Occupational Pensions

Part of the debate – in the House of Commons at 12:30 pm on 11 June 2003.

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Photo of David Willetts David Willetts Shadow Secretary of State for Work and Pensions 12:30, 11 June 2003

I draw the attention of the House to my entry in the Register of Members' Interests.

I regret that the House has had no opportunity to debate the Government's proposals in their Green Paper last December. We have regularly called for such a debate. My hon. Friend Mr. Heald pressed the then Minister for Pensions, Mr. McCartney, in the days when we had such a Minister, for such a debate, but he was told by the Minister, in his inimitable style:

"Don't be so silly. The Government are committed"—[Hansard, 20 January 2003; Vol. 398, c. 58.]— to a debate on the subject. We have not had a single debate in Government time on pensions for three years. We have had debates in Opposition time and in the House of Lords, but for three years the Government have not come to the House to debate pensions, and that is something that we very much regret. There has been no debate because there has been no policy, and now, of course, there is no Minister for Pensions either. Meanwhile, the crisis in pensions has been getting steadily worse. In fact, since the Secretary of State took on his responsibilities, 41 per cent.—nearly half—of all pension schemes have closed to new members. That will be the judgment on his tenure in office. One of the saddest features of that is manifested in the many invitations to conferences on pensions that pass across my desk. Unlike the Secretary of State, I actually go to them. They have titles like "Effectively Closing and Winding up Pension Schemes", which took place in January at the Park Lane hotel, and "Closing and Winding up Pension Schemes for Solvent and Insolvent Employers", at the Café Royal, London. That is a sad commentary on the state that occupational pensions have reached.

All that we have had from the Government is an endless flurry of activity, while nothing changes. There have been 39 consultations, including Myners, Sandler, Pickering and Turner, targets, reviews and taskforces. Meanwhile, the inexorable process of the collapse of one of our great post-war successes—funded occupational pensions—has carried on apace. That is because of the weight of regulation and taxation that the Government have imposed. Why did the Secretary of State say nothing about the problems that the Government have themselves created over the past six years, particularly—I see that the Chancellor has already headed off—the £5 billion a year tax that they imposed on our pension funds? It is no good talking about security now: it was the Government who created the insecurity that is the problem.

Can I ask the Secretary of State for a straight answer on the most basic question of the lot? Does he accept that there is a crisis in British pensions? I am not even asking him to say that it is all the Government's fault, but does he recognise that there is a problem? Will he acknowledge that we face nothing less than a crisis? The "Crisis? What crisis?" mentality that we have had from the Government for the past six years has made a bad situation worse.

Does the Secretary of State recognise the overwhelming consensus from all the leading organisations that responded to his Green Paper that the Government need to reform state benefits? Many of those organisations, including Age Concern, Help the Aged, the National Association of Pension Funds, the National Consumers Council, said that unless the spread of means-tested benefits is tackled, people will have no incentive to save for their retirement. Why, yet again, did the Secretary of State say nothing about that fundamental need to reform state benefits?

Why, also, did we hear nothing about the need to improve incentives to save? There is no point in imposing extra obligations unless people can see that they will be better off for saving. The statement contained nothing about incentives. Instead, we heard a range of specific proposals, some of which we can welcome. Some are old favourites that have been around for a long time. The Secretary of State got a cheer from his Benches for his proposals on TUPE, which were in the Green Paper—not the December 2002 Green Paper, but the December 1998 Green Paper, in which the Government said that they plan to place new regulations before Parliament in 1999. Four years later, he gets a cheer for something that he proposed five years ago.

Of course, we welcome the proposals for a new regulator. We also welcome the practical proposals on section 67 of the 1995 Act. However, let me ask the Secretary of State about his very significant proposal of a much tougher regime for wind-ups if a company is solvent. I understand the desire that lies behind it—to make life better for those many workers who are understandably angry about the loss of their pensions when the company remains viable—but does he accept that there are two significant dangers? First, there is a danger that companies will stop accruing pension benefits to existing members of their schemes in order to reduce the cost that he is imposing. Can he assure the House that he has considered that risk and is confident that companies will not now close their schemes for existing members as well? There is a danger that the proposal will worsen that risk.

Secondly, what about the risk of financial engineering? I heard about that when I was in America last week, studying schemes there. It means that companies shed their pension responsibilities to a different legal entity, like a snake shedding its skin, and emerge as a new company without pensions. They are happy for the former legal entity to claim pension insurance, which the Secretary of State announced today. We need to be confident that he has tackled those significant risks in his proposals.

In fact, the Secretary of State identified the risks in the Green Paper and I invite him to assure hon. Members that he remains confident that he has covered them. The Green Paper stated:

"We can see arguments for and against"— the Secretary of State was in his "for and against" period, which has lasted a long time—

"increasing the amount that employers are required to put into the pension fund if they choose to wind up the scheme. The Government will be guided by the aim of not increasing the overall burden on employers providing pensions."

Can he assure hon. Members that he stands by that aim, which he included in the Green Paper only last December?

The Secretary of State also mentioned pension insurance. Again, I can understand its appeal in principle. However, in practice, there are serious objections. Have the Government considered them? What about the danger of good schemes paying for bad schemes? The Secretary of State gave no indication of the cost of the premiums. What about the danger of that cost being another burden on companies that provide occupational pensions? What about the danger of the insurer going bust? Is the Secretary of State confident that that will not happen and that the Government will not have to bail out the insurer?

Those objections are not made on the spur of the moment. I have the back catalogue of the Government's consideration of pension issues over the past six years. A document from September 2000, entitled "Security for Occupational Pensions—A consultation document" states that

"insurance brings with it the clear moral hazard of some employers neglecting their obligations in the knowledge that, in the event of their insolvency, their pension liabilities will still be met."

That was the Government's view in September 2000. How and why has the Secretary of State changed his mind?

What about the Myners review? Paul Myners, the Chancellor of the Exchequer's favourite adviser on pensions, who continues to have an advisory role on institutional investment, produced a report in March 2001. It stated on insurance that

"it would represent an additional cost for providers of defined benefit schemes—at times, possibly a considerable one—and as such would create additional incentives for employers to move away from such schemes. This is not an effective way of meeting the objective of protecting members of defined benefit pension schemes."

The report continued that

"it would be much more difficult for pension funds to take a long-term view, as any short-term investment underperformance would be likely to lead to a rise in their premium . . . The review therefore did not recommend insurance as a way forward."

The Government have regularly commissioned reports on the subject and every one has concluded that the risks of insurance outweigh the benefits. Does the Secretary of State acknowledge that danger?

The Secretary of State has announced not planning for success, reform of benefits or new incentives to save, but insurance for failure. Someone's house is burning down, yet the Secretary of State is not sending for the fire brigade, but saying that he will consult about the need for better fire insurance in future. That is not good enough given the scale of the crisis in our occupational pensions.