Pensions Bill

Public Bill Committee, 27 April 2004.

Standing Committee B

New Clause 2 - Effect of determination to wind up scheme on freezing order

New Clause 3 - Reports by skilled persons

New Clause 10 - Schemes required to wind up but unable to buy out liabilities

New Clause 11 - Treatment of closed schemes required to wind up

New Clause 12 - Valuations of closed schemes

New Clause 13 - Applications and notifications where closed schemes have insufficient assets

Column Number: 737

Duty to assume responsibility for closed schemes

New Clause 15 - Closed schemes: further assessment periods

New Clause 16 - Meaning of ''reviewable matters''

New Clause 21 - Deputy PPF Ombudsmen

Column Number: 739

Publishing reports etc

New Clause 23 - The Pensions Ombudsman and Deputy Pensions Ombudsmen

New Clause 24 - Jurisdiction

New Clause 25 - Investigations

New Clause 26 - Voluntary contributions

New Clause 30 - Modification of subsisting rights

Malcolm Wicks (Labour, Croydon North)

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

Good morning, Mr. Griffiths. This may be our last day in Committee, but if we need to sit on Thursday, we can do so. The formalities that we have just gone through rather remind me of when one is trying to follow a drama that spreads over six weeks on television; sometimes, at the beginning of a new episode, they remind the viewer of what has gone before. That was exciting.

I have always lived in hope that at some stage I might understand parliamentary—and particularly Committee—procedure, and I hoped that this would be the occasion for me, but perhaps next time.

Before I come to new clause 30, I should like to say a little about where we are; it will take just a couple of paragraphs. I said during last Thursday's programme motion debate that the Government would table the remaining amendments to be dealt with in Committee last week, and that if we were unable to do so for any reason, they would be brought forward on Report. I confirm that we have no more amendments to table for Committee. The second tranche of clauses dealing with moral hazard are on the amendment paper, and we shall discuss them today.

We were also hoping to bring forward a clause on cash-equivalent transfer values to early leavers; however, it is a complex clause, and we have decided to table it on Report. In the intervening period we shall be testing the clause with outside experts.

New clause 30 replaces section 67 of the Pensions Act 1995. It will give schemes more flexibility to reshape their rules and cut back on their administrative costs. The current section 67 quite properly protects the rights that scheme members have already built up in a pension scheme by preventing rule changes that would have a detrimental effect on a member's accrued rights. However, the effect is that schemes can only apply rule changes to future rights, and as a result every rule has to remain in place exactly as it first existed, resulting in layer upon layer of rules, and ever-increasing complexity and cost.

The new clause will give occupational pension schemes the flexibility to rationalise and streamline their pension rules, and so will allow schemes to remove what has been described as a layer cake effect. However, there will be strict safeguards to ensure that scheme members are treated fairly, and that their interests are protected. As is the case now, whenever a rule change would have an adverse effect on a member's accrued rights the trustees will have to agree to it before it can go ahead. Schemes will still be able to

make a rule change with the consent of the individual member. The difference that the new provisions will make is that although schemes will not be able to reduce the value of a member's accrued rights they will be able to make changes to the nature of the rights. That will allow them to make the sort of sensible and perfectly reasonable simplifications and rationalisations that they have long complained that they are prevented from making under the present section 67 rules. Trustees will be able to replace one accrued right with another, provided that the overall actuarial value of the affected person's accrued rights is not reduced. In other words, the actuarial value of each member's accrued rights must be at least equal to what it was before the change was made.

Where trustees are proposing to make a change of that nature they will have to give the members advance notice of the change, tell them how it will affect them, and give them the opportunity to make representations about the proposal. The trustees will then make their decision in the light of any feedback that they receive from scheme members. Certain changes will be prohibited unless they are made with the express written consent of the member in question. Schemes will not be able to convert defined benefit rights into defined contribution rights. It would be going too far to allow a scheme to put a value on the rights that someone had built up in a defined benefit scheme and then just put an equivalent sum into a money purchase pot. We will also not allow schemes to make a change that would reduce the prevailing amount of a pension that is in payment.

Freeing up section 67 was one of the key simplification measures in Alan Pickering's report of July 2002, ''A simpler way to better pensions''. Schemes have long complained that the present section 67 is too restrictive and prevents them from making what are perfectly sensible and reasonable changes. In his report, Alan Pickering acknowledged how important it is that

''employers keep their pension promise.''

However, he also said that

''it should be easier for employers to re-shape pension arrangements in the light of contemporary economic or other circumstances.''

He continued:

''A careful balance needs to be struck . . . between giving employers the right to amend pensions in the light of changed circumstances and their responsibility to keep their pension promise.''

The new clause strikes that balance. It follows Pickering's recommendation by allowing schemes to replace an accrued right with something else that is of at least ''equivalent value''. It then goes further in protecting members' interests by insisting that they are told about the effect of a change and by giving them the opportunity to make representations about it. It also prevents certain types of changes altogether, unless the scheme obtains the consent of the member. As I have said, there is no switching from defined benefit to money purchase and no reduction in the amount of pension in payment.

Alan Pickering was of course right when he said that employers should ''keep their pension promise'', but he was also right that the present section 67 rules are very restrictive. They prevent schemes from re-shaping their rules.

Steve Webb (Liberal Democrat, Northavon)

The Minister may have been about to move on to this, but in case he was not, will he give the Committee an illustration of the typical rule change that is currently prohibited that would become enabled by this new clause? What sort of thing are we talking about?

Malcolm Wicks (Labour, Croydon North)

For example, we are talking about where, for a section of someone's pension rights, the scheme—maybe reflecting the 1995 Act—says that that must be increased by 5 per cent. whereas a later layer of the cake might say something different. It is about trying to produce the actuarial equivalent for the member so that they do not lose out. For example, as an illustration, it is about saying, ''If we are going to rationalise so that in future the pension—all the different layers of the cake—can increase by x per cent. a year, the pension member should not lose out.'' This might not be an actuarially exact example but it is the kind of thing that is involved: one year at 5 per cent. might become, for example, 1.2 years as an actuarial equivalent in the future. It is about that, rather than the scheme at the moment having to organise itself so that different parts of the final salary scheme increase in different ways. Perhaps, as a result of company and pensions amalgamations, there have been different rules about dependants: children up to 16 or 18. The measure is designed to rationalise such rules in ways that produce no losers.

Steve Webb (Liberal Democrat, Northavon)

One is always nervous about making it easier to make changes that are detrimental. I understand that the rights earned to date are not treated detrimentally, but does this make it easier for companies to make their ongoing pensions less generous?

Malcolm Wicks (Labour, Croydon North)

No. This is not about making ongoing pensions less generous, but about rationalising scheme rules with the consent of the trustees so that, in future, members should get the actuarial equivalent of what they would have got anyway. If in future all the pension increased by the same x per cent., instead of one bit by z per cent., one bit by y per cent. and so on, buying more time for the member—actuarially, instead of one year under a certain chunk of the scheme, one would get 1.2 years—would enable the member to get the same pension in the future.

This is not about reducing the costs to the scheme or about reducing the benefits to the member. It is about simplification, in line with Alan Pickering's recommendations. Another example might be changing payment frequency from every four weeks to monthly. We are trying to achieve a range of things of that kind.

Schemes have the option of obtaining members' consent for a rule change, but experience shows that in practice obtaining the consent of every individual member is rarely possible, particularly when a scheme has lost touch with some of its deferred members. For the very reasons that Alan Pickering outlined in his report, we think that pension schemes should have more flexibility to reshape their rules. The new clause will give them that flexibility, but at the same time will ensure that members' interests are properly protected.

Nigel Waterson (Conservative, Eastbourne)

Good morning, Mr. Griffiths. We share the Minister's hope that we can finish the Committee stage today, although we have some weighty matters to debate.

The Minister was right in setting out the background to new clause 30, which was foreshadowed by Pickering and by the Green Paper, and has been long awaited by industry. There was a howl of protest when the Bill was first published because these provisions were not in it.

If things can be simplified, that will be widely welcomed, although it is a bit difficult to see how the average layman, flicking through the dense print of the pages upon pages of new clause 30, would see it as a simplification measure. Let us hope that it is in practice. There is certainly a feeling among the people who have made initial comments to me that it may be adding more complexity.

However, the Minister is right about the layer cake effect that has been created with the passing of time, and about the absolute need to tackle this issue. Many people now consider it easier to close a scheme than to amend it. That cannot be sensible. It is surprising that it has taken so long for the provisions to appear, given that they have been flagged up so regularly and over such a long period. We now have relatively little time in Committee to go around getting expert comments on how the provisions might operate. I am sure that you are aware, Mr. Griffiths, of Bismarck's famous remark: those who like legislation, like those who like a sausage, should never see how it is made.

Malcolm Wicks (Labour, Croydon North)

A great pensions reformer, Bismarck.

Nigel Waterson (Conservative, Eastbourne)

He was a great pensions reformer, as the Minister reminds me.

Let us consider more specific issues. Flexibility is important. If the long, complex provisions deliver that, we shall be very happy. The area is likely to remain one of considerable complexity and potential uncertainty for trustees.

One of the issues that has been flagged up with me, and on which we might table an amendment on Report, is whether it might be sensible to include a mechanism by which, rather as people can clear certain tax schemes in advance with the Inland Revenue, trustees will be able to seek advance clearance from the regulator if they are trying to make a change that they think is both in the interests of the members of their scheme and suitable under the new provisions.

Certain problems remain. What is and what is not a power to modify the scheme? The classic example would be a specific power to change the actuarial factors used to calculate benefits. The Minister touched on that. Proposed new section 67A(6)(a) moves on from section 67 in the earlier Act and does not use a definition of accrued rights that treats active members as if they had opted out. There could be additional problems in trying to sort out what accrued means in this context. Did the Government deliberately not use the definition in section 124 of the 1995 Act?

It is useful and sensible that the new provisions will make amendments voidable rather than void. Many of the issues that I am raising could be tabled as amendments, but because of the time scale I am making them as points so that if the Minister can deal with them before they become amendments on Report and have to be debated he will be able to save us a great deal of time.

Would it be sensible to incorporate into proposed new section 67I(2) something about reasonable excuse or taking reasonable steps? Again, I aim to protect trustees who might be trying to do their best for their scheme. Further, should the regulator be able to give a binding commitment that it will not exercise its powers under proposed new section 67G in relation to any particular modifications that have been submitted to it in advance? I have already mentioned the genuine doubts as to whether a modification is a regulated modification. In other words, in this case would the regulator be expected by Ministers to take a proactive role rather than simply reacting after the event to an inappropriate modification?

May I also raise a series of practical issues that have been put to me by people who are far more expert than I? In relation to those parts that replace rather than add to the original section 67, the Government seem to be ignoring advice that they have had not to use a single actuarial value because that does not address each part of the benefit. If there is to be a test that values each aspect of the benefit package, it needs to be written into the legislation. Perhaps the Minister can help me on that.

It is good that under proposed new section 67A(3), issues such as switches of a scheme from defined benefit to defined contributions are covered specifically for the first time. The question arises under proposed new section 67A(3)(a), why not both an actuarial equivalence requirement and a consent requirement? One might have thought that both would apply in relation to an internal transfer value within the scheme. However, it depends on what is being certified by the actuary. If it is a fixed amount, ignoring solvency issues, but the transfer value might be less if solvency issues were taken into account, that needs to be considered. A weakness in the current legislation is that internal scheme transfers are not covered. The provisions for internal and external transfers should be the same when initiated by the scheme sponsor and trustees, rather than the member.

Given the concern about employers avoiding section 75 debts, has the need for employers to make up any deficiency in funding that affects the transfer value been considered? We shall debate that issue further, later today. Anti-avoidance provisions need to be on a level playing field, especially as the spectre of criminality is raised in new clause 39.

Another question, about internal transfer, is: what protections will the new money purchase benefits have on winding up? It is far from universal that there are separate funds constituting separate schemes.

Turning to proposed new section 67A(3)(b), there is a question of whether employers will obtain consent. Will the measure cover partial wind-ups, which are not normally considered to be a modification? Will annuities have to be purchased under the provisions of the 2004 Finance Bill where previously a pension had been paid from the scheme investments envisaged? There is something odd about pensions in payment. Normally, there is no cash equivalent for a pension in payment, but there is for pension sharing purposes. As those provisions could include pension credit members, that could involve a variation of a pension sharing order. Has that been considered?

There is also something odd about the actuarial equivalence requirements in proposed new sections 67C and 67D. Under proposed new section 67C(2), the requirements apply only if the trustees decide that they should, but on what basis are they to make that decision? Under the current legislation, section 67(2) is regarded as a filter mechanism by which trustees determine whether the actuary should become involved in the certification process. That was referred to in the joint opinion on section 67 that was obtained by the actuarial profession. The basis for the trustee decision is less clear under the new wording. It may tie in with whether informed consent is needed, or, from a practical point of view, it may tie in with the opportunity to make representations. We then have the fall-back position of the actuarial equivalence statement in proposed new section 67D(3), which suggests that the normal route is to obtain the consent of members, but is not entirely clear whether that is the case. Consent would be consistent with giving effect to the information and consultation directive 2002. We believe that trustees and their advisers are entitled to better guidance on those issues. There is also an issue with the quality of the consent route taken. If the fall-back position is the actuarial equivalence requirement, how can a modification go through without that requirement being satisfied?

Those are some of the issues that members of the profession have flagged up. Another is the current cash equivalent test. I understand that there has been some legal debate on whether that is a benefit, and that that was one of many issues covered in the joint opinion from the actuaries. The question whether it is an entitlement was considered on arguments of private trust law, rather than employment law, and was ruled out. It is not certain on accrued rights, but that was also rejected. The conclusion was that, as with so many aspects of section 67, that view could not be expressed with confidence. The effect on the benefits that would

be available in the receiving scheme on transfer was not considered. However, some issues arise from the Coloroll cases—I am sure that the Minister is familiar with them, or is about to become so—that support the position taken in the joint opinion.

On the question of sex-equal transfer values, a transfer value is not paid. The reasoning is tied in with transfers in and out operating on a neutral basis, so that, all other things being equal, the member's accrued rights should not be changed if a transfer payment is made. Therefore, as regards benefits under the receiving scheme, the obligation is to ensure a sex-equal transfer value of benefits, but not a unisex transfer value. It was stated that in order to ensure that the sex equality requirements are met, the receiving scheme may need to consider whether it is possible to claim a higher transfer value from the transferring scheme if the transfer value is insufficient for that purpose. The cash equivalent is relevant as regards benefits. Furthermore, if a unisex requirement comes in under European law it is possible that, because that part of the objection would cease, a transfer value would be regarded as a benefit. Any distinction would then be about whether there was a permanent change, as opposed to a temporary easement or an adjustment built into the original terms. Nevertheless, the ultimate test is whether the benefits on a like-for-like transfer are reduced as a result.

Those are all important issues, as far as I can tell. They raise significant concerns about the way in which the new clause will operate in practice and how the regulator is to use its powers in that area. I appreciate that it has not been possible to cast these points as amendments, because of the lateness of the new clause, and that it has equally not been possible for the Minister to flag up detailed answers to the questions. I would be more than happy if he wanted to write to me and to other members of the Committee on the detailed issues. However, on some of the big issues, he may be able to explain why some of the concerns may be overstated.

Steve Webb (Liberal Democrat, Northavon)

I cannot begin to match the erudition of the hon. Gentleman on such matters, but I want to make a few humble contributions, if I may.

I wanted to raise three issues with the Minister. The first, which I am flagging up early to give him the chance to become inspired, is the issue of actuarial equivalence. As I understand it, if something happened that would otherwise diminish the rights accrued to date, one would be given a sum of money that was the actuarial equivalent of the amount accrued so far. The new rules would then apply, but one would have had one's rights effectively replaced by something of equivalent value. That seems reasonable in principle, looking backwards.

However, is actuarial equivalence definitive or is it a matter of judgment? Can one always say that a sum of money is of equivalent value to any given accumulated pension right to date or is it a guess? Is it an estimate, subject to judgment and a range of uncertainty? If one were given a certain sum of money in lieu of previously

accrued pension rights, could it turn out that the sum was not equivalent? It may have looked as though it would be equivalent according to the best assumptions available at the time, but it may not be because interest rates were higher or because the person involved lived for a longer or shorter period. If that is the case, will there be any redress? In other words, what happens if I am a member of a scheme and have accrued rights to date, but the scheme comes along and says that it wants to change something that would otherwise be detrimental to my accrued rights but that it will give me some money instead, and it turns out five years later that the money that I was given—although I was given it in good faith, as it appeared to be of equal value at the time—is not of equal value? Can I then go back and tell the scheme that it made my pension rights worse, that the money that I was given did not cover my rights in full and that I want the difference or do I just have to lump it, as we say in the trade? Can it be revisited, or is it a once-and-for-all definitive matter?

My second concern is about whether scheme members will understand what on earth is going on. I presume that the trustees will write to the scheme members, saying that they hope to make a fairly technical change to the rules of the scheme. My hunch is that the vast majority of scheme members will not have the foggiest idea what that means. The Minister will know that when his Department does surveys on pensions and company pensions, scheme members have trouble knowing whether they are in a final salary scheme, a money purchase scheme or something else. They have trouble getting that far, and also in knowing whether they have contracted out or not. The idea that they would be able to make an intelligent assessment of a technical rule change seems entirely incredible.

The question remains, does that matter? Scheme members will receive the letter, which will state, ''We are going to change such-and-such, under this rule, paragraph so-and-so,'' and they will say, ''Wot?'' Does it matter that they will not understand? Presumably, it matters a bit or we would not have all this stuff about notification, consent and so on. It must matter to some extent. I do not suppose that plain English is ever a requirement in such things, but can we be confident that scheme members will have the first idea what they are being written to about, or is this just another consultation on the nod? Will trustees say, ''The law said we had to write to you, so we did. We know that 95 per cent. of you didn't understand a word of what we said, but, what the heck, we're going ahead anyway''? I have a feeling that that is how it will be in practice, because no one will understand the issues. That makes me slightly nervous.

My last point is the substantive one about which I intervened on the Minister: will the provisions be used as an excuse for making cuts? The Minister said not, but I want to pursue him a little about that. I accept that they will not be used as an excuse for making cuts to rights that have already been accrued, but the Minister used the slightly ominous phrase ''new economic realities'', which makes me very nervous given that we are talking about changing people's pension rights.

I accept that there will be trivial changes, and it would be absurd if the Pensions Act prevented us from changing the payment frequency from four-weekly to monthly. I do not have a problem with trivial administrative changes in areas where the law has become so rigid that it is absurd. However, I am still worried.

When I intervened on the Minister, he gave two answers: one was perhaps inspired, while the other was perhaps more off the top of his head. The one off the top of his head was about future indexation, which is far from trivial. He seemed to be saying that future indexation might, for example, be lower than scheme indexation to date. Those are the new economic realities: lower inflation, lower indexation rights. That does not damage people's accrued rights, because people who, for example, get one year at 5 per cent. might then get one and a half years at 2.5 per cent, which would be equivalent, so that would be fine.

I am not sure, however, that companies could, at present, worsen someone's future pension rights. Would section 67 prevent them from doing so? If the revised version of section 67 allows them to do so, are we making it much easier for firms to cut future—I stress the word ''future''—pension rights because of the new economic realities, to use the Minister's words? He clearly said no when I intervened on him, but I want to give him the opportunity to do so again, because I am not sure that he is right. I am not sure that the new clause does not give companies the power to change scheme rules and to put the past right. The new rules for future accruals could be less generous and, I assume, go through without the consent of all members. I am very nervous about that, and the Minister has not quite reassured me that we are not making such things easier.

So, there are three key questions. First, is actuarial equivalence definitive? If not, and if someone gets a bad deal, can they go back to it? Secondly, will employees understand any of that stuff anyway, and does it matter? Finally, will the provisions make future cuts easier? Those are my concerns.

