Funded Pensions

Part of the debate – in the House of Commons at 6:34 pm on 2 July 2002.

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Photo of James Purnell James Purnell Labour, Stalybridge and Hyde 6:34, 2 July 2002

The Opposition seem to operate on the basis that if they assert something often enough in pained tones, it will become true. Unfortunately, that will not happen because the facts undermine their case. The decline in the number of people covered by an occupational pension has been going on for a long time. Since 1991, that number has fallen from 5.6 million to about 3.8 million, and the pretence that it is due to changes made since 1997 will not wash for several reasons.

First, the change to advance corporation tax in 1997 has not had the effect that the Opposition allege. Like other changes made then, it was part of a policy to get rid of a perverse incentive in the system which encouraged companies to distribute money as dividends rather than to reinvest it. If, as the Government argue, their policy encourages people to reinvest in their company and to raise productivity, even by only 0.25 per cent., the profitability of pension funds will be far higher over the long term than it would have been if the perverse incentive had remained in place.