Pensions Bill

My Lords, the House will be grateful to the Minister for introducing the Bill so comprehensively—or as comprehensively as he could because, in large measure, it is a framework Bill. We know neither the timing nor the detail of much of it. The Minister’s remark about carers, ““I emphasise when, not if””, exemplifies that. None the less, we on this side of the House agree with the policy, though not always the execution. The Bill passed untrammelled through another place with one notable exception, which I will come to in due course. First, let us look at the parts on which there is no serious disagreement. Pensions must be looked at as an entity, with the state sector complementing the private sector—an entity in which confidence is restored, and which does not conflict with current private sector provision. Is confidence not the one thing that we have seen diminish over the past 10 years? Certainly, in the private sector the Government inherited the best pension regime in Europe and, arguably, the world. However, for whatever reason—and there are many, which again I shall come to—it is small wonder that the Government needed to set up a review of pensions under the noble Lord, Lord Turner, whom I am delighted to see is speaking today. He at least recognised the seamlessness of pensions and, although the subject was not in his terms of reference, he had quite a lot to say about state pensions. The Bill starts with state pensions. I welcome their future uprating in line with earnings, a policy on which my party fought the last election and was roundly criticised by the Government at the time. How things change. The problem here, though, is that we do not know when or how this will happen. We are given only an envelope from 2012 to the end of the next Parliament. Three million pensioners will die between today and 2012. How many more will lose out for every year that the Government dally? There is no comparison with the well defined uprating formula used for statutory redundancy pay. That is hardly confidence-building. We approve of the decrease in the number of years needed to acquire a full state pension. That will help a whole army of carers and women, although I suspect that the noble Baroness, Lady Hollis, will say that the details of the scheme are insufficient. We shall see. Reducing the number of qualifying years to 30 will benefit women in particular, who are disadvantaged by the current system, mostly because of their changing lifestyles since the welfare state was formed, a point made by the Minister. No longer do they expect to live off their partner’s or husband’s earnings. Divorce rates are high, and single women of state pension age are much more prevalent. The results are found in the most recent survey on households below average income, which shows that almost two-thirds of pensioners living in poverty are women and 2.2 million women fail to build up full state pension entitlement. What we do not know, or at least I do not know, is how many of the 1.7 million pensioners not claiming pension credit are women. I cannot help wondering whether the sheer complication of claiming pension credit, indeed means-tested benefits of all kinds, falls more heavily on women than men. According to Hansard, 3.8 million women do not receive a fullstate pension. If that were not bad enough, a further 1.1 million will retire on inadequate pensions between now and 2012. There is no argument on the need to increase state pension age. Life expectancy is increasing in leaps and bounds, at a rate of three months a year over the past quarter of a century. It is over 20 years now since the last Conservative Government set in motion the increase in women’s state pension age, with a long lead time to its start and a gradual phasing-in thereafter. I am glad to see that Schedule 1 makes the same provision today. It is progress too that a married or civil partner’s category B pension will no longer be dependent on the other partner with a category A pension retiring. Clearly, this is reciprocated by the abolition of adult dependency increases. Do the two sides of this equation balance out? All this entails people working longer, and the Government have a policy to get 1 million older people back into work. Saga tells me that it has been working with others to set up an employment agency for the over-50s. This project has now collapsed, because of fears of illegality under age discrimination law. Can the Minister assure me that its worries are unfounded? I have to confess that I am not so sanguine about changes to the state second pension. Simplifying accrual rates is extremely technical. Merging bands 2 and 3, in April 2010, would appear to be yet another stealth tax, but the Minister will probably tell me I am wrong and that there is no saving here to the National Insurance Fund. He cannot, however, say that when the additional earnings component of the state second pension is withdrawn by around 2030, as the very comprehensive Explanatory Notes say, leaving a flat-rate benefit. Although I do not want to be a conspiracy theorist, I cannot help but wonder whether the Government’s long-term objective is abolition altogether. For years it has been possible to contract out of the state second pension in its various guises. That concession is to be repealed, resulting in yet more income into the fund. I mentioned earlier that there was one significant change to the Bill in another place. Your Lordships know well that the financial assistance scheme was invented to provide assistance to those employees who stood to lose all or most of their private sector contributory pension because of their pension scheme winding up when their employer was insolvent. It was set up, against the Government’s initial will, because of enormous pressure in another place, not least by their own Back-Benchers. It has proved an expensive fiasco. So far it hascost £8.8 million to run, but has only paid out£3.2 million, to—I ask the Minister to confirm this—1,114 qualifying members. Part of the reason is the design of the FAS, which, with the exception of terminally ill people, only pays out when the aggrieved person gets to the current state pension age of 65 rather than when the scheme into which they were paying said the pension would be paid. Even then, the aggrieved former employees only get 80 per cent of what they expected. All this happened during proceedings on the last Pensions Bill in 2004. Is it not ironic that history is, in a