moved Amendment No. 81:
After Clause 18, insert the following new Clause—
"Equality of annuity rate between men and women
Notwithstanding any statutory provision or rule of law to the contrary, any compulsory annuity forming part of a private sector pension shall be payable at the same rate to men and women."
The purpose of the amendment is to draw attention to the fact that equal opportunities legislation is not effective in the area of annuities. It should apply there and I hope that I can persuade noble Lords of that. The amendment defines the area in which there should be no discrimination between annuities granted to a male and a female on the same terms in a private pension.
This issue has a history and takes me back to my early days on the Equal Opportunities Commission. When the EOC was established, retirement age and pensions were firmly outside the scope of the Sex Discrimination Act 1975, and were not the concern of the EOC. In those days, we received complaints from men who thought it was unfair that they be required to work for five years longer than women before they could receive their pensions. We also received complaints from women because they were not allowed to work beyond the age of 60, and therefore earn the higher pension resulting from their retiring at 65. I accept that the situation has become more flexible since then. It was not long before pensions, following a legal case, were viewed as pay. Equal pay was firmly part of the EOC's responsibility, because it was covered by the Sex Discrimination Act, both to encourage equal opportunities and to enforce the legal requirement for equal pay for work of equal value.
Today, there are other forms of discrimination, which were mentioned on the first day of Committee, and certain sections of the community are much worse off than others. For example, people who have been to university are likely to live longer. People who have been involved in heavy manual work may have a shorter life, and so on. One accepts that. I very much admire what the Government are doing to equalise, as much as is humanly possible, the role of women as carers who have looked after many aspects of family life. If the state had paid for that the cost would have been horrendous. As many resources as possible should go towards making our society more equal. We have seen, in the amendments that we have already discussed, how keen your Lordships are to ensure that those already generous areas can be extended further.
However, one is entitled to ask, as I did on Second Reading, for how long the responsible Minister will continue to defend what I and one or two other noble Lords regard as a grossly sex-based inequality. I am proud of our sex discrimination legislation and of the fact that it has set the pace for many other countries to follow. Perhaps I may quote figures given by the noble Baroness, Lady Hollis, who referred to the gender filter. She said that,
"men's contributions for a full basic state pension will come down from 44 years to 30 years"— a gain of 14 years—
"whereas women's will come down from 39 years to 30 years".—[Hansard, 14/5/07; col. 39.]
That is nine years. Another method of calculating further reduced that period. Equally, an earnings link benefits most of those who have a complete basic state pension. Surprise, surprise: 92 per cent are men and less than 30 per cent are women. I would argue that that is not just sex discrimination, but even indirect sex discrimination—an important legal concept that was first introduced by the Sex Discrimination Act. One may apply the same conditions to men and women, but maybe one is disadvantaging one sex more than the other.
I hope that I receive some encouragement from the Minister and that at some stage, as we advance towards the time when women and men retire at the same age, with the same level of responsibilities for caring and so on, this important principle of equal opportunities for men and women will not be left to the market—it would go wider than that if we had an equality Act—and we should consider whether the present situation can continue to be seen as fair and just. I beg to move.
I suspect that the Minister will have some difficulty accepting this amendment; I cannot do so because life is unfair for women. Not only, as the noble Baroness said, do they live longer, but they also give birth, as my daughter-in-law is doing as we speak.
I appreciate how galling it must be as a woman to be offered a lower annuity than a man for the same amount of money, but that is a reflection of the longer life expectancy that a woman can expect to enjoy and is based on market-assessed risk, not prejudice or discrimination. If a car insurer, for example, can offer a preferential insurance rate to young women because of their statistical likelihood to be safer drivers than young men—I must admit that that statistic surprises me, but be that as it may—I do not see how we can avoid similar differentiation for the elderly. I also take heart, as the noble Baroness did, from evidence suggesting that life expectancies are slowly converging as male life expectancy rises. I am sure that the market will respond and that the difference in annuities will adjust to incorporate this; if not, I agree that the Government ought to keep a very close watching brief on this.
Before I sit down, I must say how nice it is that the noble and learned Lord, Lord Davidson, is joining us. Could it be that the Minister is suddenly in need of legal advice?
I do not think that the noble Lord, Lord Skelmersdale, should be surprised to discover that women are safer drivers than men; if I were running a motor insurance company, I would be only too happy to have only women on my books.
I pay tribute to the great work that the noble Baroness, Lady Howe, did at the Equal Opportunities Commission; indeed, I was special adviser to Roy Jenkins when we set up its predecessor, the Sex Discrimination Board. However, I am sorry to say that this is not an appropriate area for legislation; it is reasonable to let the market decide. I am sorry that we cannot support her.
Although I, too, am very sympathetic to the noble Baroness for her great work on behalf of women's equality, I am not sympathetic to this amendment. It may appear to some people that it is unjust to women that they will receive at the age of, say, 65 a lower annuity rate than men but, if you switch it round and demand a unisex annuity, it will appear unjust to many men that they get the same annuity rate but, on average, for fewer years.
There is a wider issue here: whether we want to encourage within the insurance industry greater or less discrimination of classes or pools of insurance. There are some dangers in going to the extreme end of discrimination—there are some complicated issues that will eventually face us involving genetic testing and the ability to predict whether someone has a predilection to a particular condition—but, on the whole, greater discrimination is likely better to serve the social ends that we might want. For example, it is the case that lower-income people have lower life expectancy than higher-income people. The existing annuity market involves a cross-subsidy from poor people to rich people. The insurance industry is increasingly looking at whether it can undo that cross-subsidy by having annuities based on the postcode, income or some other indirect indicator of likely life expectancy. If the result of that is that the working-class man from Glasgow ends up with a better annuity rate than the professional person from London, that would be a thoroughly useful form of discrimination, which will help to offset some of the problems of inequality in life expectancy.
As I say, although we will face some extreme issues decades down the line about how we deal with genetic testing and so on, social purposes, at least for now, are better served by a better degree of discrimination between different, more narrowly defined categories of insurance risk than by trying to demand unisex, "uniclass" or other categories of intervention in the annuity market.
I am sure that my noble friend will reflect on the amendment, because the world has changed since we had these debates—even those that we had in 2004, let alone earlier ones.
