thus purchased are not intended to improve the position of a member and his spouse but merely to maintain whatever protection is guaranteed by the scheme against the threat of inflation to their present standard of living.
§ As I understand it, under the Bill as currently drafted, future pension increases would come at the bottom of the priority clauses, together with some other benefits. The effect would be that a pensioner could still be reasonably sure of continuing to draw his pension at the current level, but he could possibly lose the future guaranteed increases which he would receive if the scheme were wound up now. When I raised this matter on Report the Minister made it clear that the Government continue to favour the principle that if a scheme which is wound up is under funded pensioners may have to share some of the pain from which they have previously been insulated. I am uneasy about that. I do not share the Government's view on the point. I still believe that a preferable principle is to continue to give full priority to those people on pension including future increases in pensions.
§ Quite apart from being fairer, the provision would also avoid the practical difficulty inherent in my noble friend's proposal in relationship to those schemes which have purchased annuities from insurance companies in the trustees' names when a member retires. The Minister has not explained how the trustees would be able to achieve the reallocation of moneys from such pensioners to active employees if the insurance company refuses, as is likely, to make such a refund.
§ However, even though I do not agree with the Government's decision on this point of principle, on the assumption that they will have thought through all the means of overcoming the practical difficulties to which I referred, I agree that that is the position to which we shall hold. However, I cannot accept—I feel strongly about it—any suggestion that the new principle should be applied to those people who are already on pension at the date the new provisions come into force. I believe 1173 that that will be a totally unacceptable diminution of the pension expectations of those people in the event of a wind up. Indeed, I believe that it reflects a major attack, made retrospectively, on their pension and property rights.
§ I was therefore pleased to hear the Minister's statement at Report. He said that the clause as currently drafted would not represent any retrospective worsening of anyone's accrued rights and that no one's pension expectations would be reduced by the clause. I take it that he accepts that at the date the provisions come into force existing pensioners should not have their position worsened on future wind up. The Minister may wonder why I have elaborated on the whole discussion. It is because I believe that he may well have overreached his brief. I wish to give him the opportunity to put the matter right.
§ The amendment makes clear that the provision would not distort the principle favoured by the Minister so far as concerns future pensions but would conserve the rights of those people who are already on wind up before the provisions come into force. I believe that the amendment is the only fair way to do that. I hesitate to think how we shall cope with the health warnings regarding the possible difficulties of pensioners on such wind ups. What will go into the booklet may well be different from what will go into the scheme rules. I look forward to hearing what the Minister has to say. I beg to move.
§ Baroness Turner of Camden
My Lords, I support the amendment moved by the noble Earl. It is similar to an amendment to, I think, Clause 66 which I moved unsuccessfully at an earlier stage. I expressed some concern about what seemed to be a worsening of the position of pensioners on wind up. I felt that pensioners ought to have consideration. If one is in employment it might be argued that one has some possibility of improving one's position. However, once one is on a pension, that really is it unless one has increases which are payable under the rules of the scheme.
The noble Earl has thought up an ingenious method of protecting the position of people who are pensioners at the time that the legislation comes on to the statute book. It seems to me entirely legitimate. As the noble Earl said, the Minister gave the impression that no one's expectations would be worsened as a result. of the legislation. I fear that they may be unless we have a provision of this kind somewhere in the Bill.
§ Lord Mackay of Ardbrecknish
My Lords, my noble friend's amendments are intended to protect pensioners whose pensions are in payment before the Bill takes effect. They would cover cases where the scheme rules afford their indexation a higher priority than that provided under the new priority order proposed in the Bill.
Perhaps I may remind your Lordships of the way in which the clause is intended to fit with the minimum funding requirement. The intention is to ensure that when a scheme winds up, all of the members are treated fairly. If the scheme is fully funded to the level of the minimum funding requirement, all of the members should receive the full actuarial value of their accrued 1174 rights, including the right to indexation, should the scheme wind up. But there will be circumstances where schemes wind up less than 100 per cent. solvent on the statutory minimum funding basis or are otherwise unable to meet their liabilities in full.
Obviously, we hope that schemes will not wind up in a position where they are unable to secure the benefits promised under the scheme. We believe that the minimum funding requirement and the wide range of other measures for enhancing scheme security incorporated in the Bill will minimise the chances of schemes winding up in this position. But we live in the real world, and we must cater for those cases where things do go wrong despite our best endeavours.
A scheme which does not meet in full the statutory minimum funding requirement will not be able to meet all of its liabilities on wind up. That is when the priority order will come into play and ensure that there is an equitable distribution of assets. It is only right that pensioners should receive some priority over active members. That is why we propose that they should, if possible, suffer no reduction in their income. That is reflected in the priority order we propose.
However, to go further and give priority to indexation for all pensions in payment would place at risk the rights of other members. We have to ensure that the assets are shared fairly. We believe that this can best be done by protecting pensions in payment first, then protecting the basic pension entitlement of all other scheme members, then sharing out whatever assets remain for the benefit of all scheme members.
The amendment proposed by my noble friend would give added protection to those scheme members who are pensioners when the Bill comes into effect. As I hope I have made clear, this would not cause problems for a scheme that is fully funded when it winds up. Indeed, the provision would not be needed. However, as I have just explained, where a scheme is underfunded the protection my noble friend seeks to give to some pensioners could be achieved only at the expense of other scheme members, including members who will become pensioners after the Bill comes into effect and others who could well be approaching retirement age when the scheme winds up. Such individuals may be no more able than existing pensioners to make good the loss. The real difficulty with most schemes' current wind up rules is that they can produce a step, or series of steps, usually around retirement age. Thus one member may receive his full entitlement while a colleague only six months younger can lose 40 per cent or 50 per cent. of the pension rights he can legitimately expect. Our proposal produces a smoother and more equitable distribution.
It is also important to recognise that the valuation base we propose for the minimum funding requirement will be more appropriate for protecting pensioners and those approaching retirement. As members get older so their rights will be more largely valued by reference to gilt returns. This will give them an entitlement which has greater certainty of being able to deliver their promised benefits.
1175 Let me conclude by saying this. The clause will not affect anybody's pension rights as such. What may change is the degree of certainty that those rights will be delivered. Pensioners may indeed have to share in any losses whereas they have previously been insulated. So while their rights will remain the same, the distribution between the various members will, I believe, be fairer.
Overall, our proposals will produce a fairer and more equitable result while giving a degree of priority and extra protection to pensioners and older non-pensioners. They are consistent with the principle underlying the minimum funding requirement and other scheme security measures. These aim to secure the rights of all scheme members at all times irrespective of whether they are pensioners, deferred members or active members, and regardless of when they became or may become pensioners.
I understand what my noble friend Lord Buckinghamshire says and the concerns he expressed. However, I hope that he will understand from the explanation given that we are attempting to be fair to all scheme members and at the same time remove a problem. As I mentioned, people just short of retirement can face a quite considerable drop in their pension entitlement; and they will have absolutely no time in reality to make up for that drop.
We believe that re-ordering the priorities in the way that we propose, still giving pensions in payment the first priority, is the sensible way to proceed. I hope that with that explanation my noble friend will be able to withdraw his amendment.
§ Lord Eatwell
My Lords, before the Minister sits down, perhaps he would clarify something he said just now. He stated that rights would stay the same but certainty would diminish. As I understand it, if I am to be paid £100 with a probability of 90 per cent., that is worth £90. If I am to be paid with only a probability of 50 per cent., it is only worth £50. If the Minister is saying that my right will be protected but the amount of money I am likely to receive will be diminished, I am rather unimpressed. It seems to me that his argument that the position of existing pensioners is protected does not stand careful examination.
§ Lord Mackay of Ardbrecknish
My Lords, that is why I made a distinction between the rights, which do not change, and the situation which would occur if, when the scheme was wound up, it was under-funded. I fully admit that in those circumstances pensioners would not receive the same protection on indexation as they currently do. I put forward the argument that there are other people in the fund whose position must be considered. It is particularly important for those close to retirement who find themselves in the situation that we can envisage, which could be quite serious. I believe that the clause in the Bill re-ordering the priorities will in some way protect pensioners but it will also give perhaps some protection, in the worst scenario, at marginal expense, to pensioners regarding indexation. It will give them the bulk of the protection, but it will also 1176 look after the interests of those who are not yet pensioners but who are near pension age and who may well find themselves severely disadvantaged.
§ Baroness Seear
My Lords, before the Minister sits down and following what the noble Lord, Lord Eatwell, said, what use is a right if it means that one will not receive the money?
