moved Amendment No. 127:

My name is coupled with that of my noble friend Lord Hunt of Wirral on these amendments. I congratulate him on putting down this series of amendments yet again. Compulsory annuities at age 75 is one of those subjects which has developed into a campaign in this House. I first observed it when, as my noble friend Lord Hunt reminded us, my noble friend Lord Higgins moved an amendment to the then Pensions Bill in 2004.

Oh!

It is true; I first observed it then. Since then the issue has arisen from time to time, not least in last year’s Pensions Bill. Make no mistake about it: your Lordships’ campaigns have a habit of getting on to the statute book. One, in particular, is graven on my heart. Over 12 years the late Lord Rugby campaigned vigorously to break the opticians’ monopoly on the sale of reading spectacles. It came to a head when I was a very junior health and social security Minister and was able to put my limited weight behind it. A suitable amendment, moved by the late Lord Winstanley, came to a vote and your Lordships agreed to it—just. The Government in another place confirmed it, and now reading glasses—cheap ones at that—can be bought anywhere. No doubt some noble Lords use them.

That simply would not have happened without the support of the Government of the day; so it is with my noble friend Lord Hunt’s amendments. The Official Opposition, here and in another place, stand four-square behind the abolition of compulsory annuities, which, incidentally, do not exist, so far as I can discover, in any G8 country. It should not be possible for anyone of any age to so run down their savings as to bring them into the benefits culture. In other areas, this is actually illegal. That is why my noble friend has coupled the abolition of compulsory annuities with a retirement income fund in Amendment No. 128, in which the thought I outlined is incorporated in proposed subsection (2)(4). It is noteworthy that the minimum retirement income which must remain in the fund is set by the Chancellor of the Exchequer. So the Government of the day remain in total control, as they do now with compulsory annuitisation.

The Bill means that almost anyone working consistently from the age of 20 to state retirement age could end up with a pension pot of, I believe, around £240,000. Thus the Minister’s complaint last time we discussed this—that these amendments will only benefit 3 per cent of the very rich—just does not stand up. Another of his complaints is that a retirement income fund will be left with money in it and will form part of the owner’s estate when he dies, and that, unlike the rest of his estate, it should not be capable of being shared between his survivors and anyone else to whom he wills his residuary estate.

We should not forget that pensions have two foundations: personal savings, which under this Bill are at least 3 per cent of the employee’s annual income, and the employer’s minimum 4 per cent, which is deferred wages. Both belong to the individual, just as much as his house or the value of his ISAs or other savings. Why should they not be passed on in his will to whomever he wishes? Is not this a basic human right? It is most certainly a basic human need.

Lastly, the Government claim that, while they welcome,

“innovative ideas for retirement income products for all”.—[Official Report, 6/6/07; col. 1162.]

as the Minister said last year, there is no appetite among the insurance industry for a retirement income fund. I find that very surprising. If any industry is open to new ideas, it is the insurance industry—if, that is, the Government allow it to be. Indeed, I noticed the other day a new scheme which, while just within the existing law, seemed extremely similar to my noble friend’s retirement income fund. So just what gives the Government such confidence that there is no appetite for this among the industry? Who have they consulted? I welcome the debate to follow.

I do not know whether the noble Lord will press the amendment to a vote, but I would not support him in the Lobbies. I do, however, support his argument. What is the state’s public interest in this? It is twofold, as has already been suggested by noble Lords: first, to ensure that pension savings are privileged in order to provide an adequate retirement income; secondly, that there be no recourse to public funds. Both those objectives are met in the subsection of Amendment No. 128 referred to by the noble Lord, Lord Skelmersdale, by an annuitisation that I calculate to be between £120,000 and £150,000 a year. After that, if an individual chooses not to annuitise but to accept the implications of adjustment of the fiscal privileges that went to build up that fund, why does the state have any public policy interest in what happens to the residual money? It is not good enough to say that that money was protected for pension savings and must therefore be used for pension provision. A mantra is a statement of faith, not an argument based on evidence.

As the noble Lord, Lord Skelmersdale, said, 10 or 20 years ago this may have been a relatively rich person’s issue. It is no longer so, as we see the movement from DB to DC schemes. The noble Lord’s figures are exactly right; I did the calculations as he spoke. A woman on average earnings—£21,000—over 40 years, even in a personal account without a threshold, would have a pot of £250,000. That is with contributions only going in at 8 per cent of the total. If, more realistically, one has a DC scheme with higher rates, she might well have a pot of around £450,000. Only once the two considerations of no recourse to public funds and any necessary adjustment to remove fiscal privilege are accounted for has the state any public policy interest in what then happens. Not only is there therefore a residual pot of money, not only would the taxpayers’ interest be safeguarded, but the Treasury could actually get a profit on the result.

If that woman on average earnings with a pot of £450,000 had, after an annuity, some residual sum of £300,000—or £200,000 or thereabouts after tax privilege—it would perhaps go into a building society on which interest was paid. More likely, it would fall into her estate, on which inheritance tax after the basic rate would be 40 per cent. The state would recover for taxpayers what currently goes towards the profitability of private insurance companies. There is an additional argument that the taxpayer would not only not lose money, but returns would fall back to the country as a whole—and, therefore, to the improvement of benefits where appropriate.

I hope that my noble friend will not repeat the mantra that all Ministers, including me, have had to use on this subject at the Dispatch Box: “Pension savings are fiscally protected to provide income for retirement”. Provided that that need is met, and the fiscal protection has been adjusted, the state has no further legitimate public interest in what happens to the rest of the money. People should be free to make the dispositions they choose.

It may be that we are all eating our own words tonight. The noble Baroness gave an interesting speech, but, given that she seemed to support everything that the noble Lords, Lord Hunt and Lord Skelmersdale, said, I did not understand why she would not support them if they pressed the amendment. So be it. The noble Lord, Lord Hunt, kindly reminded me of my words four years ago. One of the problems of getting older is that one’s memory is not quite as good as it was. I will go and look at the context of what I said.

An imposed limit at age 75 is clearly out of date. It might have been right to impose such a limit in 1976, but it is clearly not right now. We want change. This is a slightly odd grouping because we will come to our amendments—for example, Amendment No. 132—on the same topic later. We prefer the much simpler option of increasing the limit, which was the fourth option mentioned by the noble Lord, Lord Hunt. I well remember standing shoulder to shoulder with the noble Lord, Lord Higgins, fighting for specific increases, but we thought that this time—we have all been round this track a few times—we would say to the Government, “You say how much life expectancy has increased since the limit was fixed, and that is the amount by which it should now increase”. Given how fast life expectancy is rising, the limit should be reviewed every few years to avoid this problem in the future.

Of course, things have changed a great deal since the 1970s. Being 75 in those days was probably characterised by the actors in “One Foot in the Grave”; for many people now “Strictly Come Dancing” would probably be a more accurate representation. However, I cannot agree with the noble Lord, Lord Hunt, that his is the simplest approach. His detailed amendments cover two pages of the Marshalled List, and, I believe, contain a few grey areas. We are strongly in favour of raising the limit, but we would not do it in this way.

As I understand it, the noble Lord is not in favour of the measure because he does not like the idea of money being inherited by family members. We part company with him there. Although he proposes that the age should be increased, that is not exactly the most fundamental reform of the system, if he does not mind my saying so. As for his argument that my noble friend’s amendments cover two pages of the Marshalled List, he has been involved in this area long enough to know that almost any reform involves at least two pages of text. Indeed, I am amazed at my noble friend’s modesty.

We differ from the Liberal Democrats on this rather important point. We believe that the family is the basis of society. We are probably not talking of spending vast sums to encourage people to save money for their children to inherit. Indeed, it is in the public interest that they are encouraged to do so. If that persuaded people to save money, it would be of vast public benefit. Therefore, I am not remotely persuaded by the argument of the noble Lord, Lord Oakeshott.