Malcolm Wicks (Labour, Croydon North)

I start by acknowledging the generous offer from the hon. Member for Eastbourne (Mr. Waterson), who said that the timing of the changes before us meant, among other things, that the Opposition had not had time to table amendments. He added—this, I thought, was the generous bit—that the Government had not had time fully to take on board the nature of the non-existent amendments. Given the detailed nature of the brief, we will obviously consider the issues before Report and write to hon. Members about them. However, I will do my best to deal with some of the points raised by the hon. Members for Eastbourne and for Northavon (Mr. Webb).

The hon. Member for Eastbourne made the jest—it was perfectly reasonable, and we rather anticipated it—that if the provisions are a matter of simplification, do we really need 10 new sections? The answer is that simplification, in this instance at least, is not about cutting the number of words in the legislation, but

about making it simpler for schemes to operate. As we have heard, the new sections will give them the flexibility to simplify their rules. It is the sort of simplification that pension schemes have been asking for, and we must take that into account. It is also along the lines recommended by Alan Pickering.

If there are now 10 new sections, instead of just one, that is because they incorporate the necessary safeguards for scheme members. We have freed up the position for pension schemes but ensured that it has not been done at the expense of scheme members. To precis what I am saying, it is a complex task to achieve simplicity.

We were teased again as to why it had taken us so long to produce the new clause. It is a familiar answer: it is an important and complex matter, and we have had to think hard about it and take advice. I am sorry that it should be somewhat late.

Some questions were raised about proposed new section 67G, which provides the pension regulator with the power to order that a modification is void. That may touch on some of the concerns expressed by the hon. Member for Northavon about the regulator's role. If a scheme has not properly complied with the new section 67 requirement, the regulator will be able to order that the affected members are returned to the position that they would have been in had the modification not been made. That is a further measure to protect members' pension rights. The regulator can also require that the trustees take certain steps for the purpose of giving effect to the order, or declaring that anything done by the trustees before the order was made did not breach the scheme's rules.

The hon. Member for Eastbourne asked about advance clearance. Whether scheme rules should be changed is rightly a matter for trustees, depending on the circumstances of their scheme and its members. If the trustees are in doubt as to whether a change should be made, they can seek members' views to help them in their consideration. It is not a matter for the regulator, but he will issue a guidance note.

Various questions were asked about the actuarial value of members' accrued rights, and how they will be calculated. The actuarial evaluation of members' accrued pension rights in defined benefit pension schemes has long been a standing feature of pensions legislation. For example, when a member wishes to transfer his rights from one scheme to another, or when members are transferred in bulk following corporate mergers, the rights accrued need to be valued. In conjunction with the actuarial profession, we plan to ensure that an appropriate methodology is put in place, through regulation and actuarial guidance, to ensure that members' accrued rights are appropriately valued at the point of change. We will be building on the well established actuarial certification process for bulk transfers.

Nothing in the legislation will prevent trustees from giving schemes actuarial equivalence if members' consent has been given, but such equivalence must be given if no such consent is obtained. As I implied, the regulator will issue guidance about that.

The issue of gender was raised. Proposed new section 67C(8) provides that the actuarial value of the rights of each affected member immediately following modification must be equal to the value of the rights before the change. Regulations, together with professional guidance to actuaries, will ensure that each affected member's accrued rights under the original and the revised scheme rules are properly and fairly valued for the purpose of meeting the statutory requirement. The calculation of the value of each member's accrued rights will properly take into account all the relevant factors, and that will obviously include the member's gender. I hope that that answer is satisfactory.

The Welfare Reform and Pensions Act 1999 introduced pension sharing on divorce. Under the provisions of the Bill, it is possible for the value of pension rights held by either member of a married couple to be shared on divorce. Section 67 of the 1995 Act restricts the power conferred on occupational pension schemes to make changes that would or might affect a person's entitlement. However, it does not apply to section 29(1)(a) of the Welfare Reform and Pensions Act, which provides for the creation of the pension debit when a pension sharing order has been made.

In order to comply with the pension sharing order, the person responsible for the pension arrangements has to reduce the value of the member's accrued shareholder rights by the percentage ordered by the court. That reduction would affect the member's rights, and if the existing section 67 were to apply it would not be possible to implement a pension sharing order. The existing exemption will, in proposed new section 67(3), be carried over into the clause 67 provisions, thereby enabling pension sharing to continue.

The line of questioning by the hon. Member for Northavon was about actuarial equivalence. At the risk of repeating myself—I have not had time to paraphrase my remarks—actuarial equivalence is a well established process used in various areas of pension work. For instance, it is used to set the amount of contributions required from the employer. There is a need to make assumptions about the future to work out how much income from contributions a scheme needs. It is also used to change one set of benefits into another. It changes the shape of the benefits, but not the overall value; for example, individuals may want to transfer their accrued rights from one scheme to another when they move jobs. The first stage will be for the scheme to calculate the existing accrued rights for each scheme member using actuarial assumptions. The actuary will then work out the value of each member's accrued rights.

In broad terms, that calculation is done by working out how much pension will be paid to individuals each year up to the point where it is assumed that they will die, and how much scheme benefit will be paid to their surviving spouse until it is assumed that they too will die. To produce those figures, the actuary will have to use various assumptions about the future; for example,

he will have to make assumptions about mortality to decide how long the pension will be paid and about inflation to decided how much of an increase will be awarded in each of those years, and he must decide how much money has to be invested to produce a stream of income. To do that, the actuary has to use an assumption about future investment returns. That latter figure is the value of the member's accrued pension rights before the scheme amendment. The actuary will then repeat that calculation to work out the value of the member's accrued pension rights after the proposed scheme amendment. The two actuarial values will be compared and, if necessary, an adjustment made to the member's accrued rights to ensure that the value after amendment is no less than before.

Steve Webb (Liberal Democrat, Northavon)

I am grateful to the Minister for that response. He confirmed my point when he talked about the different assumptions that must be fed into that process. Nobody doubts that those assumptions are made in good faith with the best guess at the time, but we all know how useless actuaries are. The only thing that they want to know in life is how long people will live, and they keep getting that wrong. Presumably, they will get this wrong too. The new clause is therefore allowing changes the resulting outturn of which may be right on average; in some cases however we will be allowing people's accrued rights to be damaged.

Malcolm Wicks (Labour, Croydon North)

I am just about to deal with the hon. Gentleman's points, following his vicious attack on a great profession. In case I speak to actuaries in the future, I want my comments recorded.

The hon. Gentleman seeks an impossible guarantee, which would be like guaranteeing that all members of a scheme will live until they receive their annuity or that those who are married will stay married. With any set of pension scheme benefits, the circumstances of life and death will ensure that some individuals end up better off than others. However, I assure the hon. Gentleman that the objective of actuarial conversion is to ensure that every scheme member retains an equivalent value of benefits at conversion and, as far as the human predictive ability can provide, into the future.

The hon. Gentleman is concerned about possible losers, and even winners. As he acknowledges, any long-term gains or losses will depend on the accuracy of the actuaries' long-term forecast and the future circumstances of the individual member—age at retirement, age at death, and so on. This is a matter of informed judgment, and the actuarial profession will recognise that it cannot be an exact science.

I can confirm that, when a change is made without member consent, the actuarial value of each member's rights at the time of the change will be maintained. No member will suffer a reduction in the actuarial value of his or her rights, as I have been at pains to spell out.

One of the issues raised by the hon. Gentleman's concerns is that, although we need to be able to seek the views of members, requiring every member's consent would be impossible. Schemes lose touch with

some members, and some would not reply. Of course, I recognise that many members of pension schemes feel relatively ignorant about such matters, and that raises the issue of the important role of trustees. By definition, trustees are there to ensure that members are protected. Trustees must act in the best interests of scheme beneficiaries, so far as is permitted by their trust deed, the scheme rules and general law. That duty refers to the scheme's beneficiaries as a whole.

When making a decision to modify scheme rules, trustees have to consider the implications of the decision on all beneficiaries and weigh up the pros and cons to decide whether their decision is in the overall interest of beneficiaries. Trustees are also required not to exercise a power to modify scheme rules for an improper purpose. Trustees will be required to tell scheme members about the effect of the change on them as individuals. The regulator will give guidance to trustees on that point. A member could appeal against an earlier rule change on the grounds that it was based on wrong assumptions or was carried out on the wrong basis.

Alan Pickering's review of occupational pension regulations, which prompted the proposed changes, suggested that section 67 is a contributory factor in the move by some employers from defined benefit to defined contribution pensions arrangements. He therefore recommended that schemes be allowed to make the rule changes that we have discussed. It has been a theme of our discussions that no one wants layer upon layer of regulations if the result is that more employers decide to move out of final salary schemes. That is one of the factors that we bore in mind when we listened hard not only to Alan Pickering, to whom we are obviously grateful for his report, but to many other people in the industry who were saying that the move towards simplification was important. We have taken that seriously at a time when, in other sections of our Bill, we are imposing new burdens, such as the pension protection fund, on schemes.

I repeat that, although no absolute guarantees can be made about every last pound of every last member, the whole basis of actuarial equivalence is to make sure that we can achieve simplicity, with all the benefits that that brings, at no expense to the member. The proposals are a fair package, not least to members.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 31 - Publishing reports

Chris Pond (Labour, Gravesham)

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

Good morning, Mr. Griffiths. I am not sure that the new clause need detain the Committee so long as to push us through to Thursday, but we shall see.

The new clause will give the pension protection fund board the power to publish reports on the exercise of its functions. It is designed to allow the board to publish a variety of reports, which could, for example, contain details of consultation exercises, statistics concerning the PPF's functions or recommendations of good practice for schemes that become involved with the PPF.

One may ask why on earth the Bill needs to give a body that it establishes, the power to publish reports. [Interruption.] I hear the hon. Member for Northavon saying, ''indeed''. It is therefore important to make it clear that the new clause also specifies that, unless the reports are malicious, which of course we would never expect them to be, there will be exemption from action on the grounds of defamation. That will allow the PPF the freedom to perform its role independently.

The power to publish reports is not unique. The regulator has a similar power in clause 63, which allows it to publish reports regarding the consideration it gives to the exercise of its functions, including the results of that consideration. Clause 63 replicates Section 103 of the Pensions Act 1995, which gives the Occupational Pensions Regulatory Authority the same power. OPRA's power was originally absolute. Even in cases where malice might have been considered, it was protected against any action. The Opposition agreed with us that it was perhaps necessary to limit those powers.

We believe that the PPF's power to publish reports will help to ensure that the organisation is transparent, by allowing it to disclose details of its decisions and its decision-making processes, where appropriate. Furthermore, we believe that the power will enable the board to make best use of reports—for example, on its website—to keep individuals and third parties informed of its involvement with a scheme.

We envisage that some reports may contain information that is restricted information for the purposes of the information clauses in chapter 5 of part 2, where the board considers that to be necessary, in the light of the nature of the report and the purpose of publishing it. That will require a small associated amendment in clause 159, which we will table later.

Nigel Waterson (Conservative, Eastbourne)

I may be quite wrong, but my vague recollection is that the new clause is a response to an amendment that we moved, and argued for, some time ago in the Committee. I seem to remember having a long argument about the differences between absolute and qualified privilege. As the Committee knows, I am far from being an egomaniac in such matters. However, having tabled hundreds of amendments and

new clauses, I think that it would be nice if we got a modicum of credit on the sole occasion on which the Government have accepted our amendment.

I argued strongly that absolute privilege was not appropriate for the publication of such reports, whether by the regulator, the board, the ombudsman or whomsoever. I said that there was no room for absolute privilege and that we should therefore consider qualified privilege, which is mentioned in subsection (3). I should like to think that history would record that one small corner of the Bill is due to me and that future generations of Watersons will be able to point to this result with pride.

Chris Pond (Labour, Gravesham)

I wonder whether, in the generous spirit of the Committee, I might help history along and acknowledge the important role that the hon. Gentleman and his colleagues have played in highlighting the issue, which we have willingly taken on board through the new clause.

Nigel Waterson (Conservative, Eastbourne)

I am grateful for that generous intervention. Now that the part that we have played in such an historic moment is firmly on the record, I am happy to sit down.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 32 - No indemnification for fines or civil penalties

New Clause 33 - Increase in age at which short service benefit must be payable

New Clause 34 - Consultation by employers: occupational pension schemes

New Clause 35 - Consultation by employers: personal pension schemes

New Clause 36 - Further provisions about regulations relating to consultation by employers

New Clause 38 - Independent trustees

New Clause 39 - Contribution notices where avoidance of employer debt

Malcolm Wicks (Labour, Croydon North)

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

Win Griffiths (Labour, Bridgend)

With this it will be convenient to discuss the following: Government new clause 40—The sum specified in a section [Contribution notices where avoidance of employer debt] contribution notice.

Government new clause 41—Content and effect of a section [Contribution notices where avoidance of employer debt] contribution notice.

Government new clause 42—Section [Contribution notices where avoidance of employer debt] contribution notice: relationship with employer debt.

Malcolm Wicks (Labour, Croydon North)

We now come to two separate but important clusters of new clauses. I hope that they will be supported by the Committee, because they are a crucial component of what we are trying to do. They address the issue of so-called moral hazard in relation to the new pension protection. I am afraid, Mr. Griffiths, that I may need to spend a while on such a complex matter.

Mitigating the risks of moral hazard is one of the biggest challenges that we face in introducing the PPF. It is a challenge that we must address if we are to safeguard the integrity and sustainability of the fund and avoid placing an unfair burden on responsible levy payers. Indeed, I stress that that is very much in the interests of the vast majority of decent employers when it comes to occupational pensions.

A number of forms of moral hazard need to be addressed. The Bill already includes measures designed to protect the PPF against actions taken by schemes to increase the benefits that could be payable by the fund in the form of the admissible rules and the ''recent discretionary increases'' provisions of schedule 7. Imposing a cap on the compensation payable to those under normal pension age also avoids any potential perverse incentives for key decision makers to allow companies to go into insolvency. Furthermore, clauses 115 and 116 include provisions designed to guard against manipulation of schemes to gain eligibility for the PPF.

The new clauses are designed to protect the PPF and scheme members from another moral hazard—the risk posed by unscrupulous employers who might seek to use company structures and business transactions as a cover for side-stepping their pension obligations in the form of the debt due from the employer under section 75 of the Pensions Act 1995.

The section 75 debt would fall on the person who counts as the employer for the purposes of the pension scheme and section 75, particularly when an employer was part of a company group. There are a number of ways in which such a group could ensure that, before the scheme was wound up or the sponsoring employer became insolvent and a section 75 debt was triggered, the company that was the legal employer was put in a position in which it could not afford to pay the debt.

Even if the rest of the company group was fully solvent, the trustees could not recover the debt from any other companies in the group, and the scheme members would be left in what might be a very badly funded scheme. The risk largely relates to schemes in which a number of companies, often with a group structure, participate and pool their liabilities together in a multi-employer scheme, but it could also affect single employer schemes.

The actions taken by company groups might include withdrawing funding for the employer company, selling off its assets, paying a large dividend to strip out any assets in the company or transferring the employees to another company such as a service company, which would then become the employer and which would never have traded or have had any assets to speak of.

Such actions could occur just before the winding up of the scheme or the insolvency of the sponsoring employer, or well in advance, with a view to disguising the purpose of those actions. Alternatively, with or without the collusion of the scheme trustees, the employer could take action artificially to increase the assets of the scheme at the time at which the debt was to be calculated, so that the debt to be paid was lower. That could include persuading the trustees to buy an asset and place a higher value on it, for the purposes of the debt calculation, than it was really worth, such as a piece of land with promised development opportunities that turned out not to exist. Such an action could also include using an asset such as a derivative, designed to increase massively in value in the short term and later to fall.

We want to do as much as possible to encourage employers to provide good-quality pensions for their employees and we welcome the ongoing contribution to the pensions partnership that employers in this country make, but we know from the experience of the Pension Benefit Guaranty Corporation in the United States and, regrettably, from cases that have come to light in this country that we cannot assume that all employers take their pension promise to their employees seriously.

We are not naive to the fact that the advent of the PPF could be seen to provide an even greater incentive for unscrupulous employers to dump their pension liabilities, under the assumption that the PPF would pick up the tab.

New clauses 39 to 42 will therefore give the pensions regulator the power to require that a contribution should be made to a pension scheme when there is an act of deliberate failure, a main purpose of which is to prevent the recovery of the whole or part of the section 75 debt. The new clauses will be operated and enforced by the pensions regulator, in the context of meeting its objectives, to reduce calls on the PPF and to protect the benefits of scheme members.

It is envisaged that the regulator will work closely with the PPF, probably through a joint early-warning team, in operating the functions that will be so crucial in protecting the PPF from abuse. The powers will be

reserved to the determinations panel and exercised by standard procedure, and will be subject to the powers to vary and revoke contained in clause 75.

The powers will need to be exercisable by the regulator, as the very nature of the actions that they are designed to capture is such that manipulation may occur some time before the PPF would normally get involved in a scheme as a result of an employer insolvency. Moreover, the pensions regulator will have the intelligence and expertise, as a result of its day-to-day work monitoring pension schemes, to deal proactively with the risks of moral hazard.

When the regulator identifies that an act or a failure to act has taken place with a view to avoiding a section 75 liability, the new clauses will allow it to require a person or company involved in that action to pay a contribution into the scheme. The contribution required will replace the section 75 debt, which could otherwise have been recovered from the legal employer. The maximum contribution that the regulator can require will be calculated by reference to the section 75 debt that might otherwise have been recoverable from the employer had it been triggered at the time of the act concerned.

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

I apologise for interrupting the Minister's flow, but can he explain why, when we have debated the principle of retrospection in the context of Allied Steel and Wire and other pension funds, this measure will have retrospective effect?

Malcolm Wicks (Labour, Croydon North)

May I hang on to that important point and deal with it at the end of my speech?

New clause 39 provides that the regulator can require contributions to be paid by an employer and those connected to or associated with the employer, including members of the same company group, controlling shareholders, directors and the owners of unincorporated businesses, where they are party to the act, or deliberate failure to act, in question, which can include knowingly assisting in such an act or failure.

The regulator must also be of the opinion that it is reasonable to impose that liability on that person. Subsection (6) sets out a series of factors to which the regulator should have regard, where relevant, in considering whether it is reasonable to impose liability on a particular person, such as the role of the person concerned in the act or deliberate failure, how closely connected he or she is to the legal employer and to the pension scheme, and the person's financial circumstances.

If the act also constitutes a notifiable event under clause 44, any failure to notify can also be taken into account. That provides a further incentive to notify such events promptly. The regulator can decide to impose liability for a contribution notice on more than one person and can allocate proportions of the contribution against different persons, or decide that the contribution liability shall be joint and several, so that it can claim the whole amount against any one person if it wishes.

New clause 41 also provides that the contribution is a debt due to the trustees or managers of the scheme, but that the regulator may enforce the debt on their behalf. It also deals with the PPF becoming involved with the scheme during an assessment period, in which case it will take over enforcement from the trustees or regulator. New clause 42 deals with there being an outstanding debt due under section 75 of the 1995 Act from the legal employer at the same time as an outstanding contribution notice. The regulator will have power to prevent the trustees from recovering that debt at the same time as the contribution liability where it is not sensible for both to happen.

Steve Webb (Liberal Democrat, Northavon)

The Minister saying that the powers may be invoked where the PPF becomes involved in a scheme has slightly surprised me. Perhaps it should not have done, as that implies that the employer has become insolvent. That being the case, where does the priority of reclaiming the money from the insolvent employer rank? Does it go to the top and make first claim on any money that the employer has? Does it trump other debts that the employer might leave, having become insolvent?

