Baroness Noakes (Con)

My Lords, I understand the motivation behind the amendments in this group, which call, in one way or another, for inflation protection, in particular for pre-1997 pensions that do not benefit from indexation to have a first call on pension scheme surpluses. I do not, however, support these amendments. When compulsory indexation was first introduced by statute, it was applied only to pension rights which accrued after April 1997. That was a deliberate policy choice by government at the time. Although the cap and the index have been tinkered with over time, the basic policy choice has remained intact. The 1997 change was itself quite costly for those employers that had not previously included indexation or inflation protection in their pension offer to employees, which was quite common at the time. I am sure that the Government at the time were aware that imposing indexation on all accrued pension rights would have been very expensive for employers and would very likely have accelerated the closure of DB schemes. The period after 1997 saw the evaporation of the kind of surpluses that used to exist, which, incidentally, vindicated the 1997 decision to exclude the pre-1997 accrued rights, because if they had been included, that would almost certainly have accelerated the emergence of deficits, which led in turn to employers considering how they could cap their liabilities by closing schemes entirely or future accrual. As we know, the period of deficits lasted until the past couple of years; they lasted a very long time. Alongside this period of deficits emerging, there was a mutual interest among trustees and employers to de-risk pension schemes. That is why they shifted most of the assets into things such as gilts, which, in turn, increased the sensitivity of the defined benefit schemes to gilt yields, as we saw in the LDI crisis, and resulted, when interest rates started to rise again, in the surpluses starting to emerge. It was not the only cause but a very significant cause of the surpluses that we now see. We now have schemes in surplus: DWP figures suggest £160 billion—that figure will probably change daily as interest rates change—but that was only after significant employer support throughout the 1990s and the noughties was required, when significant deficit recovery plans had to be signed up to by employers to keep their defined benefit schemes afloat. The amendments in this group seem to be predicated on the thought that these surpluses are now available for member benefits, as though employers had nothing whatever to do with funding their emergence. Because DB pension schemes are built on the foundation of the interests of members, it is obvious that the surplus will have to be shared between the two—that was partly covered in the previous debate—but the one thing we must always remember is that they have emerged largely from the huge amount of funding that has had to be put in since 1997 to keep the schemes afloat. That the surpluses have emerged does not mean that they are available for whatever good thing people want to spend them on. I certainly do not think it is right to use surpluses to rewrite history to create rights that deliberately were not created in 1997, for the very good reasons that existed at the time. For that reason, I do not support these amendments.