My noble friend Lord Hunt set out the case extraordinarily well. The matter has a long history and represents a longstanding injustice. There is absolutely no reason why people should be forced to take an annuity at 75. I agree with everyone who says that, if they wish to do so, they should have that opportunity. That is their choice, and some people will exercise it, as they do not want the trouble of looking after their money. That is fine. That is their choice and they should be allowed to exercise it. However, many people will not want to make that choice because they feel it is not in their interests to do so. On a number of occasions noble Lords have indicated that they would much prefer the citizen to exercise his own choice in this matter. Rather than getting weaker over the years that we have debated this issue, that case has become much stronger. As my noble friend Lord Skelmersdale said, pensions are changing rapidly. We are seeing the demise of the final salary scheme, apart from in the public sector, and the establishment of many more money purchase schemes. It is not an issue of marginal importance or interest any more; it is a case of fundamental importance. That is one argument for a change.

The case put by the noble Lord, Lord Oakeshott, about age was also true. Even if you believe in compulsory annuities, no one in their right mind would put the limit at age 75 because age expectation has increased. You are now talking about 80 or 85 if you are a believer in the system, which I am not.

Let us face it: only the Treasury stands against this proposal, as in all things good in this world. The only reason it has for doing so is that people could fall back on to social security. In my noble friend’s two-page amendment, he has gone to enormous trouble to prevent that taking place. After that, like the noble Baroness, Lady Hollis, I cannot think of any sensible arguments that can be put in its place.

My noble friend and others have talked about the pension pot of money that you hope to have at 75 or whatever age. If you are coming up to 75 now, you may well find that your pension pot is under more pressure than for many years. Your investment values will have gone down, probably at a worse rate than for 10 or 20 years; the noble Lord, Lord Oakeshott, is a greater expert on the investments than I am. At that point, you are saying to individuals, “We don’t mind that, but we insist that you annuitise at that inflexible age”. That is totally unjust.

For all those reasons, the time has come to reform the rule, whatever the past has been. The situation as everyone has recognised it has changed. There is a question of fundamental justice here, and I hope that the Minister will at long last recognise that.

I have been listening to the debate with great interest, and of course support everything said about compulsory purchase of annuities at 75. I also understand from the description that the noble Lord, Lord Hunt of Wirral, gave of his amendments that there is a case for them in the light of the changing situation, with the disappearance of final salary schemes and the introduction of money purchase and so on, so that people are left with a lump sum that they have to deal with when they reach the right age.

What bothers me about all this is that I am a supporter of final salary schemes; I hate to see them disappearing. Where the workers are strong enough and have enough collective pressure, in certain circumstances they have been able to retain their final salary scheme. I would hate to see anything introduced that could further encourage their disappearance. That is one reason why I have some dubiety in my mind about the amendments. Would they make the alternative to final salary schemes more attractive than it otherwise might be? I am in favour of retention—doing everything possible to retain final salary schemes in the private sector as well as the public sector.

I understand that the issue has a long history in your Lordships’ House, certainly longer than I have been here, but just from the debates on last year’s Pensions Act I get a sense of déjà vu, or as the sports commentator said, “It’s déjà vu all over again”.

It falls to me to set out the Government’s position—maybe the Government’s mantra—on this. The purpose of pension saving is to provide individuals with an income in retirement. In order to encourage and assist people in saving for their retirement, generous tax incentives are given to pension savers. In 2007-08 this tax relief was estimated to be worth £17.5 billion.

The noble Lord is worried about drawdown of tax relief savings. Do not ISAs, for example, have incredibly generous tax relief?

Indeed, ISAs have tax relief, but not the same as provided through pension saving. That is an absolutely fundamental point. The total taxation relief on pension savings is very substantial, which is why, as I explained, the deal is that you convert it to a stream of income. There is tax relief on the way in for the individual; for the employer, there is a tax-free build-up of funds and there is the ability to take a 25 per cent tax-free lump sum. That collection of tax relief provides a significant part of a retired person’s pension pot. The noble Lord, Lord Hunt, pointed out that these are a person’s assets; they own them and they should have the choice.

The Minister is moving into rather technical issues that demonstrate what I said previously: he and his colleagues are particularly concerned about avoidance. Although I cannot see what is wrong with someone pursuing the path that he is outlining, surely the answer lies in the amendment. The Chancellor, in bringing forward the order under subsection (1), could well cover the sort of situation that the noble Lord is most concerned about. I am happy to discuss with his officials ways in which we can ensure that when the order comes forward, provided that the House agrees to these amendments, there is no level of avoidance that would cause the sort of problems that he is talking about. I am also waiting to hear what the noble Lord has to say about Christian Brethren.

In answer to the first point, I do not believe that the amendment will do what the noble Lord describes. Perhaps I may expand on the issue of the tax risk to the scheme. I noted that no noble Lord who spoke in favour of the proposition—with the exception of my noble friend Lady Hollis, who talked about withdrawal of the scheme’s tax benefits—indicated in any way what tax regime he or she thought should apply to it. That was not part of the proposition advanced by the noble Lord, Lord Hunt, and adhered to by others who spoke in favour of the amendment. It can make a fundamental difference to the operation of the proposal.

I reiterate that, under this proposal, if someone has income from other sources, the minimum retirement income could be set at zero. If it is set at zero, so that the provider does not have to preserve amounts in the scheme for subsequent periods, there could effectively be no limit on the withdrawal. You could take a lump sum from the scheme in one go. It would be tax-advantaged savings with some real risks as to how the tax on it might be withdrawn. The noble Baroness, Lady Noakes, is shaking her head, but that is how this proposition would operate. A member would be able to withdraw large lump sums of tax-disadvantaged pension savings. Alternatively, as I said, a member might choose not to draw down any pension income at all from the RIF in order to pass the funds on to heirs.

I say to the noble Lord, Lord Fowler, that we have no objection to—we would support—people providing for subsequent generations, but enhancing that provision for heirs by means of the benefits of a very significant tax-advantage regime is not what that regime is for.

If the noble Lord, Lord Hunt, tabled a subsequent set of amendments to cover the point about tax privilege, and if that created no more and no less privilege in aggregate than, say, ISAs—which might seem an equitable way forward—would my noble friend change his mind?

I do not think so. The nature of the regime that would have to be established, particularly given the opportunity for withdrawing significant one-off lump sums in circumstances where someone might plan to be non-resident for a period, would require a raft of anti-avoidance provisions that would fetter the fundamentals of our current pension saving schemes.

None of these options is compatible with the basic and fundamental purposes of pension savings—to provide the member with an income in retirement. As I said, I would also like to consider the tax consequences of the amendments. These amendments do not indicate how withdrawals would be taxed. The expectation would be that a form of taxation would apply, but in most cases it would seem likely that the tax charge on RIF withdrawals would be less than the amount of tax relief enjoyed on these funds. RIF savings would clearly be tax advantaged compared with other forms of savings. Given the apparent ability of those with sufficient other income to extract RIF savings at will, there is a danger that it would become a vehicle into which other savings are recycled for tax advantage, rather than encouraging new retirement savings. It would be unfair to expect taxpayers to foot the bill for people who take the tax relief for pension savings but do not use the accumulated funds to provide an income in retirement.

It is unclear what would happen to the RIF on a member’s death but, given what is proposed by Amendment No. 140, which I shall move on to shortly, it seems that these clauses would allow a small group of wealthy individuals to pass their pension funds on to their heirs on death. There is no rationale for taxpayers to support bequests in this generous way.