Malcolm Wicks (Labour, Croydon North)

I had better seek advice on that and come back to the hon. Gentleman. The powers are designed to be flexible. Employers have access to expensive legal advice, and unscrupulous employers might find ways to circumvent the provisions. The regulator must be able to adapt to deal with that if the provisions are to be workable and if they are to represent a real deterrent. The key test is therefore the purpose behind actions or failures to act. If the regulator is satisfied that the main purpose is to reduce, avoid or prevent recovery of the debt due under section 75 of the 1995 Act, it can issue a contribution notice.

We are also aware of cases in which employers might already have taken action aimed at dumping liabilities on the PPF, despite the clear warning given by my right hon. Friend the Secretary of State during the debate following the announcement of our proposals to implement the PPF:

''We will have to introduce protection against engineering designed to circumvent the intent of our proposals.''—[Official Report, 11 June 2003; Vol. 406, c. 696.]

The new clauses are thus designed to guard against such manipulation and will apply to actions taken after 11 June 2003 when the proposal to introduce the PPF was announced. So, in answer to the hon. Gentleman's point, as those of us from north London would say, we are not going to let the crooks get away with it. That is why the new clauses must be retrospective. It would be totally wrong if, after announcing something in Parliament, we gave people a clear run of some months to circumvent the will of Parliament.

I am sure that hon. Members appreciate how important it is that the regulator has the right tools to enable it properly to protect the PPF from abuse. That is why I am asking them to accept our proposals.

On the hon. Gentleman's point about the ranking of reclaiming the money, I am advised that the debt will usually be claimed against a different company if the employer is insolvent. For example, a company and a pension scheme might be in difficulty because of actions taken or not taken by others, and we might claim against the parent company in that circumstance, so it will not be a priority debt in the normal sense.

With regard to the pension rights of working people, the possibility of pension dumping is a new guise for the unacceptable face of capitalism. It is in the interests of good employers that we are on to the small minority of bad employers over pension dumping. The provisions will be supported by most employers and trade unions. It is intolerable to think that people might get away from their obligations under the new legislation. The Government will not tolerate that and will prevent such abuse.

Nigel Waterson (Conservative, Eastbourne)

Let me say straight away that we take the view that these are important provisions. They are badged as moral hazard provisions, but they are really designed to deal with perverse incentives, and technically could be called anti-avoidance provisions. They are necessary, and we do not argue with the need for them.

As the Minister said, the provisions arise from the debt that crystallises under section 75 of the Pension Act 1995, where there is a shortfall between the scheme's assets and liabilities. That amount is treated as debt due from the employer to the scheme trustees or managers. It was always the case that in setting up the PPF, and certainly from looking at the American experience, we had to be alive to the problems of moral hazard or anti-avoidance provisions.

The Minister has made the point that moral hazard comes in different shapes and sizes. There is the company that feels able to take more liberties with the way it runs its scheme with regard to the riskiness of its investments and so on, bearing it in mind that a safety net exists in the shape of the PPF. However, as we have consistently made clear, people should not run away with the idea that the PPF is a complete safety net or guarantee. I was rather disturbed the other day to see the suggestion on a BBC website that it is a guarantee of 100 and 90 per cent. respectively. We know that it is nothing of the sort. The benefits payable might be significantly less than those that were to be paid in due course.

There are also more subtle versions of moral hazard. One thing flagged up by Steve Kandarian when I met him in America and when he gave his excellent lecture at Imperial college last Thursday was the perverse incentives for wage bargaining. Unions might bargain with management in, say, a steel mill or one of those smokestack industries that typically dominate the finances of the PBGC, and rather than offer cash it is much easier for the employer to offer generous pension benefits knowing that the company will not have to find the money for a long time and, depending on the company's health, may not have to find it at all when

the PBGC is waiting out there if things go wrong. There is certainly a strong feeling on the part of the PBGC that some negotiations and their outcomes have been structured in such a way as to increase the moral hazard for the PBGC. The Government are right to be alive to that.

The Minister has kindly taken us through many of the points that have arisen. We Opposition Members think it risible to put forward as the main justification for introducing a cap on compensation the argument that a cap will deter key decision makers from mucking things up as regards the pension scheme. We all know that the reason for the cap is to reduce the money paid out by the PPF—nothing more, nothing less—and it is convoluted reasoning to say that that is why the Government are introducing it.

The Minister made the point that none of the provisions is new; they have all been flagged up, not only by the Secretary of State, but through comparisons with the situation in America. I am sure that lessons have been learned from what the Americans have had to say. The Minister quite rightly set out a situation in which a company group has a variety of different companies and one is singled out as being deprived or starved of assets. That may well be the one responsible for a particular pension fund.

The hon. Member for Northavon will be delighted to see that the powers in the proposal are reserved to no less a body than the determinations panel, which makes a welcome reappearance. I was rather worried that we might have lost sight of it, but here is our old friend, which will have a crucial role to play in these matters.

It is envisaged in the explanatory notes that the regulator and the PPF will work closely together, particularly on the concept of a joint early-warning team—something that the Americans seem to have developed successfully, judging from our discussions in Washington. They have done a lot of work in recent years to build up an effective early-warning scheme.

I am not sure that the Minister will want to go as far as Mr. Kandarian, one of whose innovations was to announce to the markets the 10 most underfunded schemes. There is an element of self-fulfilling prophecy to some of what we are talking about, but if we are to have such a set-up it is important that it is not only responsive to what happens, but out there trying to identify problems in advance.

In response to an intervention by the hon. Member for East Carmarthen and Dinefwr (Adam Price), the Minister discussed the question of retrospectivity. The hon. Member for East Carmarthen and Dinefwr got a bit excited about whether the provision is a loophole through which the 60,000 people who have already lost out on their pensions can somehow march, but sadly the measure relates only to the anti-avoidance stuff and dates back to the Secretary of State's statement to the House in June last year.

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

That proves that when it suits their purpose—of course, we support the motivation behind the new clause—Governments do, on occasion, act retrospectively. They could do so in this case, and in the case of the ASW workers, too.

Nigel Waterson (Conservative, Eastbourne)

The hon. Gentleman makes a good point. Governments, particularly ones with as large a majority as the current one, can do almost anything they want. After all, only a few weeks ago the Orwellian line was that unclaimed assets belong to someone and therefore cannot be touched, but suddenly they can be pillaged ruthlessly by the Chancellor to prop up the failing national lottery, and can be given to charities. We will no doubt return to that at much greater length on Report.

There is a lovely line in the explanatory notes that I must share with the Committee:

''Opra is aware of possible cases where, in spite of the Secretary of State's warning''—

the temerity of these people!—

''it appears that some employers may have already taken action aimed at dumping liabilities on the PPF''.

Absolutely! That is spot on. We have said throughout Committee that there are any number of stories about schemes that are just staggering on, waiting for the PPF to set up shop. That is why we have had so much to say about how the levy will be calculated in the early stages and about the financial health of the PPF in its early years. Therefore, I think that the Government are, perhaps belatedly, right to be taking that problem seriously. We see that there is the power for the regulator to require a contribution where there is

''an act or a deliberate failure to act''.

The Minister might be able to help me on this, but I am not quite sure what rights of challenge there are to those contribution notices. I have a vague recollection that when we dealt with contribution notices there were rights of challenge against one being made, so that an employer can justify what has happened on perfectly legitimate grounds, or against a decision not to have one. I have a feeling that something in the Bill already deals with that.

Things such as stripping assets, large dividends, withdrawing funding and transferring employees have been mentioned. There are any number of dodges that could produce the same result; the question of derivatives was also touched on. What is important is that no one sees the PPF as simply a device for sorting out other problems rather than the simple problem of people's pensions being jeopardised by a company going out of business. There is a great imperative behind the provisions and we will discuss the next group of new clauses in more detail, touching on a different aspect of moral hazard.

If people can use those loopholes, that could render worthless much of what we are trying to do in the legislation. I hope that the provisions are exhaustive. I am sure that the Government have taken the most effective and expensive advice available to ensure that they are, because one can be sure that companies will take the most expensive advice available to try to find a way round them. Time will tell, but that matter might have to be revisited in due course.

Do the Government envisage that there might be a basis for revisiting those matters urgently if a loophole opens up that has not been dealt with? How do they think that such a situation might be worked out? As sure as eggs are eggs, somebody, somewhere, will come

up with a way of getting round even those anti-avoidance provisions. Broadly speaking, however, and subject to some of the detail, which we have had limited time to absorb, we support those anti-avoidance measures.

Steve Webb (Liberal Democrat, Northavon)

Like the hon. Gentleman, I do not think that any of us objects to attempts to ensure that the PPF is not abused by companies reordering their affairs artificially to increase a pension fund deficit and put the money elsewhere. Therefore, we also welcome these new clauses in principle.

I have a few general questions that are partly prompted by the hon. Gentleman's concluding comments on whether we would close a new loophole that popped up. It is difficult not to notice that this group and the next contain 12 proposals to deal with moral hazard, which were written at the last minute, in addition to what was already in the Bill. I want to ask the Minister a strategic question: what is the judgment as between a case-by-case approach of, ''Oh, we have thought of another loophole, so we will shut it,'' and a general anti-moral hazard clause? In other words, what is the thinking? One cannot pre-empt or guess every new tactic that might be adopted. There might be ways to exploit the system that are not yet possible but which will become so—for example, new financial instruments or new corporate structures that cannot be anticipated at this point.

One question, which I guess occurs with anti-avoidance material generally, is, why is there not just one clause that says that the regulator can issue a contribution notice to any company that has artificially restructured its affairs to minimise its burden and maximise that on the PPF? Why are there 12 proposals in addition to the bits that are in the Bill already, rather than a general power? I am sure that there is a good reason for that, but I do not know what it is and I would be grateful if I found out. That raises the issues that were properly referred to by the hon. Member for Eastbourne: one cannot second-guess everything and there is always bound to be another way around. So, why not have a general anti-avoidance power?

The answer to this might be in the detail of the new clauses, but I could not spot it. Therefore, my second question is, can the contribution notice, and the payment that will be required, trigger an insolvency event? If a company that is fairly close to the wire is mucking about with its finances to put the burden on the PPF, but the motivation is the fact that it will go to the wall if it does not do something and it can limp on for a while by taking such action, could the contribution notice tip it over the edge? Would the regulator consider such things? Will there be any limits in that respect? I will be interested to hear the Minister's reply. I almost called him the Secretary of State—that was obviously a moment of prophecy.

The hon. Member for Eastbourne has referred to the fact that the Occupational Pensions Regulatory Authority already provides early warning of such activities. The Committee would very much like to

hear a lot more about that from the Minister. The briefing with which we have helpfully been provided contains the throw-away comment:

''Opra is aware of possible cases where . . . some employers may have already taken action aimed at dumping liabilities on the PPF''.

Perhaps the Minister cannot name names, but can he give us some idea of the scale of the problem? Are we talking about the odd company or lots of companies? Small companies or big companies? Thousands, millions or hundreds of millions of pounds? For a throw-away comment, it is quite important, and I think that the Committee would like to have as much as possible on the record about the scale of the problem, at which we have hinted throughout our proceedings.

I have one final, slightly anoraky, question. No matter many how times I read the title of new clause 39, I cannot work out the grammar. The title is:

''Contribution notices where avoidance of employer debt'',

and one feels that there should be more words after it or in it. Perhaps it is just my problem, but I have never been good at the passive voice. The titles of clauses are amendable, and although we did not get round to tabling an amendment, will the Minister take another look at the grammar of the title? It makes no sense to me.

That said, we are content with the general content of the new clauses. We simply wonder why there is no general anti-avoidance strategy and no general clause. Why are we trying to think up ways of tackling the issue now? The fact that the new clauses have been tabled so late in the day suggests less that the problem has only just dawned on the Department than that it knows that it has the luxury of being able quickly—or, perhaps, slowly—to scribble down a new clause and stick it in the Bill before the ink is dry. Once the Bill receives Royal Assent, that luxury will not be available, so should we include a general provision rather than try to second-guess all the specific examples?

Malcolm Wicks (Labour, Croydon North)

This has been a useful discussion of our important proposals. I take the point made by the hon. Member for Eastbourne that we can use what terms we like, including moral hazard, but anti-avoidance is an important one. Incidentally, although we do not want to revisit this whole issue now, the cap on the amount of pension that a scheme member can receive is part of our moral hazard and anti-avoidance strategy. If a few top executives had pension rights of more than £100,000 a year and thought that they could get that out of the PPF, that might well influence their judgments about the company's future. The present measure is part of our armoury, and I want to defend the proposal that we discussed previously.

On wage bargaining risk, any benefit improvements within the three years prior to insolvency are not covered by the PPF. We discussed that before, and it is part of our thinking about moral hazard.

The hon. Gentleman again talked about experiences in the United States. Those are rich experiences, which have helped us to develop our thinking. The structure of company law in the United States is different from that here, but we have learned a number of key lessons from the experience of the Pension Benefit Guaranty Corporation. Company restructuring is a key risk area in terms of moral hazard; that is one lesson that we learned from the United States—although we perhaps did not need to do so, because the point is self-evident anyway. However hard we try, we will not be able to foresee every possible abuse. Some companies will seek to get round our provision, so it must be flexible and adaptable in operation. The regulator and the PPF must have access to a high-quality, knowledgeable early-warning team with access to the best available intelligence. We have borne all those lessons in mind in developing our proposals.

The hon. Gentleman asked about what one might almost call rights of appeal to his old friend the determinations panel, which is also close to the heart of my ministerial colleague. Reserving the decision to the determinations panel means that all directly affected parties may make representations and that there may be an appeal to the independent pensions regulator tribunal if necessary.

It is always important to question how we stay ahead of the game. We must not fall behind when it comes to the unscrupulous and no doubt very expensive advice that some bad companies might receive. We have deliberately framed the powers broadly, in the hope that they will be adaptable to different circumstances. A number of critical details are in the form of regulations and can therefore be revised. The regulator will take a proactive approach to spotting new abuses.

I must admit that the Fabian in me finds himself rather attracted to the idea of a general power, but I am advised by my cooler, more diplomatic colleagues in the Department that a regulator cannot be all-powerful, because of considerations under the European convention on human rights. I make no promises, but I would like to reflect on the idea. I think that a similarly interesting debate is going on about taxation.

The question whether one could push a company over the edge by requiring contributions from it is important. I am advised that, in requiring contributions, the regulator has to take account of certain factors including the financial circumstances of the company. We should not forget that we are talking about, as it were, another company in the group. The regulator has to have regard to the financial circumstances. It would be unlikely to impose a debt where that would force a company into insolvency. That would hardly make sense.

When it comes to the use of English and grammar, I do not know what to say. I should look at that matter. We like to speak the Queen's English in a proper manner, so if it ain't right we will look at it.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

Column Number: 777

The sum specified in a section [Contribution notices where avoidance of employer debt] contribution notice

New Clause 41 - Content and effect of a section [Contribution notices where avoidance of employer debt] contribution notice

New Clause 42 - Section [Contribution notices where avoidance of employer debt] contribution notice: relationship with employer debt

New Clause 44 - Financial support directions

Malcolm Wicks (Labour, Croydon North)

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

Win Griffiths (Labour, Bridgend)

With this it will be convenient to discuss the following:

Government new clause 45—Meaning of ''service company'' and ''insufficiently resourced''.

Government new clause 46—Meaning of ''financial support''.

Government new clause 47—Contribution notices where non-compliance with financial support direction.

Government new clause 48—The sum specified in a section [Contribution notices where non-compliance with financial support direction] contribution notice.

Government new clause 49—Content and effect of a section [Contribution notices where non-compliance with financial support direction] contribution notice.

Government new clause 50—Section [Contribution notices where non-compliance with financial support direction] contribution notice: relationship with employer debt.

Government new clause 51—Sections [Financial support directions] to [Section [Contribution notices where non-compliance with financial support direction]: relationship with employer debt]: interpretation.

Malcolm Wicks (Labour, Croydon North)

We are making good progress today and speeding through the selection list, albeit we are providing proper scrutiny. The Department is keeping up with the Minister, which is always useful.

The new clauses in the group deal with moral hazard and other matters and follow on from the debate on the new clauses that we have just agreed. They address specific acts undertaken or omissions made by employers and connected persons with a view to avoiding their pension liabilities. However, there may be circumstances in which, as a result of actions that may well have been perfectly legitimate and not aimed at avoiding pension liabilities, schemes end up with a participating employer who is financially weak and unable to meet its pension liabilities. In particular, that may apply in the case of the debt on the employer imposed under section 75 of the 1995 Act in the event of the scheme winding up or the sponsoring employer becoming insolvent.

An example of that is the use of service companies, often as part of entirely legitimate group arrangements. Such entities frequently have no material assets and their sole revenue comes from amounts charged to other group companies for the service of the employees, pursuant to inter-company agreements. If the parent company wishes to dump its pension liabilities, it can simply terminate its agreement with the company and wind both it and the scheme up. The service company will have no assets with which to pay any section 75 debt due. Similarly, the participating employer may, by chance, be a weak member of the group, equally unable to meet any debt and suitable to be sacrificed by the parent in order to reduce the group's pension liabilities. I am sure that

hon. Members will agree that, in general terms, sponsoring employers of pension schemes should be genuine entities carrying on a material trading activity or holding material assets, so that the employer guarantee of the scheme is meaningful.

The provisions in new clauses 44 to 51 give the regulator the power to issue a notice requiring that appropriate financial support be put in place where it concludes that the sponsoring employer of a scheme either is a service company or is insufficiently resourced for it to be appropriate for that company to bear its share of the group's pensions liabilities when its net assets are compared with those of other connected or associated persons. Such persons will include members of the same company group, controlling shareholders, directors, and the owners of unincorporated businesses.

The regulator may issue a direction requiring that financial support for the scheme be put in place to one or more of the persons set out in new clause 44(5), as considered appropriate. A direction can thus be issued to the employer and to any person connected or associated with the employer. The direction will not place a heavy burden on responsible employers who, as a result of perfectly legitimate business transactions, find themselves with a comparatively weak or service company as the sole sponsoring employer of the pension scheme.

The group can put in place a range of reasonable and flexible financial support arrangements in order to comply with the direction, as set out in new clause 46. They include: the application of joint and several liability for pension liabilities across the whole company group, so that the debt on the employer could be claimed against any member of the group; an agreement by the ultimate parent company within the group, whether it is participating in the scheme or not, to meet the employer's pension liabilities; and the provision of an arrangement whereby additional financial resources are provided to the scheme, for example, an appropriate bank guarantee.

As well as the arrangements that I have outlined, companies will always have the option of moving the liabilities out of the weak company to a stronger one, or strengthening the company before the direction is issued. There will be advance warning of the direction. However, if a person fails to comply with a direction to put in place financial support, the regulator may issue a notice requiring that a contribution be made to the pension scheme. Enforcement action will thus be taken only against those employers who have deliberately manipulated company structures in order to rid themselves of pension liabilities, or who refuse to provide adequate safeguards for their workers' pensions.

Where there is non-compliance with a financial support direction, the regulator may issue a contribution notice

''to any one or more of the persons to whom the original direction was issued''.

It can do that only if it is of the opinion

''that it is reasonable to impose liability on the person to pay the sum specified in the notice.''

New clause 47 sets out the matters to which the regulator should have regard when considering whether it is reasonable to impose liability, including: whether the person has taken reasonable steps to secure compliance with the financial support direction; the relationship that the person has or had with the employer or with the parties to any arrangements put in place; any connection that the person had with the pension scheme; and the financial circumstances of the person.

