Pensions Bill

My Lords, it is a pleasure to follow the noble Lord, Lord Kirkwood. We have one thing in common: neither of us understands S2P. I never understood SERPS or the graduated pension, particularly as it affects my own pension. I agree with the noble Lord that this has been an excellent debate on an extremely important topic. The Government have made much play about seeking consensus on pensions reform. There is broad consensus, as today’s debate shows, that our pension system is not in good health, but I do not think there is complete agreement that the Government’s prescription will be an effective cure. I shall not go through all the ailments from which our pension system suffers, as they have been described by other noble Lords in considerable detail. I shall refer only to the ACT raid, which my noble friend Lord Trenchard analysed with his usual forensic skill. The Minister is familiar with my noble friend Lord Trenchard’s position, having exchanged views with him on the subject. Although other factors have harmed occupational pensions, as my noble friend Lord MacGregor pointed out, £5 billion of cash is still being taken out every year, and we now know that the Chancellor knew exactly what he was doing when he introduced those changes. The report of the Pensions Commission led by the noble Lord, Lord Turner, to which many noble Lords referred, is the father of today’s Bill. We were very glad to hear the noble Lord speak again today and we hope that he will bring his expertise to bear on the remaining stages of the Bill if he can find the time. My noble friend Lord Skelmersdale made it clear that we support the Bill because it moves in the right direction towards giving people a better, more secure income in retirement. We have heard today that it does not solve all the problems of pension provision and that there are significant doubts about the degree to which it will be successful. I shall mention only means testing, to which the noble Lord, Lord Kirkwood, referred. The Government claim that the prevalence of means testing, currently at around 50 per cent, will decrease from a projected 70 per cent based on the current regime in 2050 to29 per cent. I agree with the noble Lord, Lord Kirkwood, that 29 per cent is still too high, but the Pensions Policy Institute thinks that it will be 45 per cent—barely less than current levels. Of course, the answer depends on some critical assumptions but it is clearly possible that the Bill will do nothing of substance to reduce pensioner means testing and therefore to restore the incentives to that group to save. That is not a reason for not supporting the Bill but it is a reason for not being very happy about it. Many noble Lords, including the noble Lord, Lord Turner, pointed out that the Bill does nothing about public sector pensions. We are marching steadfastly into a world where public sector workers have generous defined benefit provision, protected by backroom deals between Ministers and the public sector unions, but in the private sector employees increasingly have no equivalent pensions on offer. The best they can hope for is a defined contributions scheme or whatever modest income will be created from personal accounts. This disparity between public and private sector workers is unsustainable and will threaten the durability of the proposals in this Bill. It is unfinished business. My noble friend Lord Blackwell also pointed to the unfunded nature of the state’s total pension liabilities. There is now an overhang of more than£1 trillion, which future taxpayers will have to meet. This, too, is unsustainable. We support the move to earnings-linking the state pension but we remain concerned about when it will be introduced, a matter to which many noble Lords referred. We are also concerned about the lack of specificity of the earnings index to be used. My noble friend Lady Miller of Hendon gave us a master class on the detail of pensions uprating, a matter at which we will need to look closely in Committee. We are also concerned about the contracting-out changes. It is clear to us that the driving force behind these proposals is the short-term saving to the public purse, as my noble friend Lord Sheikh pointed out. My noble friend Lord Freeman is right that we need to be much clearer about these contracting-out changes. We will be looking at this in more detail. As has already been noted, it came as no surprise to hear the noble Baroness, Lady Hollis, address the issue of women’s pensions. She has been consistent and passionate in search of a better deal for women, especially those who act as carers, and she was well supported by many other noble Lords. The Bill gives women and carers a much better deal out of the system. It is also clear that much more could be done but there is the issue of cost and affordability. We on these Benches will support further changes provided that they are affordable. My noble friend Lady O’Cathain pointed to the money wasted that could fund better provision, but the Government need to commit to making the savings, and the Gershon precedent on savings is not encouraging. My noble friend Lord Skelmersdale referred to the Government’s late conversion to improving assistance for those who lost their pensions before the Pension Protection Fund arrangements came into effect. The Government’s initial attitude to the ombudsman’s findings and to the plight of the 125,000 pensioners worst hit was mean spirited and is still not good enough. We intend to return to the creation of a lifeboat fund to remedy these wrongs in Committee, and we certainly welcome the support of Liberal Democrat Peers on this. My noble friend Lord Fowler, among others, made a powerful case for the cessation of compulsory annuities at 75, and we were heartened by the support we received from the noble Baronesses, Lady Hollis and Lady Dean. This is clearly an issue to which we will need to return in Committee. There was a false dawn called alternatively secured pensions. The Chancellor has obliterated that in this year’s Budget with penal tax charges. When will the Government grasp the idea that those who save for their families and their own retirement should be praised not penalised? Just four clauses and one schedule of this Bill are devoted to personal accounts and the new Personal Accounts Delivery Authority. It is not entirely clear why we need a delivery authority at all. According to Clause 20, it is needed to prepare for implementation and to advise on the modification of the Secretary of State’s proposals for personal accounts. In another place, the Minister Mr Purnell described the role of the authority as, "““supporting the Government in understanding the operational and commercial implications of policy options””.—[Official Report, Commons, Pensions Bill Committee, 2/7/07; col. 275.]" Governments do not need a public corporation for these flimsy functions. This so-called authority is just a fig leaf, designed to cover the fact that the Government’s proposals have no clothes. There is a mismatch between the job descriptions of executive and non-executive directors, now being recruited, and the initial purpose for the delivery authority as set out in Clause 20. For example, the chief executive is to, "““turn strategic vision into a successful initiative””." The strategy and commercial director is to implement a strategy which optimises participation in personal accounts within low levels of churn. What has this got to do with the initial function as set out in Clause 20? We are told that we will have to wait for the next Pensions Bill to arrive before we see what the authority will actually do; yet it is clear that the people employed in the authority will be doing much more than giving advice. We do not regard it as satisfactory that the authority is to be created in this way. We shall seek in Committee to ensure that the focus of the authority is more clearly defined in the Bill, in order to guide these hapless new employees in their initial function. For example, we will want to see some specific issues addressed in the Bill, such as the impact of personal accounts on other forms of pension provision and levelling down, for which my noble friend Lord Hunt made a convincing case. We will also seek to ensure that what goes on in the authority is open and transparent. Parliament and all those with an interest in personal accounts need to see in detail how the proposals are developed. The Freedom of Information Act should provide nowhere to hide from this. Personal accounts are generally regarded as a good thing. They will not be a good thing for everyone and will be the wrong choice for some, who will not get back what they have invested. Our old foe means testing is the primary, though not the only, villain here. We want to see this Bill reflect concerns that people will be inappropriately lured into personal account investment. Many noble Lords have referred to the risks of mis-selling. This certainly means tackling financial advice, though I am not convinced that generic advice will provide the solution. We need to explore this in more detail. We shall also be looking in detail at the composition of the authority and its closeness to the Secretary of State. The authority should be independent and its composition should reflect those who will be affected by personal accounts. Lastly—this will not surprise the Minister—we will be looking at the finances of the authority and where the costs of personal accounts will fall. We look forward to working constructively with the Minister in Committee. Given the importance of the Bill, it is right that there will be a Committee of the whole House. The Minister will know from today’s debate that our work on this Bill will be detailed and challenging. I have worked with the Minister on other Bills and know that he is diligent and responsive. I hope that he brings with him into Committee a willingness to accept that the Bill needs to be changed before we return it to another place. It certainly needs to be improved, which is what these Benches will be working hard to achieve.