One of the primary considerations of current pension provision products is that they provide an income that is guaranteed for at least the rest of the person’s life. With the proposed RIF, there is a risk of the individual running out of money in retirement. This is because it is impossible to accurately assess an individual’s life expectancy. How on earth would that be done? Insurance companies can protect the average life expectancy of particular cohorts. The noble Lord, with his expertise, does not need me to tell him that. The RIF requires an individual assessment to be made that enables a guaranteed income for life to be provided, regardless of how long the life is, by pooling the risk.

Annuities achieve exactly the same outcome for defined contribution pension schemes as exist for defined benefit schemes or, for that matter, state pensions; namely, that pensions are paid as a regular stream of income until death and, barring dependants’ pensions, that they end on the member’s death. No refund of contributions is given to the estate but everyone has the peace of mind of knowing that the pension will continue to be paid regardless of how long they live.

In essence, these amendments would benefit those who are able to take advantage of the tax relief given for pension savings to build up substantial pension pots, but who then want to use the accumulated fund for a purpose other than providing an income in retirement. In other words, the proposed RIF would provide significant tax benefits to the wealthiest in society at the expense of the taxpayer.

I will pick up on a number of points about the current range of pension pots. I take the point that, over time, more people will build up a significant retirement pot. However, the current figures show that, for 2007, a total of 445,871 annuities were sold, only 3.2 per cent of which—14,000—were for pension pots of more than £100,000. We also have figures for the first quarter of 2008, which show that 3.7 per cent of those sold were for pots of more than £100,000. I accept that that may change over time, as more people save in pensions and as personal accounts get under way. The Government have said that they will keep under review the age at which someone should annuitise in future.

What matters is not 3 per cent of the total but what the percentage is of those who have to annuitise compulsorily at the age of 75.

While I am on my feet, the Minister was good enough to say that he wanted to investigate the tax arrangements more fully than he has been able to do so far. I am sure that my noble friend Lord Hunt will welcome that. The Minister referred to tax savings of £17.5 billion; that is spread among a large number of pension savers. When he does his investigation, could he ask the Treasury for figures on the number of people who hold ISAs? We would then get a better sort of comparison, especially if he also looked at the tax advantages, which do exist—he admitted that they do—for saving through ISAs. Could he also look at the alternatively secured pensions? They have tax arrangements that are somewhat different from what is currently envisaged elsewhere in the system.

Finally, all this talk of taxes reminds me that we are not debating a Finance Bill; we are tying to look at pensions as pensions. When the Minister has conducted his investigations on tax, will he be good enough to write to my noble friend Lord Hunt and me and put a copy in the Library for the general education of noble Lords?

It is not my job to investigate the tax effects of these propositions. The noble Lord said that we are debating pensions and that it is not for us to debate tax. You cannot decouple tax and pensions—they are inextricably linked.

So why did the Government invoke the issue of privilege last year when we won the vote in this House?

Precisely for that reason—taxation, as noble Lords know, is an issue not for this House but for the other place. The proposition was not acceptable to the other place; that is why it claimed financial privilege. We cannot debate sensibly a pensions issue of this nature without understanding the full range of taxation implications. My noble friend would not support one proposition at all if it did not involve full withdrawal; alternatively secured pensions—the money left in the pot when someone dies—involve a 70 per cent tax charge and the rest flows through for inheritance tax. Is that in the minds of noble Lords who support the proposition?

The noble Lord asked about ISAs. You do not get a tax deduction on the way into an ISA; you may get tax-free income.

And growth.

And growth. I hang on to the point that the range of tax benefits going into pension savings—deduction for the employer, deduction for the employee, tax-free build-up and the opportunity to get 25 per cent tax free—means that this is a much more tax-supported regime than that involving ISAs; that is why there is a requirement to take an income flow from it.

With all this talk of tax, I cannot resist getting up to the Dispatch Box.

Does the Minister accept the proposition of the noble Baroness, Lady Hollis, which seemed to me to be perfectly reasonable? She said that if a scheme could be designed that neutralised the tax advantages that accrued to not taking the retirement fund in the originally envisaged form—that is, retirement income—the amendments in the name of my noble friend Lord Hunt would be acceptable. If so, there is a model involving alternatively secured pensions, which my noble friend Lord Skelmersdale has just raised, although many do not find the model particularly attractive. Would the Government accept the amendments if those tax arrangements were embedded into my noble friend’s amendments?

There is a big “if” about whether you could effectively describe the sort of regime that would cover the RIF. The proposition would facilitate the opportunity for someone to take a significant lump sum in one go as income or capital from the RIF. The noble Lord, Lord Fowler, looks askance at that but the RIF, as so defined, would provide it. If someone has enough income from the RIF, the minimum level that they must take, or which has to be set on an ongoing basis, would be zero, and the maximum amount that could be drawn could be very significant indeed. That would provide the opportunity for people to plan to take that in a tax-effective way. You could structure all sorts of anti-avoidance provisions that would greatly add to the tax legislation, for which the Government would doubtless be challenged. You would need that if you are going to make this fair. That is why we do not think that it is the right use of the pensions regime.

I was looking askance because I was wondering, while I listened to the Minister’s defence, whether there are any amendments or safeguards—however guaranteed—that would ever persuade the Minister. He is simply fundamentally opposed to any change in this area whatever, regardless of what is put forward.

Because of its tax impact, I do not see the merits of building on this proposal. With the exception of my noble friend, everyone who has spoken has been silent in advancing reasons for accepting it and, unless we know those reasons, it cannot be properly evaluated.

Perhaps I may help my noble friend. When I was in the department, I argued for changes in this area but I could not persuade HMRC. The figures may well have altered now and I would not wish to go to the stake on them, but the work that I had done suggested that the tax gain on pensions represented between 45 and 55 per cent of the total value of the final pot. That was the range that we dealt with and it included the tax gain from the 25 per cent lump sum.

It depends on which taxpayer is involved and whether he is getting tax relief on contributions at the higher rate or the basic rate.

At that time, they were almost entirely higher-rate taxpayers because they were the only ones who possessed such sums. Obviously the tax privilege would be considerably less. My estimate is that it would now be between 35 and 50 per cent on average if we included basic-rate taxpayers—for example, the woman on average earnings who will over the course of a few years find herself with a pot which is much larger than necessary to float her off income-related benefits.

Perhaps I may say a brief word as one of those who the noble Lord said had been silent on this issue, although that is partly because we will move our own amendment later. I think that there is a genuine problem here and I sympathise with the Minister on that. I say to the noble Baroness that, even if overall her figures are right, the key difference between pension pots and ISAs is that, although perhaps only a small number is involved, pension pots can be worth several million pounds. I do not know of anyone with an ISA of anything like that sum. That is why I am nervous about these amendments. Potentially there is quite a big tax linkage on some of the very big pots, so I do not think it is right to say that ISAs and pension pots are totally the same.

If someone had a pot of a couple of million pounds and was seeking not to annuitise it, the tax element in it, which might be at least a third and perhaps a half, would go back to the taxpayer. It seems to me that the consequences of the noble Lord’s argument are the reverse of the implications.

We need to look at the whole picture.

Indeed; I am with the noble Lord, Lord Oakeshott, on this. Perhaps I may recap the situation. First, I think that the question is: if I pay the tax back, why cannot I access my retirement savings as I wish? There is no reason for an individual to put substantial funds into a pension and claim the tax relief that goes with it if he does not want a retirement income at the other end. Tax relief on pension savings is not designed as a means of accumulating general savings. That is not the proposition.