First, the retirement age for women will gradually rise, as I think is right and proper. Secondly, and more to the point, the current discrepancy in longevity between men and women has fallen sharply over the past 10 or 15 years. There is now a difference of about two and a bit years, whereas the gap by social class—which, to the best of my knowledge, is not reflected in annuities unless impaired life is involved—is now something like four and a half years. We take account of one but not the other. I do not understand why we should do that, except that gender is an easily recognised flag in the system in a way that social class may not be, but that is unfair to women compared with other determinants of life expectancy.
The point made by the noble Lord, Lord Turner, about whether we want to go into sub-group specification or whether we want something more general is entirely valid. But if the market is to move in that direction, it should put a far lower premium and weight on gender, which may be a minor factor now coming into play, and far more on social class, of which the best predictor of longevity is further and higher education and a degree. To say that the current arrangement applies for the benefit of women in other areas of life, such as car insurance, is a very old-fashioned perspective on the part of insurance companies. I believe that we should be offering unisex insurance to young men and young women alike. Then, if the young man proves to be an erratic or dangerous driver because, for example, he is involved in a car crash, his premium should be increased. However, it would not be right to make predictions. It would not have been right to say, for example, that when my younger son, who is an extremely careful and cautious driver, was 21 or 22, he should have carried an extra weight compared with the young daughter at the house next door, who, for all the insurers knew, might have been far more of a flibbertigibbet—as my mother or grandmother would have called her—in her driving. That would seem to be an absurd example of post hoc, propter hoc, which should have no place in the insurance industry.
The Government recognise that argument. As far as I am aware, there is no gender distinction in the basic state pension, the state second pension and, above all, GMPs—goodness knows, we have enough amendments on guaranteed minimum pensions coming up. In other words, so far as concerns the state—quite properly in my view—people receive the same pension, irrespective of gender. The privileged marital status should get a 60 per cent dependency element but men and women get the same basic state pension, whether it is collected at the age of 60 or 65, and the same applies to GMPs. Conventionally, GMPs are part of the core of occupational pensions—unless the noble Baroness, Lady Noakes, persuades the Committee to change its views on that.
If, as a society and a state, we believe that it is right to have unisex cores in the state-element provision provided by contracting out, and in the state second pension or the basic state pension, why do we think that it is okay for the private sector to do things differently? I do not understand that. I accept that gender may remain a modest and diminishing marker, but other markers are far more important. If we insist on having a segmented insurance industry, we should re-examine this matter. I think that the day has come to say that this situation will not do for much longer.
This has been a brief but fascinating debate, and I thank everyone who has participated. I shall touch on some of the points that were made earlier about annuity policies. I shall not dwell on those too much but shall focus on the specifics of the amendment. Perhaps I should congratulate the noble Lord, Lord Skelmersdale, on becoming, or being about to become, a grandfather. That is good news.
We share concerns about the need to bolster people's income in retirement and, in particular, to address the position of women, who currently often do less well than men. The Government have introduced a number of measures to help to tackle this, many of which we have already debated.
The Bill includes measures to improve women's state pension coverage by reducing the number of years needed to qualify for the full basic state pension from 39 to 30 years. The new weekly credits for relevant carers will make the scheme fair and more transparent and will significantly improve state pension outcomes for women. The new credit will reward parenting and caring equally with paid contributions.
The new scheme of personal accounts will provide a straightforward opportunity to contribute to a high-quality, low-cost saving vehicle, making private savings truly accessible. These portable, flexible accounts will be available to people active in the labour market. People with caring responsibilities who take a break from the labour market will be able to continue to make their own payments into their personal account. Together with changes in society, which mean that more women now work and have more opportunity to build up both state and private pensions in their own right, these changes will help to improve women's income in retirement.
As we discussed, annuities provide a regular and secure income for life, no matter how long that life turns out to be. Although not always well understood, annuities are at heart an insurance product. Like all insurance products, they work by pooling risk—that is the nature of the product that we are dealing with here—and risk is taken account of in setting the premium. The older you are when you annuitise, the higher the rate you will get in exchange for your pension pot. That reflects the fact that the older you are, the fewer years the insurance company will expect to have to pay for your annuity, so it can afford to pay you more per year.
Similarly, it is an actuarial fact that currently, on average, women live longer than men—the time span might be narrowing—so women can expect to be paid an annuity for longer than men of the same age. Over their lifetimes they will, on average, receive equivalent value in exchange for the same-sized pension pot. I do not see that as discrimination. If one looks at the net present values of those two situations, one would expect them to come to the same amount. This amendment would change that to a situation in which women are given a more actuarially fair rate subsidised by men who would get a less actuarially fair rate. Such a move would also undermine the price-per-risk principle behind insurance products. Motor insurance has already been mentioned.
The noble Lord, Lord Turner, raised interesting points, as did my noble friend Lady Hollis about the size of the cohort and whether one further segments the market there. We see that happening already with impaired life annuities. We have also seen some of those developments in the annuities market. Indeed, the Government encourage that. How fast it might go down the route to which the noble Lord, Lord Turner, referred remains to be seen.
The EOC has recognised many of those difficulties and in 2004 it commissioned some research from the PPI on that issue. The PPI concluded that the introduction of unisex annuities was unlikely to be of widespread and significant benefit. The PPI work informed the EOC's input into the EU draft directive on equal treatment between women and men in access to goods and services, when that was considered by the House of Lords Select Committee on the European Union in the spring of 2004. The EOC has said that the Sex Discrimination Act currently allows insurers to set different rates for women and men. However, a draft directive being debated in Europe originally included a proposal to change that by banning insurers from using data based on gender when calculating insurance and annuity rates. The EOC has called for the draft directive instead to be amended so that insurers can still set different rates for women and men, but with strict limits on how data based on gender could be used.
One of the things that informed the EOC's position at the time was that a lot of married women did not have an annuity in their own right, but depended on their husband's annuity and, therefore, those married women would have lost out were their husband's rate depressed in order for the rate of other women—single women, women with annuities—to rise. I have reason to believe that that may have influenced the thinking at the time. I believe that everyone's mindset has moved on since then and one should not assume that one should protect dependent women at the expense of those who try to protect themselves. My noble friend is relying quite heavily on the EOC's arguments and material. If, since 2004-05, the EOC were to change its position on that, would that help to move the Government's thinking forward?
