As several other hon. Members want to speak, I shall confine my remarks to one subject and be brief.
I am concerned about the impact that the Government's fiscal and monetary policies have had on pensions and their provision. However, I applaud the Chancellor for accepting most of the recommendations that Sir Paul Myners recently made in his excellent review of institutional investment, many of which relate to the provisions of the Pensions Act 1995. I was a critic of many aspects of that legislation, although it tried manfully to deal with the problems that arose out of the Maxwell pension scandal. It imposed a great deal of useful regulations on the pensions industry, but it also created problems. Most notably, it did not deal with custody, which Myners specifically addresses. Will the recommendations on custody be fully implemented, because only independent custody can prevent another Maxwell scandal from taking place?
The Budget does not deal with the costs that the 1995 Act imposed on providers of company pension schemes. The regulatory burden has driven many people away from the provision of defined benefit schemes and into defined contribution schemes, to the detriment of the public. It will be interesting to know whether the Treasury has proposals to deal with the problem of the regulatory burden, which acts against the national interest.
I applaud the abolition of the minimum funding requirement. I always opposed it. I said in 1995 that it would distort investment decisions and diminish the value of funds because it would lead to more cautious investment. It also has the perverse effect of increasing the purchase of gilts, thereby depressing the yield on annuities. There was a double whammy for pensioners. First, the value of their funds was diminished and, secondly, the fund would buy less of an annuity on maturity than would otherwise have been the case. To the extent that the Chancellor has accepted that problem, I welcome what he has done to address it.
However, other policies have made pension funds and people with private pensions considerably worse off. Despite the fact that the value of pension funds was diminishing, because of the factors that I have outlined, the Chancellor introduced in a previous Budget the £5 billion a year tax on pensions. In response to questions about this Budget, he said that the total value of pension funds has increased. It has, but their liabilities have increased even more, so that what will be bought in terms of pension has less value. There has been a significant net reduction in the value to pensioners as a result of that policy.
The fact that the Chancellor, highly commendably, has made substantial repayments of the national debt has also affected pensions dramatically. Those repayments, amounting to £34 billion, do not all result from his prudence; they result largely from the sale of telecoms licences, which accounts for £23 billion alone, and other privatisation receipts. I applaud the repayment of debt, but we must look at its effect on pensions that will become in-payment. It will reduce dramatically the volume of gilts available on the market at a time when Government policies are encouraging their greater purchase. That will drive gilt deals down even further and annuities will yield less and less.
We are creating a black hole for annuities; more of them have to be purchased to produce less and less income. Because they produce less income, even more of them have to purchased. Until the Government tackle the annuities problem, we will not get over the difficulties that will face all pensioners who save for their retirement.
That is a very severe problem indeed. I have introduced a private Member's Bill, the Pension Annuities (Amendment) Bill, which we tried to debate last Friday. Sadly, it was blocked by the Government Whip, but I hope to have further discussion with the Economic Secretary on the subject. It is interesting that her officials are telling her that the cost of an annuity equal to the minimum income guarantee, if one disregards the tax-free lump sum, is about £72,000. The Government do not realise that that £72,000 is related entirely to the yield on gilts. They are constantly increasing that cost through their action. If the policy on annuities were reversed and another form of investment, not based on gilts, were accepted, the cost of replacing the minimum income guarantee would be reduced dramatically.
The Government have double standards on the minimum income guarantee. Although they say that it will cost £72,000 to replace it for someone with a private pension, a pensioner wanting to claim it is excluded from doing so if he has a mere £12,000 of savings. One cannot equate easily equate £12,000 and £72,000. We are faced with a Government who discourage people from becoming independent by saving for their retirement and ceasing to be a burden on the state. At the same time, they rely on means-tested benefits, which are ever more complex and difficult to claim and which create a dependency society. The minimum income guarantee encourages people not to save because, as the Government's own figures demonstrate, under the present rules, it is difficult for most pensioners to save enough money to avoid it. People who buy stakeholder pensions, as urged by the Government, will therefore be led into a colossal mis-selling of pensions, because nearly all of them would be better off not buying them and relying on the minimum income guarantee.
The remedy is in the hands of the Treasury. If it gets rid of its obsession with annuities, which are an outdated investment—no one was advised to buy them—it could solve the problem. Annuities are such a bad investment that the actuarial profession is saying that most people would be better off buying the underlying gilts that are being bought by insurance companies. They would have a better income and their capital would not be lost on their death, as they would avoid the position of having nothing left to pass on to future generations. The Treasury and Inland Revenue would do better because they would pick up additional inheritance tax on the way.