Pensions Bill

My Lords, it is a pleasure to follow the noble Baroness, Lady Dean, and to have listened to other noble Baronesses contributing to the debate simply because I acknowledge that consideration—certainly in the private sector—is male dominated in occupational pension schemes, both defined benefit and defined contribution. I have already learnt a great deal in the debate and look forward to further proceedings. Pensions are such a complicated issue that we very often do not appreciate whole sections of the problem, as revealed in this afternoon’s debate. I am grateful to the noble Baroness and others. I declare an interest as chairman of the trustees of a large, industrial pension scheme. I have been chairman for six years. I feel personally responsible—legally, I am directly responsible, together with the other trustees—for the pensions of many thousands of workers and also of those who are in employment and face changes, not only of our scheme, which will undoubtedly come as we follow industrial and commercial trends, but also of provision by the state. I should like to associate myself with the remarks of my noble friend Lord Skelmersdale in his excellent opening of the debate from our side, of my noble friends Lord Fowler and Lord MacGregor and of others who have contributed and are likely to contribute from our side. I shall not repeat the points made by my colleagues but I shall focus on one or two new issues, the first being the personal savings pensions introduced as a result of the Turner commission. I add my congratulations to the noble Lord, Lord Turner, whose excellent contribution to the debate I listened to with great interest. I very much welcome that feature of the Bill. Before I move on, I should like to ask the Minister about one point on which I would appreciate his clarification. According to some of the briefings we have received, the state pre-empts about 5.2 per cent of gross domestic product for the provision of state pension benefits. Under the Turner commission report, that is likely to rise to 6.7 per cent of GDP in the years to come, which is up 30 per cent. The noble Lord, Lord Turner, referred to this increase of 1.5 per cent of GDP. If I am not mistaken, the number of pensioners is going to rise by more than that percentage increase—by 50 per cent. Therefore, simple mathematics would indicate that, with more pensioners, they are not going to share in the growth of that overall provision. That is not a criticism but a point for clarification. I would appreciate the Minister’s response to that point. I very much agree with what the noble Lord, Lord Turner, said, both in the commission’s report and in his contribution to the debate. We are simply not saving enough. The Bill goes some way to increase the provision of state pensions and encourages additional private provision, but frankly it is not enough. My noble friend Lord Fowler, and others, put his finger on the point when comparing this country with other countries. An excellent brief from the Resolution Foundation quotes the Financial Services Authority report of March 2006: "““The Financial Services Authority’s survey of financial capability showed that, while 81 per cent of people feel that they ""will not have enough to live on in retirement, only 37 per cent of them have made any additional provision for later life””." There is a mismatch between that realisation and a sort of lurking concern in the hearts of many in employment that they will not have made sufficient provision. They are neither enabled to do so efficiently enough nor do they have the required motivation. The reverse of the increasing propensity to consume is the smaller provision, as a percentage of national income, for retirement. I want to comment on what I regard as the Banquo’s ghost of the debate, which is the rather unpleasant reminder that has occasionally been referred to of the problems of private sector provision in occupational pension schemes. I should like to make one or two suggestions to the Minister. Let me remind the House, as the noble Lord, Lord Fowler, did, of the statistics coming from the National Association of Pension Funds. Only one-third of the 10,000 remaining defined benefit occupational pension schemes are still open to new staff. I am concerned that some occupational pension schemes will close to future accruals of existing members of the schemes. That is in growing contrast with the public sector where, for many, defined benefit schemes remain. We must stop the rot now. I have four brief suggestions. First, on longevity, frankly, the actuarial profession missed a trick here. I am not blaming it. The tradition of government statistics on how long we live is to relate them to different cohorts of those born in certain years. Forecasts are made. When the latest figures became apparent, many trustees reacted with alarming haste. We should now move to a calmer situation of forecasting the inevitable—we are all going to be healthier and live longer in the future—and not make such abrupt changes as have happened in the past three years. The new Board for Actuarial Standards, set up by the Financial Reporting Council, will, I hope, set high actuarial standards and must be independent of the Government. I would appreciate it if the Minister could confirm what I understand to be policy. We want sensible, reasonable, regular and timely actuarial advice, rather than the brakes being suddenly slammed on in terms of adverse actuarial valuations. My second point relates to the importance of proper training and encouragement for the trustees of private sector schemes. Frankly, we have an enormous way to go to improve the performance of trustees in the private sector. I suppose the absence of any further changes means we will have to await a new Bill. However, Paul Myners was right in some of his recommendations from three years ago. We must consider paying trustees. This is not an amateur job. Trustees and private schemes have a direct personal responsibility for making sure that pensions are properly provided for. They must be properly elected. Is the Minister aware that we are living in the middle ages, with no provision of rules to those who wish to stand for election, no direct encouragement, no provision of the electoral roll and no canvassing for election as a member-nominated trustee? We need legislation. Trustees have to be trained properly. I am glad that the Pensions Regulator has drawn attention to the fact that leveraged buy-outs by private equity firms can often result in a reduction in the quality of the covenant to the pension schemes of the company bid for. Trustees are not fully aware of the implications of those bids, and I am glad that the Pensions Regulator has begun the process of warning trustees. Thirdly, on actuarial valuations, we seem to swing from massive deficits to surpluses, then back again to deficits. I understand from today’s Financial Times that a survey by Aon, which is large in the insurance industry, shows that the total deficit of the 200 biggest schemes is down to £14 billion, against £60 billion at one point in 2006. What a massive turn-around. The lesson is that we have become far too slavish to the three-yearly or indeed annual—under financial accounting standards rules—snapshot valuations of pension fund deficits or surpluses. For heaven’s sake, let us take a calmer, longer-term view, which would be in the best interests of the members of pension schemes. Finally, we need from the Government an assessment of the impact on defined benefit schemes of the ending of contracting-out of the second state pension scheme. It is very vague and it is difficult to calibrate and measure the impact, so we need more information. I conclude by asking the Minister whether the Government will reconsider the recommendation of the noble Lord, Lord Turner, that there should be a permanent Pensions Commission independent of government that would look at the progress of reform and report regularly to Parliament. The Government’s policy seems to be to have ad hoc reviews occasionally. That is not good enough. This is a very important subject, which we should keep under constant review in your Lordships' House.