Should the regulator decide to impose liability on more than one person, new clause 49 will allow it to apportion liability for the contribution between different persons, or to decide that the contribution liability should be joint and several, so that it can claim the whole amount against any one person if it so wishes. In common with the provisions set out in new clauses 39 to 42, the contribution required will be calculated by the regulator with reference to the amount of the debt that would be due from the employer under section 75 of the 1995 Act if the debt were triggered and calculated at the time of the determination to exercise the power. If there is an outstanding section 75 debt from the legal employer at the same time as an outstanding contribution notice, the regulator will be able to suspend enforcement action by the trustees for recovery of the debt, pending recovery of the contribution liability, in circumstances in which it would not be sensible for both to happen at once.

Unlike the provisions in new clauses 39 to 42, these provisions do not relate to actions taken after 11 June 2003, because they deal with existing and continuing situations, or faits accomplis—as a good European, one must try to pronounce these things correctly—rather than specific actions. Therefore, where actions have been taken in the past to put weak companies in as sponsoring employers before the PPF is established, the regulator will be able to take action to address them after the PPF is established.

In order to provide comprehensive protection for scheme members and the PPF against employers who seek to rid themselves of their pension liabilities, the Government intend to legislate further, using regulations, to reform the position regarding the application of debt upon withdrawal from associated multi-employer schemes, which usually consist of several subsidiaries of one company. Currently, a company can withdraw from such a scheme and cease to be a sponsoring employer if other companies are left in, so that it will not be liable for any shortfall if the scheme winds up in the future. Employers can do that relatively cheaply, as the withdrawal debt is based on the minimum funding requirement.

The Government will amend regulations under sections 75(10) and 118(1) of the 1995 Act to provide that when a participating employer withdraws from a multi-employer scheme with associated employers, a full buy-out debt should be triggered unless appropriate financial support is put in place, in which case a scheme-specific debt will be payable. The financial support arrangements will be similar to those

outlined in new clauses 44 to 51, which deal with service companies or insufficiently resourced companies, with the additional option to transfer pension liabilities to an appropriate new scheme.

Those provisions will apply only to associated multi-employer schemes, as that is where the key risk of employer manipulation lies. They will not apply to multi-employer schemes made up of non-associated employers, except to the extent that there are associated employers within them, because employers who participate in such schemes are not owned or controlled by the same parent company. Therefore, there is not the same potential for one company to manipulate the arrangements.

The provisions in new clauses 44 to 51, and the proposed amendments to the regulations governing debt on withdrawal from associated multi-employer schemes, are designed to address situations in which, whether by chance or design, the pension liabilities are situated in a company that is substantially weaker than the rest of the group, or other parts of it. Such a situation increases the risk that the scheme will be abandoned without being able to recover the full scheme costs from the employer—leaving the PPF to pick up the bill—and the risk that certain members will have their benefits cut back even if other parts of the group would be able to meet the cost.

The message is that responsible employers with the resources to do so should put in place arrangements that are adequate to support their schemes. I am sure that hon. Members will support the principle and I urge them to accept the amendments.

Nigel Waterson (Conservative, Eastbourne)

This is a second instalment of the moral hazard provisions. It poses more problems than the last group of new clauses, as the provisions are directed at people who might be blameless and could be doing something perfectly legitimate. I hope that we can recognise a crook—Robert Maxwell certainly was one—but in a corporate situation, pathological optimists can cause more damage than crooks. We are considering people who are not doing anything wrong, so it is difficult to pin down the type of behaviour that new clauses 44 to 51 seek to address.

The use of service companies is common. Many large law practices use them to make legitimate tax savings, but they are not designed to avoid pensions

liabilities. However, it must be easy for a main company to cut its links with its service company when the going gets tough. It is a tricky matter. The Government say in the explanatory notes that they believe that

''sponsoring employers of pension schemes should be genuine entities carrying on a material trading activity or holding material assets—so that the employer guarantee of the scheme is meaningful.''

Who could disagree with that aspiration? However, it is a difficult judgment to make; we do not want a lot of old Fabians—people with no experience of business or of running any kind of profit-making organisation—to have to judge whether companies are genuine entities or whether they are properly resourced.

There are two bases on which the regulator's powers will kick in. The first is where it concludes that the sponsoring employer is a service company. That is not difficult to do. In most cases, it will be called a service company and it will not require a bulldog or a bloodhound to reach that conclusion. The second category, in which the regulator concludes that a company is insufficiently resourced for the purposes—as required by new clause 44(2)(b) and defined in new clause 45(3)—is more difficult. It leapt off the page when I read the new clauses. How can any Government or Government-appointed body such as the regulator make such a judgment?

The employer is defined as being insufficiently resourced if

''at that time the employer has insufficient net assets to enable it to meet a prescribed percentage of the estimated section 75 debt in relation to the scheme''.

We have discussed how section 75 debt arose in the far-sighted Conservative legislation of 1995. However, our old friend ''prescribed'' crops up again. I assume that it is intended that there will be a series of regulations to prescribe the percentage. We are entitled to tease out of the Minister what the Government have in mind. What issues do they think should be taken into account in deciding the prescribed percentage? If the percentage were high, it would be onerous on somebody who was not doing anything wrong; if low, it would affect the protection offered.

It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Two o'clock.

Griffiths, Mr. Win (

Chairman

Baird, Vera

Barker, Gregory

Brennan, Kevin

Cunningham, Mr. Jim

Dean, Mrs.

Edwards, Mr.

Hamilton, Mr. Fabian

Holmes, Paul

Jones, Mr. Kevan

Keeble, Ms

Khabra, Mr.

MacDougall, Mr.

Moran, Margaret

Pond, Mr.

Price, Adam

Robertson, John

Tynan, Mr.

Waterson, Mr.

Webb, Mr.

Wicks, Malcolm

Standing Committee B

New Clause 44 - Financial support directions

James Cran (Conservative, Beverley and Holderness)

I remind the Committee that with this it will be convenient to discuss the following:

Government new clause 45—Meaning of ''service company'' and ''insufficiently resourced''.

Government new clause 46—Meaning of ''financial support''.

Government new clause 47—Contribution notices where non-compliance with financial support direction.

Government new clause 48—The sum specified in a section [Contribution notices where non-compliance with financial support direction] contribution notice.

Government new clause 49—Content and effect of a section [Contribution notices where non-compliance with financial support direction] contribution notice.

Government new clause 50—Section [Contribution notices where non-compliance with financial support direction] contribution notice: relationship with employer debt.

Government new clause 51—Sections [Financial support directions] to [Section [Contribution notices where non-compliance with financial support direction]: relationship with employer debt]: interpretation.

Nigel Waterson (Conservative, Eastbourne)

Welcome back to our deliberations, Mr. Cran.

I was making the point that in this tranche of new clauses dealing with moral hazard the regulator has the power to issue a notice for financial support where there is a service company—I imagine that that is straightforward to define—or, more worryingly, where a scheme is insufficiently resourced. I was following the trail through the new clauses to find out how that was defined.

In subsection (3) of new clause 45 there are two requirements. The first is that a prescribed percentage of the section 75 debt is unable to be met. Our old friend, the word ''prescribed,'' has come up yet again, and I asked the Minister to give us just a glimpse of his thinking on what will be included in subsequent regulations. The second requirement is that there is at the relevant time a person who is connected with, or an associate of, the employer and who has sufficient net assets to meet that percentage of the debt. In new subsection (4), there is the promise of further regulations for determining, calculating and verifying a person's net assets. Not for the first time we are noticing that there will be a few gaps in the Bill if the Government have their way. We, and those in the outside world who take an interest in our deliberations, deserve a fuller explanation of how these rather important matters in the context of moral hazard will be approached.

New clause 45 contains a definition of a service company, which is reasonably straightforward. A company's turnover is

''solely or principally derived from amounts charged for the provision of the services of employees . . . to other companies . . . of the same group''

In much of the British economy these days, the pattern is to have ''shell'' companies with a lot of outsourcing, subcontracting and so on, for all the best and most legitimate reasons. Again I press the Minister on whether he is confident that his definition in new clause 45 of a service company will meet all requirements. The explanatory notes to the new clauses say that

''the test is designed to ensure the responsibility to meet the pension liabilities does not rest with the weakest company in what may otherwise be a financially healthy group.''

That means that judgments will have to be made, presumably by the regulator's staff, about what is a weak company and what is a financially healthy group.

New clause 46 sets out the meaning of financial support. It says an arrangement can be applied jointly and severally for pension liabilities, and it sets out other requirements. Having referred to bank guarantees and other methods, at the end it rather delphically refers to

''such other arrangements as may be prescribed.''

It would be interesting to know whether that was just the draftsman covering himself, or whether the Government have in mind some specific circumstances that might apply.

The last thing in the explanatory notes is the promise of yet more Government amendments on Report. Unless the Minister says to the contrary, I assume that those amendments will be entirely consequential in drafting, and that the real meat of the proposals is contained in new clauses 44 to 51.

Steve Webb (Liberal Democrat, Northavon)

I have just a brief postscript to make. This morning, we dealt with one set of amendments that tried to tackle the moral hazard problem. Although this set of new clauses are described in the briefing notes that we were given by the Department as ''moral hazard clauses,'' they are a different animal in the sense that they do not relate to where people have deliberately arranged their affairs to put an extra burden on the PPF. They can be applied to circumstances where the arrangements that people have made could put a burden on the PPF. I do not understand why that is a moral hazard. The Minister said clearly that the provisions relate to cases in which people may have done something perfectly legitimate and that the Government are giving the regulator the power to tell them to reorder their affairs to prevent a future liability on the pension protection fund. If that is the context, I am slightly puzzled, and I wonder whether the Minister could clarify the issue.

The Minister suggested that using the power implied nothing immoral about the company or the arrangement that it had set up—that it was, for example, artificial. He said that it might have set itself up in a perfectly legitimate way and that the side effects would not have mattered before we had the PPF, but now that we did, there could be problems, and the Government wanted powers to make people change their behaviour. That is not a moral hazard in my book, but I may have misunderstood the point.

This morning, we asked the Minister to explain what the Government meant when they said that the regulator had warned that schemes were already starting to alter their structures and conduct so that they could put a burden on the PPF. We asked him for details, but—undoubtedly by accident—he did not give us any. What we were interested in—this also relates to the provisions before us—is evidence from the regulator that schemes are reordering their affairs

to take advantage of the PPF and that service companies are becoming more of an issue. That might be a kind of moral hazard, but that was not where the Minister was coming from. The key question, however, is what the Government mean when they say that the regulator has already started to give warnings. What is the scale of the problem? How big is the moral hazard that we already face? I am sure that it was only by accident that the Minister did not answer the question.

Malcolm Wicks (Labour, Croydon North)

Welcome to our deliberations, Mr. Cran. We may well spend all of Thursday on the matters before us, but it is just possible that we will conclude today.

As the hon. Member for Northavon (Mr. Webb) reminded us, this group of new clauses deals with a different situation from the earlier group, which related to arrangements that are deliberately set up to avoid responsibilities. Here, we are dealing with company structures that have been set up for perfectly legitimate reasons. However, I shall try to deal with the hon. Gentleman's point at the end of my remarks.

First, let me deal with some of the specifics raised by the shadow Minister, the hon. Member for Eastbourne (Mr. Waterson). The power to require financial support to be put in place should not impose a heavy burden on responsible employers who, as a result of perfectly legitimate business transactions, find themselves with a comparatively weak all-service company as the sole sponsoring employer of the pension scheme.

There is a range of reasonable and flexible financial support arrangements that the group can put in place to comply with the direction. In addition to the arrangements listed, companies will always have the option of moving the liabilities out of the weak company into a stronger one, or strengthening the company itself before the direction, of which it will be warned in advance, is issued.

Enforcement action will therefore be taken only against employers who have deliberately manipulated company structures to rid themselves of pension liabilities, or who refuse to provide adequate safeguards for their employees' pensions. Responsible employers who happen to have their pension liabilities sitting in service companies could, however, start taking steps now to ensure that their employees are protected and to avoid any question of the power applying to them.

The powers have been approved by the Department of Trade and Industry, which agrees that they should have no effect on legitimate business transactions or company restructurings. The drafting of the provisions is designed specifically to catch only those who deliberately manipulate their affairs to take advantage of the PPF entry rules.

I was asked about the definition of ''insufficiently resourced''. It has two elements: first, that the employer itself is weak and, secondly, that another connected person, such as another company in the group, is stronger. Both elements are measured by reference to a notional section 75 debt, which might be payable if the scheme wound up. An employer is

insufficiently resourced if it could not pay even a proportion of that notional debt, but another connected party could. The aim of the test is to identify where the employer is disproportionately weak compared with other connected parties.

I was asked about the calculations that hinge on the definition of ''relevant time''. The relevant time is intended to be as close as possible to the time of the determination to issue a direction. Because of the need to carry out calculations and to gather financial information, it will not be possible for the relevant time to occur on the same day as the decision to issue the direction, so the regulator is given the flexibility to allow sufficient time to carry out the calculations.

I was asked about the meaning of ''prescribed'' in connection with the percentage for insufficient assets. It means prescribed by regulation. We will consult on the appropriate percentage. The purpose of the percentage is to provide for a comparison between the weak company and the other, stronger members of the group.

The definition of net assets will be based on the definition in section 264 of the Companies Act 1985. However, that definition allows companies to hold certain assets, such as property, at artificially low values by not requiring the valuation to be updated if its value has risen. The definition will be adjusted accordingly, to ensure that it produces a current figure.

In general, the intention is to give employers as much flexibility as possible in the arrangements that can be adopted. The list represents all the arrangements currently identified as providing an appropriate degree of protection. However, if other appropriate arrangements are identified, the power allows the list to be extended in order to give employers more options. Employers will be able to apply to the regulator under clause 75 if they wish to switch to the new arrangements. As well as the arrangements listed, companies will always have the option to move the liabilities out of the weak company to a stronger one, or to strengthen the company itself before the direction, of which it will be warned, is issued.

The hon. Member for Eastbourne asked about shell companies. One reason for covering companies that are insufficiently resourced is that covering only service companies would not be a wide enough provision to cover shell companies such as those mentioned by the hon. Gentleman.

The hon. Member for Northavon was puzzled, quite reasonably, by the fact that, if company structures are set up for perfectly proper reasons, we should have included them in clauses dealing with moral hazard. There are two possibilities. If it is a relatively complicated company structure—a parent company, a service company or whatever—issues could arise about the scheme's funding. It could go into the PPF. However, the powers that we have included could enable the parent company or other companies to move assets to save the situation. It is not necessarily that the parent company or anyone else was thinking of doing any wrong, but pension liabilities would nevertheless not have been met.

A tougher situation would arise if the company structure could be used or abused by a parent company that realised that its current structure enabled it to not take on pension responsibilities, even though the company structure was originally designed for perfectly reasonable company purposes. That is probably where the moral hazard arises.

I was asked about current cases. I am sorry not to have answered earlier, but I was not aware of the data—much of it seemed to be a series of rumours or anecdotes, and a developing atmosphere. However, the Occupational Pensions Regulatory Authority has advised us that it believes that some companies are restructuring to avoid their pension liabilities, and it believes that they want to pass them instead to the new pension protection fund. However, OPRA does not currently have powers to deal with those situations, and cannot request the appropriate information about the employer. We are therefore unable to give figures. OPRA is monitoring the cases that it knows of, and is working closely with the Department and trustees to protect members affected. It is a case of our hearing mood music that we do not like the sound of; that is why we need to take on the powers given in the provisions.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 45 - Meaning of ''service company'' and ''insufficiently resourced''

New Clause 46 - Meaning of ''financial support''

New Clause 47 - Contribution notices where non-compliance with financial support direction

New Clause 48 - The sum specified in a section [Contribution notices where non-compliance with financial support direction] contribution notice

New Clause 49 - Content and effect of a section [Contribution notices where non-compliance with financial support direction] contribution notice

New Clause 50 - Section [Contribution notices wherenon-compliance with financial support direction] contribution notice: relationship with employer debt

New Clause 51 - Sections [Financial support directions] to [Section [Contribution notices where non-compliance with financial support direction]: relationship with employer debt]: interpretation

New Clause 28 - Minimum Retirement Income

Nigel Waterson (Conservative, Eastbourne)

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

James Cran (Conservative, Beverley and Holderness)

With this it will be convenient to discuss new clause 43—Amendment of the Income and Corporation Taxes Act 1988 (No. 2)—

'(1) The Income and Corporation Taxes Act 1988 is amended as follows.

(2) In subsection (1) of section 630 (interpretation)—

(a) in the definition of ''personal pension scheme'', substitute for the words ''or lump sums'' the words '', lump sums, or withdrawals from a Retirement Income Fund''; and

(b) in the definition of ''income withdrawal'', insert after the word ''annuity'' the words ''or withdrawal of funds from a Retirement Income Fund''.

(3) In section 633 (scope of benefits) after subsection (1)(e) there is inserted—

''(f) the payment to a member of income from a Retirement Income Fund satisfying the conditions in section 637B''.

(4) In section 634 (annuity to member)—

(a) after subsection (1), there is inserted

''(1A) Subject to subsection (7) below, the annuity must provide the member with an annual income not less than the Minimum Retirement Income set under section [Minimum Retirement Income] of the Pensions Act 2004.'';

(b) in subsections (2) the words from ''commence'' to the end are replaced by the following—

''(a) before the member attains the age of 50; or

(b) in relation to a member who is in receipt of benefits under section 634A before the date of this Act's entry into force, after the member attains the age of 75; or

(c) in relation to any member aged 65 or over as at the date of this Act's entry into force, within 12 months of that date; or

(d) in relation to all other members, after the member attains the age of 65.''.

(c) after subsection (6) there is inserted—

''(7) Section 45 of the Sex Discrimination Act 1975 shall not apply to the annuity provided under subsection (1A).

(8) The income provided each year from the annuity under section (1A) must increase by reference to increases in the retail price index, so far as not exceeding 5 per cent.''.

(5) Sections 634A and 636A are repealed.

(6) Subsection (5) shall not apply to schemes executed before the date of entry into effect of this Act.

(7) After section 637A (Return of contributions on death of a member), the following section is inserted—

''637B Retirement Income Fund

(1) Subject to subsections (2) and (3) of this section, a Retirement Income Fund is a vehicle for the reinvestment of savings in retirement, which

(a) has been established by a person designated by subsection (1) of section 632; and

(b) is a vehicle whose investments are—

(i) investments of a kind described in the Insurance Companies Regulations 1994, Schedule X, Part 1; or

(ii) approved by the Inland Revenue.

(2) Funds held in a Retirement Income Fund as referred to in subsection (1) may be withdrawn from the Retirement Income Fund by a member as and when he elects.

(3) A member may not invest in a Retirement Income Fund unless the requirements of subsection (1A) of section 634, in relation to the Minimum Retirement Income, are satisfied.

(4) A Retirement Income Fund, and any income derived from it, must not be capable of assignment or surrender by the member.'.

Nigel Waterson (Conservative, Eastbourne)

We are nearing the end of our discussions now—[Interruption.]—but before hon. Members get carried away, we are not that near.

These two new clauses give us the opportunity for a discrete debate on compulsory annuities. For hon. Members it is not an unfamiliar issue or set of arguments, and I shall try to deal with it briskly. It has been the subject of several private Members' Bills introduced by my Conservative colleagues in recent years. All of those have been resisted by the Government and, where appropriate, have been talked out by eager Government Back Benchers. They do not yet seem to have received their reward, but I suspect that they will in due course. That does not alter the fact that the issues are important for many people.

If one goes to the United States and asks people about their system, one finds that one of the fascinating differences is that they have no compulsory annuitisation. Indeed, in many schemes it is not even an option. One can get into a heavy philosophical argument, particularly if one sits down with a bunch of actuaries, about the pros and cons of annuities. What tends to happen in America is that many people will take a lump sum from their pension when they retire and sooner or later it will run out. They will then fall back on the benefits system. The argument that is put for the annuities system in this country is that whatever the cost and the return, once one has bought from a reputable insurance company—I think that only two are still in that business—one is guaranteed to receive that money for as long as one lives.