If the EOC were to change its position, I am sure that the Government would reflect on that and on the reasons why. These are serious issues and we should have continuing focus on them. I know that the noble Baroness, Lady Howe, has a long association with the EOC, which accepted the case for different annuity rates for men and women being allowed to continue, partly for the reason that my noble friend has outlined.
Under Article 5 of the directive, special provision is made to allow member states, when implementing the directive, to maintain the use of sex as a determining factor in the assessment of risk based on relevant and accurate actuarial and statistical data. At present, the Government intend to apply those provisions to maintain the current position in the UK. A consultation document on the proposed implementation, which has to be completed by
In conclusion, while we are sympathetic to the desire to improve the retirement income of women, we do not think that reducing men's retirement income by introducing a distortion in the insurance market which undercuts the principle of pricing for risk is the way to do it. Instead we have set out a number of proposals which will improve retirement outcomes for women. We believe that that is the better approach currently. I hope that the noble Baroness, although disappointed, will feel able to withdraw her amendment.
The Minister has just said that at present the Government intend to use the derogations in the EU legislation. Does that mean that there is a possibility of changing?
It would not be fair to read that into "at present"; I was simply stating the current position.
I am not altogether surprised I have not got as far as I might have hoped with my amendment. I have to say to the noble Lord, Lord Oakeshott, that when the Select Committee came back from Europe with the news that insurers could charge young male drivers more than young female drivers the noble Lord, Lord Lester, and I immediately jumped into the ring and said that we did not think that that was even remotely a good idea. We were setting the scene for when I hoped he might support me in getting rid of such discrimination. I am sorry that the noble Lord, Lord Lester, who I know is returning to this country tonight, is not in his place, or I might have hoped to have from the Lib Dems a rather more enthusiastic endorsement of what I am trying to achieve.
I am rather encouraged by what I have heard from the noble Baroness, Lady Hollis. Who knows—there may be some sort of shift on the horizon in the thinking of the EOC. If that happens, maybe we shall see changes occurring rather faster than is being indicated. For the moment I am happy to withdraw the amendment.
moved Amendment No. 82:
After Clause 18, insert the following new Clause—
"Early payment of compensation: serious ill health
(1) The Pensions Act 2004 (c. 35) is amended as follows.
(2) In paragraph 25(2) of Schedule 7 at the end insert "unless it is satisfied that a person is eligible for periodic or lump sum compensation due to serious ill health"."
I have not troubled the Committee stage of the Bill or any of its process hitherto, and I can assure the Minister that I do not intend to do so at length tonight or subsequently. However, I regard this as an important amendment. At this stage, it is a probing amendment. I have no doubt that its objective could probably be achieved in a different way, so if the Minister could guide me in that direction, I should be very grateful.
I am dealing here with a relatively vulnerable group of people. The amendment seeks to amend the Pensions Act 2004 so that those suffering from such severe ill health and disablement that they can no longer work would be entitled to benefit from the FAS, first, before they are 50 and, secondly, to the extent of a full pension or, at least, a not heavily discounted pension.
The schemes under which these people thought that they were covered were negotiated and instituted many years ago. At the time they appeared to be pretty watertight schemes for substantial groups of workers, who went into them either compulsorily or in good faith as a result of advice from their unions or pension advisers. The fact that these schemes have now been reneged on seems to hit this particular group worse than others. Although everybody is disadvantaged after the collapse of these schemes, this particular group, because of the way in which the regulations are written, seems to be more seriously disadvantaged.
The schemes cover industrial manual workers. We are talking about people with genuine health problems, which would normally be dealt with by early retirement. I suppose that I should declare an interest: many years ago I helped to negotiate some of these schemes for my union, the GMB, and I still advise on that. These schemes looked very good in the 1970s and the 1980s. The problem that was recognised in their original drafting should at least be acknowledged.
I will give an example of one such scheme. I shall not mention the name, but it concerns a leading manufacturer of asbestos products, which is now covered by the FAS. It is not in the part of the asbestos industry about which my noble friend Lady Hollis was talking—thermal insulation and asbestos removal—but it is a firm, solid, quoted company. Forty thousand people are covered by the scheme. For fairly obvious reasons, a significant proportion of that population used to retire early. Although the problem has diminished, there are still people in the scheme who have to retire early either from industry-related disease or for other reasons.
It is important to me that everyone is covered, for whatever reason they have to retire early—whether through industrial disease, accident or medical problem, or an accident entirely unrelated to work. A small but significant number of people fall into that category. As I understand it, the FAS regulations at present do not allow anyone under 50 to apply and there is a heavy discount for those who succeed after 50. They should be covered in the same way as other potential beneficiaries from the scheme and the regulations covered by the FAS should be amended to allow for that.
I recognise that that should not be regarded as a loophole and a way to drive a coach and horses through the regulations, providing for early retirement for large swathes of employees who do not genuinely have those problems. The amendment would leave it to the board of the FAS to decide the criteria, to assess the system of validation and to ensure that the regulations are robust and not open to abuse.
In principle, the FAS should cover such people. It is a matter of justice that it should be able to do so in terms that it can itself define. That is the purpose of my amendment. I look to my noble friend the Minister at least to indicate that he will consider the implications of what I have said, so that we know before the next stage of the Bill whether there is an amendment that might help or another way in which to extend the protection, such as it is, to those groups of workers. In the mean time, I beg to move.
I am somewhat confused by what the noble Lord, Lord Whitty, said. Schedule 7 to the 2004 Act is all about the activities of the Pension Protection Fund; it has nothing to do with the FAS. That said, I have listened carefully to his arguments. I do not think that the amendment, even if it should apply to the FAS, would add measurably to what is currently going on. I understand that both the PPF and the FAS have special procedures in place to speed up claims from terminally ill pensioners. I hope that the Minister will be able to give an edited version of what procedures are available in that regard. If they are satisfactory, as I believe they are, adding more special cases, with all the attendant administration costs and complexities, would do more harm than good.
I am sure that that is right. At the moment, FAS is paid to all at 65, except the terminally ill and survivors, who can receive payments earlier.
