I beg to move,
That this House
agrees with the Government's stated aim of increasing from 40 per cent. to 60 per cent. the proportion of pensioners' incomes that comes from the private sector, but condemns the Government for failing to pursue policies which would achieve this objective and instead imposing a massive £5 billion annual tax on pension funds, and for presiding over the lowest savings ratio since records began;
notes that fewer than four in ten final salary schemes are now open to new members and is shocked by the Government's complacency in the face of widespread concern about the future of funded pensions;
and therefore calls on the Government to cut the burden of regulation on pension funds, reverse the spread of means testing among pensioners, reform annuities and provide better incentives for people to save, so that they can enjoy a prosperous retirement.
I declare my interests, which appear in the Register of Members' Interests.
I welcome the Secretary of State for Work and Pensions to his first debate in his new post. I approach his appointment in a spirit of optimism, and hope that he will use this afternoon's debate as an opportunity to signal a radical shift in the Government's approach to the crisis facing funded pensions.
The time has come for the Government to abandon their complacent denial of a problem. For too long, Ministers have had their heads in the sand: now is the time for the new Secretary of State to admit that there is a problem. I am sure that he has now been made aware of the evidence, which is compelling. The latest figures from the Association of Consulting Actuaries show that fewer than four in 10 final salary pension schemes are still open to new members, and that half of those are contemplating closure.
A wide range of well-known companies have closed their final salary schemes to new members—Barclays, British Airways, British Telecom, ICI, Lloyds TSB, Marks and Spencer, and Sainsbury. We know from the Government's own statistics that 59 per cent. of recently retired pensioners now have an income from an occupational pension, against 67 per cent. of recently retired pensioners when Labour came into office. Fewer pensioners are now retiring with an income from an occupational pension. The number of employees without a funded pension arrangement has grown from 40 per cent. to 44 per cent in the past two years alone. No wonder the latest policy document from the Trades Union Congress on the subject begins with a stark statement:
"The UK's pension system is in crisis."
Ministers used to ignore that evidence by citing statistics that purported to show how much we were saving. I hope that after his salutary experience in the past 24 hours the Secretary of State will not make that mistake this afternoon. I welcome his announcement that he will review the Government's statistics on pensions contributions, but I hope that he will give the House a full account of what has gone wrong in his Department, not once, but twice. First, it got the assets in our pensions funds wrong, and more recently it got the annual flow of savings into our pension funds wrong as well. One mistake might be regarded as a misfortune, but two from the same Department on the same subject looks like carelessness.
Is my hon. Friend aware that the Association of British Insurers informed the all-party group on insurance and financial services this morning that it calculates that the savings gap is now £27 billion, most of which relates to pensions? Will he look carefully at proposals to encourage employers to operate better schemes?
I am grateful to my hon. Friend for that intervention. He is correct about the scale of the savings gap that we face.
I wish to press the Secretary of State for more information on the two serious errors made by his Department in the past few months. The first mistake was in respect of the assets in our pension funds. Originally, the Government said that at the end of 1999 we had £784 billion in our pension funds—quite a lot of money. Then, without any explanation or prior notice, they produced a revised set of figures that showed that at the same date—at the end of 1999—they had reduced their estimate of the assets in our pension funds to £679 billion. That is a reduction of £104 billion—probably the biggest single change in the history of British economic statistics.
The sum that the Government managed to lose is equivalent to the entire national output of Portugal, but, fortunately, three and a half months later we discovered that the money had only been mislaid, and it popped up again. The Government put out a new set of figures, announcing that they had discovered, after all, that in 1999 our pension fund assets were worth £812 billion. So the figure for the value of the assets at one date in time had moved around by £150 billion. Then the Government carried forward the series, to show that having been £812 billion in 1999, the figure was down to £765 billion in 2000 and, on the latest estimates from UBS in the City, £684 billion in 2001.
That would mean that the assets in our pension funds peaked in 1999 and have been in decline ever since. It might be that 1999 was the peak year of our funded pension assets, not to be seen again. That was the first mistake: the Department revealed a £104 billion reduction in the value of the assets in our pension funds, with no explanation whatsoever. That surely should have set the alarm bells ringing about how unreliable the Government's statistics were, but no.
