---

Pensions

My Lords, I also congratulate the noble Lord, Lord Fowler, on securing the debate on this major issue. While, as has already been said, real progress has been made in the Government’s provision for pensioners through the state pension and pension credit, the same has not been the case with some other parties. Some companies, to their credit, have maintained their final-salary occupational pension schemes, sometimes with some changes, and have not joined the, at times, lemming-like rush either to bar entry to such schemes to new entrants or, in some instances, to seek to change the arrangements for future years of service for existing employees as well. The move away from final-salary schemes had started prior to 1997, as some companies sought either to obtain a competitive advantage or to restore a competitive position, and chose to do it by reducing the costs of their pension scheme arrangements. One common feature of the move away from final-salary schemes to defined-contribution schemes was that it reduced a company’s costs, sometimes significantly, almost immediately, and was not even a case of adopting measures to contain pension costs at current levels. The same changes in pension arrangements, needless to say, do not seem to have been imposed with the same rigour on occupants of the boardroom as well. Leadership obviously has its limits. The difficulty is that, once some companies choose to reduce costs by cutting the amount of money they provide for the pensions of their employees to achieve or restore a competitive advantage, other companies will be more likely to follow to keep their competitive position. In other words, there is a snowball effect, with only those companies that take a rather more enlightened, longer-term view of the situation and the value to them of a decent pension scheme for their employees standing firm against the trend. Another feature of many companies’ approach to the running of their pension schemes is the enthusiasm with which they embraced the short-term attraction of pension fund contribution holidays, particularly for themselves, although not so often for their employees. Many companies and their expert financial advisers, in their projections, chose not to take proper heed of increasing life expectancy and their own warnings that the value of shares can go down as well as up, as can dividends and interest rates. A lack of financial acumen was equally shown by the life assurance companies, resulting in high and unsustainable final bonuses, which have had to be slashed dramatically in the past few years to compensate, to the detriment of those whose policies have recently matured. We were also told that a change in accounting arrangements had adverse effects on final-salary occupational pension schemes as far as the balance sheet was concerned. Obviously though, it was not such an adverse effect that all companies concluded that they had to move away from final-salary schemes. As we know, the most widely advanced explanation of the move away from final-salary schemes has been tax changes by the Chancellor of the Exchequer. However, bearing in mind that the move away from final-salary schemes had started before 1997, that it was inevitably going to have a snowball effect once it started as other companies sought to maintain or restore their competitive position, and that contribution holidays by companies continued after the tax changes, that explanation is less than convincing. I appreciate that my noble friend will almost certainly say that we must await the second and final report of the Pensions Commission, but I hope that serious consideration will be given to a requirement for companies to contribute a minimum percentage amount to providing pensions for their employees. I say that not just in the context of the approach of some companies in moving away from final-salary schemes, but also in the context of the all-too-large number of companies that have never sought to provide for, or contribute towards, pensions for their staff. All too often those staff have also been doing the least well paid jobs, and are those for whom financial provision and security in their later years is a major worry. If companies want to give examples of their social responsibility, proper pension provision for their employees is one way. To opt out or never to have opted in is to transfer all responsibility for providing financial security above the state pension in later years from those who have financial resources—namely, companies and those who own them—to those who, all too often, do not, namely the individual employee. It is because I believe that an employer should contribute towards an adequate pension and should not change the rules adversely for existing staff that I welcome the Government’s decision on public sector pensions. You do not measure the success of a negotiation simply on the basis of whether you achieve your opening position. The Government’s agreement is in line with the more enlightened private sector firms, in that it increases the pensionable age for new entrants but protects the position of existing staff. I do not disagree with the decision that the pensionable age must be adjusted and that more flexible options should be provided for people to work longer if they so wish, to reflect the fact that life expectancy has increased and will continue to increase. The Government’s decision on public sector pensions has of course been criticised by some highly paid national newspaper editors and business leaders who are on highly attractive remuneration and retirement packages. There is a word to describe people like that, but I shall refrain from using it. The reality is that a large percentage of people in the public sector are by no stretch of the imagination well paid and those at the top end of the pay structure receive nowhere near the remuneration package of their counterparts in the private sector. Finally, in the field of pension provision, the Government and the private sector, including the private sector pension companies, must continue to work together if we are to provide greater financial security for people in their later years. The need to encourage more saving for retirement is clear and further measures to provide that encouragement may well be needed. However, I hope that the Government will be as challenging and robust in that relationship as the private sector is with government. The mis-selling of pensions scandal of a few years ago—it was a scandal for which those responsible for the mis-selling have never been properly held accountable—arose because the Government at the time were too trusting of a pensions industry that was badly let down by the activities of some of its number. I trust that no government in future will be quite so starry-eyed again in their necessary and, it is to be hoped, mutually beneficial working relationship with the private sector over pension provision arrangements.