sense, repeating itself? There has been such an outcry in the past three years that limited changes are to be made. This outcry has been occasioned by an accumulation of factors, which, although your Lordships know them well, bear repeating. The first was the Chancellor’s decision in his first Budget to remove advance corporation tax and, as a quid pro quo, to reduce corporation tax—I can tell the Minister that I do listen when appropriate. Overnight, the Treasury benefited to the tune of £5 billion, which has continued year after year. Thanks to the Freedom of Information Act, we now know that civil servants in the Treasury warned him before the Budget that this tax change would damage private pensions, especially, although not exclusively, final salary schemes, which are now becoming rarer than hen’s teeth. Defined benefit schemes have suffered markedly, too. The Treasury officials were not alone; the CBI said the same thing, although the Chancellor has disputed that. Ministers tell us, as the noble Lord told me the other day, that this had no effect on the stock market, in which pension funds invested, which maintained a healthy level for the next two years. That could be true, although at the time the enormous interest in information technology kept the level up. Two years later, there was a distinct downturn and it is only in the last year or so that we have seen the FTSE rise, although to nothing like the dizzy heights of the 1990s. We are also treated to a children’s tea party argument: ““You started it””, they say. However, far from restoring the reduction of ACT, or even continuing to reduceit gradually, which the pensions industry could accommodate and which would be one thing, the Government removed the remainder in one fell swoop, which is quite another. To pension schemes, that came as what I can only describe as a tsunami, from which it will take years for them to recover, if at all. The facts are incontestable. Mercer Human Resource Consulting has calculated that the pension deficits of the FTSE 350 companies rose to £93 billion in 2005. More than 60,000 occupational pension schemes have either wound up or begun the process since 1997. Five-sixths of final salary schemes that have closed have done so since 2000. Again, these figures come from Hansard. On top of all this, the DWP’s leaflets encouraging people to take out occupational pensions gave the impression that they were as safe as houses. As the situation developed and pensions got into more and more difficulty, the leaflets continued to be issued. "““The boy stood on the burning deck””," comes to mind. Small wonder, then, that the Parliamentary Ombudsman produced her damning report. Stonewall Jackson had nothing on the Government’s response. Small wonder, too, that a brave group of pensioners took the Government to court using the ombudsman’s reports to back up their case. The High Court found that, if the ombudsman was right in her facts, the Government must act. Needless to say, the Government have appealed. I doubt that legal proceedings will be complete before this Bill completes all its stages, but I have no doubt at all that the changes to the FAS proposed in the Bill are so mean as to be morally indefensible. That is why my right honourable and honourable friends moved amendments to set up a lifeboat fund, to help the 125,000 worst-hit pensioners by topping up their income at the earliest possible opportunity to PPF levels. Setting up an inquiry into the availability of frozen pension assets only delays the time when action will be taken—and action will be taken; there would be no point in setting up an inquiry otherwise. We need proper action now and will seek to alter the Bill to that effect. This is even more pertinent now that another court case is looming on a judicial review of the reformed FAS. We must—I emphasise that—restore confidence. I have long had a bee in my bonnet about the portability of personal pensions so wisely brought in by my noble friend Lord Fowler. It is not unusual these days for young people to try out several jobs before settling into permanent employment. My belief is that many pension schemes allow transferability only after two years, which is too long. Either the pension pot is subsumed into the scheme and the youngster gets nothing towards his pension or he builds up myriad small pots, which we call deferred benefits, which, with luck, will accrue to him at the various schemes’ retirement ages. Neither is satisfactory, especially when, as frequently happens, joining the firm’s pension scheme is a condition of employment. I will develop this argument in Committee. We debated compulsory annuities long and hard during the 2004 Pensions Bill. I have no doubt that we will return to them over the next few months, especially as the Government remain wedded to them. Do they still believe that annuities are appropriate for the new personal pensions scheme? Moreover, now that the state pension age is to be increased, do the Government intend to raise the age at which annuities must be taken? So far I have not mentioned the other major part of the Bill: the setting-up of the Personal Accounts Delivery Authority. I will leave the detail on that to my noble friend Lady Noakes in her winding-up speech. I referred to the Bill as a framework Bill. Nowhere is that more apparent than in the functions of the new authority, the chairman and chief executive of which are to be appointed shortly. At least the Explanatory Notes come clean on that. Paragraph 348 states that, "““the Authority may do what it””—" I stress the ““it””— "““thinks appropriate to prepare for the implementation of, or for advising on the modification of, any relevant proposals about personal accounts””." We later learn that ““relevant proposals”” are those made by the Secretary of State, which presumably are those in the White Paper. The ability to modify these obviously gives the authority carte blanche, which is a strange way for the Government to allow it to operate. My noble friend and I will look at these proposals extremely carefully to see whether we should add extra duties on to the authority or modify those in the Bill. To quote the gracious Speech, "““other matters will be laid before you””." As I have shown, we are starting a journey on which there is a large measure of consensus. However, it is only stage one—getting on the train, if you like. Unless we get this part right, we will fail to arrive at the destination that we all want to reach.