We investigated the figures that the Government were producing for the annual flows into our pension funds. Ministers were saying, "Don't worry. Everybody else might say that there is a crisis in our funded pensions, but we know that everything is all right, because we are saving £86 billion a year in our pension funds." If that figure were true, if the Government had stood back and thought about it for a moment, it would have meant that almost 9 per cent. of the entire national output of our country was going in savings in our pension funds—enough to buy for every worker in Britain a two thirds final salary pension, index-linked with inflation. The Government were saying, "Don't worry, £86 billion a year is being saved."
We warned the Government, and we were not alone, that those figures were not credible. Let me quote from the chairman of the Association of Consulting Actuaries, who said:
"We are extremely worried that the impact of the changes that are taking place in terms of future pensioner incomes is being under-estimated by the Government and, as a result, there has been an inadequate policy response."
The Secretary of State was quoted in the papers this morning as saying that within 72 hours of being told that there was a mistake in the statistics, he acted. Let me tell the Secretary of State that I wrote to his predecessor on
There is now an unseemly row going on between the Secretary of State and his own officials. The Secretary of State, in a way that is all too typical of Ministers nowadays, is happy to blame everybody but himself. Referring to statistics on pension contributions, he said yesterday in the House:
"We have now been informed by the Office for National Statistics that there are problems with the series from which they have been estimated in the past".
He was blaming the Office for National Statistics, but in this morning's Financial Times the Office for National Statistics states:
"The national statistician is not known for his apologies, and there won't be one here."
The ONS is busy briefing that it is Ministers' fault and telling the press that it warned Ministers that the information was unreliable, but that they nevertheless kept on producing the figures.
I hope that the Secretary of State will today give us an end to that briefing and counter-briefing between him and his officials and a clear explanation of when they were first warned by the ONS about the mistakes in the figures, what steps they took to correct them as soon as they heard about them and what advice he was given by the ONS when the Department received my letter of
My hon. Friend referred to the letter that he sent on
I received a reply that was prompt, but brief and uninformative—exactly the sort of reply with which we are all too familiar.
Of course, this is not just a matter of whether Ministers have confidence in the advice of their statisticians and whether statisticians have confidence that Ministers will take heed of their warnings. It ranges beyond that, as it also raises the question whether the structure of pensions in our country is right. Many Ministers were trotting out amazing statistics showing how much we were saving in our pension funds and cited them as evidence that the "structure of pensions" in Britain is "right". If the evidence is wrong, is the conclusion that they drew from that false evidence wrong as well? I hope that the Secretary of State will also refer to that issue.
My hon. Friend is coming to the question of the structure of pensions. Will he confirm that a pensioner would have to accumulate a fund of about £100,000 to be better off than he or she would be having saved nothing at all? That is the case because of the deprivation of top-up payments on the basis of the fund.
My right hon. and learned Friend makes a very important point on which we have regularly pressed Ministers. The least that people who are considering taking out a stakeholder pension, for example, are entitled to expect is information from Ministers about how much they believe that they need to build up in that pension during their working lives to float them off means-tested benefits. That is the $64,000 question; indeed, the answer might be $64,000, but we have never had any answer from Ministers. The level could be £100,000, but they have never been willing to address the important point that he makes. Again, I hope that we will hear about that from the Secretary of State.
The real question is not just misleading statistics—something with which we are all too familiar from this Government—but what is going on with the pension funds and pension savings of the people of this country. That is the central question that the House is debating. Before the Secretary of State points it out, I accept that there are many reasons for the decline of final salary pension schemes in this country. I understand that there is a range of factors, some of which are not in the Government's control. We are seeing improvements in longevity, and I am sure that hon. Members in all parts of the House will welcome that as good news. The fact that people are living longer is a success that we can celebrate. There have also been changes in the labour market that will change the pattern of pension provision.
We understand that not everything can be controlled by Ministers, but that very fact makes it even more important that the things that they do control are got right; and that, in so far as the Government control the environment in which people plan for their retirement, they get that right. Our central criticism of the Government is that Ministers have got the things that they control—above all, the burden of tax on occupational pensions—catastrophically wrong.
While the hon. Gentleman was recounting some of the things that might have had an effect and which Ministers controlled, did he not think that the Conservative Government's decision to encourage and allow withdrawal of contributions and the taking of holidays by pension fundholders might have caused the massive deficit in the pension funds on which people are now looking to draw for their retirement?