§ Lord Mackay of Ardbrecknish
My Lords, the right is there but it depends on the situation at the time of the winding up of a pension scheme. If the pension is fully funded then the right can be carried out. If the pension is under-funded, I suggest that the rights stay the same; all the pension rights remain and those of active members stay the same. However, as the schemes are constructed at present, active members perhaps of the age of 59 or 64, just short of pension age, have their rights severely restricted under the current arrangement. I suggest that looking sensibly at the situation on winding up and trying to be fair to everyone, the rights remain the same but in the worst case scenario the pensioner may find that his or her indexation has to take second place to looking after the rights of other members of the scheme.
The Earl of Buckinghamshire
My Lords, I wish to thank everyone who has taken part in the debate. The Minister is in some difficulty over the amendment and his justification for not taking greater note of it. He has not answered the question on the immediate annuities which have been purchased and how they are unlocked , from insurance companies in such situations. Although I did not mention the point in moving the amendment, there will be an implication for members as to whether they should take the transfer value prior to retirement and whether the Government will amend the regulations or provisions of previous Bills on taking transfer values just before one retires.
There was no response from the Minister on the health warning. I could imagine it being inserted in a pension booklet: "With a bit of luck we may have a pension for you and with even greater luck we will give you indexation on the guaranteed basis, but don't count on it".
I find the whole manner of dealing with the matter extremely disappointing. It is retrospective legislation. It is retrospective in the manner in which it tries to undo what the Government believe is an unfairness in the current trust deeds. It would be sensible of the Minister to consider the points that I have made. He could then take them further in another place. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 8 not moved.]
§ 6 p.m.
Baroness Hollis of Heigham moved Amendment No. 9:
Before Clause 115, insert the following new clause:
Residential care: needs of spouse where occupational pension paid
(" .—(I) In section 22(4) of the National Assistance Act 1948 (assessment by local authority of resident's personal requirements) after "appropriate" there shall be inserted "and in particular, where
the person is in receipt of benefits from an occupational pension scheme a local authority shall have regard in calculating his personal requirements to the needs of his spouse living other than in accommodation provided under this Part and to the usual standard of living of that spouse".
(2) The Secretary of State shall, with the approval of the Treasury, make grants out of money provided by Parliament to pay any expenses of local authorities incurred because a local authority calculates the personal requirements of a person in receipt of benefits from an occupational pension scheme to take account of the needs of his spouse.").
§ The noble Baroness said: My Lords, I make no apology for returning to the issue of residential care for the third time. Among elderly people the two greatest fears are crime, on the one hand, and, on the other, their health so deteriorating that they need residential care but cannot afford the cost. Ten thousand men and 5,000 women with occupational pensions are in residential care. At the moment if a man—and it is usually a man—has been nursed at home but develops Alzheimer's disease he will need residential care. If he has an occupational pension then it is likely that the whole of it will be taken in fees for his care. His wife, left behind at home, becomes dependent on a state category B pension of just £35 a week. She has nursed him lovingly, she has now lost him to a savage illness. She has probably lost her own health through nursing him and she now loses virtually her entire income. She would be better off if she were widowed. She would keep half of her husband's occupational pension. As regards his state pension, she would be better off if she were divorced. She would then be entitled to the full state pension of £57 a week; that is £20 more.
§ However, because she has kept him going, she is not widowed and has stayed loyal to him and not walked away, she has received blow upon blow. After all, the occupational pension belongs to her husband, officially and technically, but we recognise that the couple built it up together. In every moral sense short of the legal and technical sense, the pension belongs to them both. But through necessity he has had to take it all, leaving her with nothing.
§ At the Report stage we on these Benches pressed amendments that would allow the trustees to split the occupational pension in such a situation. Then the wife left at home would also be entitled to have the single person's state pension. We were narrowly defeated; in part because Members from all sides of your Lordships' House who care about disability were attending the All-Party Disablement Group meeting. The monitors did not alert them to the Division and it is not clear whether those monitors were working. The Members therefore missed the Division.
§ Those Members of your Lordships' House would not have heard the Minister repeat his essentially sole argument against the amendment. It was that local authorities had the discretion to remit part of the fees and that they should use that discretion. I do not wish to put it too harshly, but he said that it was their problem and not the Government's.
§ The Minister is a conscientious man. I wish that he had talked to his right honourable friends not just in the Department of Health—as I believe he has done because I am sure that he is concerned about the problem—but 1178 also in the Department of the Environment. Had he done so, he would have found that the Department of Health empowers local authorities to remit fees. He might also have found that the Department of the Environment punishes them if they do so.
§ It is true that under the 1948 legislation local authorities have the power to remit but in practice, within the framework of the DoE, they cannot use that power. Why? First, because of the financial situation of local authorities. They are right up against the cap imposed by the DoE. Half a dozen local authorities are already going through that cap. The Minister says that it is an "I told you so" situation. What does he expect when, in order to stand still to meet inflation, local authorities would have needed an increase in the revenue support grant of over 2 per cent? They actually received an increase of ½ per cent. That means a cut in real term1½of per cent. without a single elderly person being cared for—and our population is ageing.
§ In consequence, the weekend survey of the Association of Directors of Social Services, with which I am sure the Minister is familiar, reports that over 80 per cent. of local authorities are making cuts in social services budgets of up to 10 per cent. And how are they to do so? First, they will restrict eligibility for some social services; secondly, they will have to reduce investment in home and domiciliary care, thus subverting care in the community; thirdly—and this is particularly germane to this amendment—they will have to increase charges above inflation to compensate for a grant that did not match inflation; and, fourthly, they will have to limit the amount of care that each client is entitled to and allowed to receive, however needy that client may be.
§ Every one of those cuts that the ADSS has identified and local authorities will have to make hits the group of people to which this amendment refers. Cuts in services at home add to the pressure on the wife who is the carer. Increased charges—including, for example, in Norfolk, £8 an hour for home help services—or full residential costs will directly affect those going into residential care. In Gloucester, elderly people have announced that they are taking the county council to court in order to seek the restoration of services that have been cut in the context of the present financial stringency. In this context, local authorities are increasing charges, cutting services and reducing the amount available for each individual. How on earth does the Minister expect local authorities to remit, by discretion, part of their fees?
§ That is bad enough. But the situation is worse still. Local authorities' standard spending assessments have been adjusted to reflect what the DoE thinks ought to be included for additional income from charges such as these. If local authorities therefore do not increase charges, and indeed, as the Minister suggests they should, actually remit charges, they will then be punished by the DoE with a local SSA settlement.
§ I therefore hope that today the Minister will not repeat the sole argument that he adduced in Committee and on Report that local authorities have the discretion to remit charges, unless he tells us what advice he will give to them in this situation. What statutory service should they cut to make possible a discretionary remission in 1179 fees? And will the Minister then protect them from the punitive effects of the standard spending settlement, which assumes an increase in the very charges that the Minister says they should remit? I hope that the Minister addresses this issue rather than yet again uttering platitudes about discretion.
§ Hence I have tabled this amendment. Its wording is drawn from Section 50(ME) of the 1990 community care Act. It requires all local authorities to exercise discretion so that the spouse at home would receive an adequate income. As that will lead to a fall in income from charges, the standard spending adjustment--as the additional grants are referred to in the words of the community care Act—should be adjusted accordingly. This amendment would therefore do precisely what the Minister has been calling on local authorities to do; namely, to remit charges on the basis of need, and a local authority would not be punished in consequence. I beg to move.
§ 6.15 p.m.
§ Baroness Seear
My Lords, I support this amendment. It has been moved with such ability and in great detail by the noble Baroness, Lady Hollis, and I do not intend to repeat the arguments that she put forward so clearly. I wish to say this to the Minister. If he finds it difficult to accept the proposals put forward by the noble Baroness, Lady Hollis, I believe he will accept that this is a problem of great severity.
We must all know from our own personal experience—and the Minister is an understanding man; he realises what these problems entail—that this is a very real problem for a great many people. As one of the older Members of this House, I recognise that a great many of us are living too long. There is not much that we are prepared to do about that, but many of us who live too long get odder and odder, more and more difficult and more in need of care. To be serious, we all know that there are hideous cases of women —it is mainly women—who go on struggling with people who have diseases such as Alzheimer's which get worse and worse, and then have to resort to residential care. It cannot be right that, having had to move their husband into a residential institution, they are then left in abject poverty.
