Social Security (Reduced Rates of Class 1 Contributions, Rebates and Minimum Contributions) Order 2006

My Lords, it is good to hear the noble Baroness, Lady Noakes, in such fine ending form. By my calculation, she has handled nine orders today from the Conservative Front Bench; I have been a slacker with only eight. I say to the noble Baroness, ““We can’t go on meeting like this””. I am sorry to say that we on these Benches cannot welcome the order either. As the Minister indicated, for contracted-out salary-rated schemes the rebate will go from 5.1 to 5.3 per cent. But, in its report to the DWP, the Government Actuary’s department proposed that it should be set at 5.8 per cent. We then had the excuse that in the present fiscal circumstances—I would watch that carefully if I were the Government worrying about what someone is going to say or about inquiries in the future—and given the current consideration of pensions policy, the Secretary of State decided instead, unilaterally, to fix it at 5.3 per cent. So the Government are deliberately, and against their own professional advice, setting the rebate at a level below that which the Government Actuary’s department thinks is necessary to give an equivalent benefit to the state pension given up. In these schemes, are the Government not mis-selling contracted-out pensions and does not the inadequate increase in the rebate compound that? The Association of British Insurers, to which the noble Baroness, Lady Noakes, referred, has a considerable interest in this matter and I think that its briefing is worth reading out in detail. It is important that noble Lords hear it because it tells us something about the nature of contracted-out rebates and their complexity. It states that,"““the assumptions made by the Government Actuary, which underpin the rebate levels recommended by him, are not as robust as they should be in order to ensure actuarial neutrality. In calculating the pre-vesting net yield, the Government Actuary allows for an estimate of the Equity Risk Premium (ERP) expected for the period over which the rebates are invested. We strongly believe that the ERP should not be allowed for in calculating the rebate levels. It should not be assumed that the worker who contracts out is more risk tolerant than the average worker.""In our view, actuarial neutrality implies the use of a risk free discount rate as represented by gilt yields . . . Consequently, rebates should be calculated using yields on gilts of durations which are appropriately matched to the term to State Pension Age””." Is that quite clear, even at the back of the class? No, I did not think so. It just shows how eye-wateringly complicated that system and contracting-out are. It is a nightmare for ordinary people to decide whether to stay in the state top-up scheme or whether to stay out. The only solution is to strip away the current complexity. I say this to the Association of British Insurers as much as to anyone else. Of course, the association is right, as we are, to point out that within the existing system the Government should take proper professional advice. But they, among all people, should also see how hopelessly complicated and how rotten a system it is. As I said, the only solution is to strip away the current complexity surrounding it. Our proposal for a citizen’s pension would ensure that a state pension was paid at a level that negated that need. That is also the direction of travel for Adair Turner. The state second pension would be phased out. I ask the noble Lord to pass on to his Secretary of State and to the Prime Minister our full support in their battle royal on pensions with Gordon Brown.