I undertake to cover that point later in my speech, but I want to set it in the context of the other changes. If the hon. Gentleman then thinks that I have still not addressed his question, he can come back to me.
I want to set out the background to the tax decisions that the Chancellor has taken. At the time of the 1997 Budget, when he introduced his notorious stealth tax on our pension funds, he said:
"Many pension funds are in substantial surplus and at present many companies are enjoying pension holidays,"— he was celebrating the very thing that Mr. Connarty just mentioned—
"so this is the right time to undertake a long-needed reform."—[Hansard, 2 July 1997; Vol. 297, c. 306.]
The Chancellor explicitly linked the tax imposition on pension funds to the fact that those funds were in surplus.
"The value of pension funds has gone up dramatically as a result of the success of the economy. The abolition of payable tax credits was done for the reasons that we stated at the time. It is the right reform, and as a result of the buoyancy of the stock market the value of people's pension funds has gone up."—[Hansard, 7 March 2001; Vol. 364, c. 285.]
The Government justify their tax increase by saying, "Don't worry, the stock market is going up and share prices are rising; it's all okay." But the value of the stock market has now fallen below the level that it was at when the Chancellor originally made that tax announcement in 1997; it has fallen almost to the level that it was at at the 1997 election. Since the justification for the tax has gone, will the Secretary of State tell us what possible reason he can have for imposing this tax on our pension funds?
The hon. Gentleman has criticised the £5 billion tax on pension funds. Will he tell us how much of that £5 billion would have been put back under the manifesto on which he stood at the last election?
Our manifesto made it clear that we wanted to encourage people to save for their retirement. [Hon. Members: "Aah!"] I would very much like to be able to reverse the tax, but the fact is that that money is now being spent. That is why we cannot pledge to reverse it.
Conservative Members continually repeat the figure of £5 billion. Will the hon. Gentleman confirm that the Conservative Government took £10 billion out of the state pension scheme while they were in office?
I am coming to this important point: we are not talking about a one-off £5 billion. It is £5 billion a year—year after year, ad infinitum. The figure is now £25 billion and rising every year. That is the point.
I will give way to the right hon. Gentleman because I greatly respect his expertise in this area, but then I would like to make some progress.
Given that the country is worried about its future pension provision, may I make a plea that, once the hon. Gentleman has made these points, he quickly moves on to what the Opposition will contribute to the evolving debate? It is understandable that he will point out the effect of changes in advance corporation tax on the prosperity of occupational pension funds, but does he agree that that was the second blow, and that the first blow was delivered when the Conservative Government changed the tax laws so that funds that were in surplus had to run their surpluses down to 105 per cent. of their liabilities or face penal rates of tax for not doing so?
The fact is that all the other changes that have affected pension funds are dwarfed by the scale of the tax increase that the Chancellor imposed in 1997.
I will give way to the right hon. Gentleman in a moment, but I want to give him one more figure. I respect his expertise and, as he knows, I am very happy to contribute in a constructive spirit to debates on his own imaginative ideas on pension reform.
I want to make two points. First, it is incorrect to compare the capital value of the loss of the value of shares—the capital effect—which may be hundreds of billions of pounds, with the flow of £5 billion as a tax hit. We have to realise that this is not just a one-off tax hit; it is £5 billion a year. That is why it is so significant. If we calculate the current cost of a £5 billion-a-year tax, we get a very large sum indeed.
My second point is that Labour Members regularly mention enormous figures for the total fall in the value of the stock exchange. They now seem keen to tell us how much value shares have lost under their management—that is the point that they like to make. They talk as if those shares all belong to pension funds. Pension funds own only about 18 per cent. of British equities, so it is not correct to compare the £5 billion, which is merely the annual effect of the tax, with the £450 billion, which is the total loss in value of all shares, of which only a small proportion are held by pension funds. That is why the tax impact was so great.
I am doubly grateful to the hon. Gentleman. Is not it true that ACT has had the effect that it has because the Conservative Government forced pension funds to run down their surpluses? Had they not been forced so to do, many more funds would have had greater buoyancy to enable them to withstand the ACT changes. The running down of surpluses pushed more pensions nearer to the precipice. Most people would say that both sides have made mistakes, but the country wants to hear what constructive proposals the Opposition have.