If the proposals put forward by the noble Baroness are not such as the Minister can accept—I hope that he will, but experience suggests that he may not be able to—I beg him, before the Bill goes to another place, to treat this as a very serious problem and try to think of other ways, in consultation with other departments, in which this serious problem can be dealt with. Whenever I hear that three government departments are involved in a problem my heart sinks. One is bad enough; two is dreadful; and three is quite unthinkable. I recognise that that is the Minister's problem as well as ours. But it is also his problem to try to overcome difficulties of this 1180 kind. I am certain that he will not deny the seriousness of the problem. If he cannot accept our solution, will he tell us what is his solution?
§ Baroness Wharton
My Lords, 1, too, support this amendment. Once again, the noble Baroness, Lady Hollis, has very clearly outlined all the awful problems that face couples should one partner need to go into long-term care.
At the weekend, I read that at least one local authority in the Midlands is charging residents in its homes interest on bills that they cannot pay until the cash is raised from the sale of their property. They are able to clock up interest immediately if the resident agrees to a charge on his or her home. I understand that if the resident refuses to agree, then of course the local authority cannot charge interest. I do not know whether that is true, but it is quite frightening. After all, we all grow old; and perhaps many of us will end up in long-term care, unable to look after ourselves.
From what I can see, residential homes in London cost upwards of £400 a week. Modest savers, even with pensions, could not possibly find that sort of money for care and have anything like enough left over for the spouse who is left in the family home. Most people have paid tax all their working lives. Under this system their modest savings could quite easily disappear, not within years but within months. Quite honestly, having talked to many people, that is hardly an incentive to save for old age. With the best will in the world, and even with an extremely good pension, I do not see how people could possibly save enough to pay that sort of money for residential care.
I read an article in one newspaper today which stated that some £15 million is given by the Government for AIDS related research and only £1.5 million for dementia and Alzheimer's. Some half-a-million people suffer from Alzheimer's. So far the disease mainly affects the elderly. It is unfashionable, is it not, but I feel that somehow there ought to be some redress in the balance: an enormous sum goes in one direction and such a pitiful amount in another. The more research that we do into the disease, the less chance there is that many of us might end up in long-term care, facing the problems that the noble Baroness has already outlined. Along with others in this House, I hope that the whole subject will be looked at again sympathetically.
§ Lord Mackay of Ardbrecknish
My Lords, this amendment seeks to address an issue that we discussed at length both in Committee and at Report stage. Indeed, at Report stage we decided upon the matter in a Division. The issue is how the position of the spouse left at home can be adequately safeguarded when the other spouse has an occupational pension and is admitted to residential accommodation.
The earlier amendment sought to specify how the pension should be allocated between the spouses in those circumstances. The amendment now before us tackles the issue from the other end. It seeks to specify how the local authority should meet the needs of the spouse at home in calculating the personal requirements of a spouse in residential care for the purpose of assessing his or her liability for charges.
1181 I appreciate that in drafting the current amendment the noble Baroness has sought to meet some of the concerns expressed in our earlier debates. Nevertheless, our view remains that amending legislation to address this particular issue is neither necessary nor desirable. Replacing the current discretionary arrangements by statutory prescription would introduce an unwelcome element of inflexibility and, in my view, would not achieve the objective of certainty which the noble Baroness indicated she wants. Moreover, by addressing in isolation one detailed aspect of the charging system for residential accommodation it could well create anomalies elsewhere.
Under the present discretionary arrangement, the guidance says that,it would be reasonable for the local authority to take into account factors such as—I stress the following words—the usual standard of living of the spouse at home, and if the spouse has higher than average outgoings, for whatever reason".
Again, those last three words "for whatever reason" are worthy of note. The guidance goes on to state that,the weight to be attached to these considerations will be for the authority themselves to determine".The noble Baroness's amendment, on the other hand, is far more prescriptive and far less flexible. It would require the local authority in calculating the resident's personal requirements to have regard to the needs of the spouse at home and to his or her usual standard of living. The phrase "have regard to" sounds on the face of it innocuous enough, although I can see the prospect of a legal argument about precisely what the authority would be required to do to discharge its responsibility in that regard. What about needs? How would they be defined for this purpose? Would they cover "higher than average outgoings", as the guidance suggests? If so, what sort of outgoings? How would the resources of the spouse at home—if they have capital, for example—be treated? What would be the relationship between the requirement to have regard to need, on the one hand, and the requirement to have regard to the usual standard of living, on the other. I can envisage cases in which applying the latter requirement could produce anomalies and patently unacceptable results.
The noble Baroness may say that these matters can safely be left undefined, given that all that the local authority has to do is have regard to these Matters. I doubt whether in reality things would turn out quite like that. Once the provisions are set in statute, the scope for argument as to how precisely each of those expressions should be interpreted is potentially considerable.
There is a more specific problem with the amendment. Unlike the present discretionary arrangement, it covers only occupational pensions. I imagine it does that because the noble Baroness knew that she could only cover occupational pensions to get within the scope of the Bill. But, as the Department of Health guidance recognises, similar situations can arise—though much less often, I fully accept—where the resident is the sole recipient of a couple's income which is not an occupational pension. It is also true, as the noble Baroness, Lady Wharton, reminded the House, that there are some problems that have been raised on 1182 the question of capital, especially if the capital is in the form of a house. To introduce a measure confined solely to occupational pensions into the National Assistance Act, as this amendment does—the National Assistance Act is a wide-ranging Act and provides for all adults, not just pensioners—could be regarded as not only inappropriate but also unfair and discriminatory.
As I said the last time we debated this matter, I recognise that there is a real issue here. I am still waiting on specific cases where, if I may put it bluntly and quickly, the local authority has taken all the pension and told the spouse at home to go along to the benefits office and claim income support. Certainly, I should be very interested to see cases like that.
I am trying to be as reasonable as I can but the noble Baroness produced her usual sob song for local authorities. It always amazes me how the first thing a local authority cuts or threatens to cut, as local authorities do year after year when they get their support grant statement, is home helps. They never look at any of the other things. They always promise huge increases in council tax. Certainly in Scotland, it never transpires that way. By some miracle they always manage to be a long way short of their original fears. But still I am amazed—it is something I have noticed over 15 years, I think—that local authorities are always saying that they must cut home helps. It is not for them to cut out some of the glossy pamphlets and leaflets that I and other noble Lords receive in the post on subjects which are not directly the responsibility of local government but are much more politically motivated, at least in Scotland—the amazing nuclear free zone committees which take up time, expense and manpower in order to pursue an objective which has long since been abandoned, even by the Labour Party. I am always amazed at how local authorities manage to attack the home help system whenever they are asked to live within their budgets and be reasonable.
I do not want to go too far down that path, although the noble Baroness has tempted me greatly in that regard. I do want to say to her, as I have said before—I hope that she will accept that I am genuine on this matter—that I gave a clear, unequivocal commitment to the House at Report and Committee stages that I would pass on to my right honourable friend the Secretary of State for Health the points that have been made. She is indeed considering these issues; the one directly in front of us from the noble Baroness, Lady Hollis, and other issues related to that particular age group, and the question of residential care. She is considering them. I believe that that consideration should to be in the context of the overall structure of the arrangements for charging for residential care. To seek to introduce separate statutory provision to deal with that issue in isolation would, I believe, be ill considered.
On that basis—certainly once again I shall talk to my noble friend Lady Cumberlege and bring the points that have been made to the attention of my right honourable friend the Secretary of State for Health—and saying once again that I would be very interested to receive some documented evidence that local authorities have indeed behaved in the way I suggested earlier. I hope that the noble Baroness will feel able to withdraw her 1183 amendment, having put it to the test on the last occasion. If she does not, because she believes that some people did not quite get here in time on the last occasion, I hope that my noble friends will support me in the Lobby.
§ Baroness Hollis of Heigham
My Lords, I am sorry that as we come to the end of the Bill an answer by the Minister on an issue which causes so much distress to so many elderly people in such traumatic situations should have received such a reply. I would call it frivolous if that were not lighthearted. It was a scornful reply by the Minister in which, at various points, he uttered phrases such as the sob stories of local authorities or said that up in Scotland they had the money for nuclear-free zones. I wonder what world the Minister is living in. It is clear that he knows little about local government and cares even less about the problems it faces in trying to address the very real problems affecting elderly people.
At the core of the problem is the Minister insisting that local authorities have a discretion to do what he thinks they should do. I do not believe that anybody denies—I certainly have not argued—that they do not have that discretion in law. My argument was contemptuously brushed aside by the Minister in what I thought was the shabbiest of all the answers we have received at any stage of the Bill. I mean it. The Minister is an honourable man but he has let himself down tonight. No one is challenging that local authorities have a discretion in law. The argument I was trying to put and which the Minister did not even begin to address but contemptuously brushed aside with references to nuclear-free zones, for heaven's sake!—
§ Lord Mackay of Ardbrecknish
My Lords, I was answering the point the noble Baroness made about local authorities and that particular sob story, not the difficulties of the people whom she had in mind with this amendment. I believe that it was a perfectly fair point in response to her view of local government, which some of us have watched for 15 years. We have heard exactly the same thing said year on year but still all the pet projects are able to be funded.