Perhaps I might respond to the specific point that my noble friend made about the Pension Protection Fund. I shall also make a general point about that at the end. I am grateful to him for highlighting this situation. His amendment seeks to allow people to obtain their compensation from the Pension Protection Fund early—I understand that he wants that to cover the FAS, too—without that compensation being actuarially reduced to take account of early payment. I appreciate the difficult choices faced by people who, as a result of ill health, cannot support themselves fully through work and who, if their pension scheme had not suffered an insolvency event, might have been able to retire earlier on a higher pension.
However, it is important to understand why compensation is actuarially reduced when it is taken early. The basis of the PPF is that, at the point of insolvency, every member of a scheme has a level of compensation to which they are entitled. That level can then be adjusted in various ways to take account of early payment or inflation. This adjustment ensures that members of a scheme receive the same level of compensation overall, whether they take their compensation early or wait until the normal pension age. This ensures fairness. It also ensures that the PPF remains affordable and that members of the PPF can plan for the future. Similar considerations obviously apply to the FAS.
I appreciate that many pension schemes offer a variety of different options for people who retire early due to ill health. However, the PPF is not a pension scheme, nor is the FAS. The Government deliberately created the PPF as a compensation scheme that would provide a better level of income overall than did schemes that were underfunded when they were wound up. Without the PPF, people who are taken ill or seriously disabled might have no pension at all to look forward to. We have taken care to ensure fairness and to avoid the trap of complexity that would result from creating a PPF that mirrored all the rules of every pension scheme. This means that we have made no special provision for people to receive compensation early specifically on the grounds of ill health. Instead, we have provided for people to apply for early compensation, subject to the adjustment, without having to explain why they wish to receive it.
If we were to do as the amendment suggests, we would need to provide a mechanism for the PPF to determine when someone was suffering from severe ill health. Such matters are not always easy to determine. The current basis of calculating early compensation ensures certainty about the level of payment and about the affordability of the scheme. Although I have sympathy for those who may find it difficult to continue working until their normal pension age and who wish to take their compensation early without reduction, the amendment would create difficulty. Having heard what my noble friend said, and given that we need to be clear about how the PPF and the FAS work side by side on this, I am happy to take the amendment away and see whether we can help in some way.
I shall also speak to Amendment No. 86. Both amendments seek clarification of the membership of the delivery authority. Amendment No. 83 would add a new sub-paragraph to paragraph 1 of Schedule 6, so that the authority will have a majority of non-executive members. The Minister will be aware that it is the norm in listed companies under the combined code on corporate governance that at least half the board should be non-executive, not counting the chairman. If we include the chairman, who is normally counted as non-executive in government Bills, even though he generally works well beyond non-executive limits, that means that public sector boards have a majority of non-executive members. There are lots of examples from recent legislation, with which I am sure the Minister is familiar.
The chairman of the delivery authority is not explicitly called a non-executive in this Bill, as he would be in other Bills, but there is a sideways reference to him in paragraph 2(1), which implies that he is non-executive; hence my amendment, which, in line with public and private sector practice, would require that, excluding the chairman, there could not be more executive directors than non-executives. Concerns have been expressed about the delivery authority being independent of government and understanding all the competing interests. It normally falls to the chairman and the non-executives to rise above the detail and to ensure that stakeholder interests are well served, which is why the composition of the authority is of particular importance.
Amendment No. 86 deals with paragraph 1(4), which says that,
"the Secretary of State and the Authority must aim to ensure that the Authority", has in the range of three to nine members. My amendment simply says that the authority "shall" have that number of members, which is the normal formulation found in other Acts. Why does this Bill have to be different? Since appointing members is not an onerous task, why should there be any excuse for not having three members? Can there ever be an excuse for having more than nine members? I beg to move.
I thank the noble Baroness, Lady Noakes, for the chance to touch on the size and composition of the delivery authority board. Amendment No. 86 puts strict limits in place for the size of the delivery authority board. The Bill currently provides some flexibility in the size of the authority's board, enabling the membership to go below three or above nine for a short period should this be needed.
Paragraph 6(2) of Schedule 6 enables the authority board to function without an executive member until the first chief executive is appointed, which will enable the chairman to be involved in the recruitment process for the chief executive. Alternatively, there may be a need for additional expertise to be recruited for a short period, which may temporarily increase the size of the board above nine members. This flexibility is important in enabling the authority to tackle such short-term challenges in an appropriate and effective manner. As such, we would not wish to impose on the board the strict limits that this amendment seeks, but we expect the outcome routinely and normally to be as the noble Baroness would expect.
Amendment No. 83 looks at the composition of the board. In particular, it seeks to ensure that not more than half the total members of the board are executive members. This rightly alludes to the important role that non-executives play in providing checks and balances on the executive members. I can reassure the Committee that this is a principle that we will adhere to; indeed, our current recruitment plans reflect this. However, this is already covered by the provision in Clause 21 that requires the authority board, in managing its affairs, to have regard to the general guidance for public bodies and the generally accepted principles of good corporate governance. This includes the principles in the Financial Reporting Council's Combined Code, which sets out that executive members should not constitute more than half the membership of the board.
Including this amendment in legislation is therefore unnecessary and could prove to be disruptive to the work of the authority in the event that there is a short period when a non-executive vacancy is not filled, forcing the proportion of executive members to more than 50 per cent. The provisions in Clause 21 are robust, but at the same time provide flexibility to deal with such circumstances. I hope that that has reassured Members of the Committee. I believe that what the noble Baroness seeks and expects to be the norm will pertain, while there will be flexibility at the margins for practical reasons.
In the circumstances that the Minister has described, I can see that there may occasionally be a need for flexibility. However, it is curious that, in general, Bills are not drafted to provide for that kind of flexibility. One needs to reflect on why a DWP Bill has to have that flexibility. I am grateful to the Minister for putting on record the reasons why it is needed and for saying that the Government expect the principles of balance on the board to be adhered to through appointments. I beg leave to withdraw the amendment.
I shall speak also to Amendments Nos. 98 to 100. Under the Bill the Secretary of State will appoint the chairman of the Personal Accounts Delivery Authority, which seems reasonable, but he then goes on to make the first appointments of the other executive members, the chief executive and the non-executive members. Amendments Nos. 84, 99 and 100 would make all these appointments subject to consultation with the chairman.
