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Pensions Bill

My Lords, I welcome the opportunity to participate in this Second Reading debate and thank the Minister for his detailed introduction to this complex and important Bill. As he said, it is the second part of the Government’s reform of the UK pension system and is based very largely on the report of the Pensions Commission, which was chaired by the noble Lord, Lord Turner of Ecchinswell. That took place against the problems caused by the disappearance of many final salary schemes and their replacement—if they were replaced at all—by money-purchase schemes offering less secure pension entitlement. Stakeholder pensions have not been successful, largely because employers only had to offer access and did not have to make payments to such schemes. People have not been saving enough for retirement, which is hardly surprising in view of the pressures upon those who have to struggle in middle life to pay the mortgage; pension provision is often the last thing they want to think about. Moreover, it has become clear that due to health improvements, which we should all welcome, people are living much longer, so we have an ageing population. The basic state pension does not provide enough to live on unless backed by means-tested benefits. The Government’s new personal accounts scheme has therefore attracted wide support. It is aimed at moderate to low earners who do not have access to a workplace pension scheme, and it places a duty on employers automatically to enrol jobholders in a qualifying workplace scheme, including the simple, low-cost saving scheme: the personal accounts scheme. The Personal Accounts Delivery Authority has had its remit broadened to enable it to oversee the establishment of the personal accounts scheme. That is the main thrust of the Government's pension reform programme, although there is much more detail to be discussed later. The main idea has been supported by consumer organisations, the main employer bodies, trade unions and the main political parties. That is important because major pension reforms are essentially long term and should not be undermined by possible future changes of Government. The noble Lord, Lord Skelmersdale, referred to past problems, and I agree with quite a lot of what he said. However, I remind him that Conservative Administrations have not always been very good about collective occupational pension provision. During the previous Conservative Administration, employees were encouraged to leave good schemes in favour of individual private pension provision and had to be compensated later for the resultant losses. I recall that well because at the time I was chair of the PIA Ombudsman Council, which had to deal with those claims. We now have a scheme on which I hope there is wide agreement. However, there are some matters that I would like to raise. An issue that has been raised in the Commons and by a number of organisations is the interaction with the benefits system. Jobholders will have the right to opt out of the scheme. If it seems that individuals who do not pay their 4 per cent contribution reach retirement just as well off, via the benefits system, as those who have paid, there will be an incentive to opt out. It must be made very clear that saving pays. I understand that the Government are aware of this concern and currently have the issue under consideration. Then there is the position of women, which has already been dealt with by the noble Baroness, Lady Hollis, in an interesting and moving speech. Most poor pensioners are women, usually because the state basic scheme is based on contributions and women often have an interrupted work pattern and so do not qualify for a full basic state pension. The Government took certain steps in the previous Bill to remedy that, but did not do so completely, so this House passed an amendment that allowed women to buy back pension rights for the years when they were not able to pay contributions. Unfortunately the Government did not put that into operation and have since declined to do so. The problem of large numbers of women in poverty in old age remains. It has been suggested by many of us that it will continue until the contributory entitlement requirement is changed to a requirement based on residence. The issue will continue to be raised. Another concern, which I share, is that the new arrangements could result in a certain amount of levelling down. As the TUC has pointed out, the provision of a very good occupational pension scheme costs a great deal more than the minimum 3 per cent proposed for the personal accounts scheme. The Government should do everything possible to persuade those employers still providing final salary schemes to continue them. Where they have been discontinued in the private sector, it has been with direct opposition from the staff concerned, but where those staff have had the collective power and the will to oppose the disappearance of such schemes they have done so—sometimes with success. I applaud them for doing so; future employees will thank them. In the mean time, some employers may try levelling down their payments in a good system, in view of the much lower minimum provided for in the personal accounts scheme; they must be discouraged from doing so. I am glad that the Government have chosen the term ““jobholder”” rather than ““employee”” to define those entitled to membership of the scheme. I assume that this would cover agency workers who would not, perhaps, be directly employed by the employer. It is important that such workers receive equality of treatment and I assume that that is the Government’s intention. It would appear that some self-employed people would be eligible, including carers, and I agree that every effort should be made to cover the whole workforce, no matter what kind of contractual arrangements they may have. I understand that the PADA has already established a consumers’ panel. There is also to be a members’ panel, governed by trust law. How will that actually represent members or be established? What connection would it have with trustees? I take it that there would be member-elected trustees. It has already said that trustees will, "““not be the subject of undue liability in respect of their actions. They will retain an obligation to fulfil their fiduciary duties””," and that the PADA, "““should be able to pay any legal costs that the trustees incur””.—[Official Report, Commons, 31/1/08; col. 311.]." I would welcome hearing the Minister’s explanation of how these various functions and representatives will interact. Trustees are important in ensuring good governance of schemes. Finally, we cannot leave this general subject of pensions without referring to the plight of many present-day pensioners who will not be much affected by the reforms we are discussing. Many of them are women, as I have already indicated. Recent research conducted by Help the Aged indicated that 21 per cent of today’s pensioners, or 2.2 million, are living below the poverty line. Means-tested benefits remain the Government’s key policy for taking pensioners out of poverty. Year after year, the money is failing to reach those who need it most. It is said that some pensioners are too proud to claim benefits, but Help the Aged says that the majority are put off by the assumption that they will not be entitled to anything or by the complexities of the claims process. Help the Aged is calling for three steps that it believes will substantially reduce the numbers living in poverty: the immediate introduction of the earnings link for the basic state pension; the payment of a full basic state pension to all pensioners; and the automatic payment of all means-tested benefit. It urges the Government to utilise the data that they already hold to make direct payments, so that older people can get the money without having to make a claim. The introduction of the earnings link to basic pensions was promised in the last Pensions Bill, but it was not to be until 2012. Even then, there seems to be a get-out clause in the reference to the then-existing fiscal situation. There is no reason why it should not be introduced now. Even so, the basic state pension is a great deal less than it would have been had the earnings link never been dropped by previous Governments. If the Government’s case is still that that link would mean paying the increase to people who do not need it, the answer is that the Government can claim it back via the tax system. If they still contend that even that would mean some loss to the Treasury, it is a relatively small price to pay for restoring more money and dignity to around 2 million people. This issue was raised during the Commons debate and the Government have not really answered it, certainly not to the satisfaction of many current poorer pensioners. There are many issues which will doubtless be raised in forthcoming sessions on this important Bill, but its main proposals are widely accepted and I hope that it can soon be put into operation.