None of those arguments is entirely black and white. During my experience of representing Eastbourne I have received many letters from constituents who bitterly resent the fact that, whether they want to or not, by the age of 75 they must purchase an annuity—an annuity that is probably giving them a return of not much better than half of what it would have done a few years ago. The Conservative party has felt strongly for some time, hence that string of private Members' Bills, that we badly need to bring more flexibility and fairness into the system. The most recent of my colleagues to introduce such a Bill was my hon. Friend the Member for Taunton (Mr. Flook), who is a doughty campaigner on those issues. His Bill was in danger of being talked out a couple of Fridays previously and the business was collapsed. We have recreated the Bill in large measure in the two new clauses.

I have said that people currently have no choice and that they must purchase an annuity for at least 75 per cent. of their fund by the time they are 75. Those rules date back to the 1920s and I am sure that at the time they seemed eminently sensible. However, they are clearly out of date; lifestyles have changed, the returns are much less than they were and people are looking for a choice.

Unlike the Liberal Democrats there is a party that hopes and expects to be in government again in due course, and we can see the sense of the Treasury's

argument. It does not want people to fall back unnecessarily on the state system when in their earlier years they have made provision for a pension fund. That is why the proposals, which I think have much cross-party support, are designed to allow people to have maximum flexibility in their choice of retirement income and to create a minimum retirement income—MRI—so that people need not fall back on state benefits if things go wrong. We say that the MRI level should be set each year by the Chancellor and it is intended to be at a level above pension credit. The sense of having it fixed each year is to allow the Chancellor at any given time to take into account changes to pension credit, to means-testing or to any other relevant factors, to ensure that it remains relevant and effective in carrying out its function.

Steve Webb (Liberal Democrat, Northavon)

As I think the hon. Gentleman knows, the Liberal Democrats have consistently supported those private Members' Bills and I am therefore very much with him on the substance. My impression is that the vast majority of people buy their annuity well before they are 75. For the Committee's benefit, will he clarify how many people this will bite on? How many people per year get to 75 and are forced to buy an annuity? Is it hundreds, thousands or tens of thousands of people? Does he have any sense of the magnitude of that?

Nigel Waterson (Conservative, Eastbourne)

I cannot say a number off the top of my head, given my limited resources, but I am sure that the Minister will be able to share that information with us by the time he gets to his feet. It seems that there are a significant number of such people in this country—certainly a significant number in Eastbourne, as I can vouch from my mailbag.

The intention is that those retiring in future could purchase an increasing annuity that would provide sufficient income to maintain them above the level of state benefits. At the same time, the intention is to create a retirement income fund—an RIF. Individuals with pension funds in excess of those required to meet the MRI would be able to reinvest those savings in an RIF, and there would be no restrictions on when and how much income could be drawn.

It will be of interest to many Committee members that the amendments would also introduce gender equality requirements. Annuities could be used to purchase the MRI without regard to the sex of the annuitant. That has also been a very popular move, and has led to support from Liberal Democrats and from some Labour Members.

This issue will not go away, for several reasons. First, there is still the problem of low returns on annuities, and people's demands for more flexibility. The second reason is that, as the Government say across the board—in the Bill's provisions, in respect of annuities and on a range of other issues that are outwith the Bill at the moment—people crave less regulation, less bureaucracy and more flexibility in their pensions. If anything is to encourage people back into pension saving, such things will be a factor.

The third reason why the issue will not go away is that my party will not let it go away. A number of colleagues have taken opportunities on this issue during the past few years in private Members' Bills, most recently my hon. Friend the Member for Taunton. We will keep pressing this issue until the Government do something about it or until we are in government and can do something about it.

There was some comment in the Financial Times recently about the problems of those in the annuity business. Risk is rising faster than anyone had predicted—the ''anyone'', of course, is our old friends in the actuaries' profession, who, as the hon. Member for Northavon says, often seem to have got the wrong answer despite the fact that their sole purpose in life is to sit in a darkened room working out how long we are going to live.

There is an extra issue, which is mentioned in the FT report. Annuities are often—or invariably—purchased by people who are wealthier than average, and such people tend to live longer as well. There is a double whammy: the wealthier are healthier, and therefore the cost to insurers goes up doubly—not only because of the general increase in longevity, but because of the particular increase of the better-off, who live in leafy suburbs in places such as Surrey.

The Financial Times had this to say on 5 April:

''When Malcolm Wicks, the UK's pensions minister, addressed an economics conference in London last month, he sounded like a man who believed he had solved a problem.''

Well, that is the experience of many in this Committee. Often the Minister believes that he has solved a problem, rather than created a new one. However, this is the separate but related issue of index-linked annuities for those on defined contribution pensions. I do not want to go into that in any great detail, not least because it is not currently before us for consideration in Committee, but I think that the Government, partly in response to pressure from us and from elsewhere, have flagged up that this is an unintended consequence of the legislation, and that they will return to the question of defined contribution pensions and index linking, I think, on Report. I think that there was some commitment on that. We are looking forward to that in due course, and no doubt the Minister will be able to update us on progress.

The Financial Times made another point, which is key to our new clauses: only two companies—Legal & General and Prudential—remain in the market for annuities, and they both set an annual cap on how much risk they will take on. As the Financial Times puts it:

''Future generations of retirees are at risk of tying their financial security in old age to the credit rating of these insurers.''

Will the Minister tell us what the current arrangements are for those who have purchased an annuity from one of those insurers, with all or most of their pension funds, if that insurer were to go bust? Given that there are only two such insurers, the consequences could be disastrous for many thousands of pensioners and future pensioners.

The Financial Times discussed the novel idea—I hope that the Minister, with his immense intellectual curiosity, has already started to look at this—of whether the Government should enter the annuities business. It said:

''It is not difficult to imagine that the government will come under pressure to underwrite longevity risk, either guaranteeing incomes for those reaching a certain age or providing some form of longevity hedge.''

It talks about an ''index-linked perpetual stock'' that can be bought at the local post office—if one can find one that is still open—and about the

''added charm of an inheritable pot to pass on to the next generation.''

Those ideas are exciting and innovative, and I wonder whether the Government have been considering them.

It is not fair to say that the Government have done absolutely nothing to help the annuities sector. They have done nearly nothing, but not absolutely nothing. [Interruption.] I want to be fair to the Minister. They have made proposals, which I believe came from the Treasury, about what is called alternatively secured income, or ASI, but they are retaining the rule that any money left in the ASI after death cannot be returned to heirs as a capital sum. Apparently, it will be possible for pension income to be delivered through ASI after age 75—it will be interesting to see how far that idea has got—but as it states in the Library notes that have been provided to me:

''ASI is likely to be an inferior choice for pension savers without dependants and who do not have a principled objection to the pooling of mortality risk.''

I should add that some groups, such as the Plymouth Brethren, do not wish to get involved in annuity purchase because it is contrary to their principles—for example, on religious grounds. I assume that such groups are still obliged to buy an annuity at the age of 75 whether they want to or not, but I may be wrong about that.

The Library notes say:

''The product may be converted to a guaranteed pension for life or an annuity at any time at the member's discretion.''

As the notes say, the Red Book is ''less forthcoming'' this year. There is some talk in the book, which I am sure that the Minister will amplify, about offering more flexible annuity rules that stimulate innovation by allowing for the provision of limited period annuities and value protected annuities, but there was no further elaboration on that, and there was no mention of any annuity changes in the Chancellor's speech. If those modest moves are the beginning of yet another U-turn—on compulsory annuitisation, in this case—in a season of U-turns, no one will be happier than I.

There is something to please everybody in the new clauses: they would produce fairness and flexibility for pensioners, deal with gender inequality and ensure that the Treasury does not end up with an extra burden because people unnecessarily fall back on the state for their living. All in all, they address an injustice that has existed for far too long. People simply cannot wait for the market to return—if it ever will—to a situation in

which returns on annuities are at the levels that they were at a few years ago. I commend the new clauses to the Committee.

Steve Webb (Liberal Democrat, Northavon)

As I indicated in an intervention, the Liberal Democrats in general support the principle behind the new clauses and we have supported the series of private Members' Bills that have attempted to implement something along the same lines. We restate that support now.

In parentheses, although the hon. Gentleman said that the system has been running for 70 years or so, its most recent incarnation was the Pensions Act 1995, which, I think, required annuity purchase at 75. I have still not been able to get my head round the fact that the Conservatives happily tolerated that rule during the 18 years in which they were in government but suddenly regarded it as dreadful once they were in opposition. I am sure that there is a good reason for that, but I have not quite worked out what it is.

Nigel Waterson (Conservative, Eastbourne)

The hon. Gentleman positively goads me to intervene.

Malcolm Wicks (Labour, Croydon North)

We are all getting on.

Nigel Waterson (Conservative, Eastbourne)

We are all getting older, as the Minister says—some faster than others. To be blunt, one major reason for what the hon. Member for Northavon described is that the returns on annuities have fallen so sharply in recent years. There is nothing controversial about that.

Steve Webb (Liberal Democrat, Northavon)

From which I infer that the Conservative stand is not an issue of principle. Presumably then, if childhood obesity worked its way through and annuities were to rise, there would be no reason to change the rules. For many people, however, the issue is one of principle. The state should not require people to do things that it does not need them to do. It seems that the taxman's interest would be satisfied if two conditions were met. First, having given tax relief on the way in—in the fund, except on dividends, and, potentially, on a lump sum of one quarter—the tax man must expect to tax that income once. If someone indefinitely defers buying an annuity and eventually dies, there needs to be a tax take. Indeed, I believe that there is one, at a special rate of 35 per cent. Such a structure seems to work. The Inland Revenue argument that the Treasury should receive its tax therefore falls. The Treasury indeed receives its tax, although, admittedly, it has to wait for it. We can cope with that. I am not worried that there is a tax issue, because the tax ultimately gets collected in respect of the money that was given earlier in life. The first condition is therefore met.

The second condition is dealt with in new clause 28, which tries to put the floor in place. We do not want people to have tax-relieved savings all their lives, blow the lot on a foreign cruise, ring the pension credit line and say, ''Hello, I'm poor and I'd like some Government money.'' That would be unfair, but, even if we leave aside the inherent implausibility of that scenario, a floor needs to be put in place.

I am concerned about new clause 28, however, because the floor is astonishingly high. The hon. Gentleman said that the floor would be at the pension credit level. In other words, the portion that had to be converted into an annuity would, on its own, lift somebody completely clear of the minimum income guarantee. That ignores the fact that most people will have a full basic state pension. Given what I understand the hon. Gentleman said about the level at which the MIG would be set, crudely, if the pension was £80 and the MIG was £105, people would be required to buy an annuity equivalent to £125 rather than £25, which would be an addition to the basic pension to bring people clear of the MIG. I leave the savings credit to one side in my analysis—it muddies the waters somewhat and should have been scrapped a long time ago. If I understand correctly, the hon. Gentleman is imposing a burden five times as big as he needs to. The mandatory bit should only fill the gap between the basic pension and the MIG, not replace the entire MIG.

There is a further complication, in that the MIG is earnings-indexed—I do not think that that is Conservative policy, but the status quo is earnings indexation. There is a grey area over replacement by means of purchasing an annuity and earnings-indexed income. The hon. Gentleman explained the problems that providers face in providing a price index of best income. Replacing an earnings-indexed income would be hugely expensive. If the new clauses were literally implemented in the way the hon. Gentleman suggested, I wonder whether anybody would be helped at all. I suspect that there are very few people, even in Eastbourne, who accumulate enough money to replace £105 a week, earnings-indexed, with the amount of money in their pot. There may be a few such people, but that does not address the underlying issue about which many people write to us.

One would need to think hard about how to define minimum retirement income. It would need to be the top-up amount, not the full amount. Unfortunately, that could be different for everybody, and that introduces a new tier of complication. All of it would need to be worked through, but I recognise that the new clauses are designed to make a point rather than to prescribe procedure.

I have two other reservations about new clause 43. The first is that, perversely, it demands an indexed annuity. I do not understand that, because the hon. Gentleman rightly highlighted earlier what bad value an indexed annuity would be for many people with a money purchase pension. Many people would lose the bet; they would have been better off had they not bought indexed annuities. However, in the name of freedom he is going to force people—the vast majority of whom, given a free hand, do not buy indexed annuities—to do so. It gets worse. If I read proposed new subsection (1A)(d) correctly, he will require everybody to do it at age 65.

When the hon. and learned Member for Harborough (Mr. Garnier) introduced a similar measure, I queried on its Second Reading the age limit of 65. Why 65? If people do not have much money in

their pot and we tell them that at age 65 they have to blow a vast swathe of it on buying an indexed annuity that replaces the whole of the pension credit, it will be almost completely useless. I do not understand, but I am sure that the hon. Member for Eastbourne will explain why it has to be indexed and why it has to be at age 65.

The hon. Gentleman made an interesting plea for the nationalisation of annuities, and I am with him on that—we lefties have to unite occasionally. The state is extraordinarily well placed to provide annuities. We are in the bizarre situation in which annuity providers trying to make a profit are struggling—they will probably run out of gilts to buy if things go on as they are, and there might not be much of a market. The Government have to make sure that annuities are available and can provide them more cheaply than anyone else because the annuity providers have to build in a profit, as well as putting in a mark-up to allow for unexpected improvements in life expectancy. That is just the sort of thing that the state is good at—it can achieve smoothing between generations on a not-for-profit basis. I can see the argument against the state's doing something that undercuts the private sector. However, given that the private sector is struggling to do it at all—

Adam Price (East Carmarthen and Dinefwr) (PC): Market forces.

Steve Webb (Liberal Democrat, Northavon)

Market value, as the hon. Gentleman says. The state providing annuities or being an annuity provider of last resort, perhaps through national savings, seems to be a good idea. When I raised the matter at a pensions talk that I gave recently, the right hon. Member for Birkenhead (Mr. Field) was sitting next to me and pointed out that the great 19th-century Liberal Governments ran nationalised annuities. Annuities used to be provided by the Government. If that were done now, it would provide better value for annuitants, which is what all of this is about. Although it is a peripheral observation, I support the principle and am delighted to see that the cause of nationalisation beats in some breasts in the room.

In principle, if the taxpayer's interest is protected in terms of getting his tax take and not calling on means-tested benefits, there is no reason why there should be any requirement to buy annuity at a particular age. Once those two requirements are satisfied, people should be able to do what they want. The way in which this is drafted seems remarkably restrictive: it has to be bought at 65, has to be indexed and has to replace the whole of pension credit. All of that undoes most of the good that the new clauses aim to do. We support the principle behind the new clauses, but do not think that, when the next great Liberal Government come to implement the changes, we will do it like this.

Malcolm Wicks (Labour, Croydon North)

It has been interesting to hear about the future Conservative and Liberal Democrat Governments as I have always enjoyed political science fiction. It is also great fun to hear the hon. Member for Eastbourne being scrutinised so diligently and in such detail by the hon. Member for Northavon.

I know that a flurry of notes, some in barely decipherable writing, will reach him—not that that ever happens to me—and he will be able to answer the questions.

The debate is interesting and I am sure that the House will return to it, as has been promised—or threatened. However, the essential matter is that pension schemes are pension schemes. They are designed to give people a secure income to last the whole of their retirement. The annuity is, virtually by definition, such a guarantee to pay an income for life, no matter how long that life turns out to be. Over the decades, successive Governments have brought forward fiscal tax advantages for such arrangements.

What is being proposed is that over and above a certain level something intended to be a pension will become simply a capital sum for the individual to use as he or she likes. One can argue about the pros and cons of that, but I have no doubt that the fiscal arrangements would have to be rather different. I repeat that a pension is a pension, not a way of accumulating a large capital sum. There is a fundamental difference.

Gregory Barker (Conservative, Bexhill and Battle)

I understand the Minister's point that a pension is a pension, but for most of my constituents who are facing retirement or have retired this is not merely a question of securing a secure income in retirement. It is about securing sufficient income in retirement. The prospect of a secure income that will not meet their needs and will force them on to increasingly means-tested benefits is abhorrent to them. They should surely be given the right to explore other avenues that will keep them off the means-tested benefits and allow them to get the maximum from their hard-earned savings.

Malcolm Wicks (Labour, Croydon North)

Let me pursue my analysis. The proposals, as we have heard, aim to free pension scheme members from the need to buy annuities with funds above a minimum retirement income, designed to ensure that they will never fall back on income-related state benefits. Any freedom to build up larger pension funds is clearly restricted to wealthier individuals. There would be no such freedom, of course, for those with modest pension pots who are now gaining from pension credit.

When this idea was first put forward as new clause 27, withdrawals from its proposed retirement income fund were to be taxed under schedule E of the Income and Corporation Taxes Act 1988. However, that requirement has been removed so it is no longer clear how these withdrawals would be taxed, if at all. If by some fluke this proposal were to become part of the Bill, it would be both anomalous and inequitable.

The Government share hon. Members' desire to encourage people to save for their retirement.

Nigel Waterson (Conservative, Eastbourne)

It is good of the Minister to have spotted that little lacuna in the new clause. The problem is that had we left in a provision that dealt with that point, it would have taken the proposal, and

therefore this debate, outside the Ways and Means resolution attached to the Bill. However, if he is happy to take the new clause away and redraft it, or to amend the Ways and Means resolution, who are we to complain? I am hopeful that by the time the Bill is considered on Report we might be able to finesse that point to his satisfaction.

Malcolm Wicks (Labour, Croydon North)

Let me proceed, having noted that kind offer, although I do not think I can accept it.

I was saying that the Government share hon. Members' desire to encourage people to save for their retirement. Much of the Bill is about that. However, our approach has been to develop a radical simplification of the existing complex tax rules, which will give greater individual choice and flexibility to all pension scheme members and not just the privileged few.

As part of the tax simplification, the annuity rules will become more flexible, allowing three new innovative products. The limited period annuities will allow people to use part of their pension fund to provide an annuity for a predetermined period. Value protected annuities will allow a residual payment to be made on the death of an annuitant before the age of 75. The alternatively secured pension will allow an income from a regulated product, which offers similar security to that provided by the pooling of mortality risks in an annuity. That last product was developed after consultation with the Christian Brethren, because of their theological inability to make use of mainstream annuities. Indeed, I remember having an interesting conversation with the Brethren in my constituency office. They say—I hope I have got the argument right—that it is not for them to make any judgment on their life expectancy, because, according to their beliefs, that is a judgment that only a higher authority can make.

It is an example of the sensitivity of not only this Government, but our system, that we have been able to take on board such ethical and theological objections and develop products that I hope will suit the Brethren's requirements. Those products will, of course, be a feature of the Finance Bill, and I believe that it is best to discuss them while debating that Bill.

We believe that, in view of our radical reform of the pension tax rules, which offer improved retirement opportunities for all, the new clause, which would benefit only a wealth minority, is clearly inappropriate.

Gregory Barker (Conservative, Bexhill and Battle)

Will the Minister share with the Committee what research he has undertaken to allow him to say with such authority that the new clause would benefit only a wealthy minority? Has he considered the disincentive to save for pensions, which is perpetuated by this rigid treatment of annuities? Is there not a real case for believing that there is a direct causal link between the Government insisting on annuities and the decline in people saving in pensions, rather than in other products?

Malcolm Wicks (Labour, Croydon North)

I have seen no evidence for the last point. We do not accept the whole proposal, but—I think the hon. Member for Northavon was teasing this

out—there is a perfectly sensible sub-proposal that there should be some requirement for people to have at least some of their money in an annuity, so that they do not have to depend on the state. That, in essence, is the argument, but, by definition, those above that level are the better-off.

Although I do not have the figures in my head, I know that there is evidence that the average defined contribution pension fund is surprisingly small. The number of people with large pension funds is also surprisingly small. I think that there is empirical evidence to back up my proposition and, as an empiricist and a Fabian, I am pleased that that is so and that we have an evidence base for what we say.