§ 6.30 p.m.
§ Baroness Hollis of Heigham
My Lords, the Minister is saying that when 80 per cent. of directors of social services are having to make cuts even in their statutory services, it is a sob story and that it is a pity that real people are affected. That is a very unfortunate reply.
I repeat that nothing the Minister said in his answer tonight gives local authorities any help in addressing a problem that, as the noble Baroness, Lady Seear, and others in your Lordships' House made clear, is a worrying and growing problem that, despite the Minister's contemptuous response, will not go away. It is a fact that many people who go into residential care must now take the whole of their occupational pensions 1184 with them to pay their fees, leaving the wife behind near destitute. The question is: what can be done about it? That is what the Minister should have addressed.
As I say, local authorities have a discretion in law which they cannot in practice exercise. That is the point of the amendment. We do not need to change their powers; we need to ensure that they can exercise them. They cannot exercise those powers because the settlement for local authorities has not been funded. What is more, even if they were not being capped, as virtually every local authority in the country is, they would still be punished by a reduced settlement in the standard spending assessments if they did not raise charges accordingly.
Perhaps the Minister does not know about standard spending assessments. I should have thought that he would. But it is a fact that, twice over, local authorities are unable financially to exercise the discretion that we do not challenge they have in law. It must make sense that local authorities can only do their job if they have a settlement which at least maintains their current spending levels in real terms and not, as we have seen, a cut on the one hand and a penalty in standard spending assessments on the other.
It is a pity that the Minister knows so little about local government and cares even less about the services that it has to provide, while at the same time telling local authorities that they must exercise a discretion which even he admits that they are failing to exercise because they cannot do so. Meanwhile, while the Minister brushes the issue aside, elderly women who have lovingly nursed their husbands are left near destitute through no fault of their own and through no fault of local government.
I shall receive no sympathetic hearing from the Minister tonight. But I hope that in the other House, where departments with more relevant experience of local government will be aware of these issues, the issue will be pursued and addressed properly. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 126 [Minimum contributions towards appropriate personal pension schemes]:
Lord Haskel moved Amendment No. 10:
Page 81, line 30, leave out subsection (2) and insert:
("(2) In subsection (I), for "41(1)" there is substituted "42B(1)".").
§ The noble Lord said: My Lords, in moving Amendment No. 10, I shall speak also to Amendment No. 11. This is a simple amendment. It deals with the different levels of rebates for contracted-out personal pensions and occupational money pension schemes.
§ I raised this matter on Report and the response from the Minister was that, as personal pensions are more expensive to manage, there must be a higher level of subsidy in order to make them a realistic choice. Personal pensions are a more expensive form of retirement provision; yet in all other sectors of the economy, if consumers choose a more expensive product, they are expected to pay for it. With retirement pensions, if consumers choose the more expensive product, then the Government pay the difference. It is 1185 not as though the additional subsidy goes towards providing the pension; it goes to the financial institution providing the pension to cover its extra costs. Furthermore, that money comes from the national insurance fund, which means that the subsidy comes out of general taxation. The total cost is £300 million, which means that a large amount of money is involved.
§ The insurance industry has many products. Why then are personal pensions different from other financial products where it is left to the market to provide choice? When debating the central discontinuance fund earlier this afternoon, we were told how careful the Government are with taxpayers' money. What is it then about personal pensions that is different so that that care no longer applies? It seems to me that it is a case where the market is being rigged. As the market rigging costs £300 million a year of taxpayers' money, I make no excuse for returning to the matter yet again. It is an unsound basis for personal pensions and I hope that the Minister can satisfy our doubts. I beg to move.
§ Lord Mackay of Ardbrecknish
My Lords, these are familiar amendments for those who have been regular attenders at our debates. They seek to ensure that those contracting out via a personal pension scheme receive the same levels of age-related rebates as those in money-purchase occupational schemes. The amendments would restrict the choice of pension provision available to many people, and would impose a burden of greater SERPS expenditure on the workforce in the next century.
I have explained in previous debates why it is essential that the rebates set for each type of scheme reflect the charges associated with such schemes. If the rebate were insufficient to replace the SERPS given up by contracting out, it would not be best advice to contract out of SERPS at all. That in turn would lead to increased expenditure on SERPS in the future, and reduce the choice of pension provision available to the individual.
Additionally, the rebates for personal pensions and occupational pensions will be paid at different times, with occupational schemes receiving some of the rebate earlier than personal pensions. At Report and Committee stages I outlined this: that members of money-purchase occupational schemes and their employers would receive part of the rebate during the course of the tax year as a reduction in national insurance contributions and the balance would be payable at the end of the tax year. Personal pensions will receive the whole rebate at the end of the tax year and that requires different levels of rebate to take into account the extra investment return available to the occupational scheme by investing the rebate earlier.
The noble Lord, Lord Haskel, conceded during the debate at Report stage that personal pensions play a vital role in extending choice. That is true only if the rebates are set at the amount required to produce a pension equivalent to SERPS. If the rebate is insufficient to do this, then personal pensions do not offer any sort of choice at all. He also argued that people opting for personal pensions should bear the costs themselves. For many people, personal pensions are the only alternative 1186 to SERPS available. I do not believe that those people should be penalised simply because their employer does not offer a contracted-out occupational pension scheme. We are committed to offering everyone the widest choice of pension provision possible, and the rebate must be set at a level to ensure that personal pensions remain a viable option.
The issue of the level playing field has been raised many times during these debates. These amendments would actually slant the playing field rather than levelling it, though I might share with the noble Lord a view that somebody once put to me; that is, that there is no such thing as a level playing field, otherwise why do the teams change ends at half time? But as a Scotsman perhaps I should not talk about team games after last Saturday.
Different allowances in the rebate for expenses are essential to ensure that the pension produced by different types of schemes is equivalent to the SERPS given up. The expense allowance in the rebate for personal pensions is necessary to compensate for the additional costs of administering fully individualised pensions. If that were set too low, the playing field would be tilted towards SERPS. There is no question here of subsidising excessive expenses. The Government Actuary—who is a friend of the party opposite, or at least they keep quoting him—will be asked, in advising on the levels of age-related rebates, to make allowances for the reasonable costs and charges of the more efficient pension providers.
This is the third time we have debated these amendments. I am sorry that I disappoint the noble Lord, Lord Haskel, by repeating the same argument. In my view, if one's argument is soundly based there is no reason to change it, and I believe that the argument is soundly based. The line I have taken is consistent and I hope that our position is clear. We are committed to choice in pension provision and personal pensions are an essential part of that choice.
To restrict the level of the rebate for personal pensions would simply mean that those plans were not viable and the choice of pension provision would be reduced. In some cases, as I have explained, people would be offered no choice of pension provision at all. I hope, not with a great deal of confidence, that, having explained it on three occasions, the noble Lord might feel able to agree with me this time and withdraw his amendment.
§ Lord Eatwell
My Lords, before the noble Lord sits down, can he explain why the Government feel it appropriate to subsidise a more expensive and less efficient provision in order that that more expensive and less efficient provision can be available? If I wish to travel up to Cambridge this evening I have a choice of going by car or by train. Each would involve a different price. However, I could be taken by horse-drawn carriage—by large numbers of well bred black horses. That would be rather expensive and rather inefficient. But no doubt on the Government's logic they would be very happy to subsidise the process so that I would then have the extra choice.
1187 It is a ludicrous argument that one should provide less efficient services but ensure that those less efficient and more expensive services are provided by charging the taxpayer. The taxpayer has to provide. The Minister made no attempt to answer the argument put forward by my noble friend Lord Haskel. Why do the Government subsidise an admittedly more expensive and less efficient service?
§ Lord Mackay of Ardbrecknish
My Lords, I am interested that the noble Lord has decided to intervene rather than allow his noble friend to carry on the discussion which we have had now for the third time. I have explained the matter three times: first, there is SERPS forgone. It is an important principle if they do opt out to make sure that the SERPS forgone is covered. Secondly, I explained that money purchase schemes, by the way they receive their rebate, get their money quicker than do personal pensions. Thirdly, as I have also explained, the costs of administering fully individualised pension schemes are higher. That has to be taken into account as well. The noble Lord, Lord Eatwell, shakes his head. The conclusion is quite simple and there is a divide between us. The party opposite is not keen on personal pensions.
