Pensions Bill

Public Bill Committee, 18 March 2004.

Standing Committee B

New clause 5 - State pension rights of women with a - record of reduced rate contributions

Steve Webb (Liberal Democrat, Northavon)

I beg to move, That the clause be read a Second time.

Good morning, Mr. Griffiths. We are a select band, but quality makes up for lack of quantity. The purpose of new clause 5 is to address the needs of women who, at some point in their contribution history, have paid national insurance at the reduced rate that is available only to married women and subsequently if they are widowed.

The Committee might say that the Bill is mainly about company pensions, private pensions and regulators, so why spend time on a new clause about a specific group of people and their state pension entitlement? My reason for tabling the new clause is that the Government accepted in their pensions Green Paper that women's pensions were a particular issue and devoted a whole chapter to the nature of the problems that affect women. We had assumed that, when the Department for Work and Pensions had time, it would introduce legislation about women's pensions. However, the Pensions Bill is pretty much silent on the subject. The new clause would tackle one of the injustices that women face, which is why they continue to be poor relations in the matter of pensions.

In the constructive spirit of the Committee's proceedings, I refer hon. Members to early-day motion 131 that was tabled in the previous Session. It is almost the same as new clause 5 and was signed by more than 200 hon. Members. As well as myself, my hon. Friend the Member for Chesterfield (Paul

Holmes) and the hon. Member for East Carmarthen and Dinefwr (Adam Price), four Labour members of the Committee kindly signed the early-day motion. They were the hon. and learned Member for Redcar (Vera Baird), a co-sponsor of the motion, and the hon. Members for Coventry, South (Mr. Cunningham), for Burton (Mrs. Dean) and for Monmouth (Mr. Edwards). I am grateful to them for signing an early-day motion that was headed by the name of a Liberal Democrat, although it was a cross-party motion, because they strongly felt that an injustice needed addressing. I hope that the Committee will consider that the issue is not partisan but unites us all.

I shall set out the background to the problem. Under the system, married women could elect to pay a reduced rate of national insurance. In return, they forwent entitlement to retirement pension and certain other benefits on their contributions. Why have such a system in the first place? Well, as the Minister will know, it was based a male breadwinner view of the world. The presumption was that men earned money and that women had babies, so only men needed their earnings replacing and would therefore be part of the system and pay the full rate of national insurance, but married women—as distinct from single women, who were never part of the scheme—could pay less and receive less. In a 1940s view of the world, there was a certain logic to that idea.

In principle, we could ask what was the problem. We had a system under which people made an informed choice. They saved money at the time and recognised that, when they were old, they would not receive it, but they would have husbands. Had that worked, we would probably not be here discussing such matters, but the truth is different. There are several respects in which, in fact, the choice that the women made when they opted for the reduced-rate contribution was not an informed choice in the way that we understand that term now. [Interruption.]

Win Griffiths (Labour, Bridgend)

Order. I remind hon. Members to turn off their mobile phones, their pagers and any other instrument that might disrupt the sitting.

Steve Webb (Liberal Democrat, Northavon)

Thank you, Mr. Griffiths. When women opted for the reduced rate, was it a free, informed choice of the sort that happens today in pensions? The Government's line has always been that, to be entitled to the reduced rate, women signed a form. The form stated, ''I have read and understood the leaflet''. We would assume therefore that that was the end of the story. But there are several examples of that not happening. I know that because when I first raised the issue in the House—I have since raised it regularly over the past seven years—I was contacted by angry women from throughout Britain who have formed themselves into a campaigning organisation, Support Women Against Pensions Poverty, or SWAPP for short. The organisation now has a network of more than 1,000 members, all of whom are aggrieved at the way in which the married woman's stamp has treated them. They are the tip of the iceberg. Every time we raise this issue in public we get more letters saying that the system was not fair.

Let me explain what I mean. First, I am not saying that nobody understood. Sometimes when I make

these arguments a straw man is set up in response. It is quite clear that some people signed the form, read the leaflet and made an informed choice to save some money now and do without a pension later. However, it is also clear that that is not true for many women. To give an example, we are talking typically about the '60s and '70s. The culture was different then. Often women married very young, so many of the women who switched over to the married woman's rate were teenagers or in their early 20s. One woman who wrote a letter to me explained that she came back from her honeymoon, at the age of about 19, and the man from payroll came round and said, ''Did you have a nice honeymoon, love? Sign here. You're a married woman. You pay the married woman's rate.''

Most people, even today, do not really understand how national insurance works. Certainly back then many did not. People report that, although they signed the form, they were not shown the explanatory leaflet and were simply told that that was the way in which the system worked. There are many examples. The woman I referred to said that the payroll man used to be in the Army and people do not argue with a brigadier. That is a world away from the informed pensions choice that this Bill is about. However, that is what happened. Unless the Government think that all those women are liars—I have 1,000 letters in my office from women making such points—they have to accept that what the women describe happened. Some women signed the form because they were told to; things were not explained to them.

Before some women signed the form, they asked for information and advice. They rang up the then Department of Health and Social Security—or whatever it was called at the time—and quite often they were given duff advice. Can they prove it? Well, of course they cannot: it was a phone call that took place 30 years ago. They cannot prove it, but I am convinced that it happened. They would ring up and they would be told, ''You don't need to pay national insurance, love, because you'll get a pension off your husband.'' It is true that when their husband reaches state pension age, they are entitled to a 60 per cent. pension on his contributions. However, what was seldom, if ever, explained to them was that they do not get a penny until their husband hits 65.

Significantly, given that the women's state pension age is 60, when a woman who is the same age as her husband hits 60, she gets nothing at all for five years. A departmental officer who explained that, ''You don't need to save for a pension, love,''—that is probably how it would have been put—''because you'll get something off your husband,'' would have been giving a misleading impression if they did not go on to say, ''But only when he is 65.'' One poor lady is 20 years older than her husband. Frankly, she will be dead before she gets any pension on his contributions. Obviously a whole range of women are involved. Some will be younger than their husbands, so the issue will not arise. However, this is another example of the lack of good information at the time leading to an injustice.

If what happened then happened today, there would be compensation claims, ombudsmen and all sorts of things, but we are talking about a different world. One problem is that it is only now, as they approach pension age, that people are finding out about the past and the consequences involved. One reason why the first two subsections of the new clause 5 provide that the Secretary of State shall compile a list of women who paid the married woman's stamp and write to them all—that is very much in the spirit of the Bill, which is about giving people pensions information and forecasts—is that, even now, many women approach pension age and get a nasty shock. They hit 58 or 59, send off for a pension forecast and find that, in some cases, they are entitled to pennies.

When I made a television programme about this issue, hundreds of people wrote in. One of the women retired last summer with a pension entitlement of one penny. Most people do not believe that that can be the case. People simply do not understand. It therefore seems entirely reasonable for the Government to accept the first two subsections of my new clause, if they do not feel that they can accept the whole of it. I would regard it as serious progress simply to tell people. We are not talking about a marginal little bit of the system that affects a handful of people. Although it is true that now only tens of thousands of women are on the married woman's stamp, 4.5 million married women were paying it at its peak, and it has affected the future pension rights of the vast majority of those women.

I have not focused the new clause on the 80,000, 50,000 or however many are left on the married woman's stamp but on the fact that the Government Actuary estimates that even now well over 1 million married women whose contribution record was affected by it have not yet reached state pension age. That explains the purpose of the first two subsections of the new clause.

The third subsection is about filling the contribution gap. Once we have notified women that they are heading for a pathetic pension, we might want to allow them to do something about it, but again the law stops them. As I am not sure that the new clause is worded absolutely correctly for what I am trying to achieve, I shall explain my intent. People can pay class 3 voluntary national insurance. In some cases, contributions can be backdated several years to fill gaps in their national insurance contribution record, but married woman on the reduced stamp cannot make such payments for any year in which the married woman's election was in operation. I am sometimes accused of demanding something for nothing for those women, but that is not the case in subsection (3) of new clause 5, which asks the Government to accept payments from them.

A typical situation would be the woman who left school at 15—let us think about when this happened—worked immediately after school for, say, five or six years, and then married and went on to the married woman's stamp. She is only a few years short of getting at least a 25 per cent. pension in her own right. We might discuss the 10-year rule or the 25 per cent. rule at a later stage of the Bill, but, leaving that to one

side, if those women were allowed under subsection (3) of new clause 5 to make additional contributions in order to fill gaps in their record, they would receive something for something.

I stress that I am not asking for something for nothing. A misunderstanding is that the women paid nothing. In fact, they paid a reduced rate that was far more than the value of the very limited benefits that they received; it was not an actuarially fair reduced rate. They paid about one-third the amount of national insurance—that was certainly the case when we went to earnings-related figures—but what they received was not remotely related to their contribution. We are not asking for something for nothing but something for something; for example, the chance to top up contributions. Subsection (4) clarifies that, because of the scope of the Bill, contributions should fill gaps in retirement pension records.

Subsection (5) is the critical and, perhaps, most controversial part of the new clause. It asks whether there is a bigger issue involved. Is there something that the Government Actuary should consider? I am absolutely convinced that there is, as the system has failed in several ways. I mentioned earlier that people made their initial decision when the literature and explanations were not very good. Lord Rooker, the Minister's predecessor but several as the Minister with responsibility for pensions, admitted in the House that the leaflets available at the time would not pass the plain English test. He went on to state:

''It was as if there was an ordinance that Departments did not give advice—they were not in the advice business. All we could say to constituents was, 'Make a claim and you will get a decision' ''—[Official Report, Westminster Hall, 23 May 2000; Vol. 350, c. 187WH.]

The culture was completely different then. Indeed, as one departmental official memorably put it recently, they did not have plain English in those days. That was the sort of world that existed.

As not all the Opposition Members were able to be here at the beginning of the sitting, I repeat that the hon. and learned Member for Redcar has actively promoted these arguments in the House, and other hon. Members have endorsed them. I hope that they will contribute to this debate.

Why should the Government Actuary launch an investigation, and what should it be about? A key point is that even if the women had made an informed choice at the time, the world and pension systems have moved on. What may have been the right choice then became the wrong choice later. I wish to give some examples. The classic one, as this discussion is about married women, involves home responsibilities protection. It was introduced in 1978 and said that a woman—the beneficiary was typically but not always a woman—drawing child benefit could have her pension record protected for the years in which she received child benefit through home responsibilities protection, but married women paying the married women's stamp were excluded from such protection. How many married women knew and understood that by not revoking their reduced-rate election they were potentially forgoing a decade of pension protection?

One gets home responsibilities protection for every year of child benefit, so a woman who stayed at home with the kids for the whole time that they were at school would lose 16 years of pension protection. That could produce the following extraordinary situation. Let us say that two women lived next door to each other, both worked at the same factory and gave birth on the same day, but one paid the full stamp and one the reduced stamp. For the next five years, until their kids started school, both were at home. One woman paid no national insurance, but previously paid the full rate, and would get her pension right protected; the woman next door, who also paid no national insurance, would get no pension protection.

It might sound as though I am talking about the '60s and '70s, but there is a huge legacy in pensions that means that, even today, many married women retire with pathetic pension entitlement because of matters such as not being entitled to HRP. Those women who, pre-1978, elected for the reduced rate may have made the right decision, but they might have been well advised to opt back in later. Did the Government tell them? Not only did they lose home responsibilities protection, but they lost state earnings-related pension scheme entitlement. That did not exist pre-1978, so a woman who made that choice before then could not have known that she would exclude herself from it. Unless she followed the proceedings of the House, she would not have known a lot about SERPS and would probably not have known that she was excluding herself from it by continuing on the reduced rate.

There are other complications that it would be unreasonable to expect anyone to have understood about the choice. There was something called the half test, which applied—guess what?—only to married women. It said that married women, and only married women, had to build up half their working life in pension rights before they could get any pension. That rule was later scrapped.

Thus there will have been married women who were right, at the time that they opted for the married woman's stamp, because the half test would have terrified them. They would have thought that they would never work for half their ''working life'', and so paid the reduced stamp. Then the half test was abolished, but did anybody write to married women and tell them? If they had, the answer would have been, ''What's the half test?'' What I am trying to communicate is that it was a fiendishly complicated and evolving system. Women made choices decades ago that would have consequences for years to come in a culture that was completely different from today's.

The Minister was challenged by the hon. and learned Member for Redcar, or another Member, in the House on Monday at departmental questions on the issue. He gave two answers about why he rejected the general approach of doing anything for married women who paid the reduced stamp. The first was that it would not be fair to the women who paid the full stamp. That is a legitimate problem. As I said, when I produced a short television programme about the issue, I received hundreds of letters. Ninety-five per

cent. were from women who paid the reduced stamp and would be covered by the new clause. Five per cent.—not a bad ratio for me, actually—was hate mail from women who had paid the full stamp and who knew what they were doing, who said, ''I knew what I was doing. I paid the money. I made the sacrifice. Why should they get something for nothing?'' Were I calling for something for nothing, they would be exactly right.

However, I am not saying in the new clause that we should pay full pensions to married women who have only ever paid the reduced stamp. I am saying, first, that they should be told, which seems reasonable; secondly, that they should be able to spend their own money topping up the contributions they made in the past; and thirdly, that the Government Actuary should consider—

Kevin Brennan (Labour, Cardiff West)

On the issue of topping up, has the hon. Gentleman done any calculations on whether it would be worth the women paying that? Someone in her late 50s would have to pay a disproportionate amount for the benefit that she would get.

Steve Webb (Liberal Democrat, Northavon)

I am grateful for that intervention. It is a perfectly fair point. It is clear that it would not be in everybody's interest to top up. At the moment, though, it is prohibited. The hon. Gentleman may have been delayed in arriving and missed me giving an example of where it might make good sense. There is a rule that says that people have to pay for 25 per cent. of their working life to get anything. Many women will have paid eight or nine years' worth of contributions, for which they will get nothing, and by paying one extra year's contribution to bring them up to the threshold, they will get a 25 per cent. pension. For one year's worth of top-up of NI, they can get a quarter pension. If, for example, their husband is substantially younger, they can get that pension for several years until he is 65.

I fully accept the point made by the hon. Member for Cardiff, West (Kevin Brennan); it will not always be in people's interests to top up, but I do not believe that we should prohibit people from doing so. I want to stress that I am not asking for something for nothing; I am asking for a fair return on contribution. That would not mean simply handing over a full pension to those women. That is not what I am calling for. I am sure that the Minister will respond in good faith, and I hope that he will not parody what I am saying as, ''Well, we'll just hand them over a pension.''

George Osborne (Conservative, Tatton)

Does the hon. Gentleman have any costings for what he proposes? Would there be a charge to the taxpayer, and what would it be?

Steve Webb (Liberal Democrat, Northavon)

The cost of subsections (1) and (2) of the new clause would be negligible. It would be the cost of 1.5 million stamps, essentially, plus that of turning the handle. Given that the Government plan to send pension forecasts to everyone eventually, it would happen anyway, but we want to bring it forward. It has no significant cost.

The cost of allowing people to top up is difficult to estimate. In the short term, it would bring money in. It would allow people to pay extra national insurance contributions now, and build up future entitlements. To be honest, I do not know what that would cost in the medium term, partly for the reasons raised by the hon. Member for Cardiff, West. There will be people for whom it does not make sense, and therefore the number of people who take up the option might be quite limited. The amounts of pension that they get will probably run on only until their husbands are 65 and there will be pension credit offsets, so the issue is quite complicated. I do not think that we are talking about a large sum of money. The Government Actuary will report and investigate the issue if he thinks that there has been unfairness.

Kevan Jones (Labour, North Durham)

I am grateful to the hon. Gentleman for giving way. He is stating that the measure will not solve the problem for quite a large number of people. Are the Liberal Democrats suggesting another alternative for those people who will not find it in their interests to pay additional credits, and has that been costed?

Steve Webb (Liberal Democrat, Northavon)

We are, and I would be happy to expand on those proposals at length, but I feel that you might prevent me from going beyond the scope of the new clause, Mr. Griffiths. I would be happy to take a coffee with the hon. Gentleman afterwards and talk him through Liberal Democrat pension policy.

The Minister said to the hon. and learned Member for Redcar that the new clause would not be fair to the people who had paid for the full stamp. I have forgotten the second reason why he said that he would not accede to the new clause, so I cannot rebut it. If the Minister wants to intervene and remind me of that killer objection, I will be pleased to respond. It has obviously passed him by as well—[Interruption.] Oh, it is proof. I am greatly relieved.

The Government's other objection is to say, ''Fine. Give us a case. Show us someone. You say you have had hundreds of letters: show us one. Prove it.'' What happens when one tries to do that? If one asks the constituent, they say, ''Do you honestly think that I have my payslips from 1962?'' If one asks the Government to show the form that the person signed to say that they wanted to be on the full stamp, the Government say, ''Actually, we have shredded that.'' The Minister is obviously a reasonable man, but he is just coming across as reasonable by saying, ''We will look at individual cases'', and everyone goes away happy. We then discover that the only way that one can look at individual cases is to have a transcript of a telephone call from the mid '70s or a copy of a form from the '60s. That is not going to happen.

I do not believe that all these people are trying to mislead us. Had they got together and concocted a collective story—like one of those trials where all the witnesses agree a story—one might not have trusted them. These are individual women who have never spoken to each other before we got them together. They wrote in, saying exactly the same thing.

I should like to draw one final parallel on the issue of inherited SERPS, where the Government failed to

give information to pensioners, who lost out as result. The Government took the view that if someone said that they had telephoned the Department and were given misleading information, the Department would presume that they were telling the truth unless it could demonstrate the contrary. I have quotes from Baroness Hollis of Heigham relating to this issue, and from another of the Minister's precedessors, who is now Minister for Energy, E-Commerce and Postal Services, the hon. Member for East Ham (Mr. Timms), who said:

''If . . . people have received advice by telephone, we shall take that into account''—

he is talking about inherited SERPS.

''If what the hon. Gentleman is putting to me is that people may have received advice—for example, over the telephone—on the basis of which they decided not to do something that they would otherwise have done, then they . . . will have a case for compensation.''—[Official Report, 24 June 1999; Vol. 333, c. 1313.]

That is the nub of the final bit of the new clause. The Government say, in relation to inherited SERPS, that if people say they made the calls, were misled and lost out, the default and presumption is that they are not lying. I fear that the Government presume that all these women are lying, trying to give a misleading impression, and that they want something for nothing. That is not true. I hope that the Committee will accept new clause 5.

Vera Baird (Labour, Redcar)

It was indeed I who belaboured the Minister of State with this issue, yet again, only a few days ago.

The second answer that the Minister gave—the hon. Member for Northavon (Mr. Webb) mentioned the first—was that women had done very well out of the state pension system since that time in terms of benefit, and particularly from the means-tested element, because they were the poorest pensioners and money had been rightly directed to them instead of being put into rectifying the situation about which we are talking. I accept that that is a valid point.

The first answer that the Minister gave, which has already been mentioned—that women who chose to take that route have more money in their pockets—has a slight flaw. Indeed, they did have more money in their pockets—perhaps they took that decision because they needed it. However, I am pretty sure that there was a time when, because of the way in which the contributions were configured, the married woman's contribution was higher than the one she would have made if she had not opted out. In that sense she did not have extra money in her pocket.

Rather than arguing about whether somebody had an extra pound in their pocket 30 years ago, we should concentrate on the issue of whether they acted in a properly informed way at the time. That issue repeatedly comes to me in constituency surgeries and is reinforced by the fact that my own case worker, who works for me, is in that situation. She was asked, ''Why do you need to pay anything at all? You are a married woman—your husband is providing for you already, so it is a waste of money''. As my case worker puts it, those were the days when women, who were not far from the domestic hearth, did what their husband told them—and certainly did so if that was

reinforced by what the boss told them. There was a need to say more than that to those women. Women complain that no more was said and the consequences of something befalling their husband—or a divorce—in terms of their individual rights were not explained.

I would be inclined to support the thinking behind new clause 5, that raising an inquiry would not be expensive and it would be easy to ascertain the view of the the roughly 1.5 million women who paid the married woman's contribution. That will not raise great hopes. I would not be in favour of something that would persuade women, just by writing to them, that they would get some change or some benefit. However, it would at least ascertain the size of the alleged problem and the numbers of people who say that they misunderstood and were not properly informed. The Secretary of State plans to write to everyone with a forecast of their pension. Consequently, that would not add anything to the cost.

Save for the striking example given by the hon. Member for Northavon, I cannot imagine that subsection (3) would help many people very much. The clause would simply require better information to be obtained. It would leave behind an element—perhaps quite a large element—of women who were in that position and could not do a great deal about it because it would be too late for them to catch up. I do not have much of an answer to give those people.

There are two issues. The first is that those people do not have their pension rights, but that is subsumed to an extent in the fact that they have the pension credit to top up their pension, so the issue is not just a shortage of money. The second issue is the strong sense of grievance that those people feel about having been misinformed, or not fully informed, and about the fact that although they have worked—and in some cases looked after children—for a long time, they have next to no rights. Some women were waiting for their husbands to retire before they did anything.

The provisions in subsections (1) and (2) would not be expensive. I would widen the inquiry mentioned in subsection (1) to include two questions: first, what information were women given about the choice to pay only a married woman's pension contribution? Secondly, what information, if any, were they given about home responsibilities protection when they left work to have children? The second question is probably more of a problem than the first. It is certainly a big issue, because it is such a complicated matter to explain, in non-plain English form, to someone who thinks that they have already taken the only decision that they need to take for their pension future. I doubt whether the position was clearly explained, and that may have caused a great deal of resentment and difficulty.

Of course, I would not vote to include the new clause—which is far from perfect, as the hon. Gentleman said—in the Bill. However, I am raising the principle again and emphasising that there are two aspects to the issue. One is the money side, but the other is that there is truly a sense of grievance on the

subject. I invite the Government to do all they can by allowing women to catch up, if it is practical, in order to put the money problem right. I also invite them to make the inquiries, with a view to assuaging that grievance for as many women as possible.

Huw Edwards (Labour, Monmouth)

It is a pleasure to contribute to the debate on a new clause. I was wondering whether I would be moved to speak on any clause, but having heard the contribution of the hon. Member for Northavon, whose expertise on the subject is well known, I would like at least to support the spirit in which he tabled his new clause. I was one of the signatories to early-day motion 131 in the previous Session of Parliament, and women in my constituency have contacted me and asked me to support the hon. Gentleman's campaign.

The hon. Gentleman and others, including my hon. and learned Friend the Member for Redcar, have identified an important anomaly. If 50 per cent. of women pensioners in this country do not receive the full state pension, that anomaly is the major contributory reason why. That anomaly has existed in our social security system for 50 years, and has never really been adequately addressed. It is right to say that at the time, many women were just accepting the norms and standards, and believing what their husbands, bosses and even the state told them, which was that they did not need the security of social security if they were married, because of the security of marriage.

Sadly, many women have realised that marriage did not give them great security. If they were dependent on husbands' contributions, they were effectively disadvantaging themselves later in life. Because of the reduced national insurance contributions, they were disadvantaged not only in terms of pension contributions, but in relation to unemployment, sickness and even maternity benefit, too. That is one of the anomalies associated with the problem. If the Government cannot accept the clause, I would like them at least to think about the fact that the new clause is in the spirit of what they ought to be doing. They should come forward with something to help rectify the anomaly.

One of my peculiar hobbies is to study the recommendations in the research and reports of academics who later become Ministers. There is no better example in the House than that before us today: the superb work on the minimum wage done by my hon. Friend the Member for Gravesham (Chris Pond), and his goldmine of recommendations on what that minimum wage should be. Now he is a Minister—[Interruption]. Yes, the minimum wage has just been uprated; I would not want to embarrass the Under-Secretary by discussing some of the recommendations that he has made in the past 20 or 30 years about minimum wage levels. That is not an issue for the current debate.

However, the Minister for Pensions has been a great specialist in family policy. I will not taunt him today by asking him if he can recall making any recommendations that would rectify this anomaly in

any of his research reports. I was on a Committee some months ago and I would have been able to quote, from a seminal piece of work by the Minister called ''Old and Cold'', his recommendations on how to combat fuel poverty and hypothermia. To his credit, his work greatly influenced the debate. I can only ask the hon. Member for Northavon to examine some of the recommendations that the Minister might have made about family policy and see whether, in the spirit of those, he could table a clause to rectify the anomaly.