Secondly, it would be very hard to work out the exact value of tax relief in any particular case, as it would depend on the profile of a person’s earnings and his tax and pension contributions over the years, plus tax regrowth on his pension investments. Therefore, this option would involve either very complex and expensive processes to work out individual figures—even if it were possible to do so—or a very high flat-rate level of tax recovery to avoid tax abuse. It would lead to the bizarre scenario where an individual saved in a pension vehicle to enjoy the tax relief but then faced the trouble of paying back the tax relief when he could have avoided all the inconvenience in the first place by saving in a savings vehicle such as an ISA, subject to the limits properly referred to by the noble Lord. Those who advocate this approach invariably want to access their pension fund taxed at their marginal income-tax rate, but that would greatly undervalue the tax relief previously enjoyed and would amount to a generous taxpayer subsidy.

I move on to Amendment No. 140. Although the amendment does not directly relate to the RIF, it nevertheless results in the same outcome—that of enabling those with the greatest means to use pension saving for a purpose other than providing an income in retirement. The amendment would remove the upper-age restriction on the payment of an annuity protection lump sum benefit.

An annuity protection lump sum death benefit was a concept introduced by the Government in the Finance Act 2004. It allows a return of pension savings used to secure an annuity, less any payments already made, to be made on a person’s death before age 75. The intention behind an annuity protection lump sum death benefit is to ensure that, should the member die early in his retirement, his family gets something back from the retirement provision that he has made.

Removing the upper-age restriction would go beyond that intention. The provision of this type of death benefit would make it attractive as an inheritance tax planning vehicle, due to the tax relief. An annuity with this form of protection typically costs more than one without it, reducing the income received in exchange for the protection offered. The extra cost of extending that protection beyond age 75 would be significantly more than under the current rules. That would make this option primarily suitable for those who could afford to take the reduced income and wished to use their pension savings for another purpose, such as inheritance planning.

The restriction on the payment of annuity protection lump sum death benefit beyond age 75 is consistent with other lump sum payments on death from pension arrangements and provides consistency between defined contribution and defined benefit pension schemes.

The noble Lord, Lord Hunt, asked me about alternatively secured pensions and referred to the Christian Brethren. For those with specific objections to pooled mortality risks in annuities, ASPs provide an option in drawing a pension. ASPs are not, and have never been, limited by legislation to specific religious groups such as the Christian Brethren. Although they are not a mainstream product, the Finance Act 2007 allows that for a small minority, and if well advised, ASPs exist for people to draw an income in retirement consistent with the principle that pension tax relief should be used to provide an income in retirement and not tax-favoured inheritances. Therefore, in ASPs a product already exists to give people an alternative to annuities from age 75 consistent with our principle of tax-advantaged savings being used to secure an income in retirement.

I have been speaking for some while on this issue and I know that I have disappointed those in favour of the proposition, although I suspect that I have not surprised them. I hope that the Government’s position is very clear on this. It is important to be clear that the amendments all share a common theme: they allow those who are able to afford it to utilise the tax relief available on pension savings for purposes other than providing an income in retirement. Although innovation in the pension market is to be welcomed, and indeed encouraged, the Government are clear that it should not allow the well-off to take advantage of the system at the cost of the taxpayer. I therefore ask the noble Lord to withdraw the amendment.

I am very grateful to the Minister for taking so long to explain the Government’s position. He said that a theme was running through these debates, and indeed there is. In this House, there is general dissatisfaction with the maximum age of 75, and we have voted on several occasions, often by substantial majorities, to remove that age limit.

The Minister also said that it was not his business to try to improve the amendment, but surely he has to accept that he has already lost the argument on several occasions. These amendments were passed last year and in 2004 substantial majorities were secured to remove the age limit of 75. I accept that last year it was not possible to debate the matter further because the other place invoked privilege, but if the Minister is listening to this place, should he not at least agree to sit down with us to see whether there is a way forward? I thought that the noble Baroness, Lady Hollis of Heigham, had a number of very interesting ideas. No one wants to create a serious situation for the Treasury; we just want to encourage more saving. We want to encourage people—particularly those who in the past have been deprived as regards pension arrangements—to save for their pension and to save for their later life, and perhaps we can devise a series of amendments that will achieve that.

The Minister is right that a number of people exercise the option to purchase an annuity at a comparatively early age because they know that by the time they get to 75 they will be forced to annuitise. As my noble friend pointed out, that may well be at just the wrong moment. So, of course, they annuitise in advance and they want to receive the money earlier because they know that they will be compelled to purchase an annuity. Surely there is a way, as my noble friends have pointed out from the Front Bench, by which we can at least meet some of the noble Lord’s concerns. Normally he says that discussions are ongoing; that we will have extensive consultation; and that we will find a way through. Will he do that on this point?

I am more than happy to set up a meeting with officials from the Treasury or HMRC. I do so, in all honesty, without any great hope that they will see a way through this that is satisfactory because there are real concerns, but they may be able to articulate those more effectively than I have been able to. Yes, of course, the Government listen to this House but they also listen to the other place, which has declared itself on this point on several occasions. On the crucial issue of the tax component, the other place has particular primacy.

I cannot let the noble Lord get away with that. The great clunking fist came down when the Commons discussed this amendment and so great was that clunking fist that not a single word was uttered against it in another place. The clunking fist was to invoke privilege.

I have no wish to make a comment on the voiceless clunking fist, except to say: what more could I ask? The Minister has probably gone much further than his brief, for which we all congratulate him. I thank all noble Lords who have participated in the debate. I say to the noble Lord, Lord Oakeshott, that it is important to put his remarks in context. I apologise to him if I did not mention that in the previous sentence to the one I quoted, he said that,

“there should, at the very least, be a substantial increase in the limit”.—[Official Report, 15/11/04; col. 1229.]

He went on to say that he supported the amendment and that at the very least there was a strong argument for an increase in the limit to 75, if the principle of abolishing the limit altogether was not accepted. He then voted to abolish the limit and the amendment won the day. I say to the noble Lord, please do not desert us now.

In your hour of need.

In our hour of need, as the noble Baroness says. I sense that the noble Baroness, Lady Hollis of Heigham, is moving because in that Division she voted against these amendments as she then held ministerial office. Last year, she did not appear in the voting Lobbies and I sense that there are ways in which we can find some form of accommodation so that the voice of this House can be heard.

I thank my noble friend Lord Fowler for a powerful speech. The noble Baroness, Lady Turner of Camden, shares my concern about final salary schemes. We must find a way through that in our debates. I would especially like to single out my noble friend Lord Skelmersdale on my Front Bench for emphasising that basic human right. It represents personal savings and deferred wages which belong to the individual. My noble friend Lady Noakes pointed out that there are tax implications and that we should be able to find a way through to give individuals choice, freedom and right to property, which I advanced at the outset. It would be churlish not to accept the offer made by the Minister. Therefore, I seek leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 128 and 129 not moved.]

moved Amendment No. 129A:

I thank the noble Baroness for tabling this amendment. I realise this is of great importance for a number of occupational pension schemes, particularly for those schemes whose rules even preclude any negotiation about changes to future benefits. In response to recommendations made by last year’s deregulatory review, the Government announced that they would regulate for overrides to enable scheme rules to be amended to reflect the 2005 change to the indexation cap for service going forward and for the proposed reduction in the revaluation cap in this Bill. In keeping with the recommendation from the independent deregulatory reviewers, Chris Lewin and Ed Sweeney, we have said that overrides would be exercisable provided trustees agree.

We already have the necessary powers to make these changes by regulation under existing powers in Section 68 of the Pensions Act 1995. We are committed to introducing these new arrangements in regulations in due course, which is what we will do. In fact, we have already begun work on this. Our aim is to consult on the draft regulations later this year and to have the new arrangements in place in the first half of next year. The noble Baroness’s amendment seeks to introduce further regulations on overrides. It would not be appropriate to introduce a further regulation-making power to make changes to scheme rules when sufficient powers already exist. Furthermore, to introduce unnecessary legislation would hardly be in the spirit of the deregulatory review. As I said earlier, we already have powers to introduce what we have proposed and what we think will be appropriate in the circumstances. Further legislation to achieve that is not necessary.