Steve Webb (Liberal Democrat, Northavon)

I am sure that what the Minister says is right, but there is something that I can never get my head round in relation to the Government's approach: once the safeguards were in place—once the Government were sure that the taxpayer would pay their tax and that the benefit system would not be troubled—what would the Government have to lose? There is, potentially, a utility gain to giving people choice. Is the proposal not a win-win? Once the state has satisfied its requirements for tax and means-tested benefit expenditure, what does it gain by this extra obligation?

The Minister may bat me away now, but I hope that, when he lies in bed tonight, he will ask himself whether the additional requirement makes the world a better place. Clearly, some people are losing freedom, and so utility, but who is gaining?

Malcolm Wicks (Labour, Croydon North)

Well, sad person that I am, I have occasionally woken up in the morning worrying about the Bill, so perhaps I will reserve one of those mornings—possibly Thursday morning—for a longer think-through of the provisions.

One of the essential aspects is the fiscal point. What if one started with a clean sheet of paper and asked whether it would be sensible for the state heavily to subsidise the ability of the rich to accumulate capital for later life? I do not think that anyone would rationally say, ''Yes, not only is it good that people can accumulate capital, but we should give the very rich huge fiscal incentives to do so.'' In all honesty, I do not think that any of us would devise such a scheme. Saying that there might be some sense in pension savings having a tax advantage is altogether a different kettle of fish. I will carefully read what the hon. Member for Northavon said about the tax aspect. The fiscal point is very serious.

There is a grave difference between the public and private arrangements that the state should make for weekly or monthly pensions, and the incentives that there should or should not be to enable people to save lump sums. Both are good things, but the public interest in each is different.

Nigel Waterson (Conservative, Eastbourne)

At the risk of causing the Minister more sleepless nights, let me mention the debate starting in the United States, of which he will be aware. The Republicans, who, on this issue, seem to be closely aligned with the hon. Member for Northavon, are pushing for more flexible pension savings vehicles,

with much more access to funds before retirement, although there is a worry that people will use them to buy a boat or pay their children's college fees. That view is balanced by the inevitable argument that the state, particularly when providing tax relief, will want to ensure that funds are kept in place to provide for retirement, to paraphrase what I think the Minister is saying. That is the standard view of Governments.

I do not know where the Minister, as a Fabian, stands on that philosophical argument, but does he not take the point made by the hon. Member for Northavon? Why should the state interfere once it has secured its own position—the benefits position?

Malcolm Wicks (Labour, Croydon North)

I have tried to provide part of the answer to that question. The state, via the taxpayer, will have heavily subsidised the accumulation of funds. I am not quite sure what tax treatment the Opposition propose for something that, for many individuals, albeit a privileged minority, is essentially a savings vehicle. It might, in small part, need an annuity to protect against income testing, but it is, in very large part, simply a means of accumulating capital. I am not sure what the Tory party thinks the tax treatment for such arrangements should be. No doubt the hon. Gentleman will want to say something about that when he sums up. That, however, is the essence of the issue.

In a way, the hon. Gentleman's argument is that allowing people to have their capital would enable them to accumulate more income through investment.

Mr. Waterson indicated assent.

Malcolm Wicks (Labour, Croydon North)

Well, much of that investment would, by definition, be riskier than the annuity route. Things go up, and things go down. Risky investments that reduce capital amounts could have implications for people's ability to pay for their own long-term care, should they need it.

Nigel Waterson (Conservative, Eastbourne)

Perhaps I can deal with the Minister's point now rather than making him wait for me to sum up. I can see that he, as a convinced Fabian, rather looks down his nose at people accumulating capital, as he puts it. In an attempt to increase savings, however, the Government—no doubt against the desperately worrying background of savings having, in effect, halved during their stewardship—have not been averse to vehicles, such as ISAs, which use fiscal means to encourage people to save. We are not discussing the Finance Bill so we do not want to go too far down that road—I certainly will not do so—but there is an issue, simply because the savings culture has declined so badly in the past few years.

Malcolm Wicks (Labour, Croydon North)

I do not accept much of that, but I put it to the hon. Gentleman—he can consider this when he sums up and makes his final attempt to convince us—that, on average, £30 out of every £100 that goes into a person's pension pot comes from the Exchequer. If the hon. Gentleman's proposals were to be accepted, and much of that was not for a pension but for a capital sum, would he argue the case with the

British electorate that it was right to subsidise it to such an extent? [Interruption.] It is a question that I ask of the hon. Member for Eastbourne. Is the hon. Member for Bexhill and Battle seeking to intervene on my question?

Gregory Barker (Conservative, Bexhill and Battle)

I was intervening on the Minister's point.

James Cran (Conservative, Beverley and Holderness)

Order. Is the Minister giving way?

Malcolm Wicks (Labour, Croydon North)

I give way.

Gregory Barker (Conservative, Bexhill and Battle)

I remind the Minister that the money comes from the British taxpayer, not from Ministers or from the Exchequer.

I return to the Minister's point about a subsidy for pensions. We would take a rather different view of whose money was being used, but he said that it was potentially a subsidy for the rich. Can he confirm that he does not propose to take away what he calls a subsidy—what we would call an incentive to save? It should not be a question of whether it will be withdrawn but of how it is used. Most people would define a pension not as an annuity but as money that will be available to them in their old age. Is the Minister saying that a pension is only an annuity? Does he not see that a pension could be the income derived from a multitude of sources?

James Cran (Conservative, Beverley and Holderness)

Order. I did not intervene in that intervention, but hon. Members who wish to make a speech need merely to catch my eye.

Malcolm Wicks (Labour, Croydon North)

That is the question that I put to the hon. Member for Eastbourne. It is one thing to say that the state has an interest in people having a decent pension in old age, and that has traditionally been subsidised through the tax system. However, the hon. Gentleman seems to think that it is the same—I would say that it is rather different—as saying that similar tax arrangements should be made for a richer group of people in order to allow them, in large part, to use their funds as a capital lump sum. It is of a different order.

I obviously realise that the Government do not have any money of their own, but the tax advantages mean that the Government have to raise the money from other sources. Those other sources often include people on lower incomes—people who cannot make use of the opportunities that the hon. Gentleman's amendment would allow.

I shall try to make some progress. I have the figures: 72 per cent. of all personal pension pots that are annuitised are worth less than £20,000, and 52 per cent. are less than £10,000. The hon. Gentleman's proposal, whatever its virtues, is designed to help only a small number of quite wealthy individuals. Given that, we should not be surprised that the suggestion comes from that quarter. The average size of pension funds is surprisingly small, and we obviously need to do more about that.

I am advised that the Inland Revenue does not keep figures on the ages at which people buy their annuities. I therefore have no answer to the question of how many people reach the age of 75 before buying an annuity.

On another question asked by the hon. Member for Eastbourne, we shall be tabling amendments to remove the requirement for limited price indexation in defined contribution schemes, as I promised. However, that may not be until the Bill reaches the other place.

I suspect that I have convinced the hon. Gentleman to withdraw the amendment, but if he has any remaining doubts, I am sure that he will tell us.

Nigel Waterson (Conservative, Eastbourne)

Needless to say, I am disappointed by the Berlin wall approach taken, by all levels of Government and all Departments, to an extremely sensible suggestion.

I am grateful to the hon. Member for Northavon for what I am sure were designed to be helpful suggestions to improve our proposals. We will reflect on them, and draw on them as much as we can. I wish that I could say that I would write to the hon. Gentleman on his comments about the age of 65, but I have no one to write the letter for me. [Interruption.] I may write him some explanatory notes when I have a quiet afternoon.

I hope that we have a broader and longer debate on Report. I know that their lordships are also keen to have the issue aired and, as I promised the Minister, it will not go away.

The Minister raised some technical points about which he may or may not be right. I am not in a position to judge, but we will have a look at them. He understates the number of people who would see this option as something that they would like at least to consider. We on the Conservative Benches have never been embarrassed by people who are wealthy and successful; they are the drivers of our economy. It was, of course, the Thatcher years that liberated that ability and drive for the benefit of the whole population. We will return to many of these issues on Report, and I suspect that parallel debates will take place in the Finance Bill Committee.

Gregory Barker (Conservative, Bexhill and Battle)

Given that my hon. Friend's proposal is fiscally neutral, does that not expose the Minister's objections as gratuitously political and chippy and nothing to do with the long-term funding of pensions?

Nigel Waterson (Conservative, Eastbourne)

As always, my hon. Friend understates his case. I have accused the Minister of being frisky before; I suppose chippy is the new word to be added to the vocabulary.

In fairness to the Minister—although God knows why I should be fair to him—we should try to disentangle two slightly different points. First, there is the point about the Treasury line, and why private Members' Bills have been refined over time. The legitimate concern of the Treasury is that people should not fall back on benefits because they have blown their pension funds on ill-advised things. I understand that point, which is addressed by the new

clauses, and if there is some technical reason why the new clauses cannot pull that off, the Government have a battery of people to make that right.

The Minister's slightly separate point was that the tax system gives people incentives to put money into pensions in the first place. Without wanting to blunder into the responsibilities of those dealing with the Finance Bill, it does so first for the hard, political and good reason of trying to encourage savings against the background under this Government of a collapse in the savings culture. At this moment in history, any Government would be desperately looking for ways to encourage people back into saving before we all hit total disaster.

As well as that fiscal incentive, we are talking about money coming out of people's hard-earned salaries and wages. If people accumulate, by dint of hard work, largish funds that will help them in later life, that money will be spent on things that benefit other members of the population, prevent them from being a burden on the benefits system, and take them out of means-tested benefits, which will be something of an achievement when the proportion of means-tested pensioners has been rising inexorably under this Government. There will also be tax to be paid back to the Exchequer when they start drawing their pensions. It is not as if these people have all gone off to some desert island and are free of the tax regime.

Gregory Barker (Conservative, Bexhill and Battle)

Also, that money will be far more productive for the economy as it will be recycled into investment through the stock market, property, venture capital trusts or businesses. It will not be simply dead money drawing annuities.

Nigel Waterson (Conservative, Eastbourne)

Yes—[Interruption.] No, that is a fair point. There is a great debate raging—

Malcolm Wicks (Labour, Croydon North)

Will the hon. Gentleman give way?

Nigel Waterson (Conservative, Eastbourne)

When I have finished my sentence or paragraph.

There is debate already raging about whether equities will ever get back to the level at which they have been in the past, and what the long-term implications of that are for pension savings. That debate is still to be determined. The Minister is making a false distinction, which I suspect is based not on rationality and intellect but on his gut, left-wing, Fabian feeling about people who have a bit more money than others.

Malcolm Wicks (Labour, Croydon North)

I am glad that the Fabian Society is getting such good publicity.

I do not want to be churlish, because I understand that if the proposal were to happen, some people would invest in all sorts of ways that would benefit the British economy. On the other hand, there would be no requirement to and some would invest in a luxury yacht.

Nigel Waterson (Conservative, Eastbourne)

Yes.

Malcolm Wicks (Labour, Croydon North)

The hon. Gentleman agrees. Therefore, does he have a view about whose economy would benefit from that?

Nigel Waterson (Conservative, Eastbourne)

As I was a shipping lawyer in a different life, I obviously have strong views about luxury yachts. Indeed, I once acted for Ivana Trump in respect of one that was built in Italy.

Malcolm Wicks (Labour, Croydon North)

The hon. Gentleman is shipping water at the moment.

Nigel Waterson (Conservative, Eastbourne)

Shipping water—[Laughter.] Luxury yachts are built in this country. I suspect that hardly any members of the Committee, with the possible exception of my hon. Friend the Member for Bexhill and Battle, could afford one.

The point that I was making is that that money will not disappear into the ether. It is money that has been hard earned, where people have admittedly had an incentive to put it into pension funds. It has then been invested in equities in British industry and commerce, and at the other end it comes out and there is tax.

John Robertson (Labour, Glasgow Anniesland)

Cigarettes.

Nigel Waterson (Conservative, Eastbourne)

Cigarettes, armaments—all of those things with high returns that people often invest in—and many other good things as well, which provide employment and wealth for all levels of society, are involved. Therefore we are not at all apologetic. The Minister seems to be trying to launch a frontal assault on the pensions industry, which is rather bizarre given his job description. Maybe he has finally lost all sense of perspective as we reach the end of the Committee stage, but he must reflect on the massive importance of the pensions industry in this country.

Malcolm Wicks rose—

Nigel Waterson (Conservative, Eastbourne)

The Minister must contain himself for a minute.

Clearly, the pensions industry has been, and is going through some major problems, but that does not mean to say that it is not a massively important part of the British economy in all sorts of ways.

Malcolm Wicks (Labour, Croydon North)

Far from launching an attack on the pensions industry—it was the hon. Gentleman who mentioned armaments so I do not know what his comment was for—we are working with it to develop it for the public's benefit. My argument is that the pension funds should be used for pensions. That is something that a Pensions Minister has a right to argue.

Nigel Waterson (Conservative, Eastbourne)

I see that, but I think that the Minister is also sidling up to an argument against tax relief on pension contributions. If I am wrong about that, I would be delighted. Even his right hon. Friend the Chancellor backed away from that kind of change in the situation. Indeed, given the perfect storm scenario that we keep discussing about pensions, that would probably be the final straw.

All that I can do is to return to discuss the system in the United States and to compare and contrast. As I have said, a very different system operates there and it has no compulsory annuitisation. We see the need for some flexibility and there is no reason at all why we should be fixated on the traditional route of pension

fund, annuity purchase and so on. People can provide for their retirement in all sorts of ways and in America they do. Half of them do not have a pension fund at all, but of those who do, not very many opt for annuitisation. In many cases it is not even on offer and it is certainly not compulsory. They take the money as a lump sum, invest it in shares or do something else. If there is a lesson or a theme to the entire piece of legislation in all its grisly detail and internal contradictions, it is that to make pensions more successful and attractive going forward—to use a favourite phrase in the Minister's notes—it is essential to introduce more flexibility. That is one of the crucial attractions of our new clauses.

Having said that, I have promised endless debates reaching into the distance on Report, in their lordships' House, in the Finance Bill Committee and beyond, and on that basis I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 29 - Pension position of women

Vera Baird (Labour, Redcar)

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

The justification for the new clause is that women constitute 64 per cent. of pensioners, but the average female pensioner's income is 57 per cent. of the average male pensioner's income—so at the moment pensions do not work well for women. An annual report would monitor their improvement. The new clause is also rooted, to an extent, in the approach of the Green Paper, on which I congratulate the Minister. It contains a chapter on women and pensions, highlighting the problems faced by women.

However, the Green Paper does not recommend using pension policy as a solution. Rather, it sees the answer in the changing patterns of women's lifestyles. It anticipates that they will become closer to the original Beveridge model by being involved more fully and for longer in the work force with higher, more consistent earnings and, consequently, able to obtain, through national insurance, better state provision and, through investment, better private or occupational provision.

The factors that will improve women's pension provision will, ironically, come from other Departments. Help with child care from the Minister for Children will enhance women's ability to earn more for longer and to get themselves better pensions. Such factors, from diverse sources, influence lifestyle. It is important to keep an annual check on whether that is working.

I know that my hon. Friend the Minister is going to refer to pension credit and I should like to acknowledge the role that that has played in helping poorer women to enjoy reasonable standards of living in retirement. It is because they are unlikely to have full pensions—and even less likely to have occupational pensions—that pension credit has been so efficacious for women. In a sense, it bridges the gap while women emerge more fully into the labour force and become better able to develop self-sufficiency in retirement. I suggest that it needs monitoring to ensure that it is truly a continuous process—women are coming more fully into the work force and getting richer in that way.

Between 1979 and 2002, the number of young women in the work force increased from 52 to 70 per cent. In the past two years, there has been little increase in the number of women working full-time in the work force. They do much more part-time work, and it is difficult to accrue a good pension if one is working part-time.

The other thing about women becoming more ''Beveridgised'' and able to provide for themselves is that it is an extraordinarily slow process. Equal pay has been with us since 1970—implemented since 1974—yet Fawcett calculates that the average income of women in full-time employment has gone from two thirds of average male income to three quarters in 30 years. At that rate, it will be another 70 years before there is equal pay. That means, as I have said many times before, that my great-great granddaughter will start her working career on the same pay as my great-great grandson, with an equal opportunity to accumulate equal pension at the end of her working life—it will apply to no woman before her, and even then that assumes that women will come completely into full-time employment.

I suggest five very quick and fairly cheap things that would speed up the process of women's becoming better equipped to provide their own pensions, and that would recognise the continuing place for women's caring responsibilities and reward them appropriately. To begin with, we should consider the lower earnings limit of £77. Anyone who earns less than that neither gets credited with a national insurance contribution nor pays one. Therefore, although someone might work for 15 hours on the minimum wage, she is not able to make a contribution to pension provision. If the lower earnings limit were lowered by £10, 200,000 women and 60,000 men would be able to start contributing.

Many women—I frequently come across examples in Redcar—have more than one job. They might, for instance, work as dinner ladies at lunchtime, while the children are at school, and then in a convenience store in the evening when their partners are at home. They may earn far more than the LEL, but they cannot aggregate the two lots of pay to make a contribution to their pension. They may be working long hours and earning quite reasonable pay, but they cannot aggregate so they cannot contribute either.

I suggest that the carer's credit could also easily be changed. Child care is dealt with by the home responsibilities protection, which cuts the number of

years that one needs to pay national insurance to accrue a pension, but it only functions for a whole year. If I took nine months of a year off work to look after my child and I went back for the last three months, I would lose the whole year's national insurance contributions. The home responsibilities protection would not work unless I were off for an entire year.

However, the carer's credit only applies to non-child care for basic state credit purposes, although the state second pension is slightly different. The carer's credit is only given to a carer who gets a carer's allowance because they are looking after someone for 35 hours a week. That is problematic. Last weekend, I think, the Prime Minister announced that we were considering availing carers of the ability to ask for part-time work, by analogy with the family-friendly work that working parents can ask for.

However, if a carer took a part-time job, they would not be able to qualify for the carer's allowance by working 35 hours as a carer, so they would lose their carer's credit. If their part-time earnings did not take them over the LEL, they would not pay national insurance either; they would fall through both loops. There is a real need for child care credits and carers' credits to come in a simple, weekly credit for every week that someone is at home caring for another person, which is a major contribution to society and saves the Government millions and millions.

The 25 per cent. rule, as the Minister well knows, states that anyone who pays national insurance for less than 10 years—that is, less than a quarter of the amount of time that they would need to pay to get a full pension—would not get anything at all. It is hard to see what the justification for that is, apart from some ancient rule of book keeping.

All of those quite cheap and not complex processes could help to speed up the evolution to pension equality for women, and give appropriate financial credit to them when they are working in their caring role. It is only realistic to acknowledge that women are likely to continue to live lives of caring mixed with work, even if the proportions change.

Steve Webb (Liberal Democrat, Northavon)

I echo the spirit of what the hon. and learned Lady says. Will she clarify how far what she says is dictated by political realism—by the notion that the most one can expect a Government to do is fiddle? As she correctly said, it will be three generations—or whatever—before anything happens from the labour market. What she talks about will make welcome but minor changes to a bigger percentage of inadequate pensions 20 years down the track. Would she like to go a lot further and to see something much more dramatic done for people who will be pensioners in the next five or 10 years?

Vera Baird (Labour, Redcar)

I have my own wish list. Sometimes, when I am in bed on my own, I think about the Pensions Bill as well.

George Osborne (Conservative, Tatton)

Which is not very often?

Vera Baird (Labour, Redcar)

Good point.

There are all sorts of wider-ranging debates about citizens pensions, for instance, because women would not be assisted at all—or at all significantly—if the basic state pension were upgraded to the minimum income guarantee level, which is the usual demand of pensioners forums. Only 13 per cent. of women have a full basic state pension. They would lose pounds and pounds in comparison to what they now get from the minimum income guarantee.