Sally Keeble (Labour, Northampton North)

I agree with a great deal of what has been said by the hon. Member for Northavon, my hon. and learned Friend the Member for Redcar and my hon. Friend the Member for Monmouth. Although they have correctly identified the problem, I do not think that what the hon. Member for Northavon recommends is the solution—and women need some serious explanation as to why it is not.

All of the statements made so far have assumed that the issue involves women who left work when they were young, and then went into the factories. After my degree, when I left university and went out to work, I too signed up for the married woman's stamp. That was what one did. One got married, changed one's name and signed up for the married woman's stamp. That is what the employer did; it was what one's mother and everybody else said happened, so it was what happened. People were not given information at that time. I have frequently said to women who have come to me with that complaint, ''Look, you go and find a leaflet. If I can see anything that will prove you were wrongly informed, I promise you I'll take your case to the ombudsman''—but I cannot find such proof, and neither can anybody else, because the papers have disappeared.

That does not mean that the problem can be solved as the new clause suggests. There is an issue about the fact that one paid more than one would have done otherwise, so the situation does not look quite as good at the time as it might have seemed. In addition to signing up for the married woman's stamp, most of the women, because they had children, had problems with career breaks. It was a different world, and women accepted that they were expected to stop working while they had their children, although an awful lot of women were hard up and had to carry on with the grind as they do now. Many women worked part-time once they were married or once they had children, and there were problems of unequal pay and job segregation. Therefore, the discrimination that women have faced, which has influenced their pensions, was not just about the married woman's stamp. It related to a whole host of other issues too.

I could not afford to top up all the contributions and benefits that I have missed through having children, through paying the married woman's stamp for a while, and for doing this, that and the other. Even if women could make up the married woman's stamp contributions, they would still have the missing years, and they would still have had the different kinds of jobs and all the other things that have influenced their pension.

One thing that has not been recognised—I am mentioning this to the Minister because something can be done about it—is that this is not simply about the social security system and how much people pay. It is about equality and the fact that women were treated as unequal and inferior, and as appendages to their husbands, who were the breadwinners and the people who ran the world. That is partly why, for many women, this problem sticks in the gullet so much. Many women in my constituency who have worked all their lives, even when they had children, come to see me about it.

Some people say that women were dependent on their husbands in those days. Rubbish. Women in Northampton have always worked; they worked long hours and looked after their children as well. I have had moving letters from women who are now retired, saying, ''We didn't do what you did. We didn't have child care; we looked after our children ourselves. When our husbands came home from work, we went out to work, and we shared the child care between us.'' There needs to be a recognition that the system has been unfair to women and has treated them as if they were appendages to their husbands.

I remember that on one occasion, while I was canvassing in my constituency, a woman came at me like a bat out of hell; she was so furious. She said that she had worked all her life, looked after her children, worked part-time and paid all her married woman's stamps. She had had a thoroughly useless husband, whom she had finally divorced, and at the age of 58 had married a younger man, much to her joy.

Steve Webb (Liberal Democrat, Northavon)

She would be dead before she got a pension on his contributions.

Sally Keeble (Labour, Northampton North)

Exactly. Two years later, she was denied her pension. She was beside herself with fury, and I could understand why. What grates is the idea that the only reason why a person does not get a pension is because she is a woman. That needs to be acknowledged.

I think that the way in which the Government have made sure that women have proper pensions is right. Committee members will probably say, ''She would say that, wouldn't she?''—but we we cannot go back through an unfair system and try to make up for the bits and bobs here and there that made it so unfair. We could deal with the married woman's stamp, but there would still be part-time staff. What would we do about women who took career breaks to have children, and about the fact that for years women have been discriminated against in pay, and have been excluded from jobs with proper pay? What would we do about women who have not had the bonus systems, the access to overtime or all the other extra pay deals that come through unionised and regular employment?

That is why things such as the state second pension need to be promoted much more, and to be better understood. The carer's pension in particular, for women who take time out later to look after older relatives—that is an increasing pattern now—needs to be understood. People look after disabled relatives; for many people, that is becoming much more of an option. The stakeholder pension that women take with

them and then make up the contributions needs to be understood. The idea is no longer that once a woman has stopped working to have children, that is it, and she is out of the running for a pension. For the women who have lost out now, there are measures such as the pension credit; their income can be properly increased, not out of charity but as of right, and in a dignified and sustained fashion.

The idea of the married woman's stamp sticks in my gullet as much as it does for any other woman who has been caught by it. None the less, a much better way forward is to give an acknowledgement that the system was unfair, coupled with the implementation of the measures that we have to make sure that women have proper incomes in retirement, and the measures that will give women proper independent pension rights of their own, so that future generations of women do not have to go through the same problems that the present generation of women pensioners are suffering.

It is really important that what is offered now to women who have already been through the nonsense of the married woman's stamp will give them a real solution to their problems, and will ensure first that the injustices done through the system are acknowledged, and secondly, that they have secure incomes for their retirement.

I do not agree with the new clause. I agree completely with the sentiments behind it, and I would probably agree with a vast number of the arguments of the hon. Member for Northavon in favour of it. However, I think that the matter should be dealt with in a different way.

Janet Dean (Labour, Burton)

I am grateful for the opportunity to take part in the debate.

I have some difficulty with the new clause. Notifying people of their situation is one thing, and that is going to happen. I agree with my hon. and learned Friend the Member for Redcar that it would help if those who have paid only the married woman's stamp are highlighted in such correspondence. If people were to pay back contributions for the years in which they paid the married woman's stamp, we would have to be very careful to give the correct advice. There is a danger of suggesting that people pay back the money in a way that would cost them more than they would gain in the long run.

As my hon. Friend the Member for Northampton, North (Ms Keeble) said, the subject is broad. Traditionally, women worked part-time to fit in with child care demands, and many of them still work in the evening when their husbands are at home. That is how families cope with the need for child care. Although the minimum wage has been introduced, the earnings of women in particular can be below the level at which national insurance is paid. Therefore, younger women can still fall into the trap of having not paid enough national insurance to benefit from pensions in the future.

Vera Baird (Labour, Redcar)

Is there not an aggregating factor? Married women often have two jobs. For example, they might be a dinner lady at lunchtime and then go

out to work again when their partner comes home. They cannot aggregate the earnings to bring themselves above the lower limit, so they cannot contribute to their pension.

Janet Dean (Labour, Burton)

My hon. and learned Friend is right. Women can have two or three jobs and still end up not paying national insurance because they cannot add their earnings together. That problem will persist unless the Government address it. I urge Ministers to examine the anomalies that arose in the past because they will continue unless something is done. I want them to look again at the six-year limit on the purchase of added years of national insurance. That is restricting and changing it might help many people, such as those who have paid the married woman's stamp for some time and those on low incomes who have always paid the full stamp.

George Osborne (Conservative, Tatton)

This debate and the two that we are about to have on the other new clauses provide a moment for us to talk about the things we wish the Bill had addressed. That turns our usually technical discussions into something more like a series of Westminster Hall debates, which is worth while, not least because it allows Government Members to say their piece.

All of us—certainly in the Conservative party—accept that many women have inadequate pension provision and that the poorest pensioners are often older single women. The statistics make stark reading. Women receive on average only 71 per cent. of the basic state pension, although that will increase to about 90 per cent. The Fawcett Society has been mentioned in previous debates. It states that 46 per cent. of single women pensioners are in poverty. The causes of that have been discussed. They include many decades of unequal pay and periods of absence from employment to raise children. Women have longer life expectancy, too. That is an important additional feature, which has not been mentioned. There is also the historical reason for the married woman's stamp. I think that it was Barbara Castle who described it as an alibi for the inferior treatment of women—although I was about five at the time, so I do not remember her actually saying that.

There is a lively debate to be had on whether women, particularly after 1977, were fully aware of the consequences of paying the reduced stamp, and we had some of that debate this morning. The hon. Member for Northavon is right that the answer to that is a bit of one and a bit of the other. Some women knew full well what they were doing. In a Westminster Hall debate organised by the hon. and learned Member for Redcar, my hon. Friend the Member for Upminster (Angela Watkinson) intervened to say that she knew exactly what she was doing in paying the full contribution. She resented the fact that she paid that extra money from her monthly salary and that other women, who did not make that sacrifice, were going to be compensated for not doing so. Her feeling is reflected by a number of women, as the hon. Member for Northavon said.

I also accept that pensions law and national insurance are so complicated that not all women could have been fully aware of the consequences of the choices they made. However, both this Government and the last one have tended to side with the argument that most women knew what they were doing and compensation would be unfair to those who paid the full stamp.

When I was considering whether I could change the Conservative party's position, I started reading what people such as my right hon. Friend the Member for Richmond, Yorks (Mr. Hague) said when he was Pensions Minister. I decided that the change would be too much of a leap. I suspect that the Minister will read out the same speech that Pensions Ministers have read out for the past 15 years. However, I agree with the hon. Member for Northampton, North that is difficult for Governments of any complexion to try to rectify past errors. A more fruitful approach would be to look to the future to see what we can do to tackle poverty among female pensioners.

I suggest that we follow two paths. First, we should do everything we can to support occupational pension provision. Two thirds of women now have private sector provision and figures suggest that younger women in the workplace are now making better provision for their retirement than younger men. In 50 years' time, we might be talking about the problems of male pensioner poverty because of their inadequate pension provision. We must support occupational pension provision. We would have liked more in the Bill on that. In many ways, the Bill will add to the burdens on occupational pension schemes and may undermine occupational provision.

The second path is to tackle the problem of means-tested benefits, which anticipates the debate that we are about to have on the Plaid Cymru new clause. A solution identified by almost the whole pensions world, the hon. and learned Member for Redcar, many Labour MPs and now the Conservative party, is greatly to increase the value of the basic state pension by restoring the link with earnings. My hon. Friend the Member for Eastbourne (Mr. Waterson) referred to what Age Concern and the Fawcett Society said about pension equality among women and it is worth repeating. He said:

''A non-means-tested state pension, paid at a level that would cover basic costs, remains the simplest way of addressing women's access to a decent income in later life and would provide the clearest incentive for people to build up additional private pensions and savings.''—[Official Report, Westminster Hall, 28 October 2003; Vol. 412, c. 14WH.]

While I was reading the Westminster Hall debate on the subject, initiated by the hon. and learned Member for Redcar, I noted her words:

''If both current and future generations of women pensioners are to come out of poverty, it is essential that the basic state pension should be improved, for example . . . by linking it to earnings growth''.—[Official Report, Westminster Hall, 11 March 2003; Vol. 401, c. 7WH.]

The Conservative party has adopted that approach as the solution to the problem.

Malcolm Wicks (Labour, Croydon North)

We have had a useful and thought-provoking debate,

which I have enjoyed and which was ably led by the hon. Member for Northavon, with notable contributions from my hon. and learned Friend the Member for Redcar, my hon. Friends the Members for Monmouth, for Northampton, North and for Burton, and the Opposition spokesman who enlivened our proceedings by quoting Barbara Castle. I shall dig out some other quotes from Barbara Castle about her views on the Conservative party for later use. Long may the hon. Gentleman's further education continue.

The debate has been interesting and while dealing with the specific issue of the married woman's stamp, it has touched on—obviously not too much because you would not allow it, Mr. Griffiths—wider issues about women and pensions. I am tempted to go down that path, but I will not, although a range of issues, including how to get more workers into decent occupational pension schemes and on to the pension credit, are not irrelevant to the debate.

I was touched by the way in which my hon. Friend the Member for Monmouth referred to one of my early publications. I notice that Opposition spokesmen now seem to be reading some of my early works, and I am very encouraged by that. I would have to declare a financial interest in that book were it not for the fact that, sadly, and this will not surprise hon. Members, it has been out of print for a number of years. Our debate may encourage that paperback—''Old and Cold: Hypothermia and Social Policy''—to become a Christmas bestseller, rather like that one on where to put the apostrophe. I live in hope. If it happens, I will, of course, retrospectively—retrospection has been a feature of these debates—declare a financial interest.

The Liberal Democrat new clause would require the Secretary of State to compile a list of all women who have paid reduced-rate national insurance contributions and give them the option of paying additional contributions in respect of the period for which those reduced contributions were paid in order to improve their national insurance record and hence get higher rates of state pension or bereavement benefit. They cannot do that now, but they can revoke their election to pay the reduced rate at any time.

I note the hon. Member for Northavon's reminder about the social history and the time when married women were considered to be dependants of their husbands and could rely on their husband's contribution record. Given the amiable and serious way in which we have conducted the debate, I will not remind the Committee that much of that was based on the Beveridge report and that great Liberal's view about the respective roles of men and women at the time, which, to be fair, were widely shared by other political parties.

The option to pay reduced rate national insurance contributions existed from 1948, although it is worth remembering that it was removed in 1977, which is quite a long time ago. Women holding elections before that period were allowed to continue paying reduced rate national insurance contributions because it was appreciated that some would have gained nothing by switching to the standard rate. Married women have

benefited from paying those contributions. They will have received higher take-home pay compared with their colleagues who made a different election, those who chose to pay full-rate contributions or those who were not offered any choice.

It would be wrong to provide those women with a new choice that, with the benefit of hindsight, would give them a clear advantage over other married women who chose to pay full-rate contributions. That is not the way in which insurance works. Many women who have sacrificed take-home pay for many years to secure benefits based on their own contributions would rightly find that inadequate.

The hon. Member for Northavon said that following one of his many TV appearances, only 5 per cent. of the mail he received was hate mail—I thought for a moment that he was referring to my replies to his correspondence, which, although at times rigorous and vigorous, are never hateful. Were we to say, ''Look, let's give them equal rights,'' that 5 per cent. would grow to include a large number of women constituents who would understandably argue, ''I am not daft''—I am not saying that the others are daft—''I knew what I was signing up to, so don't regard me as some chattel. I knew what I was signing and I decided to pay the full stamp.''

Sally Keeble (Labour, Northampton North)

What does my hon. Friend say about the fact that in those days—bearing in mind that there was a gap in employment protection, equal pay and sex discrimination legislation, and no minimum wage—a married woman would be paid less and would be given a job only if she agreed to the employer's terms, which could be outrageous? There was not a level playing field for married women who were looking for jobs, and they did not have access to equal pay.

Malcolm Wicks (Labour, Croydon North)

I am sure that different women face different circumstances, but I have met many women who have made a judgment, in the full knowledge of what they were signing up to. Circumstances may differ in different towns and cities.

It is neither practical nor appropriate for the national insurance scheme to revisit an individual's circumstances with a view to changing their records and obtaining the best answer. Some women may not have benefited as much as expected from paying the full rate, but there is no suggestion that they should be allowed to change that retrospectively. More specifically, if a married woman who has paid the reduced-rate contribution feels that she was misled by the Department—that she never signed the document—she can of course contact the Department. We would reconsider the case, subject to her providing evidence to show that she was misled.

Vera Baird (Labour, Redcar)

What kind of evidence does my hon. Friend have in mind, so that I can advise the constituents who have complained to me what they should look for?

Malcolm Wicks (Labour, Croydon North)

I suppose that I have in mind, in cases where people were clearly misled, written

documentation to that effect from the Department. It would have to be evidence of that kind.

Those who now find that they are a few years short, as it were, have a potential solution. All that they need to do is terminate, now, the election to pay at a reduced rate, and pay either class 1 or class 3 contributions. They have the choice. For example, a 55-year-old woman can terminate her election to pay, and then pay class 3 contributions to make up the 10 years she needs to get to the 25 per cent. pension. It depends on individual circumstances and proper advice.

George Osborne (Conservative, Tatton)

Do the Government offer advice or express an opinion about what women paying the reduced stamp should do?

Malcolm Wicks (Labour, Croydon North)

Does the hon. Gentleman mean at the moment?

Mr. Osborne indicated assent.

Malcolm Wicks (Labour, Croydon North)

No; it is for the Government to provide information, and I was going to say that our forecasts on state pensions are rather important. We now issue far more information on state pension forecasts. Automatic state pension forecasts will soon have gone, for example, to all self-employed people of working age. The next phase will start in October. By the end of the spending review 2004 period—that is, by the end of 2006—the whole working-age population will have been included in the state forecasts. That is, I think, part of what the hon. Gentleman is asking about.

As to advice and what options to take about revocation, things are quite complicated. Even if some of the women were allowed to pay the difference in contributions, they might not benefit, because they are entitled, after all, to 60 per cent. of their husband's pension.

Steve Webb (Liberal Democrat, Northavon)

When he is 65—which is precisely the point. The Minister was about to move on without making that qualification. They get that money only when their husband is 65. This exchange replicates the conversation that has taken place probably hundreds of thousands of times, leading women to think, ''I don't need a pension, because I'll get one,'' because they did not hear the final clause, which the Minister just omitted. Does that not illustrate the problem?

Malcolm Wicks (Labour, Croydon North)

Yes, obviously that would occur when he is 65.

I was trying to make the point that it is a complicated judgment. It is not so complicated that it is impossible to make it, but one would need proper information as to whether to revoke. I will not go into too much detail, but we must balance the fact that some people will have signed the form without quite realising what they were signing, with the fact that in law, when one has signed a form, one has signed a form. Many of us might have signed documents that we did not fully read or understand, but we must be careful of saying that it does not really mean anything when one signs something.

Married women who opted to pay reduced-rate contributions made that choice, and they were required to give written notice of that decision on the form attached to leaflet N11. The leaflet clearly described the consequences of that decision and the women were required to sign a declaration that they had read and understood that leaflet. In human terms, that does not mean that they did understand it, but those women who chose to pay reduced-rate national insurance signed it and were each issued with a certificate for their employer. That was the process. Employers were not allowed to deduct reduced-rate contributions without that certificate. Arguably, that process should have meant that the women knew what they were doing, although I do not say that that would always have been the case.

We could argue that different Governments made other efforts to inform women about choices. If the hon. Member for Northavon wants me to write to him and the Committee about that, I will. I shall not go into detail now, but I will write to him about it and copy the letter to hon. Members. That seems sensible.

The story becomes more complicated—my hon. and learned Friend the Member for Redcar touched on this point. In 1989, changes to the national insurance structure gave rise to a situation in which some low-earning women who were paying the reduced rate might have had to pay more national insurance contributions than if they were paying the standard rate, because of the low-income proviso. However, mailshots were sent in August 1989, before the national insurance structure was changed, advising women that if their earnings were low they might be better off paying standard-rate national insurance contributions. There are several other situations concerning the issue of choice in which information was available.

The situation is complicated. I do not mean this in a frivolous way, but hindsight is a wonderful thing when considering the choices that people made many years ago when social and familial circumstances were rather different from what they are now. When it comes to those married women who made informed choices, there is a serious issue of equity. We must be careful not to generalise. To imply that all women did not know what they were doing is a bit of a slur on the many women who did know what they were doing. Many women consciously decided to pay the married woman's stamp knowing full well what that meant—I happen to know one such woman very well. To imply that no one knew what they were doing is an unfortunate generalisation. Some people decided to pay the reduced rate, and some, who were fully conscious of the implications, thought, ''No, I'll pay the full contribution because I want to build up my own contributions.'' It would be difficult to address their sense of inequity if such changes were made.

Having said that, the question raised by the new clause—as to why women cannot now have the opportunity to pay back national insurance contributions—is a fair one, which I have reflected on. I cannot accept the hon. Gentleman's new clause today, but my Department will consider it further. I am not making any promises about the outcome of

that reflection, but these are no mere words: we will reflect on whether there is a case for enabling women to pay back contributions, and we will consider the implications of that. I shall return to the House when we have reflected. I hope that the hon. Gentleman will withdraw his new clause, and consider that this has been a useful debate between the position that he presented and that presented so ably by my hon. Friends.

Steve Webb (Liberal Democrat, Northavon)

I thank every hon. Member who has contributed to the debate. This new clause is the one that has attracted the most widespread interest. Many of our constituents are concerned about this issue, which is not party political and affects us all. I also thank the Minister for the constructive spirit in which he has responded—he has been more constructive than several of his predecessors to whom I have put similar points. I welcome that. I thank the Committee for enabling us to have this debate at prime time rather than at the fag end of the Bill; otherwise, we might never have had it.

I shall not detain the Committee unduly, as we have kicked this issue around for some time, but I will make a couple of observations. During the debate, the words ''it sticks in the gullet'' and ''a sense of injustice'' were used. There is a lot of anger among the women we are talking about. No one suggests that people did not know what they were doing, but some people were clearly confused or misled. One or two Committee members suggested that the pension credit was the answer; certainly that ameliorates some of the problems, but that credit applies only if the couple are on a low income. We are talking about individual women and their sense of justice—their feeling of getting something for what they have paid. If a woman has a husband who is working, the family may not be poor, but the woman will not have justice, and that is why the pension credit is not the whole answer.

The hon. Member for Northampton, North said that the issue was one small part of a big picture. I accept that and I hope that I did not suggest that the new clause was a panacea. However, we should not say, ''We can't deal with the whole problem, so we are not going to deal with any of it.'' I was trying to do what I could to deal with a small part of the problem. I was interested in the suggestion that we lift the six-year backdating. I hope that that feeds into the Minister's thinking.

The hon. and learned Member for Redcar and the hon. Member for Monmouth were most sympathetic in spirit to the new clause. The hon. and learned Member for Redcar asked the important question about what information people were given about home responsibilities protection when they had children. That is key, as most of the women did have children.

I want to make a couple of observations about the Minister's response, which was summarised in two words. One was ''hindsight.'' If people did not have proper sight in the first place, it is not wrong to go back and consider whether they should have had better sight. Was personal pension mis-selling about hindsight? No; people were given bad advice at the time. The mistakes with inherited SERPS were

nothing to do with hindsight; things went wrong and we have put them right. The second word was ''equity.'' How do we treat women on the full stamp and those on the reduced stamp? I am not saying, ''Give them the money.'' There is an important practical issue; if we allow married women on the reduced stamp to revisit what they did, equity demands that we allow married women on the full stamp to revisit what they did.

The Minister says that forecasts will go out by the end of 2006. That is important. The Government have prioritised the self-employed already, and subsections (1) and (2) ask that the next priority be married women who have paid the married woman's stamp. I wonder whether they might be the next priority group. The Government clearly have the technology to pick out groups and send them their forecasts. I wonder whether the 1.5 million who are still of working age and have paid the married woman's stamp will be the next lot because time is running out for them. Although 2006 is not a million years away, those extra two years could make all the difference. Will the Minister reflect on that?

Malcolm Wicks (Labour, Croydon North)

I will reflect on that point.

Steve Webb (Liberal Democrat, Northavon)

I am grateful. The fact that the Minister will consider the issue of going back is encouraging. I would be happy to meet him informally to talk through the options relating to what going back might mean. I am heartened by the spirit and content of today's debate, and because things might be moving, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 6 - Indexation of overseas pensions

Steve Webb (Liberal Democrat, Northavon)

I beg to move, That the clause be read a Second time.

As if the Committee had not heard enough from me this morning, I shall make another contribution, but hon. Members will be relieved to hear that because I know far less about this issue, this one will be shorter. For reasons that will quickly become apparent, I want to set the Committee a challenge that is germane to my remarks. Can anyone tell me what links Jamaica and Bermuda, but not Grenada and St. Kitts and Nevis?

Win Griffiths (Labour, Bridgend)

Is this ''Round Britain Quiz''?

Steve Webb (Liberal Democrat, Northavon)

Round the Commonwealth quiz. In case attention wanders while I am talking, perhaps the Committee would like to reflect on that puzzle and I shall come to the answer at the end.

The purpose of the new clause is to provide that the pensions of those who now live overseas should be annually uprated, wherever they live. As it stands, the new clause is astonishingly modest, although I am not

sure that one should boast about that. The proposals are limited in scope and do not say that people with frozen pensions should have their pensions immediately raised to the full basic pension and then indexed. The new clause simply says that from now on pensions will be uprated annually, wherever they are in payment. The proposals offer far less than many overseas pensioners demand—that is for sure. The purpose is simply to ask the Government whether there is an issue about justice, fairness and equity, to use the Minister's word, and whether we should address it as we move forward.