This delivery authority will not last very long: five years at the most, we hope. There is unlikely to be a real issue of second-time-around appointments, although inevitably some will arise. The whole character of the authority will thus be determined by the first appointments, and there needs to be some kind of brake on the Secretary of State simply filling the boardroom with his cronies.
Since the chairman of the delivery authority may well be a crony, I accept that my amendment may not achieve much; but if we assume that the Secretary of State appoints a genuinely independent chairman, which is certainly what a number of outside interests earnestly hope, the chairman's views must be sought on the composition of the authority, including the chief executive. As I say, the business community and other interest groups want a genuinely independent authority, starting with the chairman and going on through the other appointments. With that in mind, I suggest that the chairman should be consulted on the appointments.
Amendment No. 98 deals with the deputy chairman, who may be appointed under Schedule 6(5). Most organisations, especially public sector bodies, operate perfectly well without a formally appointed deputy chairman written into their constitution. I suggest that that is doubly so for those with a limited life, but if the Government really want a power to create a deputy chairman, they can have one. However, paragraph 5(3) provides a power for the Secretary of State or the chairman to issue directions to the deputy chairman. Why is the Secretary of State interfering in the internal way that the delivery authority works? This is another example of the fact that the DWP will be able to exercise some degree of micromanagement of the delivery authority while pretending that it is independent.
My Amendment No. 98 replaces "chairman or the Secretary of State" with "Authority", but my preference would be for no one to give "directions" to the hapless individual who is the deputy chairman. We all know what a deputy does: he deputises, and he can undertake specific functions as agreed. He does not need directions for that. I beg to move.
I thank the noble Baroness, Lady Noakes, for allowing me this opportunity to provide some detail about our recruitment plans for senior personnel in the delivery authority. Noble Lords will no doubt have seen the recent advertisements for some of these posts in the Sunday newspapers. I should like to reassure the Committee that our intention is for the chairman to be involved in the process as much as possible. The closing date for applications for the post of chairman and the first non-executive director was
We anticipate that there will eventually be nine delivery authority board members: a chairman, four non-executives and four executives, including the chief executive. This is in line with one of the central recommendations of the Higgs report that at least half of the board, excluding the chairman, should be independent non-executives. The intention is to make further appointments to the board later this year and early next.
Amendment No. 98 concerns the role of the deputy chairman. The Bill allows for the chairman or the Secretary of State to provide directions to the deputy chairman should he be required to discharge some or all of the functions of the chairman. This is in line with good business practice. The chairman may decide to delegate certain functions to his deputy. This does not mean abdicating responsibility but provides the authority with the flexibility to focus efforts and skills in the most effective way possible to achieve its objectives.
There may well be critical peaks in the work schedule. The authority will need to utilise its resources to best effect. Enabling the chairman to delegate certain functions will help to achieve this. Furthermore, this provision also covers for unforeseen circumstances, which is what I think the noble Baroness was pointing towards. For instance, if the authority were without a chairman due to illness, it would allow the Secretary of State to give some guidance to the deputy chairman who may be covering this crucial role on a temporary basis. It is not intended to be micromanagement. The provisions in the Bill do not compromise the independence of the delivery authority; they are intended to enable continuity of business in the event of the chairman being unable to discharge his duties.
I hope that noble Lords are reassured by this and agree that these provisions work to best effect as they stand. I therefore hope the noble Baroness will feel able to withdraw the amendment.
I thank the Minister for that reply, although I was not entirely convinced by it. She said that the chairman would be involved in appointments as much as possible; that falls short of a firm commitment that the chairman will be involved. She said that this allows the chairman to have some input; that is not consulting the chairman. I think the noble Baroness was saying that DWP Ministers are in charge of the process and they might let someone into it if they feel like it.
There is a firm commitment to involve the chair in appointments. The timetable has been carefully worked through and there is an absolute intention that the chairman will be involved. Subject, of course, to following the correct guidance for public appointments, independent scrutiny and so on, the chairman will be involved in the appointment of non-executives and the chief executive.
I thank the noble Baroness for that clarification. She said that it was good business practice to give directions to a deputy chairman. I can tell her that it is 100 per cent not good business practice. It is nowhere close to normal, let alone good, business practice. It is extremely unusual that a deputy needs to receive special instructions because the nature of the deputy role is as decided. It could be straightforward deputising—that is, filling in when the chairman is not there—or it could be to undertake specific functions. "Directions" is a very Whitehall-centric view of how appointments to boards should be handled. If any instruction or guidance is to be given, it should come from the authority, which is what my amendment seeks.
I shall reflect on what the noble Baroness has said and may return to this on Report. I beg leave to withdraw the amendment.
I shall speak also to Amendments Nos. 85A, 104 and 104A, all of which I support.
As the Committee will know, the TUC has in general been very supportive of the Bill and particularly welcomes the establishment of the delivery authority as far as the personal account scheme is concerned. However, it would like to ensure that the authority is fully representative of the people to be covered by this section of the Bill: consumers. That is why I have tabled the amendment.
Not surprisingly, the Consumers' Association feels the same way and believes that there should be consumer representation on the board. It particularly welcomes the statement by the Secretary of State on
"the consumer voice must be heard from the inside at both Advisory and Executive Delivery Authority stages and we look to the Government to bring forward proposals that will enable this to take place".
It is concerned to ensure that, despite the assurances given, this provision is made in the Bill; hence, we have tabled these amendments.
The Consumers' Association also seeks a consumer committee members' panel to be written into the Bill. It thinks such a panel would serve as a crucial sounding board for personal accounts policy decisions, in relation to the impact that decisions will have on the consumer. They think that it will add independent scrutiny and advice, ensure the direct involvement of key representative stakeholders and therefore the consumer voice, and improve the quality of decision-making. I am sure your Lordships are not surprised to hear that from the Consumers' Association; that is what it is in business to do.
I hope this set of suggestions will receive support from the Front Bench, as we think they are reasonable. My noble friend will no doubt add her views on her own amendments, which I also support.
There are six amendments in my name on the Marshalled List today. The reason for them is that I was contacted by an organisation called Fair Pensions, with which I have worked in the past. It campaigns for responsible investment, and aims to persuade UK pension funds to adopt effective and responsible investment policies.
