Pensions Bill

My Lords, I welcome the opportunity to participate in this Second Reading debate. In doing so I declare an interest: I am a board member of the Pensions Advisory Service. Ever since Maxwell, which I well remember because I was a member of the Occupational Pensions Board at the time, we seem to have had regular pensions crises. After each one there is an independent investigation and report, followed by legislation and some new institutions established to oversee what it is hoped will be an improved system. This time, we have had the excellent report by the noble Lord, Lord Turner of Ecchinswell, some of which is reflected in the legislation before the House. What a privilege it is to follow him in this debate. The Bill is an attempt to deal with some of the problems that have been identified: we are all living longer, we are not saving enough to provide for ourselves in retirement, there is a lack of trust in pension providers, final salary schemes are disappearing and the basic state pension is not providing enough to keep pensioners entirely dependent on it out of poverty without support from the benefits system. In the Bill the Government have made genuine attempts to deal with some of those problems. That is difficult; as usual with pensions legislation, it is complicated. I often wonder why that always has to be so. I believe it is because the basic state pension is insufficient for people to live on unless it is bolstered either by benefits, which are means-tested, or by private provision, which then has to be supervised by institutions established by the Government to ensure that the benefits promise can be guaranteed. The Government have turned their attention in the first instance to the state scheme and the many criticisms that have been made of it. The majority of pensioners in poverty are women, as has been frequently stated in this debate. Because of its contributory nature, many women do not qualify for a full pension. The Bill attempts to deal with that by reducing the number of years necessary to qualify for a full pension, and there are attempts to improve home responsibility protection. The basic structure, however, remains a contributory one, and that may still disadvantage some women. My noble friend Lady Hollis has today given examples of where that may apply. Nevertheless, there are real benefits in the Bill for women and for carers, and we should welcome it on that basis. It was originally intended that the basic state pension should be increased in line with the wages index. That was the Castle plan in 1975, but it was revoked by the Thatcher Administration in favour of the less generous RPI. Despite repeated attempts to persuade them, notably by the late Lady Castle, the present Government have until now refused to reinstate the link with the wages index. As a result, the basic state pension is very much less than it otherwise would have been. Lady Castle would have been pleased that the Government have at last accepted in principle that the wages index link should be reintroduced, but would have been disappointed that this will not take effect for several years, and that present pensioners will not immediately benefit but will have to wait until 2012, at least, for it to be implemented. The Government have attempted to deal with the problems they envisage as a result of the projection that everyone will live much longer, by increasing the age at which the state pension becomes payable. Eventually it is proposed that that will rise to 68. I have grave doubts about that, and so, I understand, have the trade unions. While it may be perfectly acceptable for some jobs, for heavy manual labour it does not seem a very good idea. In certain industries it could well be dangerous, not just for the employee himself, but for others working with him. The construction industry comes to mind. I do not like the idea of ageing employees working upon scaffolding. There will no doubt always be jobs in which there is an element of some danger, and we therefore ought to look at the matter further in Committee. The Government have sought to deal with the problem that people are not saving enough for retirement by the introduction of the personal accounts scheme. Workers will be automatically enrolled in that scheme, unless they opt out, and will pay 4 per cent of their salary, while employers will pay 3 per cent and the Government 1 per cent. It is of course true that many people do not see contribution towards pension provision as a priority. The main concern for many people is to ensure that they have adequate housing, and for many getting on to the housing ladder is desperately difficult and very expensive. Therefore, automatic enrolment in a scheme such as the one envisaged is about the only real possibility. There is however one difficulty that the Bill does not contemplate. It would appear that there is an interaction with the benefits system. According to briefing I have received from Royal London, by 2050 about 650,000 UK pensioners will not receive a penny from their accumulated personal account due to the interaction of savings and means-tested benefits. Once it becomes clear that what amounts to a 4 per centcut in salary could produce no benefit, the scheme is not likely to attract support. I would welcome any comment the Government have to offer on this proposition. There is also the possibility that employers may not want to shoulder the cost of the scheme and might give salary inducements to persuade employees to opt out. Furthermore, we need to know more about the delivery authority. The TUC has said that it supports the idea of a delivery authority but wants to ensure that there is consumer involvement in the governing authority. I understand from the Minister that we shall have the opportunity to discuss this further against developing legislation. The scheme is certainly well intentioned but it deserves some further discussion. It is of great concern that the occupational pensions sector, once a source of pride in this country, has in many cases ceased to provide the security it once did for thousands of employees. Employers who belong to final salary schemes once believed that they could look forward to security in retirement. Apparently many existing schemes have been closed to new entrants, who are offered much less generous money purchase provision. No new final salary schemes have been opened for a very long time. I agreed to some degree with my noble friend Lord Skelmersdale when he referred to the problems created by the Government’s action of ACT. I protested about it at the time. I am sure he would also agree that that was not the only factor involved; there were other problems such as contribution holidays which employers probably should not have taken and, of course, the collapse in the stock market at that time. Nevertheless, it was a factor and I regret that that action was taken. But we are where we are and we have to deal with the situation that now faces us. The Government have attempted to deal with the very real crisis faced by employees whose pension contributions have disappeared following the collapse of the companies for which they worked. There is the Pension Protection Fund, and more recently the FAS, designed to deal with employees not covered by the PPF. I understand that the benefits available under the FAS are being improved, and the Minister made some reference to that in his speech this afternoon, but in the debate in the other place it was pointed out that there are about 125,000 employees who do not know whether they will in any way be compensated for the loss of their contributions and the pension expectations they once had. We have heard from the Minister that the intention is that they should atleast get the benefit of 80 per cent of what would have been their original entitlement. Amendments to that effect are apparently to be before us. Again, this is something which we need to look at further and we will no doubt have the opportunity to do so in Committee. So we have yet another complex and difficult Bill about pensions with a new regulator and new organisations to try to promise greater security. Nevertheless, we are still left with a system under which many pensioners will have no recourse but to means-tested benefits if they are to stay out of poverty in retirement. This will continue to be the case while the basic state pension remains inadequate and while the private sector requires supervision to ensure security. These are allissues which will no doubt be discussed further in Committee.