To put the matter in context, according to a Library briefing note, roughly 900,000 state pensions, of which about half are frozen, are paid to UK pensioners living abroad. The principal countries are Australia and Canada—they are by far the largest—as well as South Africa, New Zealand and many others. British citizens who work and pay national insurance all their life and then move to those countries receive a frozen pension. For a year or two, that probably does not matter very much, but over a long period it can make a huge difference. There was a recent case of a lady in her 90s who had gone, I think, to live in South Africa. She still draws a pension of £6.75 a week, which was the rate in 1974 or thereabouts. From one year to the next, a frozen pension probably does not make a big difference, but, owing to the fact that people now live longer, as we have heard, the cumulative effect of freezing pensions makes a big difference.

In the European Union, in certain other European countries and in countries with which we have a bilateral agreement, pensions are not frozen. However, most of those agreements were signed in the 1950s, many decades ago. In the case of countries such as Australia, there seems to have been an oversight in the reciprocal agreements, in that the payment of pensions was covered but uprating of pensions was not. We are now in an extraordinary situation. British citizens who have paid national insurance all their life, accrued entitlement to a state pension and committed the misdemeanour, as it were, of moving to Australia, New Zealand or Canada, but not to the United States, do not receive an uprated pension.

George Osborne (Conservative, Tatton)

I wonder whether the hon. Gentleman is right that what he described was an oversight. Unfortunately, none of us, with the possible exception of the Minister, has done the homework that we should have done, but most émigrés in the 1950s surely went to countries such as Australia and Canada, not to countries with which we have reciprocal arrangements. Emigration to those countries might have picked up recently. However, I would imagine that the Governments who agreed such arrangements knew exactly what they were doing, because literally hundreds of thousands of people were emigrating to Australia and Canada at the time.

Steve Webb (Liberal Democrat, Northavon)

Some of the principal agreements were signed in the 1950s, when our culture as regards inflation was different. That is a key point. In the 1950s, domestic benefits were sometimes not uprated from one year to the next. Inflation was so low that the

levels could be left for a few years before introducing an ad hoc uprating. That point mirrors the previous debate somewhat. It is important not to look at the world at the time of such decisions through modern spectacles. Inflation was not much of an issue then. That might be partly why uprating was not covered by such arrangements.

The consequences of not uprating pensions can be quite severe. In some cases, the individuals concerned find themselves dependent on the means-tested welfare of the country in which they are living. Interestingly enough, that has created ill will between this country and some of our Commonwealth partners, including Australia—which terminated the reciprocal agreement—Canada and other countries. I understand that the Canadian high commissioner has made representations to hon. Members on the matter. The British Government are essentially free riding on the welfare states of countries that British citizens are moving to. The pensions of British citizens go down and down in real terms, and they fall into the net of the welfare state in those countries. We are asking other countries' taxpayers to support our pensioners.

Two essential arguments are advanced for not dealing with that issue. The first concerns cost: it would cost a lot of money. Fairness has a cost. My new clause probably would not cost a great deal of money, because it does not call for everyone's pension to be hiked up to the rate of the full pension and then indexed. I gather that that would cost £400 million a year. I do not know whether the Minister has a costing of my new clause, but I imagine it would cost a fraction of that. Indexing the £6.75 pension would not cost very much. New clause 6 is trying to correct an injustice.

I do not think that the new clause can be objected to on the grounds of cost, certainly in the short term. The key question is whether a price tag is attached when tackling an unfairness. There will be a price tag attached, which will grow over time. Where such issues have been considered in court, judges have said—although they felt that the person concerned did not have a legal claim—that the whole system is pretty arbitrary and random. The composition of the list of countries where one does have uprating, and the list of those where one does not, is pretty odd. If one looks at those lists and tries to find what connects the Philippines with a Caribbean country, it is hard to understand the logic. The Minister's predecessor Lord Rooker said that the entire pattern was arbitrary. There is no logic to it, and it is hard to justify the situation we are in. The question relates to cost, but sorting out an unfairness does have a cost.

The other question concerns choice. It is argued that people knew what they were doing. The Parliamentary Private Secretary, the hon. Member for Greenock and Inverclyde (David Cairns), intimated from a sedentary position that people chose to go to those countries. If they want to live in Canada rather than the USA, they should lump it—they will have a poor pension. I have a couple of observations to make on that point. First, there is a danger of seeing such people as being ''the rich''. Given that the Minister did not put up straw men

during our debate on my previous proposals, I will not do that now.

There are those who have argued that the issue is just making a noise for the rich few who can afford to live in sunny climes, and that, frankly, they can look after themselves. Some of those people are well off—I cannot deny that—but some are not. Some have ceased to be well off because they have been retired for a long time on a frozen pension. We are not talking about feathering the nest of the favoured few, but justice. It is said that they knew what they were doing. Probably some did and some did not, but it is known that pensions are frozen if one goes to certain countries. I have met overseas pensioners who say that that was far from clear at the time.

The question is moral rather than legal. I do not think that anyone doubts that the Government have the legal right, based on 1955 legislation, not to pay upratings to some countries, but is there a moral claim? The moral claim rests on the fact that we have a contributory pension system. We ask people to make contributions all their life to accrue an entitlement. Why should that accrued entitlement vary according to where they choose to live? Much of the Bill concerns choices, flexibility, and people gaining new sorts of retirement, but the system arbitrarily says that one's entitlement is greatly reduced if one chooses to live in such places, rather than a few miles down the road. That does not sit well with the idea of a contributory system. I accept that there is not a pot. I accept that it is not like the case of a stakeholder pension, where people have access to a pot of money they can take with them, but why should an accrued entitlement not be treated in the same way?

I have made my key point. The list of countries that the system applies to is very arbitrary. I am sure that the Committee will be desperate to know that Bermuda and Jamaica are not frozen, but Grenada and St. Kitts and Nevis are. Different Caribbean islands have different rules, which seems crazy. I know that the Caribbean is not generally thought of as frozen. None the less, the provisions seem odd and they are hard to justify. In accepting new clause 6, we would be taking a small step towards recognising that it is hard to justify the existence of such irrational situations in the 21st century. The world has moved on, and people's lives are much more global. People are more likely to work overseas, and their parents may want to go and live with them in retirement. Should we penalise those who retire overseas to be with their children, or should we say, ''You've worked hard and paid hard. It's your pension—take it with our blessing''?

Piara S Khabra (Labour, Ealing, Southall)

I should like to make a small contribution, because this is an issue in my constituency. The new clause is reasonable, and there is definitely an anomaly in the law, because some people are deprived of the right to uprate their pensions while others are not.

Many ethnic minority pensioners from India, Pakistan and other Commonwealth countries have lived in this country for 40 or 50 years. They have worked hard and they are entitled to pensions when they retire. Some would like to spend their last years in

their country of origin, and they are bitter about the current law, which deprives them of the opportunity to uprate their pensions, while making it available to people in other countries.

I do not know how much the new clause would cost the Treasury, but the Bill does not do justice to people who have lived in this country and contributed to the economy but who are deprived of the fundamental right to uprating. I hope that the Minister will take account of my point, which I make on behalf of ethnic minority communities in particular. I know that people living in other parts of the world are also deprived of the right to uprating, but the issue is particularly relevant to ethnic minority communities.

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

I had not expected to speak on the new clause, but could the Under-Secretary respond to a point about European convention law? It is very important that the Government have accepted in the explanatory notes that a contributory pension, including one based on social security contributions, constitutes a property under article 1 of the first protocol of the European convention on human rights and a civil right under article 6. As a result, article 14, which prohibits discrimination in relation to the rights and freedoms in the convention, comes into play. Case law bears out the fact that rights under a pension scheme are civil rights, so discrimination is prohibited. Would discrimination based on residence therefore constitute discrimination under article 14?

George Osborne (Conservative, Tatton)

The hon. Members for Northavon and for Ealing, Southall (Mr. Khabra) made good points in the sense that the issue before us exposes the myth that one pays into national insurance and gets one's benefits at the end. If the system worked in the way that most people think, it would not matter where a person lived, because they would have built up an entitlement. Sadly, that is not so. Sometimes logic in government runs into the buffers of cost. It concerned me that the hon. Member for Northavon could not provide an estimate of what his proposed change would cost. He cannot ask Parliament and the Committee, which could in theory agree the new clause—although that is unlikely—to agree it unless he has a clearer idea of what the cost to the taxpayer would be. The upper-end estimate of paying full pensions to these people is £400 million, which is a large sum of money—although I accept that that is not what he is proposing and his proposal is less costly. Presumably, however, in a world in which people are probably moving around, and will do so increasingly, that would be a rising burden on Government. The hon. Gentleman should have said something about cost.

The hon. Gentleman also made the slightly spurious point that it is unfair that the other countries—like Canada and Australia—have to pick up the welfare costs. Of course, we are picking up the welfare costs of a large number of people who emigrated here. All countries have to pick the costs of people who come to live in them.

I am almost certain that the EU accession countries will automatically come into these reciprocal arrangements. I am interested principally because I have a Hungarian grandmother who lives in London.

Chris Pond (Labour, Gravesham)

She's quids in, then.

George Osborne (Conservative, Tatton)

I suppose that if she chose to move to Budapest—[Interruption.] Not that I am trying to send her there. I add that in case she reads the Committee proceedings.

I assume that what the hon. Gentleman said is so. Many eastern and central European countries have quite large ex-pat communities in Britain, which move to and fro. It would be interesting to know whether the Government are aware of the cost and the numbers of people. Perhaps he would say something about whether new bilateral social security agreements are being struck, or whether such things are a legacy of the past. It is strange that the former Yugoslavia and its republics are included in the apparently random list of countries.

The House of Lords as a court is considering the case of Annette Carson, which the Government won in the Court of Appeal. However, given the experience of Equitable Life, and the fact that the House of Lords cannot be relied on to uphold the decision of the Court of Appeal on such matters, have the Government made any contingency plans for what would happen if Annette Carson won her case?

Chris Pond (Labour, Gravesham)

This is the second of two good debates we have had this morning. In the first I had to sit quietly. I admit to a certain degree of embarrassment as the hon. Member for Monmouth reminded me of the work that he and I had done together on the minimum wage. I remember publishing a report at the Low Pay Unit, ''The case for £4 an hour'', which is the source of my embarrassment because, as Committee members know, the minimum wage is about to go up to £4.85 an hour in October. That makes the proposals made by my hon. Friend and I look rather modest.

The hon. Member for Northavon also described his proposal this morning as ''astonishingly modest''. A pedantic reading of new clause 6 would imply that the UK Government would have the responsibility to uprate the pensions of anyone living anywhere, regardless of whether they were UK citizens. I am not suggesting that that is the true meaning of the hon. Gentleman's proposal. In fact, I am sure that not even the Liberal Democrats are as expansive in their public spending proposals as that. Although new clause 6 would be expensive, it would not be that expensive.

We need first to clear out the issue that was raised by a number of hon. Members about what is the actual cost. The hon. Gentleman is right in one sense. The initial cost may be considered to be modest, if £20 million a year is considered to be modest; I suppose that in Liberal Democrat terms it is rather modest. The key point is that over time the cost rises to about £400 million; to be fair to the hon. Gentleman,

he did acknowledge that. That is about the same cost as the extra £100 to help pensioners over 70 pay their council tax bills that the Chancellor announced yesterday. In the longer term, the sums are substantial.

The new clause would require the Government to uprate the state pension of all UK citizens who are living abroad and drawing their pensions. The hon. Gentleman argued a reasoned case as always, but this matter is about choosing priorities and our priority is to ensure that we help the poorest pensioners living in this country. We want to continue to give them a decent retirement income. That is why we have to make judgments about where the priorities should lie. There is—and has been under successive Governments for several decades—a legal obligation on the Secretary of State to uprate pensions for those living abroad where there is a legal requirement to do so or where a reciprocal arrangement is in place, and we do that.

The hon. Member for Northavon began his presentation by giving the Committee a sort of Christmas cracker quiz about the different treatment of different countries. The answer to the question raised by that quiz is that we will meet our obligations to pay the uprating where there is a legal requirement on us to do so, either because there is a bilateral agreement or because the countries concerned are members of the European economic area—or members of the European Union after the accession of the 10 new countries on 1 May. Elsewhere, there is no requirement on us to pay, and we will not do so; indeed, in the current circumstances, it would be wrong of us to do so.

The hon. Members for Tatton (Mr. Osborne) and for East Carmarthen and Dinefwr raised the question whether what we are doing is in breach of the European convention on human rights. The hon. Member for Tatton referred to the case of Annette Carson, which is before the courts; it takes us into difficult legal territory. That case went to the High Court and the Court of Appeal but both of them found in favour of the Department for Work and Pensions. It was confirmed that the Government are not required to uprate state pensions payable to those living abroad where there is no legal requirement to do so or where there is no reciprocal agreement. Annette Carson has been given leave to appeal to the House of Lords and we will respond at the hearing to the points that she makes. However, as this matter is going through the courts, it would be unwise of me to comment further on the issues raised by the appeal.

We are spending £10 billion more on pensioner incomes than we would have spent if we had left matters as they were in 1997. We want to ensure that we concentrate resources on pensioners living in the UK—and on the poorest of them—and on those living in EU countries and those with which we have bilateral agreements. We do not have a legal requirement to pay elsewhere, and it would be wrong of us to do so, as that is not a priority.

I have considerable sympathy with the case made by my hon. Friend the Member for Ealing, Southall, in part because there is a significant Sikh population in my constituency who might also in theory benefit from

our having an arrangement to pay upratings to people who move back to the Indian subcontinent so that they can spend their last years in what they consider to be their home. However, as far as I can remember, I have not received a single constituency complaint. Perhaps I should ask the Sikh community in Gravesham explicitly about that.

Sally Keeble (Labour, Northampton North)

The Minister for Pensions has had constituents of mine raise that issue because it is a real grievance with people who want to retire to some of the Caribbean islands and cannot get their pension uprated. It is a very active concern.

Chris Pond (Labour, Gravesham)

That will be a concern to some communities. All I can say to my hon. Friend is that we are dealing with a situation whereby we meet our legal obligations. The hon. Member for Tatton asked whether the situation was historical, with most of the agreements determined in the '50s. They were, and after about 1981 there were no new bilateral agreements. One way forward may be to argue for a bilateral agreement between those countries and the United Kingdom that would allow us to work out how to meet the reciprocal costs of such an arrangement. As things stand, we must prioritise the resources that we have. They are considerably increased but we must prioritise them, especially on the poorest pensioners living in the UK.

There is choice. People know the options that are available to them when they retire to another country. There is no debate about whether people know their circumstances—perhaps there was in the previous new clause. People know exactly where they stand. If they move to a particular country, they will be entitled to uprating; if they move to another, they will not.

The hon. Member for Tatton made the point about the 10 new member states joining the United Kingdom in the European Union on 1 May. As they will become part of the Union there will be an automatic reciprocal arrangement, and where we are discussing insurance-based benefits, such as the state pension, the entitlement will be on the same basis as it is throughout the European Union. Therefore, where people have a contribution record in their own country that entitles them in part, in addition to working in the UK, to build up a pension, that will give them the entitlement in their own country, but it will be very much based on their contributions. Owing to the fact that we do not currently have a legal responsibility to do that and because the issue is currently progressing through the courts, I ask the hon. Member for Northavon to withdraw the motion.

I hope that other hon. Members will reflect on whether further pressure should be exerted to examine whether other bilateral agreements would benefit the interests of the particular communities mentioned today.

Steve Webb (Liberal Democrat, Northavon)

That was another quite an encouraging reply. I had anticipated the dead bat reply of, ''These people are not as important as people who live on these shores; they are not our priority.'' We had that. We also had the cost, and I had anticipated the amount of £20 million. It is true that the cost would grow. Just to provide an idea of the scale of what we

are discussing, however, I think that the Department for Work and Pensions has spent that much money since the sitting started this morning.

The hon. Member for Ealing, Southall mentioned his constituents who are unhappy about the situation. It will not go away, however, because the desire of people to retire to live with family abroad will become increasingly common. They will want to stay where their family are. It was suggested that when one chooses one's country, one chooses one that uprates or one that does not. That is not how people live; they go where their family are, irrespective of whether the country is an uprater.

The most interesting aspect of the Minister's reply was the suggestion that although there have been no new reciprocal arrangements perhaps there could and should be. If we can obtain a reciprocal arrangement in which another Government offer to pay something in return, it would be better than the proposed new clause, which puts the onus on the United Kingdom. Accepting the point that I seem to want to uprate the pensions of everyone in the world, which is beyond the scope of even my ambitions, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 9 - Annual update linked to earnings

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

I beg to move, That the clause be read a Second time.

The hon. Member for Tatton was kind enough to call this the Plaid Cymru new clause—although I cannot claim ultimate authorship of the idea of the index link. [Interruption.] Yes indeed, it was the late great Barbara Castle who first set the index link between the basic retirement pension and average earnings. That was in 1974. The incoming Labour Government saw that the real value of the basic retirement pension as a proportion of average earnings had been substantially eroded, and sought to rectify that by immediately increasing the state pension by 26 per cent., and by creating the earnings link. As we all know, the incoming Conservative Government broke that link in 1980, and the basic retirement pension was allowed to wither on the vine, as the then Conservative Social Security Minister put it retrospectively.

We have all seen the basic retirement pension decline as a proportion of average earnings from 23 per cent. in 1979 to around 15 per cent. now. The Government Actuary forecasts that by 2040, the proportion will reach about 8 per cent. The latest Library note shows that if the link had been

maintained, the pension for single persons in April 2003 would be £114.50—£36.70 higher than it is—and that married couples' pensions would be £58.80 higher.

The idea of restoring the link was rejected yet again by the Chancellor yesterday. I am sure that the Government will argue for targeting, which in essence is an argument for means-testing. The Government's policy seems to be to means-test the many, not the few. The proportion of pensioners subject to means-testing rose, I believe, from 39 per cent. in 1997 to 57 per cent. 2003—a substantial increase. Means-testing gives rise to a philosophical question. I do not believe that part of the problem with means-tested benefits lies in popular consciousness and the memory of the first major extension of means-testing in the 1930s, although some of today's generation of pensioners will remember means-testing from those days. It is goes much deeper than that, and is to do with basic human psychology.

As the socialists and social democrats on the Government Benches will understand, there is an important distinction between claiming a benefit and claiming a pension as a right. That is part of the problem behind the low take-up, but it is not the only explanation. The complexity of the process and the resulting confusion are also part of the problem. There is also a psychological barrier between the idea of a pension that people believe is theirs by right, and a means-tested benefit for which they must claim almost apologetically, cap in hand, because they have not made provision for themselves. I am not trying to make a partisan point: these are difficult issues, and I know that there is debate about them in the Labour party.

Let us consider the take-up of the pension credit guarantee. The Government's own figures—the latest that I have seen, which were released in a reply to a parliamentary question asked by the hon. Member for Northavon—show that of the 4.9 million currently eligible, 2.5 million or 2.6 million are currently claiming. That is an appallingly low take-up. Even the Government, with reference to their target for 2006, predict that at least 1.4 million of those eligible will not be claiming by that date.

There is a widely recognised problem with the Government's approach based on means-tested benefits. That is the reason for the growing consensus that now includes even the Conservative party, which broke the link in 1980. We are now in an Alice in Wonderland political world where Tory policies have been embraced by the Labour party and Labour policies are now embraced by the Tories, which leaves me confused, let alone the voters.

Proposals from think-tanks show an emerging consensus. The Pensions Policy Institute recently argued for scrapping means-testing. It favours replacing the stakeholder pension and the credit guarantee with a minimum income, without means-testing, index-linked to earnings. They call that a citizens' income, based on the New Zealand policy.

Kevin Brennan (Labour, Cardiff West)

Does the hon. Gentleman agree with the other element of that report? To make the arrangement possible, should we raise the state pension retirement age to 67?

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

That needs to be considered in a wider debate. I was about to mention the Adam Smith Institute, to go back to what I was saying about the topsy-turvy world that we now live in. It has come up with proposals that are fairly similar to those of the Pensions Policy Institute, although it argues for a retirement age of 68.

I believe that Alan Pickering wrote the report—and the Government have used him in the past, so he must be right. It comes up with a proposal to double the state pension to 40 per cent. of average earnings. We on the left should grab this historic opportunity: the most right-wing institute—I am sure that it is to the right of the Institute of Economic Affairs—advocates doubling the state pension. The Institute for Public Policy Research, too, has come up with basically the same policy of a universal index-linked pension.

There is a wide consensus. I am not sure where the Liberal Democrats stand on the issue. What I have described is Labour party policy, too, of course, because it was passed at conference in 2000. All the political parties are in consensus, bar possibly the neo-Liberal Democrats, which is perhaps what we should call them now, since the regime change that made the hon. Member for Richmond their economic spokesman. [Hon. Members: ''Twickenham.''] I apologise; I meant the hon. Member for Twickenham (Dr. Cable). The Liberal Democrats supported the policy in 2000, I believe, when it was last voted on in the House.

The latest figures—[Interruption.] Do I have to wind up now, Mr. Griffiths, or will I be allowed to continue after lunch?

Win Griffiths (Labour, Bridgend)

The hon. Gentleman must finish his speech and allow the Question to be proposed, or his new clause will fall when the knife comes down at 11.25.

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

In that case I shall finish now, by saying that there is £26 billion in the national insurance fund, and I think that we should use it.

Malcolm Wicks (Labour, Croydon North)

This has been a useful introduction to a well known topic. I hope that I shall have the opportunity to respond at some length, Mr. Griffiths.

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

Just say no.

Malcolm Wicks (Labour, Croydon North)

An aspect of the new clause relates to the debate we just had about women's pensions. Many people forget that in calling for an earnings link to the basic pension they are following more a men's than a women's agenda, for reasons that we have discussed. Indeed, only 50 per cent. of women receive full-rate state pensions—two thirds of them on the basis of their husband's contributions—whereas 83 per cent. of men receive full-rate state pensions. That means that, on average, the state retirement pension for women is £69.70, whereas for men it is—

It being twenty-five minutes past Eleven o'clock, The Chairman proceeded, pursuant to Sessional Order D [6 November 2003] and the Order of the Committee

[9 and 16 March] to put forthwith the Question already proposed from the Chair.

Question put, That the clause be read a Second time:—

The Committee divided: Ayes 3, Noes 11.

Standing Committee B

Clause 196 - Requirement for member-nominated trustees

Kevin Brennan (Labour, Cardiff West)

I beg to move amendment No. 299, in

clause 196, page 122, line 30, leave out 'one-third' and insert 'one-half'.

James Cran (Conservative, Beverley and Holderness)

With this we may discuss the following amendments: No. 301, in

clause 196, page 123, line 2, leave out 'one-third' and insert 'one-half'.

No. 303, in

clause 197, page 123, line 37, leave out 'one-third' and insert 'one-half'.

No. 305, in

clause 197, page 124, line 6, leave out 'one-third' and insert 'one-half'.

Kevin Brennan (Labour, Cardiff West)

The amendments deal with involving members in their pension fund. The subject has generated much interest in recent years since it has become more accepted by trade unions, in particular, and workers that they should regard pension schemes as a form of deferred wages. In many cases, rather than paying money directly to workers, employers are making contributions to a worker's pension fund. Rather than pay wages, therefore, employers are making a promise that at some point in the future the worker will receive a pension. Later we will discuss the problems with that pension promise, which the Bill is meant to rectify.

The Bill presents an opportunity to strengthen the association between workers and their pension funds. The amendments would do that by probing the Government on the clauses about member-nominated trustees. It is well established in most pension schemes that member-nominated trustees are on the boards of trustees of pension schemes, but perhaps it is time to consider increasing the proportion of member-nominated trustees up to best-practice levels. Why have the Government picked the proportion of one-third as the number of trustees to be nominated by members?

The amendments would increase that proportion from one third to one half, which seems sensible. At the very least, employees have half an interest in what is happening to a pension fund, and it could be argued that they have more. Employers have legitimate interests, too. From the point of view of what is happening to the workers' pension scheme, it is important that at least half of the trustees are member-nominated. That would help to boost members' confidence in schemes, which is attempted

elsewhere in the Bill with the provision of both a pensions regulator and a pension protection fund.

