Pensions Bill

The Conservatives have joined forces with the Liberal Democrats in tabling Amendments Nos. 68 to 73, which propose a lifeboat fund to enable the financial assistance scheme to be made more generous. Under Amendment No. 74 this would be funded through the so-called unclaimed assets of insurance companies. At this stage I retain an open mind on whether the financial assistance scheme should be made more generous. Having notified the Committee of my interest as a director of Prudential plc, I should set out why I think that the proposal to finance this scheme through so-called unclaimed assets is seriously flawed. The mental map underlying this is that unclaimed assets in insurance companies represent a windfall source of profits, as they do for banks. As insurance companies are seen as having a dubious legal claim, and even less of a moral claim in this matter, it is argued that as a matter of public policy it is acceptable to take these gains away and use them for more deserving social causes. This is analogous to the principle of bono vacantia arising from people dying intestate. There are several objections to this line of argument. First, it represents a flagrant departure from the principle of evidence-based policy making. The Government have set up a review underMr Andrew Young to go over all the arguments about the way insolvent pension schemes could be funded, yet these amendments, particularly AmendmentNo. 74, seek to change the legislation before we have the outcome of that review. That is like introducing the Dangerous Dogs Act without finding out whether dangerous dogs exist. Secondly, it is not the case that unclaimed policies with no clear ownership are a windfall gain to insurance companies. In most insurance companies the policies in question are funded through a with-profits fund. By a longstanding convention, perhaps even law, the fund is 90 per cent owned by policy holders collectively and 10 per cent owned by shareholders. The Pru’s practice is that if a policy is not claimed 15 years after it has lapsed following the maturity date, or when the policy holder would have reached 105, the amounts unclaimed are credited to an account within the with-profits fund. Then 90 per cent of that is added to the bonuses of the remaining policy holders. If someone subsequently turns up aged 106, they can get their money back. This has been the clear, legitimate expectation of policy holders for many years. Unlike with the banks, there is no vacuum around ownership. The third objection concerns equity. The proposed new clause in Amendment No. 74 would remove from existing policy holders a longstanding part of their return and pay it to another group deemed to be suffering hardship. The ABI has described this as robbing Peter to pay Paul. As Robin Hood demonstrated, sometimes that is justified, but for this to have any morality, it should be established that those making the sacrifice, the ““Peters””, are significantly better off than the ““Pauls””, who would otherwise be putting up the money—in this case the generality of taxpayers. That test is dramatically failed. The average Pru ordinary branch policy amounts to some £20,000, which might, at current rates, buy an annuity of some £1,200 a year or £23 a week—no more than a quarter of the state pension. Some 3 million such investors are in the Pru’s with-profits fund. Even worse, some 1.3 million industrial branch policyholders, dating from the Pru’s door-to-door collections, have even smaller policies. Let us consider the nub of the issue. The conceptof unclaimed assets proposed by the noble Lord, Lord Skelmersdale, is a fiction. These are not bona vacantia where ownership is unknown. There is clear ownership of with-profits funds—90 per cent is owned by the policyholder and 10 per cent by the shareholder. When the state takes away someone’s property through legislation, we call it taxation. It is questionable whether it is proper for an amendment, as a proposal to impose such a tax, (a) to be tabled in this House and (b) to be tabled by the Opposition. The other place should seriously consider invoking financial privilege. Setting aside the legality, let us look at the morality and the politics. As a way of raising money to payfor greater compensation for those let down by their pension funds, such a proposal is grotesquely inequitable. It would take money from millions of policyholders, many of whom have no occupational pension at all and whose investments would yield an average income of £23 a week—less than one-seventh of what I could claim for making a speech here for10 minutes. If Parliament decides that it must do more for disappointed pensioners, it must place the burden on some broader backs: taxpayers at large. It is a mystery that the opposition Benches, after complaining loudly about pension grabs and stealth taxes, should support a proposal that exposes them to exactly the same charges. It is not too late for themto escape from a proposal that would provide serious political embarrassment for them. The right course is to vote against this group of amendments and allow them to be resubmitted at a later stage, shorn of the offensive new clause in Amendment No. 74.