Fair Pensions, which has briefed me for today's debate, believes that these amendments would improve the Bill and ensure that the Personal Accounts Delivery Authority abided by best practice on shareholder activism and so promoted acceptable standards of corporate social responsibility on the part of investee companies. Such best practice would have significant benefits for companies, in that it would provide investments against medium-term and long-term risks associated with environmental, social and governance issues.
The amendments would also ensure that the interests of members—the beneficiaries—of the personal accounts scheme would be formally represented within the delivery authority. Shareholder activism to promote corporate social responsibility does not dictate investment strategy; rather, it requires fund managers to develop a toolkit for identifying, assessing and acting upon issues that may adversely affect returns. It also encourages fund managers to recognise that they are investing pensions and pensions-related assets, and therefore need to analyse medium-term and long-term trends as well as short-term ones.
Fund managers who have adopted responsible investment practices have worked to future-proof the profits of their investee companies. One example is the Carbon Disclosure Project, of which the Universities Superannuation Scheme pension fund, which I understand is the second largest occupational pension scheme in the UK, is a founding member. The project now has 72 per cent of the 500 largest publicly owned companies reporting on carbon emissions.
If the delivery authority does not include members with responsibility to represent the interests of the intended beneficiaries of personal accounts, beneficiaries may not be confident that the authority will take their best interests into account. For example, if a committee consists primarily of individuals with finance backgrounds, it could be thought to lack the willingness and ability to evolve in a constantly changing legal and regulatory environment. If the delivery authority does not include members able to represent the interests of beneficiaries, it could consist entirely of persons with finance backgrounds who would oversee other persons with finance backgrounds with no window to the outside world and no communication with those whom personal accounts are designed to benefit.
The rationale for Amendments Nos. 85A and 104A is that stating that at least one-third of the members of the committee are to be representatives of scheme members brings this scheme into line with the situation that applies in occupational pension schemes, where at least one-third of trustees must be member-nominated. While at this stage it is not possible for such persons to be members of the scheme, because it is not yet operational, it is still desirable for their interests to be strongly represented, as is the case for occupational pension scheme members. Under these circumstances, I hope that the Minister will look at these amendments favourably.
Amendments Nos. 87 and 104, which are in this group, are tabled in my name. The amendment tabled by the noble Baroness, Lady Turner, requires one of the members of the authority to be a person representing the interests of members, but we cannot support it or Amendment No. 85, which was tabled by the noble Baroness, Lady Gibson, for three reasons. First, we do not believe that anybody who sits on an authority should represent a particular interest. That does not lead to good governance, as all members should be focused impartially on the functions of the authority. Secondly, the amendment focuses on one group called "consumers". I find that a very vague term, although the Consumers' Association doubtless finds it easy to deal with. I think that what is meant is more specific: those who are, or may well be, members of the scheme. Thirdly, the amendment focuses on only one possible interest group, and we know that there are other groups, not least those that provide pensions and believe that their voices should be represented in the authority.
That is why my Amendment No. 87 requires the Secretary of State merely to have regard to the desirability of a balance of interests on the board, with nobody being there as a representative. The amendment refers to those with knowledge and experience of members' needs, employers' involvement, pension providers and regulatory issues around pensions, and I have no doubt that others could be added to that list. My amendment does not require the Secretary of State to make specific appointments from any of those groups. In fact, that would be impractical, as the membership of the very small board that we discussed on previous amendments would not, except occasionally, go above nine members. My amendment does not preclude the Secretary of State taking into account other factors that are normally brought into play when designing a board, the most common nowadays being the diversity agenda.
Amendment No. 104 adds a specific committee to represent the interests of scheme members and prospective scheme members. It is similar to Amendment No. 104A, which was tabled by the noble Baroness, Lady Gibson, but her amendment is more elaborate and potentially more constraining.
My amendments meet the concerns of the noble Baroness, Lady Turner, but in another way. As she said, it is clearly important that the design of the personal accounts system should have the interests of those who should benefit from it at its heart—I think the noble Baroness used that term—but not necessarily on the authority itself. The noble Baroness, Lady Turner, referred to the announcement last month that there would be a members' panel for the personal accounts scheme. An equivalent panel exists for the Financial Services Authority, and it is a perfectly normal mechanism to set up. We shall certainly be looking carefully at the next Bill to see that one is set up when the scheme is set up, but the issue now is the Personal Accounts Delivery Authority, and it is important that there should be a panel that represent the views of those who will become members of the scheme. We believe that that should be in the Bill. There may not be much in practice between me and the noble Baronesses opposite, but we come about these things in a slightly different way.
I declare my interest as a director of Scottish Widows, chairman of BUPA and Intrinsic Financial Services, as well as other entries in the register. I have spent all my working life in the financial services industry and have the scars to prove it. For the past two years I have led the Leitch review of the UK's long-term skills needs. At the same time, I have been carefully following the Government's policy on pensions.
I endorse both the sentiment and the substance behind the amendments in the names of my noble friends Lady Turner and Lady Gibson. The noble Baroness, Lady Noakes, makes very helpful points.
The Personal Accounts Delivery Authority has a vital role to play in delivering both the ambition and the implementation of the Government's pension strategy. The stark reality is that the UK is witnessing steady deterioration and erosion of the number of people on track to live a secure and comfortable retirement. We are a nation divided by our propensity and our ability to save. Too many consumers either simply have no idea about the levels of saving required for a comfortable retirement or they live in disturbing ignorance of the financial reality for even a very modest retirement.
The new authority has a key role to play, both in increasing public awareness and education on saving for retirement and in facilitating the delivery of the right advice at the right time. In this regard, it is essential that the authority really understands and takes note of all consumer interest.
There is, of course, another major impediment to a secure retirement and it is, in many ways, for many people, the greatest obstacle. That is affordability. Disturbingly, the obstacle of affordability is concentrated among those with the greatest need to save. Solutions to address and remedy this obvious but serious problem lie elsewhere through initiatives on skills, employment and social justice. But that is for another day.
To the issues before us, I see two clear challenges to address. First, we must influence and encourage those who can or do save to do more and to make the right level of provision. Secondly, we must support those who are unable to do so. No pensioner in our country should ever live in poverty.