Recent events at Allied Steel and Wire and in many other companies have shown that employers retain more than adequate powers to safeguard their interests. Generally, for example, benefits cannot be increased without the consent of the employer, but employers can force reductions in benefits and contributions through their power to discontinue schemes. The Bill also requires that employers agree on the funding strategy as adopted by the trustees, so there is no argument that having 50 per cent. of trustees nominated by members would infringe employers' interests, which are protected in any case.

This morning we debated people's past statements and their pasts coming back to haunt them. In opposition, the Labour party supported one half of trustees being member nominated, so I look forward to hearing why the Under-Secretary has fixed on the proportion of one third and whether he will consider increasing it.

Nigel Waterson (Conservative, Eastbourne)

I do not want to speak against the amendments. As the hon. Member for Cardiff, West (Kevin Brennan) knows, we will debate amendments tabled by the Conservatives which also hope to strengthen and bolster the position of member-nominated trustees, albeit in a different way.

I want to probe the hon. Gentleman's thinking. We all received the same briefing, I think, and it is basically the TUC's position. There is nothing wrong with that, but it is right to put its provenance on record. While I understand the logic of the arguments made by the TUC and the hon. Gentleman, has he considered whether enough people will come forward? We will discuss some of the more onerous requirements that will be placed on trustees, especially those in the smaller companies. Is he, or is the TUC, convinced that there will be sufficient candidates?

Kevin Brennan (Labour, Cardiff West)

Some of the amendments on members' training requirements and so on are designed to make it easier for people to come forward. The greater interest in the issue means that people will be much more likely to do that than they have been.

Nigel Waterson (Conservative, Eastbourne)

The hon. Gentleman might be right, and I hope that he is. We have a lot to say on the issue of training and the yardsticks. The Bill puts some broad and potentially onerous responsibilities on trustees in the future and it will need a special kind of person to fulfil that role, whether they are a member or from some other source. I hope that that is something that the TUC and others might wish to get involved in because a recognised set of qualifications or training must be developed. That would be fine if the TUC have an input. My only reservation is whether enough members would be prepared to take on that task. Let us hope that that is the case. Although I have that slight reservation, I have no problem with the amendment.

Chris Pond (Labour, Gravesham)

Before I discuss

the amendments, I shall say a few words about the purposes of clauses 196 and 197 to which they relate. Clause 196 does two things: it ensures that every occupational pension scheme has member-nominated trustees and brings much needed simplification to that area of legislation. Clause 197 has the same effect in relation to member-nominated directors, where the trustee is a company. Trustees will be required to make and implement arrangements for appointing at least one third member-nominated trustees and to do so within a reasonable time.

The Government believe that member-nominated trustees add value to any pension scheme by bringing different skills and experiences to the role. They help to give members confidence in their scheme and a sense of ownership. Many more schemes have member-nominated trustees than was the case before the Pensions Act 1995. However, there are still too many that do not. That is why we are withdrawing the employer's right to opt out of having member-nominated trustees.

We are told that current legislation is too complex and too difficult to operate. That view is reinforced by the recommendations of the Pickering report. The clauses represent simplification because they focus on the outcome—member-nominated trustees in all schemes—rather than the process by which trustees must be nominated and selected. The effect of the amendments would be to increase the minimum proportion of member-nominated trustees from one third to one half.

At the outset, I must say that we have no difficulty with the practice or the principle of one half of the trustees being member-nominated. Pension schemes can exceed the one-third minimum and we are happy for them to do so. However, we need to think carefully about the potential burden on schemes that could arise from making that a legislative requirement for every scheme. For many schemes, member-nominated trustees are still a relatively new concept. A requirement was introduced in the Pensions Act 1995 and schemes have gone to a great deal of trouble and expense to put arrangements for one third member-nominated trustees in place. We must think carefully before making any change, despite the powerful arguments of my hon. Friend the Member for Cardiff, West. However desirable a 50 per cent. requirement might seem, we need to bear it in mind that even small legislative changes, such as this one, often create widespread disruption as thousands of schemes are obliged to change accordingly.

Some schemes already have 50 per cent. member-nominated trustees, which is to be welcomed. However, what is important is not the exact proportion, but getting some members on every board. Having ordinary members on the board is not about having individuals to represent the interests of scheme members, nor is it about creating a voting block to balance the power of employers; it is about bringing a different set of skills and experiences to bear and providing board discussions with a different perspective. It therefore follows that 50 per cent.

should not be seen as a critical or pivotal figure that ensures that member-nominated trustees get their way somehow or outvote their fellow trustees on the board. It could be argued that it is wrong to set scheme governance against a conflict background of that sort.

All trustees have the same responsibilities. That is the important point. They have the responsibility to run the scheme in the interests of the beneficiaries. The overwhelming majority of trustee boards work together in that way for the interests of members as a whole. Indeed, I am told that trustee decisions are rarely made by anything other than complete consensus.

It is important to work with the pensions industry and sponsoring employers to continue to encourage good quality occupational pension schemes. I think that my hon. Friend will acknowledge that the changes we propose represent a genuine step forward, although there is some discussion among us about whether a third or a half is the appropriate proportion. They will lead to more ordinary scheme members sitting on trustee boards, while at the same time giving schemes more flexibility to devise nomination and selection arrangements that are best suited to their own circumstances.

We are removing the employer's right to opt out. That is an important step forward. We are also ensuring that we get member trustees on all trustee boards and that we simplify the prescriptive legislative requirements that schemes are currently forced to follow. Our priority is not to prescribe the proportion of member trustees or who they should be, but my hon. Friend made some important points and we are prepared to consider the matter further.

Kevin Brennan (Labour, Cardiff West)

I thank the Under-Secretary for that positive response. That he has agreed to cogitate a little further represents a step forward. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 295, in

clause 196, page 122, line 31, after second 'trustees', insert

'and that not less than one third of this number shall be nominated by a recognised pensioners' association and in the case of a closed fund, the majority shall be member nominated trustees'.

James Cran (Conservative, Beverley and Holderness)

With this we may discuss the following amendments: No. 267, in

clause 196, page 122, leave out lines 33 to 37 and insert—

'( ) ''Member-nominated trustees'' are trustees of a pension scheme who—

(a) are nominated as a result of a process in which at least all active and pensioner members of the scheme are eligible to participate, and

(b) are selected by a process including at least all active and pensioner members.'.

No. 296, in

clause 196, page 122, line 37, at end insert—

'(2A) a ''recognised pensioners' association'' shall be an organisation that represents at least 25 per cent. of pensioners from a particular occupational pension scheme and is duly constituted for the purpose of representing its members.'.

No. 269, in

clause 197, page 123, leave out lines 41 to 45 and insert—

'(2) ''Member-nominated directors'' are directors of a pension scheme who—

(a) are nominated as a result of a process in which at least all active and pensioners members of the scheme are eligible to participate and

(b) are selected by a process including at least all active and pensioner members.'.

Nigel Waterson (Conservative, Eastbourne)

This is another group of amendments that is intended to strengthen the position of member-representing trustees. I am grateful for the help and advice I have received from various quarters. I thank the Industrial Training Boards Pensioners Association in the shape of Mr. Peter Austin and his colleagues, and the Occupational Pensioners Alliance, in particular Mr. Roger Turner. There are strong feelings about how the Bill deals with the issue.

Amendment No. 295 would add the requirement that at least a third of the member-nominated trustees should

''be nominated by a recognised pensioners' association and in the case of a closed fund, the majority shall be member nominated trustees''.

I believe that one of the industrial training board funds is a closed fund.

Amendment No. 267 is replicated in amendment No. 269 in respect of clause 197, which deals with member-nominated directors rather than member-nominated trustees. Other than that, it is almost identical. Amendment No. 267 sets out that member-nominated trustees

''are trustees of a pension scheme who are nominated as a result of a process in which at least all active and pensioner members of the scheme are eligible to participate, and are selected by a process including at least all active and pensioner members.''

Amendment No. 296 tries to define a recognised pensioners association. As I said of other amendments, it is not a bid for a drafting prize. If the principle is acceptable to the Under-Secretary, he can ask his excellent draftsmen or draftswomen to work to produce something better. Basically, it attempts to define matters by stating:

''a 'recognised pensioners' association' shall be an organisation that represents at least 25 per cent. of pensioners from a particular occupational pension scheme and is duly constituted for the purpose of representing its members.''

In the light of some recent problems, there is much to be said for recognising and underpinning the importance of pensioners associations. Some schemes are active, vocal and knowledgeable about the issues to be faced while others are less so. There must be a threshold, otherwise self-appointed spokesmen would purport to speak on behalf of pensioner members. I chose a 25 per cent. threshold, but other percentages may occur to Committee members.

As the Occupational Pensioners Alliance said in its original briefing:

''We are particularly unhappy about the proposals . . . on Member Trustees''

because

''the role of pensioners in the running of their schemes would be even more marginalised that it is now.''

It welcomes the requirement to have a minimum of one third member trustees, but goes on to say:

''the practical upshot of Sections 196 (2) 197 (2) will mean that pensioners can be ignored in the nomination and election processes. There is only a duty for 'active members' to be consulted. The OPA believes strongly that representation via the Trustees is essential for good and fair scheme management and we call, in the strongest possible terms, for the Government to re-examine its position on this issue.''

The alliance has a strong argument. I do not fully understand the logic of why pensioner members should not be given the position that our amendment suggests. I hope that the Under-Secretary will see the sense of the proposal. If he has views on the threshold, I shall be happy not to press amendment No. 296 to a Division and await the Government to come up with an alternative on Report. It is an important point. It clearly matters to some well organised and concerned pensioners organisations.

Steve Webb (Liberal Democrat, Northavon)

I apologise for having missed the first few sentences of the introductory remarks. The Committee will note that amendment No. 267 is probably the first amendment in our proceedings that has been tabled in the names of Conservative Members as well as Liberal Democrat Members. We have read the same briefings, met the same people and reached the same conclusions.

Given the maturity of certain occupational pension schemes, there is a growing worry about the position of people who no longer work for the company or perhaps no longer work for anyone and who are now retired. The worry is that their interests will not be fully represented in the decisions made by the trustees.

I accept what the Under-Secretary said in response to the previous group of amendments that we must not regard trustees as a set of caucuses representing different factions. That is not their nature. However, it was rightly explained that one third of them will be nominated. Members of the scheme bring particular expertise and perspectives that others cannot do so vicariously.

Retired members will make up a large proportion of the membership of some schemes. We support the amendment because we were slightly startled by subsection (2)(a), which refers to

''at least all the active members''.

I accept that ''at least'' does not preclude the involvement of retired members, but they seem to be an afterthought and a marginalised group. Given the ageing of the population and of some of the membership, it seems odd that retired members do not have at least the same status as active members.

I recognise that active members may be the only people putting money in apart from the employer. However, the retired members also put a lot of money in and decisions might be made on the discretionary use of funds. I appreciate that the happy days of considering what to do with the surplus are not as relevant now. However, such days may return; one never knows. Retired members' interests should be fed into the process particularly, as the hon. Member for

Eastbourne (Mr. Waterson) said, when those members are organised and well informed.

We are with the spirit of the amendments, although I have some quibbles with the detail. Retired members may be very numerous, yet they do not seem to have the same status as active members. The Minister will understand that we are interested in the principle that they should be.

Nigel Waterson (Conservative, Eastbourne)

Does the hon. Gentleman agree that, if anything, those arguments are more pressing when considering the members of a closed fund?

Steve Webb (Liberal Democrat, Northavon)

If no active members are putting money into a scheme, the position of retired members is obviously important.

I was not sure about amendment No. 295. I do not think that we are quibbling about the detail. There is an issue of principle to consider: should the status of retired members drawing pensions not be the same as that of active members, who are given a specific, identified role? That is what we are probing.

Chris Pond (Labour, Gravesham)

We heard persuasive arguments from the hon. Members for Eastbourne and for Northavon (Mr. Webb), representing organisations that themselves make powerful and important arguments. In responding to those arguments, I want to make two general points before coming on to the specifics.

First, we are discussing part 5. I draw that to the Committee's attention because although it is entitled ''Occupational and personal pension schemes: miscellaneous provisions'', we are dealing with important issues. Part 5 develops the Government's key pension themes of simplicity, security and choice. I make that point because all the time we are trying to find the right balance between simplicity and security. How do we ensure that people's interests are properly represented? How do we provide them with the lifeboats and the safety belts while ensuring the simplicity that is so important for a scheme's flexibility, which allows them to be so vibrant? How do we ensure that there is regeneration across the board?

Secondly, I reiterate the point repeated by the hon. Member for Northavon about the role of trustees. We all understand that trustees represent the generality of interests of the members as a whole and not any particular group. If we keep those two points at the forefront of our minds, it will be easier to understand the significance of the amendments.

The effect of amendments Nos. 267 and 269 would be to require trustees to involve all the active and pensioner members in the nomination of member-nominated trustees, or member-nominated directors in the case of closed funds. They would also require the arrangements to involve at least all the active and pensioner members in the final selection process.

Amendments Nos. 295 and 296 would require at least one of the member-nominated trustees or directors to

''be nominated by a recognised pensioners' association''.

As drafted, the clauses provide that only active members must be involved in the nomination and that the final selection would be made by some or all of the members. We stipulated that as a minimum all active members must be able to participate in the nomination to ensure that the nomination and selection procedures could not be determined and operated by a handful of people behind closed doors. No one in the Committee would want that to happen.

I stress that we are talking about a minimum requirement. We hope and expect that trustees will use the flexibility that they are given to devise nomination selection arrangements that are right for their scheme without having to worry about a plethora of Government regulations. That brings us to the issues of security on the one hand and simplicity on the other.

The requirement that the final selection be made by some or all of the members is practical recognition of the fact that requiring the involvement of all members would be a large and expensive undertaking and that it would be unreasonable to impose that on schemes—I stress the word ''impose''. If schemes wish to involve all members, that is fine, but imposing that as a requirement could be a problem. It would also disrupt existing arrangements without good reason. There is nothing wrong with a pensions consultative committee or a trade union-based selection panel making the final choice between nominees, but that would not be acceptable if we agreed to the amendment.

Steve Webb (Liberal Democrat, Northavon)

If we say that active members have to be represented as part of the process, but that retired members drawing pensions do not, it is as if there is a first-class and a second-class membership of the scheme. There is no huge, burdensome complexity in saying that retired members should have equal status. I appreciate that one could not write to everybody, but where schemes had organised groups, doing so would not be that onerous or complicated.

Chris Pond (Labour, Gravesham)

It could be quite complicated and onerous, in terms of the requirements on schemes. Some schemes will involve all members anyway, but to make doing so a requirement could be quite onerous.

Certainly, we do not intend to create first-class and second-class members of schemes, but I come back to a point that both the hon. Gentleman and I have made: what are trustees there for? Are they there to represent the generality of interests of all members, or a particular group of members? That is where we have some difficulty with the amendments.

Nigel Waterson (Conservative, Eastbourne)

Surely the Under-Secretary's point is double-edged. We could be discussing an amendment that said exactly the opposite because the clause said exactly the opposite. I do not think that that is an argument. Pensioners have at least as legitimate a say as anyone else. I have a subsidiary question: given the practical difficulties that some schemes may have in attracting enough of the right kind of people to volunteer, why not cast the net as widely as possible in the clause?

Chris Pond (Labour, Gravesham)

I agree that we need to cast our net widely to ensure that we have as broad a representation as possible. We have always decided

that trustees should not have a representative role, and we have to focus on our main priority of ensuring that every scheme has members on the trustee board. The hon. Gentleman and I would agree on that. All trustees should have the same roles and responsibilities in respect of all members. There is a danger of seeming to suggest otherwise if we make a special case for pensioners, for which the hon. Members for Eastbourne and for Northavon argue.

The issues of who the member-nominated trustees should be, and whether they should be active, pensioner or deferred members, are best left to the trustees and scheme members to determine. They know the scheme, its maturity and the balance between the different categories of member better than anyone—certainly better than any of us in Committee and better than the Government.

Amendments Nos. 295 and 296, taken together, would effectively require all schemes to set up or recognise pensioners associations, regardless of the size or profile of the membership. There would be no problem at all with the pensioners associations—quite the opposite, as hon. Members might expect—but it is for trustees, employers and members to decide between them whether they have a formal role in a particular scheme. Again, that is not something that the Committee, or a Government, should impose.

Steve Webb (Liberal Democrat, Northavon)

I still cannot get my head around the point on second-class membership. The Under-Secretary is saying that there is a requirement for active members to be involved because we do not want things to be done behind closed doors , but why does that not apply equally to pensioners? He says that pensioners cannot be required to be involved because every scheme is different and should make it up for itself, but the Bill includes active members. Why are they more important than pensioners?

Chris Pond (Labour, Gravesham)

We are not saying that. We are establishing a minimum requirement for the active members to have representation. It is for schemes and trustees to decide whether they wish to extend that to bring the pensioner and deferred members into that category. All we are doing in the Bill is establishing a basic minimum floor, on which individual schemes can build according to their circumstances.

Nigel Waterson (Conservative, Eastbourne)

I am still having trouble getting my head around this point. If the word ''active'' were removed, no one would disagree. We all agree that there should be a minimum floor and beyond that, people should be left to get on with it—but the Minister has not answered the question about why a distinction should be drawn between the active members and the pensioners. It defies understanding. There may be a good reason for it, but that has not yet been revealed to the Committee.

Chris Pond (Labour, Gravesham)

I am clearly not being very persuasive. As I said, we are establishing a minimum floor, which is the participation of the active members. I think that Committee members will agree that the active members are currently engaged in the scheme, and that those who have left the scheme and are pensioners are in a different position. We are not saying that the

pensioners are in a worse or second-rate position. In many schemes it will be felt to be right that those interests should be represented separately and that the deferred members should be represented too, which is fine. All we are doing in the Bill is establishing that base-line.

If we accepted the amendments, far from creating simpler legislation, we would make the legislation significantly more onerous than the present Act—the 1995 Act. If it were amended in that way, the Bill would require every scheme to involve every active and pensioner member, even when that meant tens of thousands of people. In every case where trustee nominations exceeded vacancies, every scheme would be required to recognise a pensioner association. As I stated earlier, the aim of the clauses is to provide flexibility by radically simplifying the legislation. We accept that simplification comes with a degree of risk attached. We are handing the responsibility to trustees to decide what is best for their scheme. That may carry risks, but it is the right thing to do.

The amendments would be an unnecessary step backwards to the sort of prescriptive or restrictive legislation that we are trying to get away from, and would impose unnecessary burdens on schemes. Clause 198 contains a power to make regulations modifying the application of clauses 196 and 197 in prescribed cases. We will consider in due course how those regulations should deal with schemes that have no active members, which is a matter for concern to members of the Committee. I hope that the hon. Gentleman will feel able to withdraw his amendment.

Nigel Waterson (Conservative, Eastbourne)

I do not want to bring a churlish note to these otherwise amicable proceedings, but I am wholly unconvinced. I get the impression that the hon. Member for Northavon shares my total lack of conviction. The last refuge of a Minister defending a Bill is to say that the amendments would make it more complicated. That is a bit rich, coming from the people who produced this Bill. If amendments would make it right, so what if it is slightly more complicated? Moreover, if the word ''active'' were removed, it would make the Bill less complicated, and this problem would largely be solved.

I fail to understand what the Minister has got against pensioner members. Is it because they are older? Is this a bizarre form of institutional age discrimination on the part of the Department? One could argue that pensioners have more time to spend on their ever more onerous duties, to which we will come shortly. They might have considerably more experience of the problems that we are all talking about. There is no good reason why the amendments, or at least the principle behind them, should not be accepted. On a practical level, people will have real difficulties attracting trustees in future because of what the Government are doing later in this part of the Bill. The Minister shakes his head. That is up to him. He can shake his own head, to quote Churchill: I am making my own point. The idea behind the amendments is right and proper.

I shall seek leave to withdraw the amendments—what difference would it make if I did not? None the

less, I am wholly unconvinced by what the Minister said. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Kevin Brennan (Labour, Cardiff West)

I beg to move amendment No. 300, in

clause 196, page 122, line 31, leave out ', and' and insert—

'(aa) that before those arrangements are made, reasonable steps have to be taken to consult the active members of the scheme, and'.

James Cran (Conservative, Beverley and Holderness)

With this it will be convenient to discuss amendment No. 304, in

clause 197, page 123, line 39, leave out ', and' and insert—

'(aa) that before those arrangements are made, reasonable steps have been taken to consult the active members of the scheme, and'.

Kevin Brennan (Labour, Cardiff West)

Again, my amendments are intended gently to probe my hon. Friends the Ministers. They know that I am an admirer both of them and of the entire ministerial team—and when they next see the Secretary of State, could they tell him that I think he is a great guy? [Hon. Members: ''Tell him yourself.''] Oh yes, I am sorry; I did not notice that he was here.

As the hon. Member for Eastbourne rightly recognised, the amendments draw their inspiration from the trade union movement, although not necessarily from the TUC. Some points about consultation need to be clarified, and there is a particular concern that the Bill might allow trustees to implement a system of selecting member-nominated trustees with considerable discretion. I understand that the Bill is not intended to be complicated or too prescriptive, but the trade unions believe that there should be consultation with members as to the nature of the system of selecting member-nominated trustees.

The code of practice is not binding, so dissatisfied members appear to have no resort apart from complaining to the ombudsman after the event if they have a concern about the manner of the arrangements for the selection of member-nominated trustees. For example, members may feel that they are so manifestly unrepresented that it constitutes a breach of trust.

Member-nominated trustees are intended to boost member confidence as well as to improve the running of schemes. Members should have an opportunity to comment on proposed arrangements before they are implemented rather than having to rely on a complaint to the ombudsman after something has gone wrong. Now I would like to hear the Under-Secretary's response.

James Cran (Conservative, Beverley and Holderness)

Order. I did not interrupt the hon. Gentleman at the time, but the Committee should know that it is inadmissible to refer to anybody in the Gallery, even an eminent member of the Government.

Kevin Brennan (Labour, Cardiff West)

I was not aware that there was anybody there, Mr. Cran.

James Cran (Conservative, Beverley and Holderness)

It had better not happen again.

Nigel Waterson (Conservative, Eastbourne)

I just want to say that I too think that the Secretary of State is a great guy, but he is making a terrible hash of running the Department for Work and Pensions.

James Cran (Conservative, Beverley and Holderness)

If only I had known that that was what the hon. Gentleman was going to say, I would never have allowed him to speak.

Chris Pond (Labour, Gravesham)

Amendments Nos. 300 and 304 would require trustees to consult the active members of a scheme about the arrangements for nominating and selecting member-nominated trustees and directors before those arrangements are made. We can all agree that consultation is a good thing—there are clear benefits in maintaining good communication between trustees and members and in having nomination selection arrangements that scheme members are happy with. The question is whether it is reasonable or necessary to inscribe that requirement in tablets of legislation.

Many pension schemes have long-standing trustee nomination and selection procedures that have developed over time as a result of good industrial relations. I see no value in requiring those schemes to conduct an expensive consultation exercise. I hope that trustees will maintain good dialogue with members, but there is no justification for introducing a statutory requirement.

Clauses 196 and 197 contain minimum requirements that all schemes must incorporate into their nomination and selection arrangements. For example, at least all the active members must be eligible to participate in the nomination process, and any selection arrangements must involve some or all of the scheme members. We do not want to go beyond those essential requirements. Our aim in these clauses is to remove unnecessary legislative burdens and to leave the people who know the scheme best—the trustees—to get on with the job.

I hope that my hon. Friend the Member for Cardiff, West agrees with the spirit of the following statement: consultation should be encouraged, but it is not necessarily enhanced if it is made a requirement.

Kevin Brennan (Labour, Cardiff West)

I do not want to press this to a Division, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 266, in

clause 196, page 122, line 31, at end insert—

'( ) that those arrangements are fair and open, and'.

James Cran (Conservative, Beverley and Holderness)

With this it will be convenient to discuss the following:

Amendment No. 280, in

clause 196, page 122, line 32, after 'are', insert

'fair and open and are'.

Amendment No. 268, in

clause 197, page 123, line 39, at end insert—

'( ) that those arrangements are fair and open, and'.

