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Earl Russell: My Lords, every time I hear the word "SERPS" I start feeling a bit like Laocoon. It is not a simple creation; it tends to mirror the mind of its creator whose worst enemy would never have described him as simple minded.
I shall not follow the Minister and the noble Baroness into a long argument about contracting out. I have heard that argument in this House at least 10 times before and it tends to grow in the telling. In any case, as I understand it, it is not directly relevant to the orders before the House today. Those orders are simply a matter of fixing rates according to the recommendations of the Government Actuary.
I do not propose to make a complaint about the Government taking the advice of the Government Actuary. I will ask the Minister about one thing that he said in his speech. In the contracting-out money purchase order, he said what I suspected on looking at the figures as set out in the order; that is, that the Government have decided to treat the rate of 9 per cent. as a cap. I understand the Minister's argument for having a cap, without at present passing judgment on it. What I want to know is why he fixed that rate at 9 per cent. Why not 8 per cent? Why not 10 per cent.? Maybe there is an answer; maybe there is not; but if there is one I would be interested to hear it.
Also, somebody should draw attention to the report of the Joint Committee on Statutory Instruments, to which, as usual, we owe a great deal. It noticed a drafting error in the primary legislation on which the salary related contracting-out scheme is based. The wording of the section left out the words "or (b)". The effect of that was to make it apply only to the employee's share of the rebate and not to the employer's share. The committee believes that it was clearly the intention of Parliament to refer to both percentages and thinks that it should be treated as a manifest mistake on the face of the Act. I should like to hear the Minister's comments on that.
I do not mean to make a meal out of this matter at the moment because the rebate percentage for employers has not, in any event, been altered. It does not affect the vires of the order. But if the mistake, as is alleged, has been made, at some stage before we leave things set in stone for too long, there should be a miscellaneous provisions Bill in which this question could be addressed. I do not know whether the Minister has
I agree that in 1995 the security of personal pension funds was improved. I am not sure that it was improved enough. There is probably still a good deal to do in that area. Indeed, we have not even done all that was set out in the Goode Report, a subject to which we must return and give our attention. It should be clear that there is an employee trustee and a pensioner trustee and the other trustees should not have the power to dismiss them. There should not be schemes which are open only to directors and to which other people cannot get access. There should also be, before and not after we experience another scandal, a really effective compensation fund so that the next time we have a Maxwell--and it will happen again because sin goes on--we have equipment ready to deal with it rather than having to look at emergency provisions.
Lord Mackay of Ardbrecknish: My Lords, I am grateful to the noble Baroness and to the noble Earl, Lord Russell, for their welcome, at least to those parts of the orders with which they agree. I do not believe that there was too much disagreement on COSRs; the disagreement from the noble Baroness came from the order on COMPS and perhaps in particular from the order on personal pensions.
I shall deal with the technical point, though it is equally a serious point, raised by the noble Earl in relation to the observation of the Joint Committee on Statutory Instruments that there was an error in the Pensions Act. As is so often the case, the noble Earl is quite right about that. I am surprised that he did not spot the error in the original Act but I suppose he was not actually dealing with the original Act for his party and that excuses him. However, it does not excuse the rest of us who took part in the passage of that Act. I fear that there was a mistake and nobody spotted it. I should like to blame the word processor and perhaps that is where I shall stand.
What happened, without going into detail, was that the important words "and (b)" were omitted from the Act when they should have been included. The Joint Committee on Statutory Instruments rightly points out that if we take the whole of the section together, it is clear that it should refer to (a) and (b); (a) being the employee's share and (b) being the employer's share. The joint committee accepted that that was the meaning of the Act and that we should work on that basis.
The noble Earl asks whether we will take the opportunity to correct that error at the earliest opportunity. In fact we do not need to do that. The specific part of the Act where the error occurs is relative to the transitional position. As we stand here this evening, this is the transitional position and after this the error effectively disappears for subsequent reviews
The noble Earl asked how the figure of 9 per cent. for the cap was arrived at. Essentially, the setting of the cap at this level means that most current appropriate personal pensions holders are able to maintain their plans until retirement without imposing excessive cost on public funds. A balance therefore had to be selected between trying to make sure that people were encouraged to stay in their personal pension schemes as they got older and making sure also that one was not putting too much money across from the national insurance contribution fund to personal pension holders. As the noble Earl will note, over time, as each year progresses, fewer years--if I may describe them like that--at the top end down to the 9 per cent. are capped. In time, five years and then another five years as each quinquennium progresses, the 9 per cent. would drop off if governments maintained the same kind of arrangements into the future. That is the reason we selected 9 per cent.
The noble Earl went a bit further than the provisions before us by addressing the protections in the Pensions Act for pension schemes against people like Robert Maxwell. There is already a compensation fund. As I have described before--I will take a second to do it again as the noble Earl raises the matter and it is important--the defences operate at a number of levels. There is a compensation fund if all else fails and there has been distinct cheating. Also, OPRA will be there; indeed, it has just been set up with the chairman, chief executive and members appointed. Duties have been placed on auditors and scheme professionals to blow the whistle to OPRA if they see anything irregular occurring in the fund, as can members of the scheme or trustees if they feel that there is something wrong or something has not been properly done. They, too, can blow the whistle by reporting the scheme to OPRA and OPRA will then investigate. The employer trustees are another line of defence, as is the minimum funding requirement. We believe that, taken together, the OPRA schemes and, more importantly, the pensioners and prospective pensioners have better protection than they had before the Act and before Goode.