Moreover, if we were to adopt the amendment and regulations were made using the powers provided for in the amendment, it appears that schemes’ rules would have to be amended. The drafting of the amendment suggests that that would be compulsory. However, that is not the primary reason for asking the noble Baroness to withdraw her amendment. We have provision, and we are working on introducing regulations under it.

Will the Minister help me with the meaning of “in due course”?

I repeat what I said. We are committed to introducing these new arrangements in regulations in due course, which is what we will do. In fact, we have already begun work on this. Our aim is to consult on the draft regulations later this year and to have the new arrangements in place in the first half of next year. That is what “in due course” means in this context.

I thank the Minister for that response, which at least confirms that the Government will proceed with the minimalist recommendations of the deregulatory review from last year. He has, however, failed to take the point that although the Government have wisely provided for indexation capping both for pensions in payment and for deferred pensions, employers cannot achieve it except by agreement with trustees, who always extract a price. The Government make a big fanfare about giving these things to employers, but in fact it achieves nothing for them. The Government are offering regulations that may free up scheme rules but do not actually help employers very much at all. If that is all that is on offer, I will go back after Committee to those who have asked us to raise this issue. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

moved Amendment No. 129B:

I found the noble Baroness’s speech very interesting. In talking over the proposals of Con Keating of BrightonRock briefly, although not specifically, with Lawrence Churchill of the PPF—I do not wish to attribute any views—I certainly did not recognise the noble Baroness’s monopoly or timidity arguments for saying that the Government would resist this. I have heard neither of those. Before my noble friends responds, perhaps the noble Baroness could help me on who insures the insurers. The point about the PPF is not that it wants to be all-encompassing. It has carefully gone to a risk-related levy in order to encourage funds to have a predictable and sensible approach to risk as faced with the DB schemes. I think we all recognise that there are complexities with hybrid schemes. The trouble with moving into the insurance market is that of the reinsurance proposals behind it. I am not sure that some companies which would like to move into this market place have sufficient resources for reinsurance. As I say, it is not a field I am comfortable with, so I will defer. Ultimately, we could easily have a fallback on the PPF or, almost, a version of why FAS had to be set up.

There are two answers to that. The Financial Services Authority or an equivalent EU supervisory body would regulate that body, which would be the case if reinsurance needed to be put in place as part of the risk management arrangements. The important distinction is the financial services compensation scheme. As I argued in my opening remarks, if there was a failure, that scheme would provide better benefits than would the PPF. The PPF is typically referred to as producing a 90 per cent benefit, which it does not. On average, it produces an 80 per cent benefit and often produces a 60 per cent benefit if a pension scheme has to go into the PPF. If a pension scheme had to go into the financial services compensation scheme, those PPF rules would not apply, so a higher degree of assurance would be provided through that compensation scheme than exists via the PPF.

I had a good discussion with the people at BrightonRock, who were kind enough to explain things. The more I talked to them, the less I liked this model. Quite frankly, they were very unconvincing as to what assets or strength they had behind them. In this situation, just to say that you could get reinsurance is not good enough. When one thinks about it, it is almost like a competing fire brigade to the existing fire brigade. We are not just talking about a monopoly. It reminds me of the old joke about Screaming Lord Sutch, who asked, “Why is there only one monopolies commission?”. For a very good reason, there is only one fire brigade that everyone has to pay for. After Northern Rock, I do not share the noble Baroness’s confidence that it is all right for the matter to be left to the FSA. I do not want pension funds to land up in the financial services compensation scheme. With a considerable amount of effort in this House, we set up the PPF. It is not exactly a lender, but it is a good underwriter of last resort.

De-risking pension schemes for employers is not the same thing necessarily as de-risking pension schemes for pensioners and employees. From the past year or two, we all should have learnt that it is much too easy to talk about reinsurance. Some of the very big insurers in America cannot meet their obligations and that ultimate risk is a very serious problem. I would be much more comfortable sticking with the PPF.

Before making my only intervention in this debate, I declare, first, my interest as chairman designate of BrightonRock, which, I would hasten to add, is not to be confused with any other rock. I should also make another declaration of non-interest: I am not a member of the Society of Turnaround Professionals, although I hold its lifetime award for achievement. That is not so very special when one bears in mind that I was once standing backstage at the Oscar ceremony when Mickey Rooney came off stage and immediately deposited his Oscar for a lifetime award in the trash can on the grounds that he thought that it would be more properly identified as a death-time award.

In the case of our friends at BrightonRock, there is one very important distinction, which may answer part of the concerns of the noble Baroness. It is not just intended to be an insurance company but would have a very big role as an interventionist in bringing to bear corporate rescue activity into the parent companies behind the sponsorship of the pension schemes concerned. There will be a proactive role to address the problem which is giving rise to the potential call which would come upon the PPF. That is a very important point and a most fundamental part of the BrightonRock concept.

I shall answer the noble Baroness’s concern on whether it will get the funding necessary. The due diligence for this, effectively, will be dependent on demonstrating exactly that point of financial viability to the City, which we are looking to at present for a substantial fundraising, being handled by City professionals, aimed at achieving full financing capability by the end of September. The arrangements that that implies require us to demonstrate that viability. If we do not demonstrate it, we will not be in business. If we do, it will be because the market has decided that we are able to cover it.

I would also remind Members of the Committee that the most successful corporate rescue ever mounted in this country was for Lloyd’s of London. It was beset widely by failure of reinsurance, but where the reinsurance was capable of being replaced and mutualised to an extent, that overcame the problem.

My final point is that we who have put this BrightonRock scheme together, having read very carefully the Pensions Bill, take the view that it is coming from the wrong direction in a very important respect. It starts from the supposition that the problem that has to be addressed is the failure of management of the pension schemes. I would respectfully suggest that it is not; it is the corporate failure of the sponsoring companies behind them. That is not properly addressed and, in many ways, the Bill tends to put obstacles in the way of the orderly approach to and correction of those problems. BrightonRock would seek to overcome those problems in the way I have indicated.

These concerns worry us greatly because we believe that the future viability of the pensions industry depends on an address to the corporate financial management of the sponsoring companies and not to the fundamental managements of the pension schemes, which we think are generally pretty good. In the world of corporate rescue where I have seen pension schemes fail, the failure usually has come many years prior to the time when it acknowledges the failure as a result of the collapse of the sponsoring company and its inability to maintain the funding.

The position demonstrated in the recent risk-sharing analysis in the risk-sharing consultation on 5 June was completely wrong when it said that the risks here are longevity and health improvement. They are not the risks which undermine the future viability of pensions. They are the risks of solvency to the sponsoring companies. In this respect, the Government and everyone in this country, all pension beneficiaries, need every bit of help that they can get in securing it, which is where what we are talking of would help. The easement of this arrangement by the manner of this amendment would greatly assist in the creation of the management of this company. I believe that it would make a positive contribution towards the Government’s own desire to come at it from the point of view of the corporate financing side, which is where the issue really lies.

I hope that the noble Lord will not take this the wrong way, but is he quite sure that his speech and remarks are appropriate? To start with, he very properly declared his interest, but he is in the middle of a major fundraising, for which he presumably has a financial interest. I wonder whether it is in the right traditions of this House for him, effectively, to promote the prospectus of the company. I would ask him to think again about that.

I shall seek direction on that, but my concern is the challenge to whether this would be useful in the context of what the Bill sets out to do. I have sought to correct what I thought was a misunderstanding on the issue. I am not financially involved at this stage of the process; I will be if and when it becomes a live project, but at the moment I am not seeking to promote it in that sense—only to noble Lords, not outside this Chamber.