There are arguments for a citizens pension, but they are big ones. Confining oneself to simple steps available now would make a real improvement. I do not think that the issue is about political reality in any base sense, but about a debate that will take a long time to get through. An entirely new basis for pensions—one which would cut them loose from national insurance contributions—would, I suspect, be quite a long way off, and quite a knotty issue. However, if those relatively small steps were taken—and they would all help older women—the annual report would, of course, show significant improvements.

I have a final base point. There is no doubt in my mind, empirically, that older women off the streets, as it were, of Redcar are aware of their pension inequality. Some leaked polling in The Observer last weekend suggested that women over 55 are very interested in the influential issue of pensions. Women over 55 have a very high turnout rate at elections—67 per cent. compared with 36 per cent. of women of age 25—and although traditionally they voted for the Tories, in 1997 more voted Labour than Tory. However, in 2001 the Tories recovered: 40 per cent. of 55-plus women voted Conservative, and 38 per cent. voted Labour. That shows that this is a group that can be influenced by the policy issues that concern them, of which pensions is one.

Nigel Waterson (Conservative, Eastbourne)

I know that the hon. and learned Lady is keen to paint a complete picture. She will have seen the report published yesterday showing that it is precisely those older women who are becoming more rapidly disillusioned with this Government, on a whole raft of issues, than younger women or male voters.

Vera Baird (Labour, Redcar)

I have to confess to not having concentrated fully on the report to which the hon. Gentleman refers, but it is clear from the quite old polling I mentioned and the leaks in The Observer last weekend that older women are concerned about pensions. There is evidence that they move from party to party and are influenced by serious considerations. The other reasons for making the changes—notably, equality and equity—are much better ones, and we will be addressing inequality soon, but I point out that dealing with pensions, and reporting on the improvements annually, could be electorally helpful.

Janet Dean (Labour, Burton)

I rise to support the new clause tabled by my hon. and learned Friend the Member for Redcar (Vera Baird). It would enable women's pensions to be kept under review and allow us to monitor improvements, and it would also provide an incentive for us to look at the ways in which we can improve women's pensions.

Women have lost out in various ways. There are those who were encouraged to pay the women's reduced rate, and carried on paying it when they would have been better advised not to. There are those who have been careless, although sometimes people do not consider themselves to be so. There are those who might not have always claimed their benefits: they might have looked after a relative who is elderly or has health problems, and manage as best they can without thinking of their own position for national insurance purposes and in terms of their pension in future.

We are encouraging women to go back to work after having children, and as there is better child care now, more women are doing so. However, there will still be periods when people—mainly women—stay at home to care for the children. As we know, home responsibility protection covers the full tax year. My hon. and learned Friend referred to the following problem: in any tax year, it might happen that there were only a few weeks in which the carer's responsibility allowance was paid. If, say, a child reached a certain age, or the woman went back to work part-time at a lower rate and so did not pay national insurance stamps, that year would not be counted because it was not a full year.

There is also the issue, as my hon. and learned Friend said, of low-income and part-time work. Again, people might have several jobs but still not pay national insurance. In the past, it was mainly women who were in that situation, and I suspect that that will still be the case in future, because that is the nature of family life in most homes.

The aspect of most concern is the 25 per cent. rule. The fact that people can pay for nine years and not receive anything is an indictment of our system. With modern technology and computer programs—although I know that most Departments have problems with computer programs—it ought to be possible to recognise all the years for which a person has paid and for them to have a percentage of the pension due to them, rather than people paying for eight or nine years and receiving no pension at all.

I know that my hon. and learned Friend will say that the pension credit will step in in certain situations. I would like to pay tribute to the Government at this point for introducing the pension credit and addressing the problems of poorer pensioners, who are mainly women, by raising the minimum income guarantee and linking that back to wages, a procedure that was broken under the Conservative Government. Since 1997, the Labour party has done good things to try to benefit poorer pensioners and, as I say, those pensioners are more likely to be women than men.

I hope that my hon. Friend the Minister will review the 25 per cent. rule. Simple things can be done, as my hon. and learned Friend has said, which will benefit women pensioners today and in the future. I hope that the Minister will consider introducing a fairer system of carer's credit for those caring for children and for other adults, and that he will reduce the lower earnings

limit, because the fact that those who are working part-time and earning the minimum wage are still not credited with national insurance cannot be right in this day and age.

My hon. and learned Friend did not mention one thing, which I hope the Minister will consider—namely, the option of allowing extra back years to be purchased. At the moment, only up to six back years that have not been paid can be bought. If someone who may have been credited with only nine years could purchase years beyond the six years from when we are notified, it might be of value in attaining some sort of pension. Of course, some people may not be able to afford those back years, but they ought to have the option. It may be that they need purchase only several weeks of a year in order to have a whole year's credit towards their pension. Again, I ask my hon. Friend the Minister to consider that.

Nigel Waterson (Conservative, Eastbourne)

I shall be relatively brief. I think that this debate is a useful opportunity to rehearse some key unfairnesses that apply to women and to women pensioners, which have arisen under successive Governments. The new clause is an excellent idea. It makes no specific commitment to particular changes, and the hon. Member for Burton (Mrs. Dean) and the hon. and learned Member for Redcar have spoken eloquently about practical solutions, some of which are less expensive and some more expensive, some of which are more accessible and some more difficult for Ministers to consider. However, the new clause does not commit the Government to anything except producing an annual report. We think that that is a useful discipline and we would support the new clause.

I see that the new clause stands in the name of the hon. and learned Lady and those of four other members of the Committee. With support from Conservative Members, and, I hope, from the Liberal Democrats and others, we could carry it. It is inconceivable that the Minister will not accept this new clause, precisely because it commits the Government to so little on paper but provides a useful requirement in that this and other Governments will have to make an annual report. These historic unfairnesses will not be addressed overnight, or in the lifetime of one Government. From that point of view, this is a cross-party issue.

The hon. and learned Lady rightly spoke about not only the unfairnesses to older women, but the electoral significance that they hold: because they are older, those women are more likely to vote. Yesterday's Electoral Commission report made it clear that that group of voters is becoming more disillusioned with politics and politicians faster than any other. Having experienced a historically low turnout among 18 to 24-year-olds in the last election, we may find the willingness to participate in the democratic process among at least one group in society—older women—being eroded. As we know, older people are four times more likely to vote than younger people. Pensions may be one, but only one, of the factors involved, but it is important that we listen to what such people have to say. We support the new clause, however.

I pay tribute to the excellent work that Age Concern and the Fawcett Society have done. Like the hon. and learned Lady, I was present at the launch of the report ''One in Four'', which made the point that a quarter of single women pensioners live in poverty. That report was well received, although sadly the Government's reaction was muted, to put it mildly. Age Concern and the Fawcett Society have looked at a range of possibilities, such as reducing the lower earnings limit and having a weekly credit for carers that can be paid into the individual's pension. Personally, I have some sympathy for that idea, but we would want to consider it more closely as a party in the run-up to publishing our next election manifesto. Paying pensions to everyone in the national insurance system is another suggestion that will need some careful examination.

The good news is that a not insignificant proportion of women are helping themselves out of difficulties by getting a second pension. Again, the report from Age Concern makes it clear that although around 54 per cent. of men working full-time are members of an occupational pension scheme, 58 per cent. of women are in the same position. That prompts other questions. Many women work part-time, not full-time. The general question that has run through our consideration of the Bill is whether occupational pension schemes will, for various reasons—possibly including provisions in the Bill itself—go into long-term decline.

Vera Baird (Labour, Redcar)

I think that the figure from the paper the hon. Gentleman quotes is age related. Younger women are more likely to opt in to pensions than younger men, but as women get older and have children they are less likely to do so. The figures for membership among women older than 35 are substantially lower than those for men.

Nigel Waterson (Conservative, Eastbourne)

I am grateful for the hon. and learned Lady's intervention and I do not disagree with her. What she mentions is another factor. The part-time and age issues are important, and I do not argue with any of that.

I return to the report ''One in Four'' from Age Concern and the Fawcett Society. As it happens, one of the examples in the report is of a constituent of mine, Christine Dunn. She is an interesting example of how the problems arise and how the lucky ones can find a way out. She said:

''I worked for the NHS for 23 years, with only a 14-month break to have my children. I fought for a long time to get involved in an occupational pension scheme but was not permitted for many years because I worked part-time.''

She described how frustrating she found the experience and continued:

''I naively paid the 'married women's stamp' thinking this would secure me a decent retirement income but am now set to receive a state pension of 71p per week . . . despite currently paying £58.54 each month in National Insurance contributions.''

Christine Dunn's story is less depressing than others, as she said:

''Fortunately I re-trained as a teacher at 40 . . . and have subsequently been able to build up an adequate second pension. With such a measly state pension to look forward to, this has been an absolute life-saver.''

That is merely one example of a phenomenon that one can see replicated across the country. Unlike Christine Dunn, however, many women have not even had the option of entering another profession and building up a second pension.

Finally, I touch on the basic state pension, which a much bigger issue that I am sure we will return to on Report. Age Concern made the point in its briefing that

''pension policy must be built around a higher and more inclusive basic state pension. The Government must move away from means testing: it is costly, complex and too many pensioners miss out on their entitlement.''

I could not have put it better myself. I very much support the new clause.

Paul Holmes (Liberal Democrat, Chesterfield)

I offer the wholehearted support of my fellow Liberal Democrats for new clause 29, which calls for the Secretary of State to prepare an annual report on the changes made to the pension position of women.

The past few weeks have shown that hon. Members on both sides of the Room are agreed on the thrust of the Bill, although we have spent much time debating technical details and other aspects. However, there are two glaring omissions. We discussed the first about four weeks ago—the lack of compensation for the 60,000 or 70,000 people who will lose most of or all their occupational pension between 1997 and 2005. The second omission is the one that we are debating now, which affects a far larger group.

More than 60 per cent. of those of pensionable age get a bad deal from the pensions system. The problem is that the average income of women pensioners, who comprise 64 per cent. of retired people, is only 57 per cent. of that of male pensioners. Fewer than 12 per cent. of women receive a full basic state pension in their own right, while 25 per cent. of single women pensioners live in poverty, as was mentioned in the recent report by Age Concern and the Fawcett Society. Women account for 75 per cent. of pensioners on income support. That appalling problem affects as many as 2 million people—many more than the 60,000 or 70,000 who lost their occupational pensions, for whom we feel upset and about whom we have been campaigning.

Why is there such a major pensions scandal? Some answers are obvious. The key answer is to do with the woman's traditional role, which was to be a housewife. That is especially true for the oldest and the poorest pensioners—those over 80. Most of those are women.

I offer my mother as a perfect example of that group. She was a teenager at the start of the second world war and she worked in the cutlery industry in Sheffield. She married almost immediately after the war, giving up work completely in 1952, when her first child, my elder brother, was born. She did not return to part-time work as a home help until the end of the 1960s, when I started secondary school. That record of taking a long career break, of working only in low-paid jobs— [Interruption.]

James Cran (Conservative, Beverley and Holderness)

Order. There is far too much muttering developing in the Room. I wish to hear what Mr. Holmes has to say.

Paul Holmes (Liberal Democrat, Chesterfield)

Thank you, Mr. Cran. That sort of career pattern is typical of that generation of women. Attitudes in society are changing, but only slowly. The hon. and learned Member for Redcar suggested that if change continued at that pace, it would be another two or three generations before women achieved parity.

When I worked as a teacher, at least three colleagues took career breaks as children came along, and it was the man who was taking the break to look after the children. For one, it was a lifestyle choice. In the other two cases, the wives earned more than the men and it made economic sense for the husbands to take the break. Such change is coming through, but only slowly.

Even with those changes in the woman's role in society, and in our attitude to women working, it is still mostly women who take breaks from work—either for child care or, later on, to look after elderly and sick relatives. The majority still have lower-paid and often part-time jobs. They have average earnings of £19,811 a year, compared to £27,437 for the average male. That has a knock-on effect on their entitlement to a pension and on its value.

The Government might argue the point, but another aspect of the problem is that many women in the 1960s and 1970s unwittingly opted for the reduced rate of the married women's stamp, not realising the drastic effect that it would have on their pension entitlement. Of course, there are other factors behind women receiving such poor pensions.

What are the solutions? New clause 29 is not about solutions. It does not go into detail, but it calls for an annual report to highlight the Government's wonderful actions—or the embarrassing lack of action—to tackle that major pensions scandal.

As with compensation for those who have lost their occupational pensions—such as those at Chesterfield Cylinders, Demaglass and Coalite in and around my constituency of Chesterfield—the first step is to establish the principle that there is a problem and that it is the Government's responsibility to deal with it. Looking at the details of the solution comes afterwards.

The details have been very much mulled over already, and we have heard some examples from hon. Members during this short debate. For example, the Government solution is to reverse their promise made in opposition to end means-testing for pensioners and instead introduce ever more complicated and extensive means-testing—first the minimum income guarantee, and now pension credits, which have been praised by two hon. Members today. The problem with pension credits is that nearly half of those entitled to them are not getting the money—that is nearly 2 million pensioners. That is more than the one third of those entitled, whom the Government assume in their

budgetary figures will not claim the money. Those are the poorest pensioners, and the majority of them are women.

The Equal Opportunities Commission calls for various measures that would tackle some aspects of the problem. We have heard some of the details of those measures such as the reduction of the lower earnings limit of £77 per work and the annuity waivers for spouses. The TUC has also campaigned on various aspects that would improve the situation, and during the debate we have heard about abolishing the 25 per cent. rule and allowing greater back-dating on national insurance contributions.

The Liberal Democrats have campaigned for some years for a substantial increase in the basic state pension. Two speakers so far have referred to the need for a better basic state pension, or a citizen's pension as it was called. We have called in particular for an increase for the oldest, the poorest and, primarily, the female pensioners who are aged over 80—on average, men unfortunately tend to die considerably earlier than women at retirement age.

Nigel Waterson (Conservative, Eastbourne)

I am grateful to the hon. Gentleman for giving way, and I agree with a lot of what he is saying. Can he clarify current Liberal Democrat policy? My understanding was that the previous policy had been withdrawn and was ''under review'' pending the party conference. It seems that at the moment the Liberal Democrats do not have a specific policy on the basic state pension. If I am wrong, the hon. Gentleman will no doubt tell me.

Paul Holmes (Liberal Democrat, Chesterfield)

I thank the hon. Gentleman for his intervention. I specifically said that the Liberal Democrats have campaigned on this. How we would achieve it was fully costed in our last election manifesto. There is a detailed policy review going on—as is the case for almost the entirety of Conservative party policy—and we will present detailed and costed answers at our conference this autumn.

We have also called for the Government to write to all women in their 40s and 50s—whoever paid the married woman's stamp in the past—to warn them in good time, so that they do not find out at the last minute, when they are at pensionable age, that their future pensions may be completely inadequate because of the way in which they were duped, short-changed or whatever it was that happened back in the 1960s and 1970s. We have also called for a Government inquiry into future pension provision for women. A Government inquiry that draws from all parties, from across the board and from all interested bodies will carry much more weight than a partisan political approach if it can reach agreement. In dealing with pensions policy, we are looking at 20, 30, 40 or 50 years down the line before things come into effect. We need commitment from political parties over a lengthy period, not just over the horizon of four years until the next election.

All those examples are, as I said at the start, different detailed proposals and suggestions. Some are better than others—the Liberal Democrat suggestions are among the better ones—but they are all open to

argument and debate. The most important first step is to achieve, first in this Room, all-party agreement on new clause 29. That commits the Government to producing an annual report that would highlight the progress, or the lack of it, of whichever Government are in power in tackling this major pensions scandal. It affects not 70,000 people, like the dreadful occupational pensions situation that we talked about four weeks ago, but up to 2 million people of pensionable age. In the spirit that the hon. Member for Eastbourne talked of a few minutes ago, I hope that we achieve all-party agreement, that the Minister will accept new clause 29 and that we will be able to have a yearly audit of what Governments are or are not achieving so that the public can hold the Government to account.

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

On behalf of Plaid Cymru, I wish to add our words of support for the new clause. It is fitting that, as we reach the twilight of the Committee, agreement is breaking out all around. I am sure that the Minister will not want to dissipate the warm glow that we all feel. The proposal is modest, practical and constructive. I am sure that he will want to reflect on that for a few minutes as I speak.

We have heard the arguments set out clearly. For many years, there has been a huge gap between the retirement income positions of men and women. According to the Office for National Statistics, the gap has grown. Whether or not the labour market is in transitional mode in respect of gender disadvantage, the fact is that the gap is wider now than it was in the 1980s. The problem is deepening and, on current projections, will probably continue to do so for some considerable time. For that reason, it makes eminent sense to keep the critical issue of pensioner poverty among women under constant review, so that we can consider some less fundamental changes that we have discussed and the citizenship-based state retirement pension. The House of Lords Economic Affairs Committee supported that in its report at the beginning of the year.

The causes of pensioner poverty among women are quite complex and diverse. As we have heard, fewer women than men belong to occupational pension schemes and have personal pension schemes. Clearly, women have less time to build up pension rights but, interestingly, many women have also lost out on pensions through divorce. There have been changes in that area, although it is not clear whether they are having the hoped-for effect.

The compositional character of women's employment gives rise to an interesting debate on full-time versus part-time. The public sector tends to have better provision in respect of occupational pension schemes, and women in full-time employment tend to be skewed more towards the public sector. However, women in part-time employment tend to be in sectors that, by and large, have traditionally had less pension provision. In a report in 2000, the then Department of Social Security said that some types of job and certain sectors were significantly less likely to provide occupational pensions, namely those that were part-time, temporary, seasonal, located in small firms and

occupied by women. The predecessor Department highlighted that issue, and the Government accept that there is a particular problem in that area.

There has been widespread discrimination in the past in both the public and the private sectors in respect of pension provision for women. That legacy remains with us and will do so for some time. With regard to the private sector, I think that it was only in 1990 that the historic landmark decision was taken to ensure equal treatment for men and women in pension provision.

Women earn less than men, which is probably the critical problem, particularly for defined benefit schemes. It is clear what the consequence is because women's average pay is less than men's at the decision point before retirement. As we move to defined contribution schemes, that may be perceived as less of a problem, but there is also a problem with defined contribution schemes. As I understand it, because women live longer than men on average, they get a worse deal when defined contribution pension schemes are worked out. I think that there have been recent legal cases in that area, so it is a moot point whether actuaries, who were maligned during our earlier debates, will be permitted to discriminate based on greater life expectancy under the European convention on human rights. That is something to watch.

At the moment, the position is that a woman will retire with less income than a man who has made the same contribution, because of her greater life expectancy. Wherever we turn, whether it is looking to the future or to the appalling position in the past, we face a serious problem that, by and large, the Bill has not addressed. There have been some minor changes, which are welcome, that have addressed the issue of equality of pension provision for women. Unfortunately, however, on this occasion we have not won the debate on many of the suggestions that have been aired, and which were supported by the Equal Opportunities Commission, Age Concern and the TUC. None the less, the annual report will provide a platform on which we can return to this debate. I hope that the Minister will join the other voices that we have heard in support of the clause.

Malcolm Wicks (Labour, Croydon North)

I am struck by the difference between the last amendment, which was proposed by the hon. Member for Eastbourne, and this one, proposed by my hon. and learned Friend the Member for Redcar. Whatever the merits or demerits of the hon. Gentleman's proposal, it was concerned with a small number of relatively rich individuals, who were mainly men. My hon. and learned Friend's proposals concern a large number of people, who are relatively poor and are women. Committee members may want to draw conclusions from the different proposals that have been advanced.