§ Lord Mackay of Ardbrecknish
My Lords, it depends which way one looks at it. We are looking at it from the point of view of the individual and making sure that if the individual opts out he does so with sufficient resources to ensure that his personal scheme gives the equivalent of the SERPS given up. That is the position.
This whole debate has been going on for a few years since we introduced personal pensions. I believe that approved personal pensions are a positive addition to the armoury of pension provision—
§ Lord Mackay of Ardbrecknish
There you are, my Lords. You are hearing the objection that the party opposite has to personal pensions. I am glad that from their sedentary positions they have indicated that. We believe that it is an important part of the array of choices available to an individual and, in particular, available to an individual whose employer does not provide a pension scheme.
§ Lord Haskel
My Lords, it is only since I came to your Lordships' House that I have learnt about level playing fields. In the industry I come from we know only about level battlefields.
In many cases it is just not best to contract out of SERPS. It is only because of this artificial subsidy which the Government give out of taxpayers' money that makes it worth while to contract out of SERPS. Let the insurance companies find a way of cutting costs and making the personal pension schemes competitive instead of the taxpayer paying for it. So far as concerns those whose only alternative is a personal pension, let the insurance companies deal with that market.
1188 There seems to be an inconsistency here. However, I shall not take the matter further. I am sure that it will be picked up in another place, possibly by the people on the Treasury Bench. Meanwhile, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 11 not moved.]
§ 6.45 p.m.
Lord Meston moved Amendment No. 12:
Before Clause 150, insert the following new clause:
("Life assurance for pensions or divorce
—(1) The Matrimonial Causes Act 1973 is amended as follows.
(2) After paragraph (1) (f) of section 23 there is inserted—
(g) an order requiring either party to the marriage who is the member of a pension scheme:—
(3) In section 23(2) the word "and" is omitted where it first appears, and after "(f)" there is inserted "and (g)
(4) After subsection (6) of section 23 there is inserted—
(7) Any order made under subsection (1) (g) above may contain such directions for notification to the trustees or administrators of any pension scheme and for compliance with any conditions for the implementation and maintenance of any life assurance (including medical examination) and other directions as the court thinks fit.
(5) After paragraph (2) (f) of section 31 there is inserted
(g) any order made under section 23(1) (g) above.").
§ The noble Lord said: My Lords, at Report stage amendments were approved to give wider power to the divorce courts to consider actual or potential pension rights and benefits. Those amendments appear in the Bill at present rather disjointedly as Clauses 85 and 150. To add to the confusion, each clause introduces a new Section 25B to the Matrimonial Causes Act 1973, something which I hope will be tidied up later in the passage of the Bill. Meanwhile, Amendment No. 12 is intended to take matters one short step further before the Bill leaves this House by giving effect to a specific recommendation of the excellent PMI report on pensions and divorce.
§ It is primarily to enable the court to require a pension scheme member who is a party to a divorce to take out life assurance for the benefit of the other party or for the benefit of a child in order to protect against loss of widows' benefits or loss of dependants' benefits under the scheme or schemes concerned. This amendment endeavours to provide various options. The first is to require the member to nominate the spouse or ex-spouse or children to the trustees of the scheme for 1189 consideration for benefits in the event of death. Depending on the nature of those benefits and the effect of divorce under the terms of the scheme and on the attitude of the trustees, such a nomination may be enough to protect those involved.
§ In other cases, a nomination may not be enough; for example, where the scheme does not treat an ex-spouse as a dependant or where another spouse and other children may also make claims against the scheme or where trustees make clear that they are not going to be bound in the future exercise of their discretion. For that problem it is proposed that the court should henceforth have a power to require the other spouse to take out life assurance or to use existing policies, if there are any. The latter may be useful if there is a possibility that the scheme member's health may make new insurance hard or expensive to obtain.
§ The amendment proposed to Section 23(2) of the Matrimonial Causes Act would enable such an order to be made before the actual decree of divorce. It can be important to try to get cover in place at an early stage in proceedings if there is a risk of the scheme member dying while he is domiciled abroad, leaving his spouse or ex-spouse without having achieved a substantive order from the court and without leaving her with rights to claim against his estate under the Inheritance (Provisions of Family and Dependants) Act 1975.
§ Since a decision of the Court of Appeal in the case of Milne in 1981 it has been well recognised, with some regret by the courts, that there is no power in the present matrimonial legislation to order a spouse to take out a life policy. This amendment endeavours to fill that gap, at least so far as concerns loss of pension benefits. I hope it is an uncontroversial amendment, building as it does a little further on what was done in respect of divorce cases on Report. I beg to move.
§ Lord Simon of Glaisdale
My Lords, this is a starred amendment, for which the noble Lord, Lord Meston, is not in any way to be blamed because there have been only three working days since Report stage. The noble Lord the Leader of the House managed to convince himself—but possibly not all of your Lordships—that that meant three working days plus a weekend which, of course, it does not because your Lordships do not spend the whole of every weekend at your desks in Westminster.
As this is a starred amendment, I confess that I am not fully conversant with what it does. It may need tidying up at some later stage. It does not go as far as I think that the law should go; namely, to arm the courts with the widest discretion to deal with pension rights as is just in the circumstances.
On Report, the noble Baroness, Lady Young, moved what was then Amendment No. 225, and the noble Baroness, Lady Hollis, moved an amendment that was more specific. I hope that I may say without impertinence that I am an avowed admirer of the noble Baroness, Lady Young, but I am afraid that her amendment did no more than restate the existing law, as was pointed out by the noble Lord, Lord Meston, with the encouragement of all the other practitioners with whom he had discussed the matter. The amendment 1190 did no more than restate the existing law because the existing law states that the court must have regard to the pension rights—that is, the accrual of a pension—of one party and its deprivation, by divorce, to the other.
The amendment that has been moved by the noble Lord, Lord Meston, does not go the whole way, but it does go some way and it should certainly be accepted. The crucial case is where the only matrimonial asset is a pension right. If there are abundant finances so that a financial provision can be made, or if there is abundant property so that a property adjustment order may he made, there is no difficulty. If the finance and the property are sufficient to offset the loss of a pension right, there is no difficulty. The whole difficulty which must be faced but which has not, I am afraid, been faced by the Government is when the pension right is virtually the only matrimonial asset.
The most extraordinary cases can occur under the 1969 Act, which was consolidated in 1973. By that extraordinary Act —that deplorable Act—a husband may brutalise his wife; he may be flagrantly unfaithful to her; he may leave her for another woman but, at the end of five years, he may cast her off even though she has performed substantially all the responsibilities of a wife. That is most extraordinary, but the matter does not rest there. Not only can a husband cast off his wife, but he can deprive her by casting her into penury. There are certain women in those positions who do not choose to divorce their husbands. There may be conscientious objections or it may be that they do not wish to lose the pension rights, but the 1969 Act took no cognisance of that. Regardless of whether or not a wife had conscientious objections; whether a wife would be deprived of the only remaining matrimonial asset; whether her husband had behaved with flagrant brutality and profligacy; whether a wife had substantially performed her matrimonial responsibilities, she could be repudiated at the end of five years' separation.
While the matrimonial law remains in that state—the latest proposals show no sign of improvement—the least that we can do is to see that a wife is not ill-treated financially and property-wise as well as in the marital home. The amendment goes some way to rectifying that situation. It is the very least that can be done and I hope that your Lordships will accept the amendment.
My Lords, as far as I recollect, under the terms of most occupational pension schemes if one party to the marriage is a member of an occupational pension scheme, that scheme will provide not only a pension, but life assurance also. It is also my recollection that the general advice is that if the scheme member dies in employment, which is when life assurance is paid, the question of to whom the benefits should be paid is usually left, for tax reasons, to the trustees. Most schemes, however, will allow members to submit requests about who they would like the beneficiary to be. The trustees will consider that request if the member dies during employment.
If a party to divorce does not have a pension fund which includes life assurance, it may be that the state of his health is such that he cannot obtain life assurance. If 1191 such an amendment is to be made to the Bill, I believe that some thought needs to be given about the practical capability of the member to buy life assurance.
§ Baroness Young
My Lords, I had not intended to speak at this stage, but I am prompted to do so by the remarks of the noble and learned Lord, Lord Simon of Glaisdale. I was very surprised by what he said on two matters. The first was his general complaint about having Third Reading today, which he said was three working days plus a weekend after Report. That is something of which we are all aware. I would be surprised if that had not been agreed through the usual channels. That is the way in which the business of the House is conducted. There is no reason whatever for the noble and learned Lord to blame the Leader of the House who no doubt—
§ Lord Simon of Glaisdale
My Lords, the noble Baroness may recollect that I said that it probably had been so arranged.