Nigel Waterson (Conservative, Eastbourne)

A Liberal Democrat amendment has somehow got into this group, but I will speak only to

amendments Nos. 266 and 268, and the Liberals will have to paddle their own canoe with amendment No. 280.

On the face of things, it is difficult to see how our amendments could cause the Government any difficulties. They merely suggest that arrangements should be ''fair and open''. People might ask, what could be wrong with that? However, there is some history to this matter.

In their 2002 Green Paper, ''Simplicity, security and choice: Working and saving for retirement'', the Government reaffirmed their commitment to boards of pensions trustees containing one third member-nominated trustees. They intended to remove the employer opt-out, which was a creature of the previous legislation, but to reduce the level of prescription in the method of selection. The technical paper issued at the same time as the Green Paper proposed two options. One of them was the option put forward in the Pickering report that provides for only a minimum requirement in legislation—the one-third rule for member-nominated trustees. The second option was to qualify that minimum requirement with a further condition in the legislation—that arrangements for nominating and selecting member-nominated trustees must be fair and open.

During the consultation on those documents, concerns were expressed that more flexible legislation would give unscrupulous schemes the scope to avoid member-nominated trustees altogether, or to disfranchise certain members or groups of members, rather as the Government are seeking to disfranchise pensioners—although we have finished that debate for the moment. It was also suggested that schemes should be free to adopt arrangements to suit their own circumstances and—as the regulatory impact assessment states—focus more on outcome than process. The RIA says that there was widespread concern that

''enforcing a 'fair and open' test would be difficult, time consuming and expensive and lead to vexatious complaints to the regulator.''

As a result, the Government decided to adopt the first option.

We are not wholly convinced by that argument; hence these two amendments. Unless the legislation applies the ''fair and open'' test, there could be considerable unhappiness among members of schemes. It is looking at life through the wrong end of the telescope to say that one of the reasons for not requiring a test of fairness and openness is the fact that it could lead to vexatious complaints to the regulator; it could also lead to perfectly justifiable complaints to the regulator. Who is the author of the regulatory impact assessment—whoever he may be—to take that lordly view?

I am not prepared to go to the stake over the amendments, but I would be interested to hear how the Government concluded that they wanted to go for option one rather than option two.

Steve Webb (Liberal Democrat, Northavon)

I will not add much to what the hon. Gentleman has said. Obviously, we trenchantly

disagreed with the Conservatives and took the view that the point in question would be far better made in line 32 than in line 31. That is the only real difference between amendment No. 280 and amendment No. 266. We may be wrong, because we amended what was given to us. The key point—

Nigel Waterson (Conservative, Eastbourne)

Get on with it.

Steve Webb (Liberal Democrat, Northavon)

That is rich, coming from the hon. Member for Eastbourne.

The key point is that it is hard to conceive of an acceptable process for determining the membership of the trustees that was not fair and open. I am sure that the Minister will say that the Government want the process to be fair and open—I can feel it coming—so why not put it in the Bill? I accept that there is an issue of balance. However, in our judgment, the balance must be that the members should expect fairness and openness at the very least. As for vexatiousness and prejudging the issue, clearly there could be a threshold, and some cases could be dismissed out of hand. A vexatious litigant who never lets go and is like a dog with a bone could have his case thrown out.

Nigel Waterson (Conservative, Eastbourne)

Would it not be nice if people felt that strongly about those issues?

Steve Webb (Liberal Democrat, Northavon)

I am sure that people do feel that strongly, judging by the representations that we receive on such matters. As I say, mechanisms are in place to deal with the vexatious, but to use vexatious litigants as a reason for not putting the words ''fair and open'' in the Bill is hard to justify. I look forward to the Under-Secretary's acceptance of our amendment No. 280—although I could live with an acceptance of amendment No. 266.

Chris Pond (Labour, Gravesham)

I shall not let the hon. Member for Eastbourne get away with his suggestion that we are seeking to disfranchise pensioners. Their interests are represented by the trustees, as are those of any other members of the scheme. It was terribly perceptive of the hon. Member for Northavon to anticipate that I would say that fairness and openness are both good things, and that on the whole, the Government believe them to be so. The amendments would introduce a requirement for trustees that the arrangements be ''fair and open'', and we all think that that is a great idea—

Nigel Waterson (Conservative, Eastbourne)

But?

Chris Pond (Labour, Gravesham)

The but comes in a few lines. We put that idea forward for discussion in the technical paper that accompanied the Green Paper. We listened carefully to the arguments put forward during the consultation, including the argument that fairness and openness are essential if members are to have confidence in the process and the trustees. Now comes the but—the problem is this: what does ''fair and open'' mean in practice? I think that the hon. Member for Eastbourne will tell us in a moment. For example, what would the arrangements have to provide if a company was based on several different sites and had different numbers of staff at each? How should the arrangements deal with schemes with different maturity and numerous variations in the ratio of active, deferred and pensioner members?

If we were to leave the regulator to deal with all that in a code of practice, we would be back where we are now—with reams of detailed and prescriptive procedures. That is where it all comes down to the balance that the hon. Member for Northavon mentioned. On balance, we decided that our priority is simplification and flexibility. We tell the trustees what the required outcome is, and we let them decide how to achieve it. We all accept that the responsibilities and demands on trustees are significant and that we must, as far as possible, encourage and not deter people from taking on that valuable role. Therefore, we should also be prepared to accept that wherever possible, we allow trustees to carry out those responsibilities in a sensible and practical manner.

I understand the concerns that if we do not legislate for ''fair and open'' practice, we leave the door open for unscrupulous trustees. However, I would ask the Committee to examine the Bill as a whole. It has many built-in safeguards, such as the new regulator, which we have discussed in previous sittings and which has a wider range of powers and a more risk-based approach, and the new requirements in clause 200 relating to the knowledge and understand of individual trustees. We will have more schemes with member-nominated trustees, more knowledgeable trustees generally, and a regulator that can step in if the scheme is not being run properly.

Clause 196 taken with clauses 197 and 198 will result in more ordinary members becoming involved in the running of pensions schemes. At the same time, it will bring simplification to occupational schemes. That strikes the right balance. The amendments, however, would result in the sort of complexity and restriction that we are trying to move away from.

Nigel Waterson (Conservative, Eastbourne)

The Under-Secretary is wrong on one count: I am not going to tell him what I believe ''fair and open'' means—although there are many lawyers and judges who would answer that question for any individual case.

Chris Pond (Labour, Gravesham)

That is the problem.

Nigel Waterson (Conservative, Eastbourne)

That is a slightly bizarre way of looking at it. If people are aggrieved, they can be genuinely aggrieved as well as being vexatious. The Minister has taken the view that all objectors are potentially vexatious, so he wants to shut off that avenue of complaint. However, if we are to reinvest the role of trustees with a new energy and appeal, why not give people a channel through which they can express their concerns about the way in which trustees are selected? I do not understand the logic of the Minister's objection, but for the sake of amity and progress, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Kevin Brennan (Labour, Cardiff West)

I beg to move amendment No. 302, in

clause 196, page 123, line 8, after 'provide', insert

'for the filling of vacancies within a reasonable period and'.

James Cran (Conservative, Beverley and Holderness)

With this it will be convenient to discuss amendment No. 306, in

clause 197, page 124, line 12, after 'provide', insert

'for the filling of vacancies within a reasonable period and'.

Kevin Brennan (Labour, Cardiff West)

These amendments address a relatively minor issue, but one about which trade unions nevertheless have concerns. They would like some reassurance. The amendments would require that vacancies, as they arise because of resignations and so on, be filled promptly. It is important to safeguard against a situation where vacancies for member-nominated trustees are left unfilled for a prolonged period, as that would leave members unrepresented. We have discussed the 1995 Act on several occasions, and I think that there was a clause to this effect in that Act. It seems reasonable to replicate it in the Bill, and I will be interested to hear my hon. Friend the Under-Secretary's comments.

Chris Pond (Labour, Gravesham)

I can reassure my hon. Friend that we understand his amendments and share his view that vacancies should be filled within a reasonable time. The difficulty is that trustees cannot force other people to become trustees. It would be unreasonable to put trustees in a position where they would be in breach of a statutory requirement through no fault of their own.

If, for example, a vacancy for a member-nominated trustee arises, clause 196(5)(a) requires the trustees to try to fill it. If no one is nominated, clause 196(5)(b) will ensure that the vacancy is readvertised at reasonable intervals until it is filled. Similar provisions apply under clause 197 for member-nominated directors of corporate trusts. That is all that we can reasonably expect trustees to do. I am sure that the Committee agrees that the last thing we want is to force trustees to press-gang people into becoming member-nominated trustees. For that practical reason, I ask my hon. Friend to withdraw his amendment, although we share his belief that we must get vacancies filled as soon as practicably or reasonably possible.

Kevin Brennan (Labour, Cardiff West)

I do not think that the amendment proposed press-ganging anyone into becoming a trustee, but I am glad of the reassurance that the Bill's intention is that vacancies be filled in a timely and expeditious manner. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 196 ordered to stand part of the Bill.

Clause 197 ordered to stand part of the Bill.

Clause 198 - Member-nominated trustees and directors: supplementary

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 297, in

clause 198, page 125, line 2, leave out subsection (1).

One of the peculiarities and joys of this Bill is that whenever we turn a corner, we stumble across a piece of drafting that we have never seen before, either in legal practice or in the House.

The amendment seeks to remove clause 198(1). It is a probing amendment, designed to get to the bottom

of what the Government aim to achieve. The subsection concerns the famous regulations, of which we have yet to see a single line of a single draft—although as we wear our weary way through the Bill's clauses, I live in hope. It says that regulations

''may modify sections 196 and 197 in their application to prescribed cases.''

What on earth does that mean? It is bad enough having regulations modifying primary legislation, which is what is inherent in the first part of that sentence. That is something to be avoided wherever possible. After all, what is the point of our debating the clauses if they can later be modified when the Department has second thoughts?

However, it is the words

''in their application to prescribed cases''

that I am puzzled about. What does that mean? What are prescribed cases? Have I missed a definition somewhere in a subsection or schedule? It is surely not suggesting that the effects of clauses 196 and 197 can be modified for specific disputes relating to particular schemes. If it is—I am looking for a shake or nod of the head—that would be wholly unacceptable. With my usual faith in the Under-Secretary, I rely on his shaking his head. Perhaps he can tell us what it means.

Chris Pond (Labour, Gravesham)

Amendment No. 297 would remove the power to make regulations to modify the application of clauses 196 and 197 in prescribed cases. The hon. Gentleman rightly asked for some explanation of how we intend to use that power.

From our experience with the existing member-nominated trustee and director requirements, we know that the diversity and variety of schemes makes it likely that there will be situations in which the requirements as drafted will need to be modified. That is less likely with the simplified provisions, as there is more scope for schemes to adopt arrangements that suit their circumstances. Nevertheless, it is prudent—and, in the context of yesterday's statement, perhaps purposeful as well—to reserve a power to modify if it proves necessary.

The only example that we have identified relates to clause 196(2)(a), which requires the nomination process to involve

''at least all the active members''.

We may need to modify that by regulations for schemes where there are no active members. Incidentally, the fact that schemes exist with no active members, just as there will be some with no pensioners, illustrates the sheer variety of schemes, and why the modification power is necessary.

With that clarification, I hope that the hon. Gentleman feels able to withdraw the amendment.

Nigel Waterson (Conservative, Eastbourne)

There are times during the Committee stage of a Bill where one begins to question whether one is seriously engaged in making the world a better place. One even reflects on the meaning of life. It is intensely depressing to hear that, having had a well informed and interesting debate—everything is relative, of course—about active members versus pensioner members, that could all be

changed later at the flick of a pen. That seems to be what the subsection means. Am I misinterpreting what the Under-Secretary said?

I do not think that Ministers should take such powers. They should debate the issues, defend the Bill if necessary, force it through and put it on the statute book—but say, ''Well, there may be a problem here after all, and we'll deal with it later,'' is not good enough. Despite that fact, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 198 ordered to stand part of the Bill.

Clause 199 - Investment principles

Nigel Waterson (Conservative, Eastbourne)

I thought I saw the Minister twitching, but that might just have been the effect of the Bill.

To what extent is it envisaged that limits will be put on investment principles in regulation or elsewhere? That would be the right thing to do, of course. It is a development from the 1995 Act, which says that any trustees of any scheme should set out their investment principles clearly and openly and that those should be reviewed. I have no difficulty with that. Do the Government have in mind further regulations or measures to limit the scope of trustees to invest in particular products or items? There is less enthusiasm now for equities, so other guidance may needed.

A specific issue has been raised with me about the use of derivatives, which trustees may wish to use for various purposes relating to the management of their investments. For example, different options may be used to manage different risks. If the business of a trustee of a pension scheme is anything, it is, hopefully, to manage risk, not least in the context of the risk-based levy. I do not want to anticipate our debates on that, but I am already getting quite excited about it.

I am informed that for tax purposes, section 659A of the Income and Corporation Taxes Act 1988 specifically provides that futures and options are to be treated as investments for the purposes of section 592(2) of that Act, so that exempt, approved retirement benefit schemes may claim exemption from income tax in respect of income derived from such contracts. The relevant bulletin from the Inland Revenue says that it will also regard certain swaps—where have I heard that expression before?—as investments for tax purposes

''Where an approved pension scheme uses interest rate swaps, currency swaps, equity swaps, credit derivatives or similar instruments . . . To hedge risks inherent in its existing investment portfolio of shares, bonds or similar securities, or . . . As part of a strategy to enhance the return from its existing investment portfolio, or . . . To create a synthetic exposure to investments of a particular type or in a particular market in line with the fund's normal policies of investing directly in such instruments''.

I hope that everyone is with me so far. However, the fact that these derivative contracts may be regarded as investments for tax purposes does not mean that

trustees have the power to use them when there are no specific powers in scheme rules.

The view of most lawyers who specialise in this area—hon. Members will not be surprised to hear that the briefing comes from one of them—is that the power to make an investment contained in section 34(1) of the 1995 Act is not sufficient to enable trustees to enter into derivative contracts. That is because the term ''investment'' is generally interpreted as referring to assets that are expected to produce income or capital appreciation rather than assets that are tools for managing risk. Had I received the briefing in time, I would have tabled a long—if not long, then at least fairly complex—amendment to deal with the problem.

One problem is that derivative contracts may require the trustees to assume obligations that may continue over a period of time and to provide security for any obligations that they may incur under the relevant contracts. In a traditional investment, the use of derivative contracts may require the trustees to do more than make a single payment at the outset of a transaction. To break it down into layman's terms, the derivative products that are now so popular and sophisticated allow trustees to manage risk, which has to be a good thing. I am not talking about swaps in the context of local councils that got into difficulties with swaps a few years ago. I am reliably informed that the legislation does not allow for that kind of investment. I suspect that the Minister may ultimately say that he will write to me, as this is a complex issue that is clearly important.

Malcolm Wicks (Labour, Croydon North)

Good afternoon to you, Mr. Cran, and I welcome the hon. Member for Eastbourne to this afternoon's sitting. I am sure that his colleague, the hon. Member for Tatton (Mr. Osborne), brought him up to date on our proceedings this morning. It is good to see the hon. Member for Eastbourne clocking on to the late shift. Part-time work is an important part of the shadow economy, as we might call it.

James Cran (Conservative, Beverley and Holderness)

We must move along.

Malcolm Wicks (Labour, Croydon North)

Yes, we must.

Clause 199 is essentially a technical amendment to the provisions of the Pensions Act 1995 concerning the trustees' duty to maintain a written statement of investment principles. It takes account of article 12 of the EU directive on occupational retirement provision, which requires statements to be revised without delay after any significant changes are made to the investment policy and to be reviewed at least every three years. By contrast, the 1995 Act requires periodic reviews, but not within a specific time scale. The clause concerns the duty of the trustees to declare what their investment policy is, not what that policy should be.

We are considering the implications of the EU directive on investment by pension funds and whether we need further provisions. Of course, Inland Revenue rules are not the subject of the Bill, so the points that the hon. Member for Eastbourne raised are, although interesting, not strictly relevant. I have spoken about

introducing proposals, if needed. I listened to the technical point on derivatives with great interest but, as the hon. Gentleman anticipated, because he is a reasonable man, I will write to him on that.

Question put and agreed to.

Clause 199 ordered to stand part of the Bill.

Clause 200 - Requirement for knowledge and understanding: individual trustees

Kevin Brennan (Labour, Cardiff West)

I beg to move amendment No. 307, in

clause 200, page 126, line 25, at end insert—

'(6) The trustees of an occupational pension scheme must ensure that persons wishing to become member-nominated trustees are given a reasonable opportunity to obtain the knowledge and understanding required by this section before they put themselves forward for selection.'.

James Cran (Conservative, Beverley and Holderness)

With this we may discuss the following amendments: No. 308, in

clause 201, page 127, line 14, at end insert—

'(8) A company to which this section applies must ensure that persons wishing to become an individual within the meaning of subsection (3) above are given a reasonable opportunity to obtain the knowledge and understanding required by this section before they put themselves forward for selection.'.

No. 309, in

clause 202, page 127, line 29, at end insert—

'(4) The Regulator must not take any step to enforce the obligations imposed upon individuals under section 200 and upon companies under section 201 until 12 months have elapsed since the individual concerned has been a trustee or begun to exercise any function which the company has as trustee.'.

Kevin Brennan (Labour, Cardiff West)

Clause 200 requires knowledge and understanding from individual trustees, and that is welcome. The purpose of the amendments is to tease out the Government's thoughts on people wishing to put themselves forward as trustees for schemes when they do not have the knowledge and understanding required. They might wonder how they can acquire the knowledge and understanding that is required by the clause. The amendments would place on trustees an obligation to facilitate the acquisition of the required knowledge by those who aspire to become trustees and to allow trustees a reasonable period of grace after their appointment in which to obtain that required knowledge. The Minister may tell me that, in a practical sense, the amendments are not necessary because the Bill will allow that to happen anyway, but I would be interested to hear his observations.

Although the clause is welcome and its objective is worthy, it is important that it does not in any way deter members from putting themselves forward on account of any lack of knowledge on their part. For those considering putting themselves forward, selection is an uncertain prospect, so candidates will not always be willing to invest the required amount of time in the acquisition of the knowledge needed prior to selection. The confidence of trustees is important, and the gaining of that confidence is the purpose of the clause, but trustees also need to command the confidence of members of the scheme if they are to be put forward as member-nominated trustees. Those two things may not always be confluent in someone

when they put their name forward. The amendments would provide help to prospective candidates and encourage trustee training.

Nigel Waterson (Conservative, Eastbourne)

I am inclined to deal with not only the amendments but also more general issues to avoid a stand part debate. That is convenient for the Opposition, but let us see how we go.

There is a real possibility of invoking the law of unintended consequences—something that the Government are very good at. We accept that there is always scope for improving the abilities and experience of trustees. I am not privy to the details, but some of the problems that we have seen might have been avoided or made less serious by well informed trustees. A balance must be struck because the Opposition fear—we are expressing the views of many people who know better than we in Committee do—that there will be an exodus of trustees who, rather like non-executive directors, will consider the potential responsibilities and liabilities versus the rewards and decide that they could do other things with their lives.

Equally, there might be a shortage of new people entering the role. We might have a professional class of trustees who are sufficiently qualified and able to perform the tasks laid before them, particularly in subsection (4). That might be fine for very large schemes, but not for small ones, particularly given the likely costs.

I am not suggesting that there is no problem to address. On 9 March, PricewaterhouseCoopers published a study of UK pension scheme governance. It showed that 65 per cent. of respondents had no governance compliance policy in place. Some 85 per cent. said that they had no individual governance benchmarks to measure the performance of trustees. The survey involved 66 chairmen of major UK pension funds and showed that few have implemented all the recommendations of the Myners report in 2001. Some 45 per cent. of trustee boards have not reviewed their knowledge and skills. The survey suggests a range of actions that pension funds need to take, starting with the development of a Government policy for the scheme, the assessment of skills levels and the rectification of shortfalls in those skills. PricewaterhouseCoopers also says that benchmarks must be established to measure compliance.

The National Association of Pension Funds is setting up an online registry of investment professionals who want to serve as pension fund trustees or to help pension fund investment committees. It says it wants to act as a broker to get people with investment experience into pension funds. That is sensible in principle, although I can see the beginnings of that professional class of trustees. If the Government are determined to go down that line, what kind of yardstick will they impose for the trustees of the future? They will put important requirements on trustees to acquire the knowledge and experience, plus other requirements as might be prescribed, so here we are again; no doubt there will be regulations in due course.

Will there be an approved qualification or course? I was talking to my hon. Friend the Member for Bournemouth, West (Sir John Butterfill), chairman of the trustees of our own pension fund, who told me that he and his fellow trustees are going on a course with the Pensions Management Institute to ensure that they have the relevant skills. I am sure that we are all delighted to hear that. I gather that the course is quite demanding, that it involves a lot of reading and that there is a written examination at the end. Let us hope that they all pass.

I am not suggesting that the Minister can deal with this point on the spot, but there may be some sense later on in setting out the qualifications that would-be trustees would have to obtain to reach what is regarded as the benchmark of what is required. If not, many people will find subsection (4) off-putting.

The CBI has also made representations to us. It believes that a legal requirement concerning knowledge and understanding of the funding of schemes and investment is unnecessary and would

''undermine the willingness of member nominated trustees to serve on trustee boards.''

The CBI believes that

''while training is important, qualifications are not required and will only encourage a tick-box compliance mentality''

and that

''a requirement for qualifications will only deter more people from volunteering''.

It is interesting to glance at the relevant part of the regulatory impact assessment. It hedges its bets and believes that the benefits of the clauses should include a behavioural change. It reckons that in some cases there will be a financial return for employers as a result of better investment performance. That is good. The RIA also says that there will be a one-off, ongoing administrative cost, which will have no disproportionate impact on a particular business sector. It says:

''An increased emphasis on training may have administrative implications for pension schemes and possibly employers. The levels of cost will not only vary with the size of the pension scheme, but will also differ depending on the level of expertise that trustees currently possess and the training that they currently undertake.''

That is not exactly a penetrating insight. Obviously, the less competent or experienced they are now the more training they will need, but what yardstick will be used?

The RIA concludes by saying that the proposal might result in additional start-up costs of up to £1,500 per scheme at a total cost of £17 million for each three-year period. That may or may not be an underestimate. As it rightly says, that is difficult to estimate. How is the Government's thinking developing on qualifications that trustees can obtain to guarantee that they are within the requirements of the clause?

Steve Webb (Liberal Democrat, Northavon)

I shall address my remarks to amendment No. 309, which is closest in spirit to a proposal that we have sympathy with, which is that a person can become a trustee and have 12 months to reach the standard required under the clause. I am

concerned whether it will be possible to have enough trustees and whether particular people who have something to contribute might otherwise be discouraged or even debarred from becoming trustees.

I am sure that the Government will say, ''Yes, but look at subsection (5), which says that a person only needs to know enough to do the job.'' In other words, whereas subsection (4)(a) seems a little terrifying because a person must have knowledge of the law relating to pensions and trusts—at which point we would all probably give up—subsection (5) says that although that is necessary, the person only needs to know enough to do the job. Who could object to trustees knowing enough to do the job?

My worry is that although it is obviously desirable that the majority of the trustees have that technical legal knowledge, it is less clear whether that should be a requirement of each trustee. The clause applies to all trustees. Why did the Government not draft a requirement that two thirds of the trustees must be technically and legally up to speed with the latest trust law and so on? That would ensure that there was plenty of expertise in the room, but it would not debar retired members or someone who is not expert in trust law from participating. That person could have a perspective as someone who knows the scheme or appreciates the experiences of retired members from which the trustees could benefit when judging what is in the interests of all scheme members. However, that person might not consider it was worth the candle if they had to jump through the hoops.

Given the constantly changing nature of pensions law, we have to recognise that such knowledge would not be a one-off requirement, but a continuing professional development requirement. It would be necessary to keep on top of the subject and people would have to update their knowledge.