I should like to come in on that. If one is promoting a fundraising, one is not going to make any money, but if the fundraising raises money when it does, that really is splitting hairs.

Perhaps I can assist the Committee. In his enthusiasm for his project, I think that my noble friend may not have realised that we are not debating the specific proposition he has in mind. I sought to draw on the essence of the proposition in order to tease out whether the principles are those which could result in ineligibility being established, while recognising that there will be all kinds of questions if any particular company comes forward with a scheme such as that which has been promoted by BrightonRock, one that has interesting features which should be explored. However, it is not for this Committee to get into the detail of the specific proposition—where the money comes from or anything about the success of the particular operation. I am sure my noble friend did not intend to intrude in that way on the Committee’s deliberations.

I support those comments and I am grateful to my noble friend. I am concerned here with the benefits of this amendment on behalf of whichever company comes to create this function. It may or may not be the one about which I have spoken and it was identified before I rose to speak. I am concerned with the principle because other companies will come into this field to provide similar services, and it is appropriate that this amendment should be supported on their behalf too.

Perhaps I may start by acknowledging that in my view the noble Baroness was not in any way seeking to promote a particular company but was talking about the generality. I am not sure whether the effect of what the noble Lord, Lord James, said was the same, and I hope that he will reflect on his words. In the end he has to make his own judgment about how and what he speaks on.

The proposed new clause would amend Section 126 of the Pensions Act 2004. That section deals with eligible schemes for the Pension Protection Fund. It would exempt certain schemes from the PPF if they had guarantees from what the amendment calls an “authorised insurer”. I understand that the amendment has been tabled to explore whether schemes that purchase an insurance product along the lines of the one being promoted by BrightonRock also need to have protection for their members under the PPF. The Minister of State for Pensions Reform and I have met representatives of BrightonRock, including the noble Lord, Lord James of Blackheath. We listened with interest to their proposals on how a product intended to insure schemes so that they could pay scheme members in the event of the insolvency of their sponsoring employer might work. I understand that BrightonRock wants schemes that have purchased one of its products to be exempt from paying levies to the PPF and for scheme members not to be covered by the protection offered by the PPF.

The removal of the protection of scheme members by the PPF is not something to be considered lightly. There are some defined benefit schemes that are not eligible for protection by the PPF which include unfunded public service pension schemes, local authority pension schemes and schemes that provide only for death benefits. Broadly speaking, these schemes already have very secure provision for the protection of their members’ pensions. The likelihood of such schemes requiring PPF assistance therefore is zero. Anticipating that new schemes of this nature could emerge, Parliament ensured that the Pensions Act 2004 has a regulation-making power in Section 126 that allows the list of exempt schemes to be extended. The PPF and the Department for Work and Pensions have also identified a limited number of instances where the risk of a scheme calling on the PPF is extremely unlikely, such as where a scheme has no active members. In these cases, schemes may apply to the board of the PPF for a waiver of their pension protection levy.

Let me remind noble Lords that the PPF is funded by a combination of compulsory levies charged to all eligible schemes, any assets remaining in schemes which transfer to the PPF at the end of an assessment period, and the proceeds from the investment of these levies and assets. So if schemes are not eligible for the PPF or are not required to pay a levy or both, this has an impact on the financing of the fund and the protection it provides to millions of scheme members. BrightonRock suggests that it will only ever be marginal in terms of the number of schemes covered relative to the PPF’s universe. This may be the case, but any change to legislation would open up the market to other competitors, moving away from a “marginal” impact that would clearly have an impact on the financing of the PPF and the protection it provides.

We also need to bear in mind that the Pension Protection Fund is a relatively new institution and it is important that scheme members, people receiving compensation and people due to receive compensation in the future have confidence in the PPF’s financial security and long-term sustainability. However, the Government keep the PPF under review and already have the power to make regulations to exempt certain schemes from the protection provided by the PPF or to waive the pension protection levy if that is desirable. At this stage, however, my ministerial colleagues and I do not consider that it would be right to open up a market in the way suggested by this amendment.

If in the future we opened up the market to products like those of BrightonRock, we would need to be confident that the entry of BrightonRock and others could provide long-term security for those taking out such policies. Confidence in these insurers will be equally important to those members remaining under the wing of the PPF. The noble Baroness said that protection would come from the FSCS, but I would say to her in response that it does not come without cost either in that that protection would also have to be funded.

In conclusion I want to emphasise that there are already powers to exempt schemes if we want to do so in the future, so we do not need the amendment. However, we are not minded currently to open up the market in the way suggested.

Can the Minister explain why the Government are happy with insured closed schemes but are drawing the line at insured open schemes?

What we are not yet happy about is the model which suggests that open schemes with ongoing liabilities would be protected by a third party. We are not sufficiently confident about the extent of that cover, and that is not to impugn BrightonRock or any particular entity. The Pension Protection Fund is not seeking to hold a monopoly position, but it is a fairly new institution that is building confidence with people in the pensions arena, and it should be entitled to do so. I also return to the point that in a model such as BrightonRock—the noble Lord, Lord James, indicated in his contribution that he was speaking more generally, but others would allow that there is a risk of cherry-picking—we would really need to understand exactly how secure the covenants were, particularly as some of the entities involved are not UK-based. In one particular case, it is regulated out of Malta.

That is where we are, but I stress to the noble Baroness that the powers are in place should there be a view to use them.

I thank the Minister for his response. He said that the PPF is trying to build confidence. What the PPF is doing is convincing the employer community that it is a very expensive route to dealing with the issue of scheme insolvency. That opinion will be expressed by almost any employer with a defined benefit scheme who has received this year’s fees demand and has been looking at what is happening to the costs in this area. There is potentially an issue here, which is why there is an incentive to look at other options.

One of the points I sought to make is that I hope that the department’s mind is not closed because it is too close to the PPF. The fund is the department’s own invention, so of course it is rather protective of it, but I was hoping that the Minister would demonstrate that he is open to open market solutions. I say that because we believe that open market solutions often produce innovation and thus dynamism in a given situation. I completely accept that there are big practical issues to be dealt with, as the noble Lord, Lord Oakeshott, said. I was not advocating the BrightonRock proposals but the use of market-based solutions as an alternative to state-based solutions. That may indicate a doctrinal difference between us.

The Minister for Pensions, Mike O’Brien, is on the record as saying that he welcomes innovation in the market. Obviously there needs to be a full analysis of the innovations and of the risks, but certainly our mind is not closed to those kinds of solutions.

The Minister reassures me. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 2 agreed to.

[Amendment No. 130 not moved.]

Clause 89 [Additional State Pension consolidation: Category A and graduated retirement benefit]:

moved Amendment No. 130ZZA:

I shall speak to Amendments Nos. 130ZZEA and 130ZZEB, which are amendments to government Amendment No. 130ZZE in this group. This is getting ridiculous.

I thank the Minister for introducing his amendments and for circulating the note which was euphemistically headed “simplification of state second pension”. As he has demonstrated in his opening remarks, this is anything but simple. I learnt more from reading the note than I ever need to know about S2P. I cannot pretend to understand the precise technical impact of all the amendments in this group, but if the department’s note is an accurate reflection of what is planned, then we are broadly content with what the Minister is proposing.

However, there is one exception, which is dealt with by my amendments. I was alerted to this by the reference to actuarial equivalence in the department’s note. When I found out that it was in connection with contracting out—in this case the contracted-out deduction—I was put on full alert because the Government are not to be trusted in this territory. Paragraph 21 of the department’s note on these amendments refers to the way in which the contracted-out deduction will be arrived at. It states:

“The current intention is for the Government Actuary’s Department to consult on the proposed assumptions in the Summer of 2011 to ensure that consolidation can be based on the most up to date information on life expectancy, earnings and earnings growth. These assumptions will be used for the consolidation calculation”.