I turn to some of the points raised by the noble Baroness, Lady Hollis, who seemed to say that the Government's pension policy was "unravelling before our eyes". The Opposition's pension policy is not even ravelling, let alone unravelling. We are still waiting for it. I am not too sure if, in the midst of the attack on personal pensions, I got the flavour of the fact that Mr. Chris Smith, when he announces the Opposition's pension policy, may well say that they intend to abolish personal pensions. It will be interesting to know whether
Baroness Hollis of Heigham: My Lords, the Minister, I am sure not deliberately, misstates my position. It was not a clear dislike of personal pensions. I made it very clear that there is a niche in the market for personal pensions--for those who are better off, for those who are mobile and for those who are self-employed. My criticism of personal pensions--I am delighted to spend another 10 minutes repeating it if the Minister does not recall what I said--is that the Government have encouraged them to be targeted at people who could not afford them, that personal pensions for them would not float them off poverty and that too heavy a slice of those personal pensions was going in charges--up to 40 per cent. of people's savings.
Lord Mackay of Ardbrecknish: My Lords, I have lifted a little corner of the veil over the Opposition's pensions policy--they do not dislike personal pensions. That was not the flavour that came over to me, but I am happy to accept that and to accept the Opposition into the same group as those of us who believe that personal pensions have an appropriate part to play in pension provision for all our people.
The noble Baroness made a number of points about the personal pension scheme. She attacked our rebates on a number of grounds. The decision as to whether the pension is a good buy depends on a lot of circumstances and not, if I may say to the noble Baroness, just on the level of income the person has at that time. We are keen to encourage people to contribute as best they can to their pension. There is no firm evidence that so-called rebate-only personal pensions are unsuitable for specific types of employees. Neither low earnings nor time out of the employment market necessarily mean that their final personal pension will not be as high as the SERPS they would have received if they had stayed in SERPS. Quite often the effect of charges on a pension fund is more than outweighed by the investment performance. For example, pension funds over the past 15 years have managed a real rate of growth per year of nearly 10 per cent. and providers' charges vary too. If people have a personal pension, even if it starts off by being a rebate-only one, at least they have the vehicle into which they can put additional contributions if they are able to do so at any time in their working life. Therefore they are on their way to providing a better pension provision than just remaining with SERPS.
Personal pension charges do indeed vary and, as the noble Earl, Lord Russell, mentioned, since January 1995 changes have been made. Providers have been required to set out their charges in their promotional literature and in the key feature documents issued at the time of sale. Indeed, a PIA recent report said there was some evidence that companies are charging less and that they are improving what they pay if a policy is surrendered early or transferred. Our publicity advice clearly advises potential investors in personal pensions to shop around
With regard to where the expenses have been pitched, we have made allowance for reasonable costs and charges of the more efficient personal pension providers. We have not incorporated any allowance for flat rate charges. We have not taken the average. We have looked at the more efficient personal pension providers when we have come to the conclusion about how much the expenses part of the rebate should be.
It was said that the age-related rebates are just another example of a bribe to keep people out of SERPS. At present appropriate personal pensions become less attractive for contracting out of SERPS as people get older simply because there is less time for the investment to gather interest and to grow the nearer one gets to retirement age. These age-related rebates will ensure that most of those who are already contributing to an appropriate personal pension will continue to do so for the rest of their working lives. It also gives younger people the same kind of personal choice.
Personal pensions play a part in the spectrum of pension provision that we on this side of the House, and I think most people, want to see available. Not everyone works in a company where there is an occupational pension scheme--either a salary related scheme or a money purchase scheme. Indeed, personal pensions are a sensible way for those people to consider putting aside money for their retirement. We are all keen to see that. Even the party opposite appreciates the need for second pension provision. We have a clear policy on how we proceed to that and APPs form an important part of it. In order to get to the position where an increasing number of people have second pension provision, these rebates are very important--the rebates to salary-related schemes, the rebates to money purchase schemes and the rebates to appropriate personal pension schemes.
As I said at the beginning, we are looking forward to the unveiling of the pensions policy of the party opposite. I think I know now that it is not entirely opposed to personal pensions. I think I know from an article I read in a newspaper that it is not keen on carrying on with SERPS. An article in The Times of 29th February by Mr. Chris Smith stated that,
The noble Baroness complained loudly about the changes we made to SERPS provision in 1985. Without those changes, by the middle of the next century SERPS would be costing the taxpayers of that time an extra £30 billion at 1985 prices. It is one thing to expect the next generation to look after you; it is another thing to saddle them with costs that are so huge that they will no longer be prepared to accept the burden. That is why we made those changes in 1985 and 1986. SERPS had not been properly worked out when it came to considering the burden which it would impose on future generations in the middle of the next century and when
In conclusion, we believe that the rebates will reinforce and continue the excellent policy we have in this country. We have a pensions policy of which we should be proud and on which we should be building. It should not be attacked in the negative way in which the noble Baroness attacked it in her speech. We should be proud when we consider what our colleagues in Europe have. They must look with envy at the kind of pension provision we have--£600 billion and 10 million of our people in salary-related schemes or COMPS and another 5 or 6 million in personal pensions. We ought to be pleased about that. We ought to be extremely pleased for future generations that we are making these sensible provisions today. These orders are part and parcel of the sensible provisions for people in retirement tomorrow. I commend them to your Lordships.