We do not want to be misunderstood; we are not saying that we do not think it a good thing that trustees know what they are talking about. We would not want to be parodied in that way. However, the Government have gone to the extreme of applying the requirement to 100 per cent. of trustees in all schemes. Will they consider whether that 100 per cent. requirement is necessarily right? What about two thirds or three quarters of trustees being subject to the requirement? There would then be plenty of expertise in the room, without some people being discouraged.

The requirement clearly applies to all schemes. Do we need to require all trustees of all schemes to satisfy the requirement? Would that not be particularly onerous for very small schemes with a tiny number of members? If such members ran their own scheme and were its trustees, they would have enough incentive to do that properly anyway. Frankly, in such a case, the requirement might be unnecessarily onerous. Should it apply equally to the whole diversity of schemes? We have heard that there are 150,000 different schemes. Many are tiny and some are huge. I am not sure that the regulations should apply equally in all cases.

Without pre-empting the debate on clause 202, I cannot help noticing that two clauses on, the Government have again reserved their power to rip that up. As the hon. Member for Eastbourne might have observed, clause 202(2) states:

''Regulations may provide for any provision in section 200 or 201—

(a) not to apply, or

(b) to apply with modifications''.

I sense that the Government think that they might have got it wrong, or that they are a bit worried and are reserving the right to change it all in regulation, which, again, is a slightly worrying precedent.

Nobody is against well informed trustees, but what would happen if a trustee dies, retires, stands down or whatever, and the vacancy cannot be filled? What if that becomes a regular occurrence? People will look at the requirements and, despite the assurances that I am sure the Minister will give us—that it is only a minimal requirement and that the trustees only have to know enough to do the job properly—they may be put off and there will start to be a shortage.

What would the practical consequences of that be? Is that why there is the possibility of changing the rules later on? Are the Government keeping the door open because they are concerned that a real shortage of trustees might be generated and that there might be a problem for schemes even to operate within the law at all?

I have several key questions. Is it necessary to impose the knowledge requirement on 100 per cent. of trustees? Does that requirement have to apply to the whole diversity of schemes? What will happen if potential trustees think, perhaps as a result of a misperception, ''I am not going to keep myself updated on trust law'', and we have the systematic problem of there not being enough trustees?

Malcolm Wicks (Labour, Croydon North)

Amendments Nos. 307 and 308, tabled by my hon. Friend the Member for Cardiff, West, are designed to ensure that member-nominated trustees—or in the case of corporate trustees, an individual acting on their behalf—are given the opportunity to obtain the knowledge and understanding required by the Bill before taking up their duties. In addition, amendment No. 309 would prevent the regulator from enforcing the requirement for knowledge and understanding until trustees had been in post for one year. I certainly believe that those amendments are well intentioned.

Slightly different considerations apply in relation to individual trustees and corporate trustees. On amendment No. 307, I accept that it would be desirable for those considering putting themselves forward as member-nominated trustees to have a good idea of the duties and responsibilities of a pension scheme trustee at the outset. However, I do not think that it should be the trustees' responsibility to ensure that they are given that chance. In any case, I am doubtful that developing a concept of ''studying'' to be a trustee would be helpful in encouraging people to put themselves forward for trusteeship in the first place.

However, we entirely accept that it would be unreasonable to require an individual trustee to be compliant with the terms of clause 200 immediately on appointment. That is why we plan to use the regulation-making powers under clause 202 to ensure that any new trustees are given a period of grace. With corporate trustees, there may be a case for not applying the period of grace in certain circumstances, such as for a professional, independent trustee. Under clause 201, the responsibility falls on a corporate trustee as a company to ensure that anyone carrying out trustee functions has the relevant knowledge and understanding as soon as they are required by the company to undertake such duties. That properly reflects the difference in status between an individual and a professional corporate trustee, and we will consult on it when preparing our regulations.

Amendment No. 309 would place a duty on the regulator not to enforce the requirement on trustees' knowledge and understanding for 12 months after they take up duties. Our proposals for a period of grace would achieve much the same result and we will consult on the length of such a period.

On the level of knowledge involved and the fears expressed by the hon. Member for Eastbourne, I shall explain what we mean by conversant with law and by knowledge and understanding. We do not expect trustees to be experts on everything or to have the detailed technical knowledge of a professional. We are not seeking to professionalise the role of the trustee. We want them to have a rounded knowledge of the schemes and I doubt that any hon. Member would oppose that—none of us could present an argument for having ignorant trustees. They need to know what the trust deed and scheme rules say and what other policies have been adopted by the scheme. That is what we mean by conversant.

Trustees also need a good understanding of the theory and practice of occupational pensions, notably legal, funding and investment issues, in so far as they are relevant to the functions being carried out. Trustees with more specialist functions, for example those serving on an investment sub-committee, would naturally be expected to have a greater knowledge of those matters needed to do the job properly. The regulator will set out the knowledge required and how it might be acquired and demonstrated in a code of practice—we discussed codes of practice in an earlier sitting—drawn up in consultation with the pensions industry and approved by Parliament.

Although I realise that an argument is developing that we are seeking to over-professionalise, I hope that Committee members will bring common sense to the discussion. I do not want to draw an exact comparison, but the situation reminds me of the role of school governors. Some years ago it was felt that, given local management of schools and the greater authority and responsibility that the school governing body had, it was appropriate that school governors developed more knowledge and steps were taken in that direction.

I do not buy the argument that if one makes the role of trustee more skilled, people will be deterred from applying. We could argue the reverse that by

emphasising the important role of trustees, highlighting the skills, offering opportunities for training courses and examination—although there will be no requirement to take exams—we build up the role and status of the trustee, which must surely be a good thing.

The hon. Member for Northavon suggested that two thirds of trustees should have the necessary knowledge, but that would not work. Trustees have joint liability and to impose different requirements on them would be inconsistent with the basis of trust law. He also asked what would happen if people did not come forward to become trustees. The common-sense answer is that we would address that if it happened, but, as I have explained, I have no reason to believe that it would. Trustees are important people and will become more important. It is right and proper that they should have the knowledge and skills to do their task properly.

Kevin Brennan (Labour, Cardiff West)

What my hon. Friend said about dealing with the matter in regulation and allowing a period of grace represents common sense, which combined with erudition, as it always is in his case, is an irresistible force. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 200 ordered to stand part of the Bill.

Clause 201 ordered to stand part of the Bill.

Clause 202 - Requirement for knowledge and understanding: supplementary

Nigel Waterson (Conservative, Eastbourne)

I want to raise a couple of issues on a clause to which the adjective ''delphic'' could reasonably be applied. The first couple of lines are a masterpiece of drafting, and define

''a person's functions as trustee of a relevant scheme or any functions which he has by virtue of being such a trustee''.

That is a perfect circular definition. The clause touches on a point that the Minister referred to when we debated the previous amendment, in that it envisages delegation of investment discretions. We seem to be recognising that some will be more equal than others, as it were. In order to comply with clause 200, some trustees will be expected to have a depth of knowledge—perhaps with a narrower scope—that others will not have. We are already beginning to see a slight definitional problem in relation to whether people comply with the measure.

We have the usual good old subsection that seems so popular with the draftsmen of the Bill, which specifies that everything can be changed at the stroke of a pen by regulation—meaning that any provision may apply to a particular trustee ''in prescribed circumstances''. I deprecate that, but we have debated it in a previous context.

Subsection (3) says that none of the sections

''affects any rule of law requiring a trustee to have knowledge of, or expertise in, any matter.''

Perhaps the Minister could put a little flesh on the bones. What kind of rules of law are we talking about? Clearly, there are the basic trustee Acts. I failed the trusts exam in my first attempt at solicitors finals, so I cannot claim any great expertise. I am sure that the Minister was one of the people who passed on their first attempt. There is basic trustee legislation and a whole raft of legislation on trusts. Is that what he means, or are there some more specific pieces of legislation, besides the 1995 Act, envisaged by subsection (3)?

Malcolm Wicks (Labour, Croydon North)

It might help if I set out the purposes of clause 202. It adds supplementary provisions to those of clauses 200 and 201 on trustees' knowledge; my speaking note says ''clause 2001''—I know we have a lot of clauses in the Bill, but that would be ridiculous. Clause 202(1) makes it clear that the functions of a trustee include those that may have been delegated to him or her as a member of a sub-committee of trustees. Subsection (2) allows for regulations to disapply or modify those requirements in prescribed circumstances. We intend to use the provision to allow a period of grace for newly appointed trustees to acquire relevant knowledge.

Subsection (3) provides that the provisions do not affect existing law that may require knowledge or expertise from trustees, so that, for example, the provisions supplement rather than replace existing trust and common law provision on the duty of care owed by trustees. Thus these provisions on trustees' knowledge do not affect the knowledge that should, in truth, already be required by the duty of care.

We believe that there are two considerable benefits in the legislation. First, it makes the requirement for appropriate knowledge quite explicit, putting it beyond doubt. Second, it provides the opportunity for the regulator to spell out in a code of practice the sort of knowledge trustees ought to have and how to get it, making trustees' responsibilities clearer. It also enables the regulator to intervene proactively to raise the overall standard of knowledge. I hope that that answers hon. Members' questions.

Nigel Waterson (Conservative, Eastbourne)

The Minister talks about the code of practice setting out what knowledge is required and how to get it. Does that mean that the regulator will set out some appropriate courses and qualifications? I thought that the Minister said the opposite when discussing the previous group of amendments.

Malcolm Wicks (Labour, Croydon North)

We are concerned that there should be appropriate training opportunities and courses for trustees, and there are already providers of such courses. I believe that the trade union movement has a major role to play, but we have made it clear that while some, although perhaps not the hon. Gentleman, may wish to be examined in the subject and enjoy, in the proper sense of the word, that opportunity—we have heard that the trustees of the

parliamentary fund have volunteered for it—it will not be a requirement to be examined.

Question put and agreed to.

Clause 202 ordered to stand part of the Bill.

Clause 203 - Conditions for pension protection

Malcolm Wicks (Labour, Croydon North)

I beg to move amendment No. 278, in

clause 203, page 128, line 17, after 'if' insert

', after the date on which he became employed by the transferor,'.

I shall put the amendment in context. Clause 203 sets out the conditions in which employees involved in a business transfer may be eligible for the pension protection provided by clause 204. Employees can benefit for the first time from a statutory minimum standard of pension protection. Subsections (2), (3) and (4) provide that the pension protection provisions in clause 204 will apply to each of the following three categories of employee: those who are active members of the employer's pension scheme at the time of the transfer; those who are eligible to be a member of the scheme; and, when the scheme has a qualifying period before new employees are eligible to join, those who would have been eligible if they had continued to work for the transferor employer—the old employer—for a longer period. The definition is fairly comprehensive.

The clause recognises that in some cases employers may provide an occupational pension scheme offering money purchase benefits to which they do not make any employer contribution over and above the contracting-out rebate. In such cases, it would be unfair to require the transferee employer to have to make an employer contribution to a scheme. There is a risk that some unscrupulous employers might deliberately remove employees' occupational pension rights prior to a transfer to make a business look more attractive to potential buyers. Therefore, subsection (5) determines that if such action has been taken by the old employer by reason of a transfer, and is proven, the right to protection from the transferee employer will be unaffected.

The amendment clarifies the drafting of the clause, which sets out the conditions that must apply before employees can benefit from pension protection on transfer of employment.

Amendment agreed to.

Clause 203, as amended, ordered to stand part of the Bill

Clause 204 - Form of protection

Kevin Brennan (Labour, Cardiff West)

I beg to move amendment No. 310, in

clause 204, page 129, line 8, leave out from 'scheme' to end of line 12 and insert

'is certified by the actuary to be broadly comparable to the occupational pension scheme referred to in section 203(1)(c)'.

James Cran (Conservative, Beverley and Holderness)

With this it will be convenient to discuss the following:

Amendment No. 311, in

clause 204, page 129, line 25, at end insert—

' ''actuary'' means the actuary appointed by the trustees of the scheme referred to in section 203(1)(c) pursuant to section 47 of the Pensions Act 1995'.

Amendment No. 312, in

clause 204, page 129, line 36, at end insert

'but in the case of contributions payable by the employer shall not be less than the contributions paid by employers into the scheme referred to in section 203(1)(c) and in the case of contributions payable by members shall not be more than the contributions paid by members into the scheme referred to in section 203(1)(c).'.

Kevin Brennan (Labour, Cardiff West)

My hon. Friends will be aware that my amendments refer to the Transfer of Undertakings (Protection of Employment ) Regulations 1981, S.I. 1981, No. 1794, which I am thankful to say that someone shortened to the acronym TUPE, and which has become an important part of the discussions about what happens to workers when they are transferred to another employer.

I welcome the protection that the Bill introduces. The purpose of my amendments is to probe my hon. Friends the Ministers as to why the Government are not going a little further. The amendments would provide full protection for the value of pension scheme benefits after a transfer rather than insist only on the level of pension provision outlined in clause 204.

For final salary schemes the test would be that the actuary of the old scheme would certify that the schemes of the new employer were of a quality comparable to the scheme of the previous employer. For money purchase schemes the requirement would be that the employer should pay no less and the employee no more than under the old company scheme. The Bill proposes a reference scheme standard for final salary schemes. In a way, that is the minimum standard for contracting out, and below the quality of the typical final salary pension scheme. The Bill also leaves the door open to the employee being asked to pay an unreasonably high contribution.

Having schemes of comparable quality is the formula applied in the public sector when there are transfers as part of Government policy. The debate about pensions has highlighted the fact that we have a two-tier system for pension schemes as between the public sector and the private sector. Those in the public sector are thoroughly protected and have security, and the promise of security, in retirement. That is a promise that we tend to make to everybody—or rather, we tend to say that that is the aim of pensions policy. We should therefore extend that protection as far as is practically possible—I know that the Minister may have some practical objections—to all workers, whether or not they are employed by the Government.

For money purchase schemes, the Bill requires an employer to provide a contribution that matches any employee contribution up to 6 per cent. There is some concern that that could lead to the employer paying less and the employee paying more after a transfer. I would be grateful to hear from the Minister why the Government have not gone that step further to provide protection greater than the welcome protection that is being introduced under the Bill.

Nigel Waterson (Conservative, Eastbourne)

By speaking to these amendments, I might be able to obviate the need for a stand part debate. I will, of course, attempt to remain in order at all times.

Representing Eastbourne, I know a fair bit about TUPE. Eastbourne was the place that furnished the cause célèbre involving the Eastbourne dustmen who were originally employed by the borough council and 10 transferred to a private provider. If I remember rightly, the case went all the way to the House of Lords, and the dustmen won. Hence Eastbourne can to a large extent be regarded as the birthplace of TUPE. The proposals go further than TUPE has ever gone, and extend the principles to private or occupational pensions.

I want to probe Ministers on a few points, not least those raised by the Library briefing, which is particularly good on this aspect. As I understand the position, when the transferor company, the original employer, has provided either a defined benefit or a defined contribution scheme, the new employers have to provide the following: an occupational DB scheme that satisfies the reference scheme test, or any alternative standard that may be prescribed—under regulations, I assume; an occupational DC scheme to which the employer makes a ''relevant contribution''; or an employer ''relevant contribution'' to a stakeholder pension scheme of which the employee is a member. The ''relevant contribution'' will be defined in regulations. Again, I am not holding my breath. I assume that the draft regulations will not be available for our debates. However, it has been suggested that the transferee will have to match the employee's contribution up to a maximum of 6 per cent., as set out in the explanatory notes.

As the Library briefing points out,

''It is not clear whether acquiring employers will have to provide this level of contribution even if the transferor's contribution was lower.''

I am sure that the Minister will want to deal with that.

The Library briefing also says:

''As the consultation on extending TUPE . . . has progressed, so the degree of protection on offer from the Government has reduced. One of the four options under the 2001 consultation document was that 'if the transferor offered either a contracted-out salary related scheme . . . or a contracted-out money purchase scheme . . . then the transferee would be required to offer a scheme of the same type'.''

There was no mention of the stakeholder option.

One of the other two options in the 2002 Green Paper was that when the old employer had offered a DB or a DC scheme, the new employer, too, would have to offer one of those schemes, with a comparable contribution. The second option was a group personal pension or a stakeholder pension. Again, the Library briefing states:

''In the event, the Government is supporting the simplest option which imposes the lowest costs on transferee employers. Many consumer representatives argued strongly for a more generous approach during the consultation.''

The views of the TUC and OPAS bear out that view.

It is also worth noting the slightly different point of view of the CBI, which is not at all happy with the

maximum figure of 6 per cent. It is opposed in principle to the extension of TUPE to cover occupational pensions, but it points out that if the Government are determined to do that,

''it is important that the extension of TUPE to occupational pensions is accomplished in a way that is workable for business so that it does not undermine transfers by imposing excessive costs and is not used as a method to ratchet up levels of private sector pension provision. Finally it must be simple to understand and administer, avoiding any need for actuarial certification.''

I would be grateful if the Minister dealt with that specific point. The CBI goes on to say:

''the minimum for employer contribution should be set at the 3 per cent. level—not the 6 per cent''.

Malcolm Wicks (Labour, Croydon North)

What is the hon. Gentleman's view?

Nigel Waterson (Conservative, Eastbourne)

I have no settled view of the figures.

Malcolm Wicks (Labour, Croydon North)

We have heard the Librarian's view.

Nigel Waterson (Conservative, Eastbourne)

We have not heard the Librarian's view—we have heard differing views expressed about the percentages. If the major employers organisation in this country is unhappy with the proposals, the Minister has a case to answer on whether the Government took the trouble to consult it properly. I am passing on its concerns. Does he think that they are groundless? They clearly have not featured in the Government's conclusions. To repeat, the CBI thinks that 3 per cent., not 6 per cent., should be

''established under the stakeholder rules as giving exemption when made to a Group Personal Pension.''

I will be fascinated to hear what the Government have to say about the CBI's position.

It is instructive to look again at the famous regulatory impact assessment. It comes up with the figure of about £5 million in any one year, and that is on the basis that between 145,000 and 175,000 employees will be affected by such transfers each year. That is an interesting figure, as it is rather higher than I would have expected. Of those, an estimated 40 per cent. will be eligible to join an occupational pension scheme. The regulatory impact assessment suggests that the costs reflect the costs of pension provision or contributions only in the first year after transfer, because the new protection is explicitly designed to protect only workers who would otherwise lose pension rights by reason of transfer. Continuing provision will be a matter for the new employer, and that is the basis for the calculation. It is of some interest that the RIA takes the view that a large number of employees will take advantage of the provisions when they are introduced.

Steve Webb (Liberal Democrat, Northavon)

I echo the comments of the hon. Member for Cardiff, West in warmly welcoming the extension of TUPE to cover occupational pension provision. It is right and long overdue. I have a lot of sympathy with this group of amendments because they suggest that the pension rights that people acquire in a new firm should be strictly comparable with what they had before. That is in the spirit of what TUPE is supposed to be about.

I have a technical question that I want to flag up now to give the Minister a chance to seek inspiration. Those rules apply on the first transfer of employer, but employees who are transferred are often transferred again. For example, if the bin contracts are taken over by a new contractor, the employee will be transferred from the first to the second employer. Will the same level of protection apply at each stage, or could it get diluted? I have a constituent who is a pension fund trustee, and she occasionally sends me difficult e-mails. One of the concerns that she has raised is that although the protection on the first transfer might look fine and dandy, when employees move on to the second employer the waters might be muddied. I want the Minister to put on the record how those situations will be treated.

I was interested in the comment of the hon. Member for Cardiff, West that the Bill is imposing a lower standard in the private sector than in the public sector. I would be interested to hear the Minister's response to that, because I would not have thought that we wanted to do that.

I have two questions about the 6 per cent. figure. Where has that figure come from? Is it based on an estimate of how much people need to save to avoid poverty in old age, or an average estimate of what current schemes offer? I do not agree with the CBI that the figure should be 3 per cent. However, at least that figure is in the existing regulations in connection with stakeholder schemes.

If the scheme that the worker starts in is non-contributory, the requirement for the next employer to match employee contributions up to 6 per cent. starts to become onerous for employees whose previous scheme did not require them to contribute anything, because the employer was putting all the money in. I accept that that is probably not common, but it is possible. In those circumstances, does the employee effectively lose a valuable pension right because the employer is now required only to match contributions, but the employee was not even making them in the first place?

Malcolm Wicks (Labour, Croydon North)

I welcome the support of my hon. Friend the Member for Cardiff, West and the hon. Member for Northavon for the broad thrust of what we are trying to achieve. This is an important clause. It ensures for the first time that employees can benefit from a statutory minimum standard of pension protection following a business transfer, and it details the options available to the transferee employer to deliver this requirement.

I had previously thought of Eastbourne in terms of the bracing air of Beachy Head, and my knowledge of history was deficient in that I did not know that it was the home of TUPE. Given that, I thought that the hon. Member for Eastbourne might be the champion of TUPE. We heard the Librarian's analysis, which was interesting, and the CBI analysis, but we did not hear at what level he thought the protection should be pitched; there may well be an opportunity for him to tell us that later.

Amendments Nos. 310, 311 and 312 relate to the form of pension provision, that the transferee

employer—that is a terrible term; I prefer ''the new employer''—must provide to transferring employees. They would still provide transferee employers with the option of providing a salary-related or money purchase occupational scheme, or a stakeholder scheme. However, if the transferee employer chooses to offer a salary-related occupational pension scheme, amendments Nos. 310 and 311would require the scheme offered by him or her to be broadly comparable to the one offered by the transferor employer. That addresses the argument of my hon. Friend the Member for Cardiff, West. Such comparability is to be certified by an actuary, and that would apply even where the transferor's scheme was a money purchase scheme.

Amendment No. 312 would specify the level of contributions to be paid if the transferee employer chose to set up an occupational defined contribution scheme or a stakeholder scheme for transferred employees. Contributions would be as follows: for the transferee employer, no less than those paid by the old employer, and for members, not to be required to contribute more than members of the old scheme.

I have been asked about consultation. We did consult on our pension proposals. Many responses to that extensive process, and to an earlier DTI consultation on TUPE, have set out the difficulties of comparing different types of pension scheme. Requiring actuaries to compare money purchase and salary-related occupational pension schemes would impose further problems.

In defined benefit schemes, the employer contribution rate depends on its funding position and is determined in relation to the entire membership, not particular individuals. For example, it could be higher in a scheme with more old members and pensioners, lower in a scheme with younger members. Where schemes are particularly well funded, employers may be able to reduce their contribution rates, so there is no necessary read-across from what an employer contributed to a DB scheme at any particular time to what a transferee employer should contribute to a DC or stakeholder scheme.

Therefore, we have opted in the clause to set a statutory minimum standard to apply to all transfers. If the transferee employer chooses to offer a salary-related occupational scheme, it must meet the reference scheme test, which is the statutory minimum requirement for contracted-out schemes. A scheme must meet the test to be allowed to contract out. The reference scheme test relates to a scheme that provides entitlement to a pension at 65, continuing for life at an annual rate of one 80th of average earnings of the last three years of service multiplied by the number of years' service. The scheme must also provide benefits to the widow or widower whether the earner dies before or after the normal pension age.

If the employer chooses to offer a money purchase scheme, the requirement is, as we have heard, for matched 6 per cent. contributions even where the transferor offered a defined contribution scheme with an employer contribution of less than 6 per cent. The hon. Member for Northavon asked why we chose 6 per cent. I do not pretend that there is an exact

science, but there is some empirical context to that figure. Research published by the Government Actuary and by our Department indicates that the average contribution to a defined contribution scheme by employers is between 5 and 6 per cent.

I do not have the answer on second transfers readily to hand. I hope that my hon. Friend the Member for Cardiff, West and other Committee members will accept my offer to write to them. I have not had a yes or no wave of enthusiasm. The answer does not occur to me at present. Although the point is important, I am afraid that I will have to write. I will certainly do so.

I respect where my hon. Friend the Member for Cardiff, West is coming from. The thrust of his policy proposals is that, although he welcomes what we are doing, he does not think that we are doing enough, and that the process should be absolutely managed. I think that we want to avoid an approach that could prevent mergers and acquisitions, or increase costs so much that employers would be encouraged to withdraw pension provision. A company in difficulty may often be saved by an acquisition. Pitching the pension liability at too generous a level could stop that happening, with debilitating consequences for the employment opportunities of the workers.