That seems entirely rational, and we support it. However, it is not what the legislation contained in these amendments says. Instead, proposed new Section 46A of the 1993 pensions Act, as inserted by Amendment No. 130ZZE, says nothing about consultation. Subsection (5) says only that the Secretary of State “may” require the Government Actuary to prepare a report; the Secretary of State is not required to involve the Government Actuary. Subsection (7) says, in effect, that even if the Government have a report from the Government Actuary, they are under no obligation to take it into account when issuing the regulations for determining actuarial equivalence.

The Committee may feel that this is just a technical issue, but very similar provisions on actuarial equivalence already exist in relation to the contracted-out rebates which are set on a quinquennial basis. I know that the Minister recalls our previous discussions on this, and I am sure that the noble Lord, Lord Oakeshott, will remember the debates we had on the order setting out the contracted-out rebate in 2006 after the last quinquennial review. At that time the Government Actuary reported, after consultation, that the rebate should be set at 5.8 per cent, although many of the consultees argued for a higher figure, some for higher than 8 per cent. The Government then plucked the figure of 5.3 per cent from thin air, citing something that was not found in the legislation or indeed in these amendments. They called it “sustainable affordability”—that is to say, if the Treasury says it cannot afford it, the Government will ignore actuarial equivalence determined by the Government Actuary’s Department.

The legislation, which is drawn in very similar terms to the amendments before us, did not stop the Government from acting in that way at the last quinquennial review, as the noble Lord, Lord Oakeshott, will recall. The government amendments give them carte blanche to carry on operating in exactly the same way, and possibly even to invent new bits of doctrine to sit alongside “sustainable affordability” and not do the right thing.

My amendments are modest. They would ensure that the Government of the day, when coming to these difficult and complex decisions, would be guided by what was right for the rights-holders when their rights were being consolidated, not what was convenient for the Treasury. I would replace the word “may” with the word “must” in subsections (5) and (7) of new Section 46A.

Will the Minister comment on the processes that will be used to assure the calculations on a quality basis when the single additional pension amount is arrived at? The department’s note makes it abundantly clear that no ordinary mortal could check the calculations attributable to his particular circumstances. Those calculations will fix an entitlement for all time for post-2020 retirees. Would the department, for example, use specially commissioned audits of the calculations? The ordinary audit of the National Insurance Fund will not give assurance of the granular level of the individual’s own rights and entitlements, and it is at that level that we need confirmation to exist.

We have seen too many government systems collapse in the face of complexity and fail to deliver what they need to. Child maintenance is a prime example, but anyone who has tried to check a contribution record extracted from NIRS2 will find that that is not a simple process either. The calculations that are involved in gathering these various entitlements and deductions are even more complicated, which is why I particularly want the Minister to reflect on the assurance processes that will ensure that individuals get that to which they are entitled once the actuarial rules have been set.

It would be churlish of me not to support these amendments, particularly as the noble Baroness has so kindly made the speech for me and referred to me several times. She asked whether I remember the debates on the order in 2006. I think of little else; I find them far better than counting sheep. I have only one question for the Minister. Could he please explain what the difference is between “affordable sustainability” and “sustainable affordability”?

I will pass on that last question, if I may.

The noble Baroness’s amendments would make it a requirement that the Secretary of State obtain a report from the Government Actuary advising on the method for determining actuarial equivalence and that the recommendation in the report be adopted. Incidentally, I am not surprised that the noble Baroness referred to contracted-out rebates; I thought that they might just be raised in the context of this issue.

Determining the method of actuarial equivalence will clearly require a great deal of expert knowledge. That is why we have made provision in the Bill to obtain a report from the Government Actuary’s Department. I assure the Committee that it is fully our intention to make use of that provision, and we will make a decision based on that advice.

I can, however, see considerable merit in the amendments. But there is a slight concern, about which we need to talk to the Government Actuary. It is suggested that the draft amendments compel the Government to accept the Government Actuary’s advice. That depends a bit on whether there is going to be a range of advice or a single proposition, and whether that places the responsibility for determining actuarial equivalence on the Government Actuary rather than on the Secretary of State. We would like to discuss that further. Subject only to that, I am hopeful that we can bring back on Report something that has the same effect, if not the same wording, as the noble Baroness’s amendments, because we are fully in agreement.

The noble Baroness rightly raised the issue of quality assurance. There are two strands of the work. There is the calculation of the growth of the additional pension before the contracted-out deduction. Of course that is a calculation that happens currently when people retire, but it is being done specially in 2012 to try to get this system under way. There are already systems in place that cater for that, but we would certainly consider the use of the NAO to quality-assure these calculations. That has not yet been looked at in detail. The suggestion is helpful and we will take it forward.

That is as much reassurance as I can give the noble Baroness. I hope that, on that basis, she will feel able not to press the matter today.

I am delighted. I look forward to seeing the amendment that the Minister produces on Report.

On Question, amendment agreed to.

moved Amendments Nos. 130ZZB to 130ZZD:

moved Amendment No. 130ZZE:

moved Amendment No. 130ZZF:

moved Amendments Nos. 130ZZG to 130ZZL:

moved Amendment No. 130ZZM:

moved Amendment No. 130ZZN:

I understand where my noble friend is coming from; obviously we all wish to see this simplification, particularly regarding the very complicated issue of protected rights when people are not in contracted-out schemes, or, indeed, contracted-out schemes in the future.

My noble friend is pursuing three or four objectives which sometimes clash with each other and are not reconcilable. I understand that this is an awkward bit of protected rights and there is therefore a different rule when it comes to the rest of the annuity; people can end up having two types of annuity. As we were saying earlier regarding the amendment of the noble Baroness, Lady Howe, women live longer, and we also wish to ensure that couples, particularly women, have protection and do not need recourse to income-related benefits, particularly pension credit, in widowhood. They are best protected against that, until the happy day when women have an annuity or pension in their own right of sufficient size, comfort and affordability, by having joint lives on their husbands’ pensions—in other words, survivors’ benefits. But we are stripping out even that benefit, which is available through protected rights.

That push to simplify is at odds with the push to keep as many people as possible off income-related benefits in older age. I do not have an easy solution: this is a problem that one hopes will diminish over time as more women carry their own pension. However, if we want to keep widows in particular off income-related benefits, we may do more to help them by changing the annuity rules rather than the pension credit rules. At the very least, spouses should be required to sign their spouse’s annuity forms so that they know what they are signing up to when they choose a single life annuity. From now on, such spouses will be even more vulnerable to having to receive income-related benefits than in the past.

I acknowledge the issue that my noble friend has raised concerning vulnerable survivors. The best way in which to help people make the right choice is to ensure that they have access to clear and appropriate information. My noble friend will be aware that we are working to facilitate and encourage improvements to the information on annuity choice so that people have the information they need. In particular we are working with the Pensions Advisory Service, supporting it on the development of its web tool to provide people with information about choosing an annuity. This is an important issue and we need to get the balance right.

On Question, amendment agreed to.

Clause 91 [Scope of mechanism]:

[Amendment No. 130ZA not moved.]

Clause 91 agreed to.

Clause 92 agreed to.

Clause 93 [Activation of pension compensation sharing]:

moved Amendment No. 130ZB:

I am grateful to my noble friend the Minister and to the officials of both departments who have worked closely on this matter. I also pay tribute to Maggie Rae, the solicitor, who held my hand back in 1995 when we first raised this issue, and we have seen it all the way through. I am delighted. Most people have only two major assets in their lives: their house and their pension. The PPF could have meant the pension pot falling the wrong side of a divorce and access being lost as a result. I do not need to rehearse the arguments. I am very grateful to the Minister and the officials who have worked so hard. I have only one question: what about FAS?