§ Baroness Young
My Lords, if I misunderstood the noble and learned Lord, I am sorry, but that certainly was not clear from what he said.
The second point that I should like to raise with the noble and learned Lord is his comment that the amendment that I moved on Report did nothing but restate the existing law. I am not in a position to argue matters of law with a lawyer, but the noble and learned Lord's view on this matter certainly does not seem to be shared by the Lord Chancellor, whose advice I took. If the existing law was working we would not need the amendment. The fact of the matter is that whether it is the existing law or not, it is not working. The evidence that has been produced from the limited research that has already been carried out into this matter seems to support that case.
If the noble and learned Lord is satisfied with the way things are, perhaps I might say to him that, as a distinguished lawyer, he should address his legal colleagues. What are they doing about all this? What are the solicitors doing? Are they aware of what the law is and, if they are aware, why are they not doing something about it? This is not a matter for me. I very much hope that the noble and learned Lord will take up this matter through his professional bodies so that we can have some redress. We certainly need the amendment that has been made to be properly enforced by the courts. I hope that that will happen when the Bill becomes law, having completed its passage through both Houses.
The legal profession has a great deal to answer for in all of this. It is unsatisfactory, and I hope that the noble and learned Lord will take up that point with his colleagues. We have made an advance with the Bill, and I am glad to acknowledge the help I have received from my noble friends.
On the amendment, I listened carefully to what my noble friend had to say. We all have a great deal of sympathy with him about these proceedings. I find it difficult to take a completely new issue on Third Reading, especially when I have not had the time to discuss it, as I should like to do before commenting, and 1192 because it raises a new issue which one would clearly have to take up at considerable length with pension companies, and so forth. Having raised the issue and made the point, I hope that the noble Lord, Lord Meston, will feel able to withdraw the amendment.
§ 7 p.m.
§ Lord Mackay of Ardbrecknish
My Lords, as the noble Lord, Lord Meston, has explained, the amendment seeks to provide the courts with powers to compensate the party to a marriage for the loss of benefits which she (or he; more likely she, as we have all agreed) would have received on the death of the other party if there had been no divorce. Similarly, it seeks to provide powers for the courts to ensure that dependent children do not lose any benefits to which they might otherwise have been entitled.
I do not want to argue with the noble and learned Lord, Lord Simon of Glaisdale, about the various merits of divorce law reform over the years, but what I shall say to him, if I dare, is that his hope that the courts were already taking pensions into account on divorce—
§ Lord Simon of Glaisdale
My Lords, what I said was that they are under a duty to have regard to them. Where there are no other assets, they are unable to deal with pension rights at the moment. Merely having regard to them does not transfer property.
§ Lord Mackay of Ardbrecknish
My Lords, I was going to say to the noble and learned Lord that the preliminary results of the research project which I mentioned in Committee and on Report when speaking to the amendments on this matter show that in something like two-thirds of divorce cases, where the husband had pension entitlement, the pension rights were never discussed in the proceedings. Whether or not that is not having regard to, it seems to me a firm indication that, even if the noble and learned Lord is right about what they should have been doing, they do not appear to have been doing it. That was the point that I was happy to take on board from my noble friend Lady Young in her amendment.
§ Lord Simon of Glaisdale
My Lords, does the Minister not see that there is no need to have regard to the pension rights if there are sufficient other assets? So it is not surprising that in two-thirds of the cases it was unnecessary to refer to them.
§ Lord Mackay of Ardbrecknish
My Lords, I do not want to have a debate about this issue, but I should have thought that in the vast number of cases the pension rights are a major asset in the divorce. Even if they are not, they are an important asset which has to be taken into account with the house, other property and financial rights. The preliminary findings that in two-thirds of the divorce cases where the husband had pension rights the pension rights were never even discussed, even to the extent of deciding that they were not relevant, are worrying. It is a worry that is shared widely.
Also, in negotiation on the divorce settlement, the partner with pension rights may be persuaded to take out a life insurance policy for the benefit of the other 1193 partner. If he or she agrees to do so, the court has the power to ensure that the other partner has sufficient periodical payments to pay the premiums. If the partner who effects the policy is to pay the premiums, the courts may be able to ensure that they are secured. Property, for example, may be given as security. But it would not be appropriate to give the courts a power to require the man (or in a minority of cases the woman) who is the pension scheme member to take out a life insurance policy, as envisaged by subsection (2) (g) (ii) of the amendment. To do so would mean that the individual concerned would be expected to do something which was not wholly within his or her control.
Insurance companies could not be compelled to accept an application, which might be refused on grounds of health or for other reasons, or the company may exact an unreasonably high premium for such an insurance. Such a requirement could give rise to disputes about whether the individual had made reasonable efforts to secure life insurance, and that might mean that insurance companies would need to be represented in court.
Subsection (2) (g) (iii) of the amendment appears to be unworkable as it seems to have the effect of altering the terms of an existing life policy, which might not be feasible. Subsection (2) (g) (i) of the amendment would allow the court to order the pension scheme member to nominate the other party to the marriage or any dependent children to receive death benefits from the pension scheme to which they would otherwise not be entitled. That could mean overriding the provisions of the trust deed and potentially increasing the liabilities on the pension scheme.
Any additional benefits which would have to be paid under that paragraph, and any additional contributions which the member was required to make to the scheme under subsection (2) (g) (iv), would be restricted by Inland Revenue rules on the total death benefits which a scheme can pay and the total contributions which an individual may make to a scheme.
The interaction of subsection (4) with the amendments already accepted on Report mean that an order could be made against a scheme which would contravene the provision of the trust deed or indeed of provisions of pensions legislation or tax law. The amendments already adopted by the House on Report represent a considerable improvement in the position of divorced women, although we did not all agree on the best way forward. To paraphrase the remarks made on that occasion by my noble friend Lady Young and the noble Baroness, Lady Hollis, it makes sense to take one step at a time.
This is a complex area. My goodness, the whole issue of divorce is difficult. Pensions, as those noble Lords who have been here for the past seven or eight days know, are difficult enough. To combine the two makes for a difficult mixture. I must caution the House strongly against accepting an amendment which at best is unworkable and at worst could have potentially adverse consequences for schemes and for the parties to a divorce.
1194 In view of what I have said about the powers already available to the courts if they wish to exercise them, the problems which the amendment would introduce and the significant progress that we have already made with settlement on divorce, I hope that the noble Lord, Lord Meston, will feel able to withdraw the amendment, having raised what is undoubtedly a difficult problem and one which I believe is too complex to be resolved at this late stage of the Bill.
§ Lord Meston
My Lords, I thank in particular the noble and learned Lord, Lord Simon of Glaisdale, for his support. I am sure that he at least will know that for many of us the weekend comprises two rather long working days. I would have liked to have brought the amendment to the House at an earlier stage, but it was necessary to see how matters developed in relation to pensions on divorce before deciding whether, and to what extent, it might be necessary to do so.
There is much to be said for the argument advanced by the noble and learned Lord for an altogether more robust and straightforward power to deal with pensions on divorce. Unfortunately, the Government have avoided that, and I respectfully agree with what the noble and learned Lord said about the effect of the amendments which have been accepted. My view, for what it is worth, is that they do little more than add some emphasis to the existing law.
In response to the remarks made by the noble Baroness, Lady Young, I feel obliged to spring to the defence of the legal profession. We all know what the law can do and we all know its shortcomings. However, as a number of research documents have revealed, in many cases the existing law does not allow the courts to do what they would want to do. That is not a shortcoming of the legal profession but a shortcoming of the existing legal framework. That was recognised by those with considerable expertise; that is, members of the committee of the PMI which dealt with the matter. Those experts, dealing with English and Scottish law, recognised the shortcomings in those jurisdictions.
As things stand, practitioners must try hard to deal as best they can with the disparities in pension positions on divorce. It is not always possible to do so. Of course, it is sometimes possible to make requests or nominations to the trustees of a pension fund, which may or may not be honoured. The amendment is designed to deal with the cases in which the other party is not prepared to make a request or where the trustees are not prepared to indicate their response to such a request when the time comes. For that reason the PMI recommended the practical alternatives, which I have endeavoured to set out in the amendment.