Personal accounts have a fundamental role to play in addressing the first challenge, which is increasing the numbers of people saving and the absolute amounts being saved. But personal accounts will stand—or fall—on their ability to broaden and deepen the extent of retirement savings. In other words, they must reach the parts that existing provision does not reach. They must work in tandem with the private sector. Public and private schemes must complement each other. Personal accounts must be genuinely additive; they must not simply redirect savings from other channels. That would be a wasted opportunity and an expensive, pointless exercise.
At the same time, it would be damaging if employers used personal accounts as an excuse to reduce their overall contribution levels. In recent years, there has been a significant shift away from defined benefit schemes to defined contribution arrangements, in many cases resulting in a decrease in employer contributions. This inexorable decline must not prevail.
However, do not misunderstand me. Despite what one may read, today the private pensions sector is both tightly regulated and flourishing. Millions of people are making substantial contributions to their pensions. Personal accounts must not just coexist with existing private provision. The two must work harmoniously in tandem as part of an overall pensions strategy—neither should benefit, nor suffer, at the hands of the other.
I understand the argument that the taxpayer should help to fund the establishment costs of the delivery authority, but at the same time existing providers should not be unfairly disadvantaged by significant or open-ended public subsidy. Like their private sector counterparts, the success of personal accounts will be determined in large part by the quality and relevance of the advice that individuals receive. Make no mistake, advice in what remains one of the most complicated pension systems anywhere in the world will make the difference between success and failure. The Government's intention to make a generic advice model is needed and, I believe, very welcome. I look forward to the conclusions of the Thoresen review, but I want to sound a note of caution. Generic advice to consumers is by its very nature limited in its application to specific circumstances. The challenge is to be both general yet sufficiently personalised to encourage saving and inform the correct decision. Striking the right balance will be incredibly difficult. We must be alert to the real risks in both the short and long term.
I am sure that we all agree that retirement should be a secure period in everyone's life, not something to dread or feel anguish about. For many people that peace of mind demands a much greater awareness and a willingness to make adequate preparation for the future. For many, that will mean confronting the very harsh reality of making sacrifices today for a more secure and certain tomorrow. This Bill, with effective personal accounts, is a solid foundation on which to build that tomorrow.
I thank my noble friends who moved and spoke to the amendment and my noble friend Lord Leitch for giving his broad sweep of the personal accounts landscape. He brings an experienced and knowledgeable eye to the risks and opportunities that personal accounts represent.
The amendments before us focus on membership of the delivery authority and, in particular, the arrangements for consumer representation. These are both important issues. The board will be the driving force of the organisation, providing the strategic leadership as it discharges its functions, so it is vital that the right people are appointed. Consumer representation is an issue which we rightly recognise as crucial to the success of the personal accounts scheme.
I shall talk first about the membership of the authority board. I can assure noble Lords that we recognise the importance of ensuring the board contains individuals with a breadth of knowledge and experience, from a range of different backgrounds. The Secretary of State will of course be mindful of this when making or approving appointments. Noble Lords should be reassured by this, as it is likely that the delivery authority will contain members with the knowledge and experience outlined in Amendment No. 87. However, we might also wish to have members from other backgrounds and with other experience, so we do not want to specify in legislation the particular skills or experience members must have and thereby restrict the flexibility to recruit the right person at the right time.
The specific calls from my noble friends Lady Turner and Lady Gibson for board-level representation of consumer interests also highlight an important issue. As the White Paper makes clear, we consider it essential to the success of the scheme that members' needs are at the core of personal accounts. I can reassure the Committee that each board member will be acting in the interests of prospective members, although each member will, of course, bring different knowledge, skills and backgrounds to their role. We want the authority to have the flexibility to recruit the best person for the job. The noble Baroness, Lady Noakes, also effectively aired the point about the board members' representing the whole board rather than sectional interests.
Amendments Nos. 104 and 104A seek to oblige the delivery authority to establish a committee for the purpose of representing the interests of prospective scheme members. As I made clear, we consider it essential that members' needs are at the core of personal accounts. However, at this initial stage, it is the Government who will continue to take policy decisions and set the framework within which the delivery authority must work. It is therefore more appropriate for prospective members' comments or concerns on personal accounts policy to be directed at this stage to the Department for Work and Pensions. I can reassure noble Lords that officials within the department have regular engagement with a range of stakeholders, and maintain productive and valuable relationships with groups that represent the issues of prospective members. If my noble friends have other contacts, we would certainly be more than happy to engage with them as part of that process.
We recently had a very productive and interesting meeting with Which? and agree with it that consumer representation is fundamental if trust and confidence in personal accounts is to be upheld. I can also reassure the Committee that we are exploring the arrangements for member representation in the live running of the scheme. However, as I outlined, during this advisory stage it is more appropriate for stakeholders' views to be directed to the DWP. It will be for the delivery authority to establish committees and to invite persons from outside the authority to sit on them as it deems appropriate. The delivery authority may wish to set up a committee to advise it on the interests of prospective members. Indeed, that is made possible by paragraph 9(1)(b). Again, however, we would not wish to specify in legislation specific committees to be established by the delivery authority. This would remove the delivery authority's flexibility to use committees in the most effective way.
Although I am not able to accept the amendments in the form in which they have been tabled, I hope that what I have said has been reassuring to the noble Baroness and that she will be able to withdraw the amendment.
Before the noble Baroness decides what to do with her amendment, I should point out that the Minister has used the word "flexibility", which is one of those concepts that is regularly trotted out by Ministers when they do not wish to accept an amendment. The board wants to keep flexibility to use committees as it wants. That means that it has the flexibility not to involve consumer interests. The whole purpose of these amendments, regardless of whether we call it "consumer interests" or "the needs of members", is to ensure that the board has at heart those needs of the members.
I completely understand that the DWP may want to continue consulting those interests and other stakeholders. But the important point is that the delivery authority will be doing very important work in advising the Secretary of State on his proposals and advising on the implementation of those proposals. It is crucial that the needs of members are specifically built into—hardwired into—the way in which the authority works. There should not be any flexibility about not having an involvement with consumers or members. I think that the Minister needs to reconsider this.