In that, as in other aspects of the Bill, we have sought to get the balance between protection and costs right. That is why in parts of the Bill—this may be one such part—we have been conscious of the costs being imposed. We do not want to go for such wonderful pension provision that it threatens employment, or the future of pension schemes. That is the balance that we are trying to strike.

I suppose the only substantial answer to the important question about the difference between TUPE in the public sector and TUPE in the private sector is that by definition, the state is the employer in the public sector. It can make judgments about such costs. The situation is altogether different in the private sector, even though the state regulates its arrangements. My hon. Friend may wish to continue this argument outside the Committee, but at least he acknowledges that the measure is a notable social advance for this important group of workers.

Kevin Brennan (Labour, Cardiff West)

It is a notable social advance, and we could debate at length the nature of the risks that workers, employers and shareholders should have to accept with pensions. My intention in tabling the amendment was to stress my strongly held view that it is essential that people have confidence in their pensions, and the risk to the worker be minimised. After all, the purpose of the pension is to provide security, and the governing party to which Labour Members belong was founded to provide security for workers.

The Bill is a welcome step forward, and I shall not prolong the debate at this stage. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 204 ordered to stand part of the Bill.

James Cran (Conservative, Beverley and Holderness)

It would be helpful for me to know whether any of the Opposition parties want stand part debates on clauses 205 to 208.

Nigel Waterson (Conservative, Eastbourne)

I would like to speak on clause 206.

James Cran (Conservative, Beverley and Holderness)

Fine. I will take the clauses separately.

Clause 205 ordered to stand part of the Bill.

Clause 206 - Inalienability of occupational pension

Nigel Waterson (Conservative, Eastbourne)

I am sorry, Mr. Cran. I know that you had a rush of enthusiasm when you allowed me to speak on this clause. I have a fairly simple question.

The Government started off with a great burst of energy by providing us with a fact sheet on the first part of the Bill, but fact sheets seem to have dried up—but of course, I am still not on the mailing list. There may be constant circulation of such information, but perhaps I do not see it because I am not included.

I do not understand the concept of ''inalienability''. I cannot even pronounce it, let alone understand it. Perhaps the Committee could be given a brief explanation of how the clause improves on the existing provision in the Pensions Act 1995.

Chris Pond (Labour, Gravesham)

Let me explain the clause. It allows an occupational pension scheme to recover an accidental overpayment of pension to a member of the scheme. It can and does happen that a pension scheme makes a mistake in calculating a member's pension and pays them an incorrect amount. If the payment is an underpayment, the scheme is under an obligation to make good that payment.

It has been the practice in the past that the trustees of the scheme would recover any overpayment simply by reducing future payments of pension to the member. However, recent legal opinions have cast doubt on those arrangements and have said that such recoveries may not be tenable because of the provisions of section 91 of the 1995 Act.

However, the policy is clear. If there has been an overpayment of pension, it is only right that the scheme should be able to recover it. This clause makes it clear that schemes can make such recoveries and, taken together with the existing safeguards, provides a central way for pension schemes to deal with overpayments. First, section 91(6) of the 1995 Act provides that the scheme must give the member a certificate showing the amount to be recovered and its effect on his or her benefits. Secondly, if there is any dispute, the action for cost recovery cannot be undertaken unless a court has made an order to that effect.

I do not know whether the Committee wishes to prolong our considerations, or whether I could provide the hon. Gentleman with a briefing note or letter to explain precisely what is meant by inalienability. The burden of the clause is as I have described it.

Nigel Waterson (Conservative, Eastbourne)

I am grateful for that explanation.

Question put and agreed to.

Clause 206 ordered to stand part of the Bill.

Clauses 207 and 208 ordered to stand part of the Bill.

Clause 209 - Debt due from the employer when assets insufficient

Chris Pond (Labour, Gravesham)

I beg to move amendment No. 284, in

clause 209, page 134, line 37, leave out 'insolvency' and insert 'relevant'.

James Cran (Conservative, Beverley and Holderness)

With this it will be convenient to discuss Government amendments Nos. 285 to 292, 282 and 283.

Chris Pond (Labour, Gravesham)

Amendments Nos. 284 to 292 would amend the clause, which would itself amend section 75 of the 1995 Act containing provisions on debts from employers when schemes wind up or their sponsoring employer experiences a relevant event. Clause 209 aligns those provisions with those on the pension protection fund and refers to events that are part of the processes relating to the PPF. If the Committee would like me to go through each of the amendments in turn I shall happily do so. However, I take it that the Committee would like to move on briskly.

Amendment agreed to.

Amendments made: No. 285, in

clause 209, page 135, leave out lines 2 to 6 and insert—

'(3) Subsection (2) applies only if—

(a) no relevant event has occurred in relation to the employer in the period beginning with the appointed day and ending with the commencement of the winding up of the scheme, or

(b) since the date of the last such relevant event but before the end of that period, a cessation event has occurred in relation to the scheme.'.

No. 286, in

clause 209, page 135, line 8, leave out 'insolvency' and insert 'relevant'.

No. 287, in

clause 209, page 135, line 20, leave out 'insolvency' and insert 'relevant'.

No. 288, in

clause 209, page 135, line 22, leave out 'insolvency' and insert 'relevant'.

No. 289, in

clause 209, page 135, leave out lines 24 to 29 and insert—

'(a) if the qualifying relevant event is within subsection (6B)(za)(i)—

(i) the occurrence, in relation to the scheme, of an event within paragraph (a) of subsection (6A) in circumstances where that event is the first event within that subsection to occur after the qualifying relevant event, or

(ii) the commencement of the winding up of the scheme before any event within subsection (6A) occurs;

(b) if the qualifying relevant event is within subsection (6B)(za)(ii)—

(i) the occurrence, in relation to the scheme, of an event within paragraph (a) of subsection (6AA) in circumstances where an event within paragraph (b) of that subsection had not occurred since the qualifying relevant event, or

(ii) the commencement of the winding up of the scheme before any event within subsection (6AA) occurs.'.

No. 290, in

clause 209, page 135, line 46, at end insert—

'(6AA) The events within this subsection are—

(a) the issuing of a notice under subsection (2) of section 102 of the Pensions Act 2004 confirming that a scheme rescue is not possible;

(b) the issuing of a notice under subsection (3) of that section confirming that a scheme rescue has occurred.'.

No. 291, in

clause 209, page 135, line 47, at end insert—

'(za) a relevant event occurs in relation to the employer in relation to an occupational pension scheme if and when—

(i) an insolvency event occurs in relation to the employer, or

(ii) the trustees or managers of the scheme make an application under subsection (1) of section 101 of the Pensions Act 2004 or receive a notice from the Board of the Pension Protection Fund under subsection (5)(a) of that section,'.

No. 292, in

clause 209, page 136, line 4, leave out paragraph (b) and insert—

'(b) a relevant event (''the current event'') in relation to the employer is a qualifying relevant event if it occurs on or after the appointed day and either—

(i) it is the first relevant event in relation to the employer to occur on or after that day, or

(ii) since the date of the last relevant event which occurred before the current event (but not before that day), a cessation event has occurred in relation to the scheme,

(ba) ''appointed day'' means the day appointed under section 98(2) of the Pensions Act 2004 (no pension protection under Chapter 3 of Part 2 of that Act if the scheme begins winding up before the day appointed by the Secretary of State),

(bb) ''cessation event'' means—

(i) in the case of a relevant event within paragraph (za)(i), an event within subsection (6A)(b), (c) or (d), and

(ii) in the case of a relevant event within paragraph (za)(ii), an event within subsection (6AA)(b), and'.—[Mr. Pond.]

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

I beg to move amendment No. 316, in

clause 209, page 136, line 14, at end insert—

'(4A) In subsection (8) leave out ''not''.'.

This is not the most elegant amendment, and it is certainly not the longest that has been tabled so far. Nevertheless, it is important because it seeks to ensure that pension fund debts under the terms of the clause are preferential debts for the purposes of the Insolvency Act 2000. Any pension debt, in the case of an underfunded final salary pension scheme, is not treated as a preferential debt. The upshot of that is that the prospects of recovery are small, because the schemes come behind a long list of preferential debtors, particularly those with floating charges over the company's assets. Preferential debts have included the Inland Revenue and Customs and Excise, although I understand that under the Enterprise Act 2002 Crown debts no longer constitute preferential debts. Those with floating charges are at the core of preferential debts, although there is currently a list of employer debts. Some of the social security contributions may apply up to a limit of a year, and some of the employer contributions to the state pension scheme—and to a contracted-out scheme—

may apply up to 12 months before the time of insolvency.

The pension fund deficit is, by and large, excluded from that list of preferential debts. In the case of Allied Steel and Wire, as the hon. Member for Cardiff, West will know, £57 million of the £82 million recovered for preferential debt by the receiver will go to the banks, mostly Lloyds TSB. Some £20 million will go to Gerling NCM, a supplier of scrap metal that remortgaged the company, and just £5 million will go to the workers.

That problem applies in other cases, too, such as that of HH Robertson. In that case, an asset stripper moved in, bought the company for a dollar, took the assets out and left a massive hole in the pension fund. The assertion was that if there had been protection under the Insolvency Act 1986, giving the pension fund preferential treatment, that action would not have proceeded in the same way. Under that Act, if, once the insolvency expenses and any secured claims have been dealt with, the total preferential debts are greater than the assets left, the assets are shared out equally among the preferential debt holders. That would be a means of preventing creditors from trying to get their cash out and foreclosing on their loans. That may well have been practice in the ASW case, too.

If banks realise that they are no longer at the front of the queue for the assets of the company that they push to insolvency, and realise that they will have to take a share along with the pension fund deficit, it may not be so attractive for them to consider sending that company into insolvency.

Much of what I have said relates to the current legal situation, and that will, of course, be changed by the Bill. However, there are two points of relevance to the provisions of the Bill. One relates to the period after the pension protection levy comes into force, and the other is the transitional period. Concerns have been raised that, after the creation of the PPF, some creditors will feel that they are in a better position to release their cash from companies, because they will view that prospect with greater equanimity knowing that there is a safety net in place. Creditors may act against companies in order to get their cash out, and there may be a spate of companies being pushed into insolvency so that people can take early advantage of the new provisions under the PPF. Clearly, changing the position as regards preferential debt would also make creditors think twice before initiating such a strategy.

Secondly, there is the interim or transitional period after enactment but before the PPF comes into force. I imagine that that issue is probably engaging Ministers, as they weigh up the issue of what we do about workers at ASW and other companies. Clearly, if there is a deal, and some form of compensation is offered, there is the question of what happens to companies that go into insolvency a week after those arrangements have been announced. There may be a similar rush by creditors to move companies into insolvency, so that they can get their cash out, knowing that some kind of compensation arrangement is available that will help in relation to

the pension fund deficits and help avoid any negative public relations for the creditors involved. I can understand why that may be a factor in the Government's deliberations.

Once again, changing the situation as regards preferential debt arrangements for pension fund deficits would provide at least some bar.

Kevin Brennan (Labour, Cardiff West)

On that point, does the hon. Gentleman acknowledge that that should not be a bar to the Government's doing anything with regard to compensation, as the argument would apply equally when the pension protection fund was introduced?

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

Yes, I certainly accept that and I would not want to provide the Government with any comfort in compensating the workers of ASW and other companies, as that is the Government's responsibility. There are several reasons why it would be prudent—to use the word of the day—to look again at preferential debt treatment of pension deficits. That was one issue on which the Government invited responses in the technical paper that accompanied the publication of the Green Paper.

In an Adjournment debate in the Chamber called by the hon. Member for Sittingbourne and Sheppey (Mr. Wyatt), the then Minister for Pensions, who has now plummeted to the top as the chair of the Labour party—I am not very good on constituencies—

Kevin Brennan (Labour, Cardiff West)

Makerfield.

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

I am grateful to the hon. Gentleman. The right hon. Member for Makerfield (Mr. McCartney) responded to that debate, saying:

''Certain unpaid pension contributions may be pursued as a preferential debt in the event of insolvency of the employer. It seems to me that the issue is whether the contribution that employees have made—often over many years—to the success of their company and to the running of their pension fund, should enjoy a preferential status.''

He went on to say:

''I believe that the answer to that is self-evident, and I assure my hon. Friends that I will raise the matter with ministerial colleagues at the Department of Trade and Industry.''—[Official Report, 16 October 2002; Vol. 390, c. 440.]

He said that the answer was self-evident; unfortunately he did not say which way he came down on the issue. Very canny; I can see why he was promoted—well, if it is a promotion.

In the Under-Secretary's response it would be interesting to hear what was the view of the consultees about the issue of preferential debt and what the Department of Trade and Industry said in response to the then Minister's comment.

Chris Pond (Labour, Gravesham)

I understand the hon. Gentleman's concern, which is shared by other Members. It is because the Government take such concerns so seriously that moving pension schemes up the order of priority for payment was one of the options considered in the December 2002 Green Paper, as he has reminded the Committee. It was one of the biggest ever consultations on pensions, and we receieved

about 800 responses from a wide range of groups and individuals.

The hon. Gentleman asked what were the responses. There were various views among the respondents about the option. The trade unions were unanimously in favour, as were the majority of voluntary and consumer organisations and members of the public. There was a mixture of views among the other respondents. Among the seven employers who responded, most were in favour. The CBI said that it was

''strongly opposed to moving pension schemes up the order of priority. This could have serious and unintended consequences''.

It then said:

''Employers with DB schemes will find it harder to obtain secured loans or see the cost of loans increase . . . it could hinder future overseas investment into the UK''.

It ended:

''Other unsecured creditors would lose out and find themselves penalised through no fault of their own.''

With a difficult decision to make on the balance of those arguments, we decided that it was not sensible to move forward with the option for the reasons outlined in the CBI's response.

Steve Webb (Liberal Democrat, Northavon)

The list of creditors includes the taxpayer—the Inland Revenue. Although I can accept that there are problems with prioritising the pension fund debt above banks, with its implications for the cost of borrowing, surely society might want to step in behind the members of an underfunded pension scheme. It would not affect the cost of capital or any of the issues raised in the passage that the hon. Gentleman just quoted.

Chris Pond (Labour, Gravesham)

No, although the hon. Gentleman recognises that in 2002, as the hon. Member for East Carmarthen and Dinefwr (Adam Price) pointed out, Crown preference was abolished as part of the move away from preferential treatment. The reason is that in those circumstances it is unlikely that anyone will get very much at all. In addition, to push one group ahead of another can create unintended priorities. While we recognise how important it is that we do everything possible to protect the interests of scheme members, in those circumstances we are not convinced that this measure is the best way forward. I ask the hon. Member for East Carmarthen and Dinefwr to examine it in the context of all the other protections that exist in the Bill, and on that basis to agree that it is not an essential or a necessary way forward and to withdraw the amendment.

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

I am saddened, but not surprised, to see the Government siding with the CBI against the trade union movement and consumer organisations. However, I do not want to detain the Committee unduly. This is a fight that we must win another day, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 209, as amended, ordered to stand part of the Bill.

Clause 210 - Resolution of disputes

Nigel Waterson (Conservative, Eastbourne)

The fact sheet on the clause has not reached me, but I have two questions. First: how does this measure improve on the protections in section 50 of the 1995 Act? The second question is something that, if I had got round to it, I might have tabled an amendment on. However, as I did not, let me cast it as a suggestion, which Ministers might or might not wish to take up.

We have debated the issue of trustees today and the question of recognised pensioner associations and their power to nominate member-nominated trustees for particular schemes. I envisaged some dispute about whether those people are who they claim to be, whether they are truly representative and on what basis they can be recognised. I wonder whether consideration could be given to whether one of the disputes that could be part of the resolution procedure could be the recognition of a pensioners' association in respect of a particular scheme.

Chris Pond (Labour, Gravesham)

On the face of it, the proposal made by the hon. Gentleman seems reasonable. I hope that it is not an attempt to go back on the debate that we have had this afternoon. On the assumption that he is merely making a constructive proposal for something else that we should reflect on, we would be happy to do so. Given the assurance that we will examine that idea, perhaps we could move on and agree that the clause stand part of the Bill.

Question put and agreed to.

Clause 210 ordered to stand part of the Bill.

Clause 211 ordered to stand part of the Bill.

Clause 212 - Annual increase in rate of certain

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 293, in

clause 212, page 140, line 37, at end insert—

'(5A) After subsection (6), insert—

''(7) Regulations may provide that this section does not apply to schemes falling within a prescribed class or description, or applies to them with prescribed modifications''.'.

James Cran (Conservative, Beverley and Holderness)

With this it will be convenient to discuss New clause 7—Annual increase in rate of certain personal pensions—

'Sections 162 and 163 of the Pensions Act 1995 (c26) (annual increase in rate of certain personal pensions) shall cease to have effect.'.

Nigel Waterson (Conservative, Eastbourne)

The amendment and the new clause are linked. They seek to deal with what I understand to be quite a technical, narrow, but nevertheless important issue. This will not be an occasion where there will be no other matters that I want to raise in the clause stand part debate.

The amendment and the new clause relate to money purchase schemes, as opposed to defined benefit or final salary schemes. As I am informed, it is a question

of possibly unnecessary complexity—although one must accept that in this field there is much necessary complexity—and whether there is an unintended consequence in the drafting. In as brief a way as possible I will take hon. Members through the point.

It seems that someone retiring from a money purchase scheme after April 2005 and who has been a scheme member since before April 1997, might need to buy six different types of annuity with what is effectively one pot of money. As my briefing says with admirable understatement, that is confusing and complex for consumers to understand and there will be costs attached to that complexity. One way of overcoming the requirement to buy different types of annuity is to transfer the fund to a personal pension. Those with larger funds will often get access to the advice needed to make that transfer, but those with smaller funds will not and will therefore be the main sufferers from the proposals. As there is no objection to such transfers in principle, there cannot be an objection to the amendments.

The second problem with indexed annuities is that they generally do not represent good value for money compared with level annuities. The current version of indexation—limited price indexation as it is known in the trade—requires pensions built up from 1997 to be increased in line with inflation up to 5 per cent. That represents full inflation linking in the current market on short and long-term inflation expectations. In other words, an LPI annuity costs the same as one that provides full retail prices index protection.

The people briefing me have obligingly produced figures based on the average private money purchase annuity pot of £23,000. To receive the same total payments from an RPI annuity as from a level annuity, a 60-year-old male must live to the age of 94. Sadly, the average 60-year-old male in the UK lives only to the age of 79. One of the changes that the Bill introduces is a cap on LPI annuities at 2.5 per cent. rather than 5 per cent. That should reduce the break-even age to 90, but that is still 11 years longer than normal life expectancy.

There is also a sub-issue of whether the problem affects the public finances. With the growth in means-tested benefits, a reduction in real private pension incomes should result in an increase in state-funded top-ups for the group that we are discussing. However, it is an issue of complexity and we are trying to get to the bottom of the intentions behind the proposals.

I should explain that the issue applies in a different way from defined benefit or final salary schemes. In those cases, compulsory indexation is of real value to the employee as the initial benefit is fixed, unlike in a money purchase scheme. Although the different bases for indexation still make administration more complex, we are not suggesting that indexation is removed from defined benefit pension schemes. I hope that that is reasonably clear. It is a genuine attempt by those in the industry, particularly in DC schemes, to probe the exact intentions of the provision.

Malcolm Wicks (Labour, Croydon North)

As we have heard, amendment No. 293 would insert a regulation-making power at the

end of clause 212. It would allow regulations to provide that annual indexation increases under section 51 of the 1995 Act should not apply to schemes of a prescribed class or description, or should apply with prescribed modifications. Without further amendments to clause 212 the amendment is technically flawed, but I will concentrate on the argument behind it in a moment.

The Opposition's proposal to introduce new clause 7 would remove the mandatory indexation of contracted-out rights in personal pension funds. It would apply to all scheme rights built up since 1997 that have not yet been used to buy an annuity by the time the changes come into force.

Clause 212 eases the limited price indexation requirement in occupational pension schemes by reducing the existing cap on an annual rate of increase from 5 per cent. to 2.5 per cent. for future benefits. For defined benefit occupational schemes, reducing the cap on mandatory indexation will balance the cost of the levy imposed by the pension protection fund, which we shall come to soon, while continuing to provide protection against the worst effects of inflation.

The Government accept that there are different arguments and legitimate concerns about the implications of changing the mandatory cap on limited price indexation for defined contribution schemes. First, in contrast with defined benefit rights, in DC schemes the cost of indexation falls on the member, not the scheme. Indexation affects the annuity purchased, not the size of the pot, so that the starting pension is lower than would otherwise have been the case.

Secondly, the schemes are not subject to the protection afforded by the pension protection fund, which is reserved for defined benefit schemes. Thirdly, the change proposed under the Bill would add administrative complexity and require people to purchase more separate annuities to meet the different requirements on each tranche of benefits. Those are fundamentally different issues from those affecting defined benefit schemes.

The Government are therefore prepared to consider such issues in light of responses to earlier consultations on the proposals and we shall bring forward further proposals in due course. I would welcome a wider debate about defined contribution schemes and, in particular, how we can promote a better informed understanding of the choices that individuals need to make about annuities. On that basis and given my assurance, I hope that hon. Members will agree to withdraw the amendment and not press new clause 7 to a Division.

Nigel Waterson (Conservative, Eastbourne)

I am grateful to the Minister for that response and his acceptance that a serious issue must be tackled. Indeed, what he said might also shorten some of the stand part debate. However, my

enthusiasm and gratitude for his response is somewhat tempered by the matter of when—and if—the Government will table amendments to the Bill or whether the provision will be dealt with differently. Clearly, in all sorts of ways there might be differences between DB and DC schemes, as the hon. Gentleman has acknowledged, and different approaches need to be taken in legislation. My narrow and selfish concern is whether such approaches will be taken in the Bill and, if so, when. On that basis, however, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Sally Keeble (Labour, Northampton North)

I beg to move amendment No. 224, in

clause 212, page 141, line 2, leave out 'lesser' and insert 'greater'.

The amendment links in with the different figures for the protection of pensions and future increases. It would increase the level of pensions that people will receive in later years. It is a probing amendment. I understand the Minister's point that we have to balance protection-related costs. However, under the clause, the balance is very much in terms of the costs rather than the protection of future increases for pensioners.

The amendment follows on from our discussions this morning about women pensioners and the need to tackle poverty among them. I draw attention to the consequences of a system that reinforces the poverty of women pensioners and which, in particular, takes away some of their financial independence. We also talked this morning about the changing circumstances of pensioners. There are probably more women working full-time and more who have equal pay and equal access to jobs. There is greater awareness of the need for financial independence. As was said this morning, more women are now taking out private and occupational pensions, and some of them are making better pension provision than men.

It is particularly ironic that, just as women are moving into occupational, private, personal and stakeholder pensions, the Bill limits the increases that they receive in future years. The amendment is very much tied up with the others that I have tabled. It would ensure that women received greater increases and that their incomes in retirement were protected. Limited price indexation affects occupational pension schemes and also elements of private and stakeholder schemes. I understand that that measure was introduced in 1995 by the Conservative Government and applies to rights that accrue post 1997. It limits pension increases to 5 per cent. or RPI, whichever is lower. The Bill proposes that the limit should be set at 2.5 per cent., which would, if my understanding is accurate, limit the future increases that people would get.

My amendment would replace that measure with increases linked to the RPI, or increases in average earnings. It is intended to find out the thinking about the level of increases that people get and why the Government have plumped for these figures without any indication that the 2.5 per cent. limit would apply to higher pensions, rather than across the range of earnings, and would hit older pensioners in particular.

The helpful Library note illustrates the differences between the 2.5 per cent. and the 5 per cent. limits in weekly income in retirement. For somebody who has been retired for 15 years that would be £10 a week, and if they had been retired for 20 years it would be £15. The impact on people would be much greater. It would not just be about the difference between those two limits; it would be a choice between 2.5 per cent. and whatever was the inflation rate. People would feel that impact.

The reason why that impact would particularly affect women, and why I tabled the amendment to change the balance of what people get, is that women live longer. The Library note says that on average women live for three years longer than men. However, with due respect to the Library, the figures are somewhat different. It would take a long time to look through all the relevant papers. However, the Budget papers from yesterday include a helpful graph illustrating the age and gender profile of the population, and showing that at the age of 80 there are twice as many women as men. The impact of what looks like a small change is quite substantial for women; it will not be felt now, but in about 20 years.