Of course the court will have a discretion. Of course the court will not simply impose an obligation on a party to take out extremely expensive insurance or impose an obligation when it is unlikely that the individual concerned will be insured. The court will retain a discretion and will make an informed decision based on a knowledge of the likely costs and the practicalities of insuring the individual concerned. There is no question of unreasonable compulsion in this situation. With reference to what was said by the noble Baroness, Lady 1195 Young, this is by no means a new issue. It may be a new issue in the context of the Bill but it was canvassed thoroughly in the PMI report. Perhaps it is unfortunate that the Government have only now indicated what they perceive to be practical difficulties.
I believe that it is a serious and reasonable proposal and will allow the question of the loss of pension rights and benefits to be dealt with efficiently and relatively painlessly; is many cases as it is presently done by agreement rather than by any measure of compulsion.
The Minister said that we can proceed only one step at a time. I had hoped that this short extra step could have been taken in the passage of the Bill through your Lordships' House. Evidently, that will not be possible and perhaps it must be taken in a more robust way when we consider a wider programme of divorce law reform. In the meantime, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ An amendment (privilege) made.
§ 7.15 p.m.
§ Lord Mackay of Ardbrecknish
My Lords, I beg to move that the Bill do now pass. Perhaps I may say a few words at the end of a long period during which we have considered the Bill. We have examined it in detail in Committee, on Report and again today on Third Reading.
Many of your Lordships have taken part in our debates but perhaps I can extend particular thanks to those of your Lordships who have been season-ticket holders for these proceedings. They have participated in our deliberations, often late at night, and become immersed in some of the fearsome complexities which can arise on pensions. So perhaps I may give particular thanks to the noble Baronesses, Lady Hollis, Lady Turner, Lady Dean and Lady Seear. On occasions I felt a little like John Knox before he wrote a certain pamphlet. I also give particular thanks to the noble Lords, Lord Eatwell, Lord Haskel, Lord Monkswell and Lord Ezra, and to my noble friends Lord Dean of Harptree and Lord Buckinghamshire.
On, or rather at, my own side, I would particularly like to extend my thanks to my noble friend Lord Lucas, who has moved most of the amendments standing in my name and generally given me great support during our debates. I also place on record our thanks to the bodies which together constitute the Joint Working Group on Occupational Pension Schemes and all the many other organisations which have been involved off-stage. We have not always agreed with all the points that have been made but we do value their contributions. We place great importance on the role of these organisations and on the effective consultation which we have been able to enjoy. This is essential to make these complex provisions work and we shall be consulting further on the detailed regulation-making powers and the way in which they will be applied.
I give special thanks to my officials, not only those who have been here as season-ticket holders but also to all those behind the scenes. A complicated and lengthy 1196 Bill such as this one requires many, many weeks of dedicated work and a rapid immersion course on some very complex issues. I am grateful for their patience in explaining these matters to me and in explaining all the, sometimes, ingenious amendments put down by your Lordships. I am sure that I can also thank them on behalf of those of your Lordships who met me and the team to discuss various aspects of this Bill.
As I said on Second Reading, this Bill is a major piece of legislation which will set the framework for pensions provision well into the next century. It is in everyone's interest to make sure that it achieves our aims of providing security, equality and choice in pensions and, in this way, encourage people to make their own provision for their retirement.
During our debates, we have listened carefully to various concerns expressed by your Lordships and I hope that I have been able to explain and clarify our intentions. We have also been able to make a number of useful amendments to the Bill and I have made commitments to revisit some of the points of concern. I shall make sure that the commitments I have given are fully honoured in another place.
I was particularly happy to be able to accept the amendment put forward by the noble Baroness, Lady Seear, about the selection of the members of the pensions compensation board. This improved the Bill and also gave the noble Baroness such obvious pleasure in having an amendment accepted after, as she said, 24 years in this House. I am not sure whether that was the champagne moment in our deliberations.
We have, I believe, made one very significant addition to the Bill in the new clause moved so ably by my noble friend Lady Young. My noble friend led a number of your Lordships in the successful effort to persuade my noble and learned fellow clansman the Lord Chancellor and me of the need to take action to help women (and occasionally men) on divorce. I have no wish to rehearse the arguments but I am confident that in future courts in England and Wales will use the powers that we have given them to deal justly with both parties to divorce on the matter of pensions. My noble friend deserves not only our congratulations but also those of the many women who will benefit from this provision. I am sure my noble friend will not mind me saying that the noble Baroness, Lady Hollis, played her part in arguing for these changes.
We also debated a number of other issues which were not originally included in the Bill but which are clearly of great concern to your Lordships. They were pressed skilfully and with great determination and, in some cases, despite my sage advice to the contrary.
It has been very clear that, as regards the main components of the Bill, we are all pulling in the same direction, irrespective of where we sit in your Lordships' House. So while we have not been able to agree on everything that we have discussed, I believe that we are generally trying to achieve much the same thing. We can all take satisfaction from the constructive way in which we have been able to debate these issues over many hours and the significant measure of agreement that we have been able to achieve, That was sometimes lost by those who watched the debates 1197 because they saw us bring into the public domain only those parts of the Bill about which we disagreed. I commend the Bill to the House.
§ Baroness Hollis of Heigham
My Lords, when we discussed the Bill on Second Reading, we felt that we were perhaps discussing three Bills in one: first, in the light of Maxwell, to deliver a pension promise to protect occupational pensions from insolvency and fraud. We sympathised with its purposes but doubted whether the promise would be fully delivered.
The second Bill aimed to equalise the state pension age. In that regard, we sought to persuade the Minister to support a flexible decade in order to offer better protection to women. We recognised also that woven throughout the Bill was a third shadowy Bill. That is the Bill that we do not not really know about because it is in the back pocket of the Secretary of State—a Bill of regulations. We sought to bring that into the light.
Looking back, we failed to spell out and strengthen the role of the regulator and to give it state funding. We failed to separate advisers to both employers and the trustees and, despite the persuasive arguments of my noble friend Lady Dean and the noble Earl, Lord Buckinghamshire, to make mandatory the independent custody of assets. We are sure that the Government were wrong on both of those issues.
No one doubts that the Bill is much better than nothing but it is still not enough and on many of the issues, the jury is still out.
As regards trustees, many of us are convinced that the Government have short-changed member trustees. They refused not only to increase the percentage for defined benefit schemes but, notoriously and contrary to Goode, they refused to increase their numbers on money purchase schemes. They refused also to add a pensioner representative as of right, despite the urging of the noble Baroness, Lady Seear.
Many employee trustees may still be vulnerable to an impressive employer. They are still vulnerable to unfair balloting procedures and, despite the urgent pressure from my noble friend Lady Turner, in some cases they are still vulnerable to the problem of unfair dismissal. In that sense, it remains an employers' Bill.
As regards protecting pension schemes not from fraud but from insolvency, some of our worries have grown as the Bill has progressed and as employers' organisations have lobbied, in some cases all too successfully, to reduce the solvency standard. That is now a funding standard but it is one standard that is asked to carry two disparate functions: that of the ongoing nature of the scheme; and that of winding-up. In some of the most significant speeches in the course of the Bill, my noble friend Lord Eatwell alerted us to the need to uncouple those functions, while my noble friend Lord Haskel sought to set the responsibility of fund managers in the wider context of corporate governance. I am sure that that issue will occupy the Government in the months to come.
The second Bill within the Bill dealt with the equalisation of the state pension age and the position of women in SERPS. Although we did not persuade the Government of the merits of the flexible decade, at least 1198 in relation to SERPS we ensured that women who worked five years longer would not necessarily suffer a lower pension as a result, The 44 best years amendment, which aligned SERPS with the national insurance rules, was of course to the gain of women and lower paid men.
My noble friend Lady Gould tried to persuade the Government to reform HRPs. My noble friends Lady Lockwood and Lord Monkswell tried to persuade the Government as to the benefits of alternative and more flexible retirement dates. My noble friend Lady Turner continued to remind the House of the importance for women both of SERPS and the GMP.
In the course of the debates, we teased out from the Minister the department's reading of European judgments as they affect the Bill.
The third Bill within the Bill dealt with the hidden regulations which, with the help in particular of the noble and learned Lord, Lord Simon, and the noble Lord, Lord Peyton, we did something to bring that into the light, as the Government have agreed to offer the affirmative procedure where the scrutiny committee drew attention to procedural problems. We can only hope that the luxurious abundance of regulatory powers which are left to the Secretary of State will come splendidly into use on the next change of government.
As the Financial Times rather plaintively complained, the Bill addressed issues which not all of us had foreseen as far back as last Christmas would take the prominence that they did; particularly important were pensions and divorce and war widows although, sadly, not those in residential care. Never has the phrase at the start of the Bill:About pensions and for other connected purposes",been used so vigorously and with such intent.