I was seeking to make the point, perhaps not effectively enough, that at this stage the policy formation is still with the DWP. Clearly, advice will be coming forward from the delivery authority. I cannot conceive that the matter would go forward without consumer interests being taken fully into account. I suppose that the particular assurance that noble Lords will have is that we have a second Bill that will follow this one in which much of the detail of personal accounts will be presented. That is another protection. I would hang on to the point that this policy development, and how it will affect consumers and prospective members, still sits with the DWP. That is where the engagement at this stage is best focused.
I thank noble Lords who participated in this debate, which I found extremely interesting, particularly the contribution of the noble Lord, Lord Leitch, who talked about the difficulties involved in persuading people to save. We have often discussed this in various committees with which I am associated. It is very difficult. We are asking people to save at a period in their lives when they are under considerable pressure: they are having to pay for a mortgage; very often, in mid-life, they are having to support children; they may even have to support elderly relatives, and so on. There is a lot of pressure on incomes. That is one of the reasons why the TUC supported personal accounts and automatic payment unless people opt out. It is a way of ensuring that people pay something. It is very important that that should be acknowledged. We should thank the Government for thinking of it. I entirely support the scheme.
As regards representation on the delivery authority, I share the view expressed by the noble Baroness, Lady Noakes. I thank her for her intervention. Clearly, we do not want too much flexibility. We want to be sure that our legitimate interests will be recognised by the Government. We accept that at this point in time the measure is not particularly appropriate. Other legislation will be introduced. We are not wedded to our wording. We simply wanted to get a discussion on the issue and to ensure that the Government were committed to our view that consumer interests had to be at the core of this scheme. The government Front Bench assured us that that was the case, for which I am grateful. We were told that consumer interests were regarded as vital vis-à-vis the delivery authority.
We shall watch the situation very carefully to see how it develops. In the mean time, I beg leave to withdraw the amendment.
I shall speak also to Amendments Nos. 90, 92 and 93. Under the Bill a person may not be appointed a chairman or a non-executive if he has a conflict of interest, but there is no such provision in respect of executive directors. Since all the directors will be members of the authority, I cannot understand why the non-executives are singled out as having conflicts of interest, which are defined in paragraph 2(6) of Schedule 6 as something which is,
"likely to affect prejudicially the discharge by him of his functions as a member of the Authority".
It seems to me that a conflict of interest in those terms is so fundamental an issue that it should apply to all directors. My amendments in this group seek to delete the qualification "non-executive" against member, where it appears in paragraph 2 of Schedule 6, in order to make the rule apply to all members. I beg to move.
I accept what the noble Baroness, Lady Noakes, says. A conflict of interest is a conflict of interest whether it applies to an executive or non-executive director, and it should be equally reported and noted.
I thank the noble Baroness, Lady Noakes, and the noble Lord, Lord Skelmersdale, for providing this opportunity to discuss the extent to which the Secretary of State should consider conflicts of interest when determining the suitability of individuals to serve as executive members of the authority. As drafted, the Bill requires the Secretary of State to satisfy himself about the independence of the chairman and other non-executive members of the delivery authority. These amendments would extend that requirement to include executive members. Executive members will, of course, be public sector employees of the authority. As such, they will be subject to the usual rules on proper conduct that apply to all public sector employees.
In addition, Schedule 6 requires an executive member to declare any conflict of interest at meetings of the authority or any of its committees or subcommittees. Such a declaration is required to be minuted. We believe that these requirements are sufficient to provide the effective and necessary safeguards that these amendments seek to achieve.
The position of the chairman and non-executive members is different. They will not be employees of the delivery authority and therefore, unlike the executives, will not be public sector employees. They may hold other directorships that would be considered to prejudicially affect their actions as members of the authority. Clearly, that needs to be considered by the Secretary of State when making such appointments. Schedule 6 has been carefully drafted to take account of that distinction. I can assure noble Lords that in recruiting both executive and non-executive members we will follow all appropriate guidance, ensuring that all appointments are properly considered and scrutinised.
I turn now to the important issues raised by my noble friend Lady Gibson. Amendments Nos. 93A and 104B seek to ensure that being a member of a scheme is not taken to be a conflict of interest for the purposes of the disqualification provisions. Member representation will be crucial to the success of the pension scheme. My honourable friend the Secretary of State made clear our intention to create a members' panel. Our response to the White Paper consultation, to be published shortly, will set out further details. The delivery authority established in this Bill will be charged with providing advice to the Secretary of State on the practical and commercial implications of various options that may be considered for personal accounts. At this stage, there will be no scheme members, as the delivery authority is not charged with running the scheme. These amendments do not have the practical effect that my noble friend perhaps intended, although I appreciate the importance of this debate.
We are in agreement with my noble friend on the purpose and necessity of taking into account the interests of scheme members, but we do not think it appropriate to include them in the Bill. Given that reassurance, I urge the noble Baroness, Lady Noakes, the noble Lord, Lord Skelmersdale, and my noble friend Lady Gibson not to press the amendments in this group.
I am disappointed with what the noble Baroness said, because we are creating a world in which the law says things about non-executive members but a code applies to executive members. The law is clear: the Secretary of State has obligations not to appoint and to keep the matter under review. The noble Baroness's response that executive members are public sector employees and are therefore subject to codes of conduct does not meet the point in any sense. We will move on to the definition of a conflict of interest in the next group of amendments. It is a significant provision—certainly as described in another place—and goes beyond proper conduct. It attacks an issue that is probably more about perception of conflict than conflict itself.
I would like the noble Baroness and the Minister to reflect on whether it is proper to have that apartheid built into the Act and to assume that everything that is dealt with in paragraph 2 of Schedule 6 is reflected in the codes. The codes are not put in the same terms and will not deliver the same results. In particular, the Secretary of State does not have the same responsibility, and I am not sure that we have the right approach. Any member of the authority should be subject to the same standards as are applied in public life. It would not be right for those standards to be separated.
We are approaching the witching hour and it is not the right time for me to continue, but I invite the Ministers to look at this matter more carefully before we return to it on Report.
It is essential that we get right the perceptions and conflicts of interest. There should be high levels of confidence in how these are agreed and set out. If it would help, we will think about this and perhaps discuss it before Report.