My Lords, I agree with all noble Lords who congratulated my noble friend Lord Fowler on introducing the debate, which is on a matter of the very greatest importance. It is deplorable that we have not been given a government debate—a full day's debate in government time—either in this House or, as I understand it, in another place. Perhaps it is not surprising that we have not had one, because there is an almost universal view that the Green Paper is inadequate to deal with the situation that we face. There is a crisis in pensions provision and savings. It is very important that the Government recognise that that is so. I hope that the Minister will make it clear that the Government recognise it.
We have had a most distinguished debate, with contributions from no fewer than four former Cabinet Ministers and from experts in every part of the House. There have been a number of important and constructive suggestions from my noble friends Lord Vinson and Lord Naseby, the noble Baroness, Lady Turner of Camden, and others to which I hope that the Government will give careful consideration.
The original Green Paper in 1998 said that it was expected that the proportion of pensions provision would change from 40 per cent private and 60 per cent public to 60 per cent private and 40 per cent public. When I raised that matter last night, the Minister said that it was now an aspiration. It is a strange aspiration, given that almost everything that the Government have done has put pressure in the opposite direction.
Having said that, one cannot complain about a lack of legislation. Since I entered the House, we have had endless Bills on pensions and social security. The first of those was concerned with stakeholder pension provisions. Opinion on stakeholder pensions varies from "disappointment" to "dismal failure". My noble friend Lord Jenkin pointed out that the take-up has been much smaller than the Government thought. They thought that 5 million people might take them up; in fact, the figure is a little more than 1 million. As has been pointed out in a number of representations that I have received, the crucial matter is that 90 per cent of company-designated schemes are apparently empty. The scheme has been designated, but pensions have not been taken up.
The stakeholder pension was described by the Financial Secretary to the Treasury as a "safe haven" product. That was a strange expression to use. If someone had invested the full amount in a stakeholder pension when the system was introduced, what would its value be now in percentage terms if it had been invested in something entirely sensible, such as a general tracker fund? The stakeholder pension is, of course, subject to all the variations to which any pension of a defined contribution scheme is subject, in relation to the stock market and so on.
My next point is on the effect of the state second pension. The noble Baroness, Lady Barker, put forward reasons as to why that was not satisfactory, and I am inclined to go along with what she said. We also have the pension credit provisions, which are of immense complexity. In evidence to the PAC inquiry, it was stated that the computer that will be needed to operate that system will be eight times bigger than that used for the self-assessment of income tax. Another trouble with complexity is that we do not get the take-up that we want. I know that the noble Baroness shares my concern about that very serious problem.
Another problem concerns means-testing, which has a huge effect on the level of savings. If one saves but the proceeds of those savings are means tested, that is a real deterrent. The Pensions Policy Institute suggested a short while ago that in the current situation three-quarters of existing employees will be on means-tested benefits by the time that they retire. I leave unanswered the question of who will pay for that. It is a serious indication of the level of pension that people at that stage may reasonably expect to get.
The savings ratio under the Government has been virtually halved. I received a very complacent reaction the other day in answer to a question from the Dispatch Box from the noble Lord, Lord McIntosh. The ABI estimates that the savings gap per year is about £27 billion, which is of grave concern.
Many noble Lords have drawn attention to the ACT raid on pensions funds and to the cost to the industry, which is about £5 billion a year—cumulatively, I suppose that it runs to about £25 billion. I make only two additional points to the very valid points that have already been made about that. First, the change was justified by the Chancellor—and, indeed, by the noble Baroness the Minister—because it would encourage investment. The reality is that it has not had that effect. Companies not having the advantage of the ACT concession are now finding that they must spend money topping up pension schemes rather than investing.
Secondly, when the Prime Minister was challenged on that matter, he said, "We don't need to worry because of the high level of the stock market". I am not clear whether he is still of that opinion; it seems unlikely. That has had a major effect, which resulted in the move away from final salary schemes and towards defined contribution schemes.
A number of noble Lords rightly pointed out that there will be a need, in view of the pension holidays that have been taken, for employers to contribute more. One very much hopes that they will do that rather than change their scheme from defined benefit to defined contribution or close the scheme altogether.
The fundamental problem that we face with savings is that there is a crisis of confidence about whether one will get an adequate return from savings. The latest figures, published a few days ago, suggested that there was probably no positive return over a considerable number of years, other than the fact that one had had tax relief; without tax relief, one would certainly have a negative return.
The situation is epitomised by the problem of Equitable Life, which has had much publicity. The noble Lord, Lord Elder, said that he was affected and was afraid to ask what his benefits were now worth. The Government have not faced up to the problems that have arisen with Equitable Life; I refer to the failure of the regulator to protect policyholders' interests. They set up the Penrose inquiry, which is wholly unsatisfactory. The main culprit in all of that is probably the Treasury as regulator. The inquiry was set up by the Treasury on terms of reference that were defined by the Treasury and the Treasury will decide how much of the inquiry to publish. At the same time, the ombudsman put his investigation on hold. Will the Minister assure us that the terms of reference of the Penrose inquiry will not prevent Lord Penrose, if he finds that the regulator or a succession of regulators has failed, recommending that compensation should be paid? That will be very important if we are to restore confidence in that side of the industry.
This debate is being held under considerable time constraints. The previous Green Paper of 1998 stated:
"Over time, the share of national income devoted to pensions will increase, but a higher proportion will come from private, funded pensions. State spending will increase but income from private pensions will increase even more as stakeholder pension schemes become established and occupational pension schemes are strengthened and supported".
The Government have not strengthened and supported such schemes. The chairman of the Association of Consulting Actuaries only the other day said that occupational pension scheme membership and provision is declining sharply. The Green Paper stated that, over the past 20 years, newly retired pensioners have had a higher income than their predecessors. Unless something very radical is done by the Government, that will not be true in future.