We are all delighted with the success of the noble Lord, Lord Freyberg, on the Cross-Benches, who remedied an injustice to war widows. Like the Minister, I too wish to congratulate the noble Baroness, Lady Young, on spearheading a gallant and successful effort to reform some of the issues associated with pension laws on divorce. In consequence, the courts will now have the option to earmark as well as to offset pension assets in relation to matrimonial property. I very much hope that the Minister and the Bill team will now tidy up some of the loose ends which undoubtedly remain—for example, the situation of a former wife after the death of her husband—perhaps by completing the move towards pension splitting. But of course, that is for the other place.
I was especially pleased that after that victory, which was worked for on all sides of the House, so many noble Lords who were on the losing side that day made it clear that they felt that the House of Lords had perhaps reached the right decision, despite their position on the vote. We hope that the pension industry and the good sense of the department and its team will combine to do what we all know to be right, decent and sensible on those issues.
The amendment which I feel most sad about losing was the amendment moved in relation to residential care. We made a last effort on that today. I am sorry that it turned into a rather acrimonious debate but I am 1199 sure that we all recognise that there are real problems to be addressed. They can be addressed only by the three relevant departments working together closely and harmoniously. We hope that that will be done in the other place.
I turn now to the most agreeable part of the speech on this Motion; namely, to express our thank-those. First, like the Minister, I wish to thank those organisations outside the House led by the TUC, the NAPF and the Law Society as well as many individual lawyers and actuaries who have helped my noble friends and I. I wish to thank also the pressure group organisations such as the Alzheimer's Disease Society, Age Concern and Fair Shares, which is a new pressure group that has helped enormously to highlight the issues of pensions on divorce.
The second thank-you, which is perhaps less customary, is expressed to those newspaper journalists, often women and often editing the personal and financial pages of the quality press, who have reported so many of our debates, especially on pensions on divorce, with such style, attention and accuracy. They did much to focus our minds and, perhaps at least as important, to focus our votes. I am grateful to them.
Thirdly, we thank the Minister who was almost always courteous and almost always well-informed and good humoured, except when he was not. Nevertheless, it is the view around the House that on this Bill, we were lucky to have him. I pay special tribute to the way in which he was kind enough to arrange departmental briefings with his staff which proved to be always helpful and even on some occasions useful. They were much appreciated. We had our allies and colleagues on all sides of the House; for example, the noble Baroness, Lady Seear, and the noble Lord, Lord Ezra, on the Liberal Benches. Their staunch good sense and very real experience cut through so many of the issues for us. From the Cross Benches and Conservative Benches we had the steady voices of those noble Lords such as the noble Lord, Lord Boyd-Carpenter.
I am sure that your Lordships will not be surprised that I wish to conclude by giving special thanks to those on the Front Bench on this side of the House. Their personal expertise was, in my view, unrivalled. My noble friends Lady Turner and Lady Dean are both former members of the Occupational Pensions Board. They dealt with issues of regulation and trusteeship to which they brought unrivalled, personal knowledge. My noble friend Lord Haskel raised the key issues of corporate governance within which the Bill is embedded. My noble friends Lady Lockwood and Lady Gould dealt with issues of which they have special and relevant experience; that is, issues relating to women and equal opportunities and the issues raised by the Fawcett Society.
Throughout the proceedings on the Bill we have had the sturdy support of my noble friend Lord Monkswell and, as I believe almost everyone has recognised, my noble friend Lord Eatwell has contributed significant and magnificent speeches on solvency which have taken the debate very much further forward. The skill of my noble friend Lord McIntosh in addressing the 1200 Government's amendments proved invaluable in picking them up on some of the points that they were trying to make. In my, admittedly, relatively short time in your Lordships' House, I cannot remember a Bill where so much knowledge, experience and expertise has lain in the membership of the House on such an extensive, significant but nonetheless technically very difficult Bill. I owe everyone my deep gratitude.
I believe that we now leave behind with pleasure the word "balance"—indeed, may it never cross our lips again for at least a month—and the phrase "level playing field" which I personally vow not to use for at least the next fortnight. We now pass the baton on to the other place. I can assure the Minister that he has heard nothing yet.
§ 7.30 p.m.
§ Baroness Seear
My Lords, in supporting what has been said, I shall be very brief. That is partly because a great deal has already been said and partly because, as must be all too plain to your Lordships, I have very little voice left with which to say anything. No doubt that will be a great relief to the Minister.
I shall start at the bad end. I must say that, in some ways, the process has been something of a disappointment. After all, we have been dealing with a pension Bill. Of course, there have been some useful gains; but, on the main points of the Bill, I remain unconvinced that it will carry out the job that it sets out to do. We on these Benches have stressed the inadequacy of the regulator. The fact that the Government were not even prepared to put down a statement as to what the authority was supposed to do was a bad start. In our view, the powers of the regulator are inadequate and insufficient. Reliance on whistle blowing is not the right way to approach the subject. As the Bill is meant to be a safeguard to pensions and the regulator is meant to be the major instrument for that safeguarding, it is sad that the legislation leaves this House in as feeble a state as, in our view, it does.
However, having said that, there have been most satisfactory successes. It is so long ago that I had in fact forgotten about my triumph until the noble Lord kindly reminded me. I must admit that that cheered me up no end. I just hope that the Government will not allow that as well as the other successes—for example, as regards war widows and pensions after divorce—to be destroyed when the Bill reaches another place. It would be very sad indeed if, after such all-party support and all the effort that has gone into it, such changes were reversed in another place. I very much hope that that will not happen. They are satisfactory changes that we have been able to secure.
In some ways, it has been an extremely interesting Bill and a very agreeable Bill on which to work. I say that because during the proceedings most of us forgot party alignments; indeed, we have been working across parties, trying to reach good solutions to immensely difficult problems. It demonstrates again that when party issues are at a low level and when interest in the topic and the desire to find the right solution comes 1201 uppermost, your Lordships' House operates at its very best. To that extent, it has certainly been an enjoyable experience.
I should also like to thank the Minister. I am aware that the noble Lord was confronted with, as he remarked, a monstrous regiment of women and that it was pretty tough for him, especially with the Scottish tradition. I could not resist that. Indeed, he found it pretty heavy going, to put it mildly. However, on the whole, the Minister stood up to the feminine opposition pretty well. But, more seriously, we are most grateful to the Minister for the time he gave us by arranging separate interviews of long duration to deal with questions we raised and also for giving us access on those occasions to his expert advisers. It is a great problem for the Opposition that we have so little opportunity to receive such advice. Moreover, not all of us are financed in such a way that we can buy the advice from outside. Therefore, the Minister's efforts to ensure that we got that advice and to make time himself to see us and discuss matters is something for which we on these Benches are most grateful. I hope that that is a good precedent for future Bills.
§ Lord Freyberg
My Lords, although I have had little to do with the considerable detail of such an important Bill, I should still like to thank the noble Lord, Lord Mackay of Ardbrecknish, for his forbearance, for his time and consideration and for the courtesy with which he listened to me. In particular, I should like to thank the Minister for the sensitive way he handled my amendments. I should also like to thank the two noble Baronesses, Lady Hollis and Lady Seear, for their generous support, for the amount of time they spared me and for the enormous help they gave me thus enabling me to carry through an amendment.
However, above all, I should like to thank the House for its patience and especially all those who have supported me during the past few weeks. I am extremely grateful to all of them. Finally, I should like to wish the Bill a speedy passage through another place.
§ Lord Mackay of Ardbrecknish
My Lords, I do not wish to detain the House. I thought for one horrible moment that I was being taken back to start all over again on another Second Reading speech. But I am grateful for the compliments that all three Members of your Lordships' House have paid me. For a moment, I could not quite recognise myself in some of those speeches. However, I should like to extend my thanks in that respect.
I should especially like to thank the two noble Baronesses, who, through me, have thanked the officials who have been so helpful to all of us on the Bill. I take the point made by the noble Baroness, Lady Seear. I believe that it is sensible, whenever possible, to have meetings to ensure that we all understand exactly what is going on—and that applies especially in a Bill of this nature.
In particular, I thank the noble Lord, Lord Freyberg, for his kind remarks. Occasionally, I believe that I was less than helpful to him; but the noble Lord probably realises that he sometimes shared that experience with the noble Baronesses, Lady Hollis and Lady Seear. 1202 Having said that, we can all enjoy an early evening for the first time in nine days of sitting. I hope that the Bill will now pass.
§ On Question, Bill passed, and sent to the Commons.