It seems that we have got the balance between the protection for pensioners and the costs to the pension fund slightly skewed, particularly since that will be in primary legislation and will therefore be harder to change. It puts a very low cap indeed on pension increases in the future. It is right that inflation is currently low, we have the symmetrical target and policies are in place to keep inflation low. However, to say that that will apply for 20 to 30 years—[Interruption.] Well, I am not sure that anyone has a crystal ball. Our party has been able to control inflation and provide the economic climate that we have now. However, in 20 to 30 years the difference in ages may be even greater than 18 years. Given the backlash that we experienced over the changes to index linking of the state pension and the impact that that had on the erosion of people's income—people who felt intensely bitter about that—I wonder whether there should be a more flexible mechanism to deal with future pension increases, bearing in mind that there is a big shift into different types of pension provision. For the first time, women are paying into personal, stakeholder and occupational pension schemes. It would be sad if women, having got a greater level of financial independence and the right to independent pension provision, found 20 or 30 years down the line that they were not receiving the sort of income in old age—particularly frail old age—that they thought they would, due to a small rule change now.

Nigel Waterson (Conservative, Eastbourne)

I shall speak on the amendment, and therefore cut out one of the issues that would otherwise arise during the stand part debate. The hon. Lady makes some telling points. There will be some resentment that as a result of cutting the LPI, occupational pensions could lose value in years to come.

Inflation will not necessarily remain at recent levels. We all remember the disastrous years of a previous Labour Government. We may become used to double-digit inflation; who can look that far ahead? We have

to look that far ahead because we are dealing with pension schemes. There is a real problem in the clause. It is informative that even in this supposedly low inflation environment, in December 2003 and January 2004, inflation was running at 2.8 per cent. and 2.6 per cent. respectively. Those figures are not vastly different from 2.5 per cent., but they are higher.

It would be particularly tough on pensioners if in one year, 10 years or 20 years, inflation were running in double digits again. If the public were foolish enough to re-elect a Labour Government after a sustained period of Conservative Government, we could return to the banana republic finances that produced such levels of inflation. None of us knows with any great certainty what will happen, but locking a reduction into the pensions increases will be seen as unfair by many people.

The good old regulatory impact assessment is instructive. I do not know on what basis the figure is used, but it makes an assumption of an average long-term inflation rate of 2.5 per cent., with a 1.5 per cent. fluctuation either way. It concludes that the cut in the LPI will reduce total pensioner income by just less than 2 per cent. Finally, it says:

''In light of the additional funding costs that schemes will incur . . . it is estimated that around 75 per cent. of DB . . . schemes would take this option up—resulting in actual aggregate savings of approximately £370 million a year, if applied to all future accruals''.

That is a not insubstantial amount, based on that assumption. I do not know how valid the assumption is. Economists seem quite capable of getting most predictions wrong. Perhaps the Minister will explain to me whether those who prepare the RIA make the assumptions up themselves—or is a handle supplied to them by the Department?

Vera Baird (Labour, Redcar)

I shall be brief. I support my hon. Friend the Member for Northampton, North (Ms Keeble). I have added my name to the amendment for the reasons that she set out, and in particular because of the emphatically clear point that she made about the differential impact that the provisions are likely to have on women, who live longer than men. I have no further arguments to add to those she has made, but I raise two queries, which are essentially encapsulated in one.

As I understand it, the provision is not retrospective. I am not saying that it would ever be likely to take away any increases above 2.5 per cent. that had already been added on. Currently accrued pension rights will continue to increase on an annual basis at whatever is the lowest of RPI and 5 per cent. If RPI is above 2.5 per cent., that will mean that they will increase at a rate that is more than the rate that applies to pension rights accrued after the day that the provision comes into force. If that is right, that means that, in many situations, there will be two pots, increasing at different rates. I want to be sure that I have understood that properly.

At a number of points in the Bill, as other members of the Committee have pointed out, the Government have given themselves the power to make regulations in order to change the terms of a provision in the Bill.

Is this not an ideal situation for including just such a clause? Members in all parts of the Committee would be likely to welcome that. It would not commit the Government to changing their view, but would leave them with a reserve power should inflation start to increase at a more rapid rate, and would enable them to ensure that there is not the injustice that we now fear.

Steve Webb (Liberal Democrat, Northavon)

The amendment goes to the heart of the clause. It specifies what the level of inflation protection should be. The motivation behind the amendment is absolutely right. We know that among the pensioner population the poorest tend to be women and the most elderly, and the people who lose out most through inadequate inflation protection are precisely the most elderly because pensions erode over a long period. I am absolutely with the spirit of the amendment. However, if I understand the letter of it, it would mean that protection would be whichever was greater of 2.5 per cent. and actual inflation.

Sally Keeble (Labour, Northampton North)

No.

Steve Webb (Liberal Democrat, Northavon)

Well, my understanding is that the clause as it stands states that protection shall be the lesser of—

Sally Keeble (Labour, Northampton North)

The amendment substitutes ''greater'' for ''lesser''. The full series of proposals was about taking out the 2.5 per cent. and simply linking increases to RPI or average earnings.

Steve Webb (Liberal Democrat, Northavon)

All I would say is that amendment No. 224, which we are debating in isolation, would appear to refer to any inflation level. That would be an unacceptable risk to schemes, which is why I would have trouble supporting it. However, I absolutely agree with what the amendment is driving at.

The key point is that the Government have said that on one hand they will put a new burden on company schemes in relation to the pension protection fund, but on the other they will raise the burden from schemes in relation to indexation, which is what we are dealing with at the moment. The idea is that those things will balance each other out, or make life a bit easier for company schemes. However, that depends on how much benefit the provision to relax limited price indexation will be to schemes. I am sure that the Minister would accept that many schemes have scheme rules that require indexation protection that is better than 2.5 per cent. Under the scheme rules, those schemes will not be able to take advantage of the relaxation of price indexation. Will the Minister reassure us that the estimated saving to schemes—I think it was £370 million—takes account of the details of scheme rules and is based on an analysis of those rules and the extent to which schemes will benefit? If some scheme rules do not allow the scheme to go below inflation—let us say it was 4 per cent. or thereabouts—the estimate of the reduced burden on schemes would be inaccurate. I hope that the Minister can clarify that.

Even the regulatory impact assessment allows for the fact that inflation, even when it averages 2.5 per cent., can go either side of that: down to 1 per cent. or

up to 4 per cent. That fact that it is 1 per cent. in a given year and 4 per cent. in another does not mean that the effect is offset, because this is not an average process. Once someone has had a bad year, they have lost that increase for ever. If inflation is 1 per cent. one year, people get their 1 per cent.; they do not get 2.5 per cent. If it is 4 per cent. the next year, people lose 1.5 per cent. of their pension, in real terms, for ever. Although on average inflation might be 2.5 per cent., even in the fairly static sort of world that we live in there will be fluctuations, and the bad years are never recovered by the good years, so that people's real living standards will decline year after year.

My only other observation is that the regulatory impact assessment tries to say, ''Well, it's only a couple of per cent. What's that among friends?''—that is not quite the language of the regulatory impact assessment, but that is the implication. However, 2 per cent. of income over retirement is £7,000. The regulatory impact assessment puts ''£7'', and at the top it states that the figures are in thousands. That is £7,000 of retirement income. I accept that over the course of a retirement, hundreds of thousands of pounds are involved. However, this would still cost the typical pensioner £7,000.

The other question is whether the regulatory impact assessment understates the impact of the change to indexation because it takes as its average the average of all retired occupational pensioners, whereas the people that it will affect most are just coming into retirement. I think that I am right in saying that the £70 is an average over zeros. I think that I am right in saying that the £70 in the regulatory impact assessment is the average for the entire retired population.

However, the typical figure for the occupational pension of someone newly retiring would be much higher: the impact would not be £7,000, but quite a bit more. Even if the average does not include the zeros, it must be the case that the figure will be much lower if all retired people on occupational pensions are taken into account, rather than the people coming into the system. As the hon. and learned Member for Redcar (Vera Baird) said, the people coming into the system will bear the brunt of the proposals.

Although I have some technical concerns about amendment No. 224, it raises grave concerns and I have great sympathy for the motivation behind it.

Malcolm Wicks (Labour, Croydon North)

This has been a useful debate about a complex question and a fundamentally important issue. As we have heard, the amendment tabled by my hon. Friend the Member for Northampton, North would affect the indexation of defined benefit and defined contribution occupational pension schemes. She will have heard what I said earlier about our thinking on defined contribution pension schemes.

The amendment would remove the new indexation cap of 2.5 per cent. that we propose to introduce for the future. Instead, it would set a minimum indexation rate of 2.5 per cent., capped at 5 per cent. It says in my notes that the amendment is technically flawed; I can hardly believe that. [Interruption.]

Let me deal with the substance of the amendment. Clause 212 would ease the limited price indexation requirement in occupational pension schemes by reducing the cap from 5 per cent. to 2.5 per cent. for benefits built up on or after the date at which the change comes into force. Of course, schemes would be able to retain a 5 per cent. indexation rate if that were wished; some schemes intend to do that.

My hon. Friend suggests a move in the opposite direction to that of our proposals. I will try to explain why in our judgment that would not be sensible. Proposals to reduce the indexation cap will balance the cost of the levy imposed by the pension protection fund.

I will go into some detail about this issue. I am not trying to be patronising; I found some of this difficult to understand. Let me explain my understanding of the issue to Committee members. When trustees are planning how much money they need to hold to meet their schemes' future pension payments, their actuary needs to make assumptions about factors such as future salary growth, investment returns and inflation. Those assumptions feed into the actuary's calculations of the contributions needed in the future. For example, the higher the assumption made about future investment returns, the less money would need to be held now, because the money would grow faster in the future. In making an assumption about future inflation, the actuary will build into the calculations an allowance for the fact that year-by-year inflation in future will not be exactly 2.5 per cent. In some years it will be more, in other years less.

At the moment, in the years in which it is assumed that inflation will be more than 2.5 per cent., the scheme would have to pay pension increases higher than that, subject to the cap of 5 per cent. Once the reduction in the cap from 5 per cent. to 2.5 per cent. is introduced for the future build-up of pensions, the scheme would only have to pay an increase of 2.5 per cent. in those years. So after the reduction in the cap is introduced, the actuary's calculations would show that lower contributions were needed to meet the cost of pensions.

Therefore, our concern about the costs of accepting the amendment is that we estimate that the amendment would achieve the opposite of what we are trying to do. Depending on inflation, the application of the amendment could result in annual costs of around £900 million for defined benefit schemes, for the reasons that I have tried to specify. I return to the point that I made earlier. In all our proposals, we are seeking to balance our objective of bringing security back into social security in old age—hence the pension protection fund—with realism about the costs that are incurred by companies and by schemes. The actuarial reasons that I have specified make it difficult to accept the amendment.

We need to be realistic about the world in which we live when it comes to final salary schemes. Although some commentators exaggerate the trends, we know of companies that are withdrawing, either completely or for new members, from such schemes. It would be absurd for any of us to pontificate about the desirability of levels of pensions and guarantees, if it

were to drive some companies and schemes from final salary schemes to other schemes that might be less advantageous. That is my concern about an amendment that, otherwise, seems perfectly reasonable and, indeed, just.

Limited price indexation requires all occupational pensions built up from 6 April 1997 to be increased by the RPI index capped at 5 per cent. When that was introduced, it was intended only to provide a degree of protection against inflation. However, our success in controlling prices over the years means that the 5 per cent. cap has effectively become full protection. It imposes large and, on the whole, unnecessary liabilities on schemes in respect of their forward funding requirements, given the need to plan for contingencies.

Defined benefit occupational schemes already find the 5 per cent. cap a significant cost even during periods of low inflation. The amendment would result in increased costs for schemes, which would have to pay indexation of 2.5 per cent. even where price growth was below that. They would still have to plan against possible indexation rates of 5 per cent. That would mean higher costs for schemes and could have a detrimental effect on existing defined benefit schemes. It could lead to some schemes closing down.

In defined contribution occupational schemes, the cost of mandatory indexation is borne by the pensioner in the form of an index-linked and, therefore, initially more expensive annuity. I will not say more about that, given what I said about our thinking through some of the arguments presented by the hon. Member for Northavon. On that, and touching on the issue raised about women making more choices about pension schemes, I say that our earlier discussions about defined contribution schemes have a marked bearing on this issue. To answer the hon. Gentleman's earlier point, our intention is, during the Bill, to bring amendments forward on the points raised. We need to take advice before saying when such amendments will be tabled.

My hon. Friend the Member for Northampton, North said that our proposals would be bad for women. It is true that women in defined benefit occupational schemes will see a slightly higher reduction in their overall retirement income than will men. However, it is important to remember that the change will balance the cost of the pension protection fund to schemes. That will give all scheme members, including women, much greater protection of their pension rights and will encourage wider membership of pension schemes. I believe that, if asked to make an informed judgment about indexation versus security should their company crash, many women, and men too, would opt for security.

On the point about women living longer than men, and how that might adversely affect women when it comes to indexation, I counter by saying that the pension protection fund will, on average, protect women for longer than it will protect men, because of life expectancy. So there is a swing and there is a roundabout on that one. It is a complex matter. Many of the cost issues are not straightforward; they are about the long-term funding of schemes, and are technical but important actuarial points.

Notwithstanding those difficulties, I hope that my hon. Friend the Member for Northampton, North will consider withdrawing the amendment.

Sally Keeble (Labour, Northampton North)

I apologise for the inelegance of the amendment. I might have drafted it differently if I were a draftsperson and if I had realised that only a bit of it might be selected for debate. However, it has been helpful to talk through some of the issues.

I think that my hon. Friend makes a rash assumption if he thinks that people would choose a levy for a fund the benefits of which they do not yet know over what they understand is proper inflation proofing of their pension. People have a big awareness now of what happens if their pensions are not uprated each year.

What happens with women is very striking. When I first became an MP in 1997, I held quite a few pensioners' surgeries. It must be borne in mind that people have paid for private pensions for a long time, and they have had occupational pensions. Into the surgery came many desperately poor elderly women whose savings and state pensions had eroded in value. Their real problem was that they were widows aged over 80 and their pensions had not kept track with the cost of living. What happens with indexation is an important issue; people are acutely conscious of it. As the hon. Member for Eastbourne said, this is not about a difference between only 2.5 per cent. and 5 per cent. but between 2.5 per cent. and 7 per cent. or more.

If any more thought were given to being a bit more flexible about this—perhaps in the way that my hon. Friend the Minister suggested—that would be helpful. However, this is a technically flawed proposal, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Nigel Waterson (Conservative, Eastbourne)

In light of a couple of things that the Minister said, my remarks can be shorter than they otherwise would have been. I want to commend to the Committee the ''Action Plan on Defined Contribution Pensions'' of the Association of British Insurers. It makes several very sensible proposals, some of which I hope that the Government will take on board. As has been said, it remarks that

''the process of converting a pension fund into an annuity is far more complicated than it needs to be.''

It also states:

''Even though the PPF is not designed to protect DC schemes, this change will force many people to buy two further annuities with their DC pension.''

There is clearly an element of unintended consequences there, with all the ''confusion and additional costs.''

The ABI also offers a variety of proposals, one of which is

''that compulsory indexation of occupational DC schemes and protected rights pensions should be abolished at the earliest opportunity''

although it also accepts that indexation should remain compulsory for DB schemes because they do not depend on the size of the individual's pension pot. The Minister touched on that.

I am pleased that we shall hear more about this, but we are at the end of the second week of the Committee stage and it is not unreasonable for us to be a little more pressing than we have been with the Government. When will we see the amendments? They are likely to change the shape of the Bill considerably, but I cannot comment any further until I see them.

Steve Webb (Liberal Democrat, Northavon)

I will not detain the Committee unduly. If the Government cannot produce the amendments, it would be helpful if we were given a steer as to their direction of thinking with regard to defined contribution schemes and indexation. I have only started to appreciate that whereas the indexation burden on a DB scheme falls on the scheme and is, if not a free lunch, good news for the recipient, for a DC scheme member it might be bad news. That is an important distinction, so it would be helpful to have a steer from the Minister about the Government's provisions on DC schemes.

I have looked again at the regulatory impact assessment estimate of the effect of the clause on a typical pensioner and, unless I misunderstand, the £70 seems to be an average over the zeros. I believe that it is a serious underestimate of how much a typical pensioner with a typical occupational pension will lose. If it is £7,000 based on £70 a week and that £70 is averaged over many people who do not have occupational pensions, the typical occupational pensioner could lose far more than £7,000. The scale of the consequences of the clause could be much greater than the regulatory impact assessment implies.

I accept the Minister's point about there being a balance, but he is saying that if we do not lower the requirement or impose another burden or fail to remove a burden, we might force more schemes to close, but inflation indexation might be required because that would be less of a burden and they would be even less likely to close. Clearly, there is a spectrum and the requirement seems to go up to 5 per cent. when inflation averages 2.5 per cent. That is not so onerous and the saving from cutting it would not be as great as the Minister suggests, but the reassurance and protection that it affords, particularly to women, might be, at not that great a cost, worth keeping in the Bill.

Malcolm Wicks (Labour, Croydon North)

We have had a useful mini-debate. In response to the last points made by the hon. Member for Northavon, which go back to an earlier debate, I urge hon. Members to consider seriously the issues surrounding costs and how we balance them against security. I do not want to exaggerate—I leave that to financial pundits—but there is clearly a long-term trend away from final salary schemes to other schemes. We can debate the pros and cons of that, but a correlated concern is the way in which employers' contributions to many defined contribution schemes average out at about half the contribution to final salary schemes. The issues are serious and when boards might be considering the costs and the long-

term future of final salary schemes it would be absurd if Parliament started to make those schemes so generous, well indexed and protective in respect of TUPE arrangements in the private sector that we encouraged more boards of directors to make the wrong decisions. If we made those mistakes, we would seriously over-egg the pension pudding. The issues are fundamental.

I must not be churlish, but the hon. Member for Eastbourne raised a serious issue about defined contribution schemes and urged us to think again. We were already thinking again about the issues, but that is part of scrutinising legislation. Having reflected, I made my points, but, having done that, I am not going to pull the specific amendment out of my top pocket.

Nigel Waterson (Conservative, Eastbourne)

I will not go into the Minister's tailoring, but he cannot have it both ways. He is a member of the Government with the massive resources of his Department and the benefit of representations from organisations such as the ABI. The problems are apparent to anyone with the slightest knowledge of the matter and he cannot bluster himself out of them. Where are the amendments, when will we see them and does he expect them to be debated in the Committee?

Malcolm Wicks (Labour, Croydon North)

I have given a clear commitment to think again and to bring forward proposals during consideration of the Bill. I hoped that the hon. Gentleman would be grateful for that, given the way in which he introduced the amendment.

I hoped that we would have a well informed debate about the issues concerning defined contribution schemes and annuities, some of which touch on gender. Were people to have more choice—broadly where we are coming from—the choice to have as much annuity as possible in the first year and not to index it would be tempting. However, informed choice would suggest that people think through the consequences for the future. Similarly, when someone is married with an annuity, or is about to take one out, another choice they have is whether to protect the annuity for the survivor. They are very difficult issues, and I suspect that men in particular may not be taking out an annuity that has a survivor's element.

There are some important issues with gender, and we should not rush in one direction without thinking through the importance of enabling people to make proper decisions about annuities. That includes the option now available to take the annuity from a company other than one's existing company pension scheme. There are difficult issues to consider before we immediately grasp what may seem to be the right way ahead.

We will return to the matter, and when the hon. Member for Eastbourne takes his walk across the beach this weekend, he will know that we need to be patient.

Question put and agreed to.

Clause 212 ordered to stand part of the Bill.

Clauses 213 and 214 ordered to stand part of the Bill.

Clause 215 - Exemption from statutary revaluation requirement

Nigel Waterson (Conservative, Eastbourne)

I want to raise a narrow but important point. It is not all my own work, but it is about the equalisation of GMPs. I am reliably informed that the general view of the European law requirement is that the total benefit for men and women for service from 17 May 1990 should be equal, rather than that each individual component of the benefit should be equal. The GMP legislation causes a problem by requiring schemes to treat a member's GMP differently from any additional benefits to which they may be entitled.

Again, if I had received the information in time, I would have tabled an amendment to clarify what the clause seeks to achieve. An amendment would have allowed schemes to elect to revalue the whole of a member's benefit for service from May 1990 in a consistent way. The revalued benefit would have had to be no less than the statutory GMP, which may be different for men and women. However, the anti-franking requirements would not apply as they effectively force schemes to provide different benefits for men and women.

Members of the Association of Pension Lawyers legislative and parliamentary sub-committee have told me that they cannot work out what the clause intends to achieve. That view also extends to section 84 of the Pension Schemes Act 1993. People who know a lot more than I do about such matters want clarification about the purpose of the clause. It seems to be related to anti-franking, but no one seems quite sure.

Malcolm Wicks (Labour, Croydon North)

It would clearly be helpful if I explain, albeit briefly, the purpose of the clause. It reinstates a provision that was originally in the Pension Schemes Act 1993, but which was repealed as an unforeseen consequence of the Pensions Act 1995. Occupational pension schemes are required to revalue the accrued rights of members who leave before normal pension age, thus protecting the value of pension rights left in the scheme. The way in which they must be revalued will normally depend on whether the benefits are salary-related, linked solely to a period of service or on a money purchase basis.

Legislation sets out different ways of revaluing pensions. Until April 1997—an important period of our history—one method saw the scheme maintain the value of the whole pension by reference to the rise in the general level of prices. That required the approval of the occupational pensions board, which gave it on a general rather than scheme-specific basis. A result was that legislation that enabled schemes to use the RPI was inadvertently removed when the functions of the occupational pensions board were brought to an end by the 1995 Act. The clause therefore amends the re-evaluation requirements in section 84 of the Pension Schemes Act 1993. It enables schemes to continue to satisfy the statutory revaluation requirements by revaluing the total pension or other benefits fully in line with the RPI.

I am advised that the clause has nothing to do with issues of group equalisation of GMPs. They are included in any re-evaluation of deferred pensions. I am sure that what I have said is absolutely crystal clear.

Mr. Waterson rose—

Malcolm Wicks (Labour, Croydon North)

I will give way, but I was about to say that, if that is not crystal clear, I will of course write to the hon. Gentleman.

Nigel Waterson (Conservative, Eastbourne)

I just want to be clear that the Minister is using the same definition of GMP as the rest of us are. Could he remind the Committee what GMP stands for?

Malcolm Wicks (Labour, Croydon North)

Guaranteed minimum pension.

Question put and agreed to.

Clause 215 ordered to stand part of the Bill.

Clauses 216 and 217 ordered to stand part of the Bill.

Clause 218 - Restrictions on commutation and age at which benefits may be received

Nigel Waterson (Conservative, Eastbourne)

I shall be brief, because I know that hon. Members' constituencies are beckoning.

The clause deals with removing age and commutation limits, and deals with them in great detail, although I shall not. This is a useful moment to draw the Committee's attention to the considerable disappointment in the pensions industry about the fact that the Bill does not contain provisions permitting schemes to convert the famous GMPs into scheme benefits on the basis of actuarial equivalents. Nor does it seek to amend section 67 of the 1995 Act to allow retrospective modifications to scheme rules, or remove the requirement to obtain member consent for the commutation of equivalent pension benefits.

At least some of those issues, which are clearly important to people, were flagged up as possible subjects of additional amendments to the Bill. Will the Under-Secretary confirm that and tell us, if he can, where those amendments are in the pipeline?

Chris Pond (Labour, Gravesham)

Given the lateness of the hour, and given that the hon. Gentleman has raised a specific question, I propose to write to him in response, saying where we are in that process.

Nigel Waterson (Conservative, Eastbourne)

Does the Under-Secretary not know?

Question put and agreed to.

Clause 218 ordered to stand part of the Bill.

Clause 219 ordered to stand part of the Bill.

Further consideration adjourned.—[Margaret Moran.]

Adjourned accordingly at nineteen minutes past Five o'clock till Tuesday 23 March at half-past Nine o'clock.