Like the noble Baroness, Lady Hollis, we on these Benches have no problem with the Government’s policy on pension sharing, either on divorce or the dissolution of a civil partnership. That extends to that occurrence within the ambit of the Pension Protection Fund.

I am not surprised that the Minister read his brief at such speed. I certainly did not understand all of it and I cheekily rather wonder whether he did either. However, the key amendment in the group, as I understand it, is Amendment No. 130ZC, which relates only to Scotland. It reads a little oddly when compared with Clause 93. Subsection (2) states that Clause 93(1)(f) or (g) is to be disregarded if the board of the PPF does not receive certain information before two months have elapsed. I have no problem with paragraph (f) being disregarded, but paragraph (g) states that,

“any provision corresponding to provision which may be made by such an order, and which … is contained in a qualifying agreement between the parties to a marriage or the partners in a civil partnership, … is in such form as the Secretary of State may prescribe by regulations, and … takes effect on the grant, in relation to the marriage, of decree of divorce or a declarator or nullity or (as the case may be) on the grant, in relation to the civil partnership, of decree of dissolution or of declarator of nullity”—

those, I assume, are Scottish expressions—

“except where the provision relates to the same rights to PPF compensation as are the subject of an order made under section 12B(2) of the Family Law (Scotland) Act 1985 (order for payment of capital sum: pension compensation)”.

Why is the disregarding provision in the Scottish clause but not in the English clause? I would be very happy to receive one of the Minister’s letters if he could not answer me now—and I would readily understand why he could not.

Like the noble Baroness, Lady Hollis, I have only one question: if officials have worked for so long on this provision, why do we have to deal with it now by means of an incomprehensible alphabet soup of government amendments in Committee in the Lords? Why has it taken so long? Why was it not drafted much earlier?

I have had the benefit of meetings with the officials and Maggie Rae to discuss the amendments. It is fair to say that it involved the most technically difficult drafting that I have ever seen in the pensions Acts with which I have been involved. One would have liked the provisions to be included in 2004, but it was impossible because we were building PPF. It was not appropriate last year. At least it has come in Committee and not on Report or at Third Reading.

I look forward to hearing a Minister reply. I do not want to be told what is happening by someone else. That was not a satisfactory answer and it was not from the Minister anyway. Perhaps we could hear the Minister’s answer.

I thank my noble friend Lady Hollis for her support and welcome for the provisions. I thank her for raising and pressing the issue, and engaging with officials to make sure that it becomes a reality. I am not sure that I can give a better answer to the noble Lord, Lord Oakeshott, than that given by my noble friend. I know that a whole raft of amendments is not helpful to Members opposite, and it is certainly not helpful to the Minister who has to run through them. In answer to the noble Lord, Lord Skelmersdale, I say that I thought that I understood most of them when I read them over the weekend, but these things go from the mind quite quickly.

He raised a question about Scotland. I should like to look at the record and go back to the provisions about which he spoke. I am certain that we will be able to provide him with a written answer on his point.

My noble friend raised FAS and pension sharing on divorce. Having achieved one thing, it is good to see her campaigning on the next issue. We recognise concerns about enabling the sharing of FAS payments on divorce. We are focused on delivering as quickly as possible all the legislation needed for the extensions to FAS which we announced in December. Once we know the detail of how reform of FAS payments will be structured and delivered, we will be in a far better position to determine how they should be treated when couples separate. I guess that one would summarise that as being work in progress.

I have tried to pursue this question already and have not received very satisfactory answers in meetings with officials and by correspondence. Does that mean that the Government have powers by regulation to extend the proposals to FAS in due course as and when they see their shape? Do they have power subsequently to introduce regulations to that effect? If so, I am well content.

If the question was whether these powers give us authority in relation to FAS, my answer is that I doubt that they do. I would need to take advice on what powers we have in legislation to then by regulation introduce them. If I receive a note from my officials’ box by the time that I sit down, I shall give that answer to my noble friend now. If not, I shall certainly follow up the point because I understand the issue that she raises.

Surely 90 per cent of FAS is operated by regulation. Therefore, I suspect that the answer that the Minister will, I hope, be able to give in due course is that there is no need to amend the Bill to achieve the noble Baroness’s objective.

I can confirm that we were not planning to amend this Bill to take that issue forward.

Or any other primary legislation? That is the question.

The noble Lord, Lord Skelmersdale, is exactly right. It is not so much whether we need to amend primary legislation—it is confirmation that we have powers through existing regulations or general regulations in this Bill, so that subsequently, if necessary, they conform to the shape of FAS.

I shall write on that issue and share that correspondence with noble Lords. It is turning out quite well tonight—people keep answering the Minister’s questions. This is a really good precedent.

On Question, amendment agreed to.

Clause 93, as amended, agreed to.

moved Amendment No. 130ZC:

moved Amendment No. 130ZD:

moved Amendment No. 130A:

Is this amendment not in fact defective? Should we not also amend the clause heading, “Creation of pension compensation debits and credits”?

We are never allowed to change the titles. I was always told that it is an administrative consequence.

It is with disappointment that I rise to speak for the Government on this clause, not being an accountant.

In responding to Amendment No. 130A, I shall also speak to Amendments Nos. 130B, 130C and 130D. Clause 94 sets out how the pension compensation due to a member can be reduced and a credit of the same amount created in respect of the former spouse. These amendments would remove the terms “debit” and “credit” from the clause and replace them with terminology that has similar meaning.

“Debit” and “credit” are terms currently used in pension sharing, and we believe it is important to take account of the existing pension-sharing legislation. Clause 94, like the rest of this chapter, has been drafted so that, as far as possible, compensation sharing follows the same principles and uses the same language and mechanics as currently apply to pension sharing. In this way we have sought to capitalise on familiarity and avoid unnecessary additional complexity. The same terms are used in Section 29 of the Welfare Reform and Pensions Act 1999, which contains a provision equivalent to Clause 94 of this Bill. Other legislation uses the same terminology as that Act. For example, Section 220 of the Finance Act 2004 uses pension credit and pension debit when setting out how a pension credit affects a person’s lifetime allowances. In due course, the Finance Act 2004 will be applied to compensation credits and debits in the same way, through regulations made by Treasury Ministers after the passage of this Bill.

The feedback that we have had from lawyers—not accountants—who are likely to have to interpret this legislation, is that they welcome this approach. In addition, the provisions in the Finance Act 2004 which set out the tax treatment of pensions and PPF compensation carefully follow the same terminology as pension sharing. If we were to stray away from the existing terminology relating to credits, Parliament would need to make further changes to tax law to ensure that the beneficiaries of compensation sharing were not subject to charges for having received unauthorised payments. Again, this would only add to the complexity.

I sympathise with efforts to simplify legal drafting, but rejecting the existing, accepted terms could lead to confusion. For example, were Parliament to apply these different terms, there may be an expectation that it meant there to be a difference between pension sharing and compensation sharing, when the intention is to encourage the opposite. I hope that I have been able to reassure the noble Baroness that the wording of clauses on compensation sharing has been carefully chosen to ensure consistency and familiarity. I urge her to withdraw her amendment.

I thank the Minister for that response. It was not unexpected, but I have made my point. The Minister tempts me to produce a more extensive series of amendments for Report but, for today, I shall leave my plea on the record that the Department for Work and Pensions does not pinch accountants’ language in future, without getting its lawyers to learn about the words they are using. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 130B not moved.]

moved Amendments Nos. 130BZA to 130BZC:

moved Amendment No. 130BAA:

moved Amendments Nos. 130DA and 130DB:

moved Amendments Nos. 130DC to 130DK:

I suggest that we break and do not reconvene before 8.29 pm. I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.