I do not want to use this as an opportunity to outline the range of Government proposals that have impacted on women pensioners. I have a note telling me to do that, but many of the arguments would be familiar. Let me mention briefly that, as my hon. and learned Friend anticipated, pension credit is part of the story. Almost 2 million females—more than 1.9

million—are in pension credit households, whereas the number of men in such households is 961,000. That makes a Government point about the importance of pension credit and makes her point about the inequalities that have faced women, which make them rely on the pension credit proposals.

Nigel Waterson (Conservative, Eastbourne)

Does the Minister have the estimated figures for the number of women contained in the nearly 2 million people who are not claiming pension credit and the 1.4 million who, his Department assumes, will never get round to claiming it, although entitled to do so? What proportion of those does he think are women?

Malcolm Wicks (Labour, Croydon North)

I do not have those figures, but of course the difference between us is that I want those people to get pension credit, whereas the hon. Gentleman is trying to create a climate of confusion to prevent those people from claiming pension credit. In that dubious quest he is joined by the Liberal Democrats.

The state second pension is also important. Almost 2.5 million carers are helped by it and they are mostly women, as are around 70 per cent. of the 5 million low-earners who benefit from the state second pension. That is another example of a proposal in place to help redress the debilitating inequalities that have historically faced women in this regard.

Sally Keeble (Labour, Northampton North)

My hon. Friend is absolutely right that pension credit benefits such as those he mentioned have increased women's incomes. They have, however, made women reliant on the state, instead of on their husbands as was the case in the past. The points that my hon. and learned Friend the Member for Redcar made were about making sure that women had independent pension entitlement.

Malcolm Wicks (Labour, Croydon North)

I was agreeing that the pension credit data support both the Government argument and that of my hon. and learned Friend the Member for Redcar. Whether one wants to be dependent on one's husband or on the state must depend on the characteristics of both at any particular point in time.

Stakeholder pensions are also relevant. Forty per cent. of stakeholder pensions sold so far have been bought by women. That is another indication. As I said, I do not want to go through the Government's record on that, but I thought it important to make those points in answer to colleagues' questions.

Let me address the issue differently. I fully recognise that our society, economy and welfare state are based on views about gender. The welfare state—even the parts added since the 1940s—is based on certain assumptions, which were conventional at the time, about the roles of men and women. For example, the Beveridge report shows that Beveridge had clear views about married women's dependence on their husbands. I fully understand that issues of income in

working life and in retirement reflect what I have described as the debilitating consequences of gender inequalities, which are still with us today despite the many advances that have been made.

I remember reading a book some years ago by a New Zealand academic and one-time politician—for the National party, I believe—called Marilyn Waring. The book, ''Counting for Nothing,'' is an analysis of how much of women's economic activity, such as child care, voluntary activity and care for elderly relatives, is invisible to Government statisticians and is not in public accounts because it is outside the formal economy. It is interesting that Governments in this country, and in others no doubt, have started to recognise that kind of activity, which is not in the formal labour market. The way in which responsibilities such as caring for young children have been recognised by different Governments in social security policies, home responsibility payments and, more recently, in the state second pension, recognises the difficulties faced by women who are carers—of course, not all carers are women, but the majority are—and says that that sort of caring activity, which is a growing feature of our kind of society, should be recognised in state pension arrangements. It is a moving picture, but I can tell from the arguments advanced by my hon. and learned Friend the Member for Redcar that it is moving at a slower pace than she would like.

At this stage, I am not convinced that we need an annual report. However, the forceful speech of my hon. and learned Friend and the supporting speech of my hon. Friend the Member for Burton (Mrs. Dean) have convinced me that a report would be helpful. Therefore, I undertake that my Department will publish a report on women and pensions, probably in the next calendar year. We will then assess its impact, and the contribution that it makes to the debate—or its worth—to see whether it should be followed by a periodic report, but not an annual report.

I congratulate my hon. and learned Friend for putting her argument so forcefully, as she made me reconsider the usefulness of a report. I have given a clear pledge, so I hope that she will consider removing her new clause in light of that commitment.

Vera Baird (Labour, Redcar)

I thank everybody for their support for this modest proposal, as it has been called. I am also thankful for the consideration that both sides of the Committee have genuinely given to my arguments. I hope that Opposition Members are serious in their support for the proposal, and that they are not crying crocodile tears for some political advantage in the Committee. If so, I expect their manifestos to contain serious proposals to increase the quality of women's pension provision soon. Although none of them has a prospect of forming a Government, it helps to keep the issue on the agenda if it is addressed in other parties' manifestos. I am sure that there will be such measures in our own.

I am grateful to the Minister for his positive response and his obvious appreciation of the moving picture, as he put it, of the role of women and the need to acknowledge those changes and to ensure that the

role of women is appreciated both as they emerge into the labour market and as they retain their residual primary caring role. He also properly acknowledged, as was only to be expected, that it is important to give financial credit to both roles that women inevitably play and to ensure that both roles help women to contribute to a richer retirement than they are able to have currently.

I am very pleased that my hon. Friend has been moved, as he professes himself to have been by the calibre of the arguments, to announce a report next calendar year. I think that the Bill is intended to come into force next calendar year, so the next calendar year would have seen the first annual report that could have resulted from the Bill.

Sitting suspended for a Division in the House.

On resuming—

Vera Baird (Labour, Redcar)

With one more round of thanks for everyone's help and support on the issue, my hon. Friend the Minister talked about being able to publish such a report probably in the next calendar year; did he mean definitely by the end of 2005?

Malcolm Wicks (Labour, Croydon North)

Yes.

Vera Baird (Labour, Redcar)

I am grateful to my hon. Friend. That is the first year in which there would have been an annual report anyway, because the Bill will not come into force until 2005. When one reflects on the matter, it appears that annual reports may not be the perfect model, because pension provision takes a while to filter through. Perhaps one report per Parliament would have been more satisfactory and as my hon. Friend has handsomely offered, we would be able to discuss the impact of the first annual report, perhaps with a view to ensuring that there is one per Parliament, which might be more satisfactory. Obviously, it will be debated, at the very least in Westminster Hall, if we put it on the agenda. It is an important concession for which I am hugely grateful. I hesitate for only a moment.

Gregory Barker (Conservative, Bexhill and Battle)

Given that we know that the Government are capable of reversing clear manifesto commitments, let alone promises offered in Committee, I urge the hon. and learned Lady to stick to her guns, rather than falling over so easily.

Vera Baird (Labour, Redcar)

This shows up my worst fears. I asked whether hon. Members were crying crocodile tears; I am now satisfied that they were, and they are playing silly games. Of course I will not doubt my hon. Friend when he tells me that there will be a report and that we will seriously discuss the possibility of having one per Parliament. I beg to ask leave to withdraw the motion.

Vera Baird (Labour, Redcar)

On a point of information, Mr. Cran. Are we to vote on whether the motion may be withdrawn, or on the substance?

James Cran (Conservative, Beverley and Holderness)

The Division is on the second reading of the new clause. So that everyone is clear, I have to put the question that the clause be read a second time.

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

The Committee divided: Ayes 7, Noes 14.

George Osborne (Conservative, Tatton)

On a point of order, Mr. Cran. Is there any way of putting on the record—into Hansard—that the hon. and learned Member for Redcar, and the hon. Members for Burton, for Northampton, North (Ms Keeble), for Coventry, South (Mr. Cunningham), and for North Durham (Mr. Jones) all voted against an amendment to which they had put their names?

James Cran (Conservative, Beverley and Holderness)

Of course—the hon. Gentleman has already done so.

John Robertson (Labour, Glasgow Anniesland)

Further to that point of order, Mr. Cran. Is there any way of getting into Hansard the fact that that point of order was spurious and had nothing to do with the debate?

James Cran (Conservative, Beverley and Holderness)

The hon. Gentleman has also achieved his aim. I shall take no more points of order.New Schedule 1 Reviewable matters

New Schedule 1 - Reviewable matters

Malcolm Wicks (Labour, Croydon North)

I shall make the customary, but sincere, closing remarks, in the form of a vote of thanks. Unfortunately, I cannot give a vote of thanks to the Liberal Democrat and Conservative women

MPs on the Committee, who could not take part in this outbreak of artificial feminism because there were none.

We have now almost reached the end of our discussions in the Committee, and I will reflect briefly on the past eight weeks. Last Tuesday, I congratulated the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Gravesham (Mr. Pond), on his appearance in the marathon. I believe that he said that he had been unable to prepare in the normal way but that his experience in the Committee had prepared him in other ways. As I recall, he indicated that it was a painful event, which took a long time, and in which one ended up at the place at which one had begun. He did not mention that he had at least managed to finish; so, finally, has the Committee.

However, we have not ended up at the place at which we began. We have achieved considerable progress during the 22 sittings of the Committee. I know that Opposition Members will be disappointed, although not unduly surprised, that we have not accepted any of their amendments. However, we have taken some of those amendments away for consideration and brought them back, or will do so at a later stage in the consideration of the Bill. Last week, I commented on the forbearance of Opposition Members in the matter of Government amendments.

This has been a long, complex and technical Bill, although I know that many hon. Members will miss it in the weeks to come. We have had to introduce more amendments than we would normally have liked to do, but even in the halcyon days of the Pensions Act 1995 there were large numbers of Government amendments. Perhaps that is a feature of pensions Bills, and why they seem to occur only once a decade.

On several occasions during the Committee's discussions we mentioned the parliamentary draftsmen, although, for this Bill, they have mostly been parliamentary draftswomen. They are mainly unseen and often maligned. However, without their perseverance and fortitude the Bill would not be here; I should like to pay tribute to their contribution in the Official Report.

Changes in this area are not undertaken lightly. The Government are keen to ensure that the PPF is put in place as soon as possible, so that pensions can be protected from April 2005, and that has meant amendments along the way. Of course, we have not forgotten the lengthy debate initiated by my hon. Friend the Member for Cardiff, West (Kevin Brennan). I take this opportunity to commend him on his tireless pursuit of a remedy for those who have already lost their pensions.

Although we have no announcement at present, as I said last week we are continuing to search for information. As I said in the House yesterday, Members will have to be a little more patient.

I want to thank you, Mr. Cran, and Mr. Griffiths for the way in which you have chaired the Committee. On more than one occasion we moved at such breakneck speed thanks to your rigour that I was very confused.

James Cran (Conservative, Beverley and Holderness)

The Clerk was not; that is the point.

Malcolm Wicks (Labour, Croydon North)

If, Mr Cran, you had been running the marathon at that speed, you would not only have beaten the Under-Secretary, but possibly got ahead of the rhinoceros and the chickens. Sadly, my colleague never got in front of them. I hope, Mr. Cran, that we did not give you too many occasions for intervention and that you have enjoyed the experience of the past eight weeks—as we all have.

I also take the opportunity to thank members of the Committee for the full part that they have played in the proceedings. The hon. Member for Eastbourne and the hon. Member for Tatton (Mr. Osborne) have probed the Bill with the help of many outside groups and, of course, the Library.

I should also like to thank the hon. Member for Northavon, who is sometimes typecast by others, but not by myself, as a boffin. However, given that he served as a research assistant to the hon. Member for Eastbourne on one occasion, he is a very useful boffin. He can always be relied upon to do his research and ask the most difficult, but telling, questions. Although I sometimes cross swords with him, and even give way to mild irritation, anyone who taught my daughter the subject of social policy at Bath university so ably is someone that I can never entirely get irritated by.

I must thank my hon. Friends for their participation and support of course. They have made a considerable contribution and it was particularly pleasant to end our deliberations on a new clause that was tabled from the Labour Benches; even if—I am thinking on my feet—we could not accept the annual nature of the report we were certainly keen to accept its principle.

Sally Keeble (Labour, Northampton North)

It is probably more important to have an annual report and then some action than to have repeated reports with no action afterwards. I hope that my hon. Friend's one report will report action.

Malcolm Wicks (Labour, Croydon North)

I thank my hon. Friend very much.

I particularly want to thank my hon. Friend the Member for Greenock and Inverclyde (David Cairns), who cannot be present today, for his invaluable assistance during the proceedings, and also my hon. Friend the Member for Luton, South (Margaret Moran) for working through the usual channels. I also want to thank my hon. Friend the Under-Secretary for his support during the Bill. He was able to assist on pensions while also carrying out the rest of his normal duties, including earlier this afternoon giving evidence on identity cards to a Select Committee. I am sure that he saw that as more of a 100 m event. That is why he missed our proceedings this afternoon. It has been a pleasure to have him on board and to give him his first major experience as a Minister on a Bill of this kind.

Of course, Mr. Cran, you have been ably assisted by the Clerk, and we have all greatly benefited from his advice. He serves Committees with great diligence and I know that he is effective as a servant of the House in at least five countries where I have been present with him when I was on a previous Select Committee. All of us must thank the Hansard writers, who, as ever, have

recorded faithfully every word that has been uttered—and some that we did not mean to utter—and the House officials, who also deliver our messages.

I must also pay tribute to the policemen who sit at the door. They have not had a great deal to do during the Committee, with so few votes to call, but when necessary they have carried out their job with their usual dedication. How they have managed that without identity cards I do not know, but it might be that certain Conservative Members who were not present during the Committee were prevented from coming in.

I am sure that the Bill is leaving Committee in a better state than it began. During one of our discussions we had an outbreak of song, not in a literal sense, but in the form of references to both Don McLean and Simon and Garfunkel. I am advised that it might be more appropriate to end with some home-grown talent. We have come through the magical mystery tour and made it to the end of a long and winding road. I am pleased to acknowledge that I have received a little help from my friends. When I am 64—still some years away, I am pleased to say, despite the Department's commitment to extended working—I hope that I shall not be working, as I have during the Committee stage, for eight days a week.

Nigel Waterson (Conservative, Eastbourne)

I associate myself unreservedly with the various thank yous with which the Minister has dealt so ably: to yourself, Mr. Cran, and Mr. Griffiths, the Clerks, the Hansard writers, the officials, outside bodies and individuals, the police and all the other staff of the House. I particularly thank the officials and the draftswomen, who have done so much to keep us interested in the Bill. It has been a bit of a rollercoaster: one has never known from one week to another what shape the Bill was going to be in, so it has been extremely helpful to have all the last-minute changes. We look forward to the last-minute changes on Report and in their lordships' House.

I should like to thank my colleagues, particularly my hon. Friend the Member for Tatton, for helping me to probe the Bill and reveal its many unsatisfactory aspects. It is always a pleasure to be on this side of the Committee with the hon. Member for Northavon. I do not think that his relationship with the determinations panel will ever be fully in the public domain, but that is something that clearly gets him extremely excited. We are leaving behind a number of old friends, including the determinations panel, the reconsideration committee—another strange product of this legislation—and our old friend, the deputy PPF ombudsman. That is a role to which some of us hope to aspire in our semi-retirement one day, but it will apparently be denied to parliamentarians. We wish whoever he or she is well in the ranks of the ombudspeople.

I should like to thank the Ministers for being, on the whole, good-natured, if sometimes a little vague about their legislation. I should particularly like to thank a number of Government Back Benchers, who have made an enthusiastic and knowledgeable contribution to many of our debates. Their enthusiasm has not extended to voting for their own amendments and new

clauses but, having been a Whip myself, we all understand such matters. The Minister, in particular, has been a great inspiration to us all. I notice from his biographical details that in 1997 he was urging credits for those who sacrifice pensions to care for relatives, so that is another example of something in which he believed before he became a Minister. He also lists as one of his activities

''very occasional white water rafting''.

I think that this Bill has been the nearest dry land equivalent to that. He is described in one of the reference books as ''Frank Field without God'', which says it all. The Daily Telegraph sketch today says, quoting him in the House yesterday:

'' 'It is very important not to do anything that might raise expectations', said Mr. Wicks, speaking through a suntan.''

I do not know where he achieved that.

We enjoyed hearing about the Under-Secretary's marathon run, not forgetting that at one time, The Independent dubbed his loyalty to the Government ''stomach churning''. We have also been very privileged to have a future Home Secretary join us briefly—the hon. and learned Member for Redcar, who has always been very insistent and well researched on the subject of women's pensions, among other things. The hon. Member for Cardiff, West has been like the ghost at the feast. Having joined the Young Communist League, he obviously saw the error of his ways, and has been fighting a doughty battle for some of his constituents. The chapter remains to be written as to what happens to his constituents, and those of other hon. Members. It has been like the elephant in the Committee Room that, despite everything else that we have debated, the fate of the 60,000 people remains out there somewhere. There seems to be a suggestion of some movement on the issue by Ministers, and let us hope that that is right, with the encouragement of the Prime Minister of course. I pay particular tribute to the Minister's Parliamentary Private Secretary, the hon. Member for Greenock and Inverclyde, who has made the transition from being a Roman Catholic priest to the traditional role of a PPS, which is to shout abuse at the Opposition spokesman from a sedentary position. I am sure that his training for the priesthood came in handy.

Malcolm Wicks: He was not on his knees.

Mr. Waterson: Difficult to tell, but I do not think that he was.

Mr. Cran, this has been a relatively good-natured Committee stage, given the complexity of the Bill and the extraneous factors that have been at work. There is still much work to be done. We will return on Report to old friends such as the determinations panel, but for the moment it falls to me on behalf of my colleagues to thank you and your colleague, Mr. Griffiths, for your courteous and effective chairmanship. The Committee has worked extremely hard and I hope that all its members, particularly those on the Government Benches, and especially those who did not vote for their own amendments, will get their reward in due course.

Steve Webb (Liberal Democrat, Northavon)

Imagine, Mr. Cran—you might have thought that we would never reach this point, but we have. I echo the thanks of the Committee to you and Mr. Griffiths for your humane chairmanship—in particular, given the unseasonal weather, your attitude to jackets off, which has been very welcome. I thank my hon. Friend the Member for Chesterfield (Paul Holmes) and the hon. Member for East Carmarthen and Dinefwr (Adam Price) for their contributions. It has, indeed, been a good-natured Committee. It takes a certain sort of pensions anorak to say that he has enjoyed the proceedings, but I admit that I had my moments when we really got going. I am grateful for the Minister's response to a number of the amendments that we tabled, and for his assurances that he would reflect on issues such as the married woman's stamp—I do not know how much time he has to do it or how quickly he can reflect, but sooner rather than later would be greatly appreciated.

It has been good to hear the contributions of the hon. Member for Eastbourne. Often, I have looked at a complex briefing from an outside body and thought, ''I do not need to read this.'' That has been a great blessing. While we look forward to the moment when we understand better what the Conservatives think about the Bill, we are pleased that it has progressed through Committee. We want to see it on the statute book because we want to see pensions better protected, and it has been a pleasure to serve with all members of the Committee. We, too, thank those who have already been mentioned.

James Cran (Conservative, Beverley and Holderness)

On behalf of my co-Chairman, I thank those who have spoken for their kind remarks, some of which were more fulsome than others—I have noted that. The background to that comment is that the hon. Member for Eastbourne and I served in the Opposition Whips Office for some time, and know a great deal about each other. That is the best that I can say. I also, on behalf of Mr. Griffiths, thank all Front Benchers for the extraordinarily high quality of debate. This has been a very easy Committee to order. In fact, order is not the correct word; just a slight tilt at the tiller has brought the Committee back to the direction in which I have thought that it should be going.

Mr. Griffiths and I would also, of course, like to associate ourselves with all the thanks that have been expressed to the Hansard writers, without whom people would not in future be able to read the wise words to which I have had the pleasure of listening; to the doorkeepers; to the policemen; and of all—this is the one with which I want to finish—our Clerk and those who have occasionally stood in for him. If this Bill had been left, dare I say it, Minister, to you and me, it would have got into the House 75 per cent. as you would have wanted it to be. The Clerks ensure that it is 100 per cent. as it should be and, for that, very many thanks are due.

Question put and agreed to.

Bill, as amended, to be reported.

Committee rose at fourteen minutes past Five o'clock.