I should now like to make some progress, during which I hope to answer the right hon. Gentleman's specific question about what proposals we would make.
I shall move from abstract statistics to something vivid and direct. I cite a Member of the other place, who is well known to Labour Members because he is a Labour supporter, a Labour donor and a Labour peer: Lord Paul of Caparo Industries. I shall quote what he said about the decisions that his steel company is making in its attempt to close its final salary pension scheme. When asked why he was closing his final salary scheme, he said:
"You see the main reason is we had this so-called final salary scheme . . . but in view of the tax on dividends"— that is the first point he mentions—
"and also the stock market going all over the place there is no way one can really guarantee a final salary scheme".
At the end of his list, he refers to
"government action like the dividend tax".
That is what a Labour peer who runs a business says. He is trying to use a Labour tax to close a final salary pension scheme, and instead put his workers into the Government's pet pension scheme, the stakeholder pension. He wants them to have one of the Government's stakeholder pensions.
What do members of the Labour-supporting steelworkers' union do in response to a Labour peer trying to impose a Labour pensions policy as a result of a Labour tax? The Labour-supporting trade union goes out on strike. That is what its members are threatening to do as a result of the measures that the Government have taken.
That is not the end of the story, because there is another stealth tax, perhaps even stealthier than the £5 billion a year tax on dividends, and that is the miserly uprating of the contracted-out rebates that was announced in April. The actuaries William Mercer estimates that those rebates are now about 15 per cent. below the level necessary to provide the contracted-out benefits that companies are obliged to provide as a condition for contracting out.
With rebates for pensions running at about £11 billion a year, the actuaries are saying that the contracted-out rebate is £1.5 billion a year short. It is not just the £5 billion a year tax on its own, but the £5 billion a year tax plus another £1.5 billion, because the value of the contracted-out rebate does not match the cost of providing the pension that has to be provided in return.
The Government have taken the two main forms of financial support that Governments have historically given to occupational pensions—the tax relief and the contracted-out rebates—and imposed an extra £6.5 billion a year burden on our pension funds.
I can now answer the question put by the hon. Member for Falkirk, East. The entire value of the contribution holidays taken by companies between 1987 and 2000, which has exercised Labour Members, works out at £1.4 billion a year. That has a far smaller impact on the value of company pension schemes than the tax and rebate changes made by the Government. I hope that the hon. Gentleman therefore accepts that it is no good turning to employers and blaming them for the effect of their contribution holidays.
As an economist, I know that £1.4 billion invested in 1979 would be worth a lot of money now. Because it was not earning money, it is not in the fund. I have just done a little calculation. Some £81 billion has been lost in the value of pension funds if they hold 18 per cent. of the shares that have lost £450 billion in value, as the hon. Gentleman just told us.
The hon. Gentleman is in a hole, and he should stop digging. I am comparing a £6.5 billion imposition by the Government with the £1.4 billion a year impact that is the maximum that can be calculated to be the effect of pension contribution holidays.
No, I shall not give way. I want to make progress, because many hon. Members wish to speak.
The effect of the changes—the tax increases and the reduction in the value of contracting-out rebates—is to drive pensioners, now and in future, on to means-tested benefits. That is where they will end up; there will be lower pension saving and more dependency on welfare. In the early 1990s, the Chancellor famously told the Labour party conference:
Well, that is not what the Government are doing. In fact, they will have more than half the entire pensioner population dependent on means-tested benefits. Our vision is very different—it is of a country in which more and more people build up funded savings so that they can enjoy a prosperous retirement that is not dependent on state benefits or means testing, but a source of pride in that they have built up their own savings during their lifetimes
That is what we believe in, and that is what is being damaged and destroyed by the Government—although the Prime Minister pledged, in one of their first documents after coming into office, that his aim was to change the balance of pensioners' dependence on benefits and funded pensions. He said that he wanted to reverse the situation whereby pensioners get 40 per cent. of their income from funded savings and 60 per cent. from the state, so that they get 40 per cent. of their income from state benefits and 60 per cent. from funded pension savings. That is an objective that we completely endorse. However, typically of this Prime Minister, despite having that grandiose objective, he has done absolutely nothing to implement it. If one asked him to do the washing up, he would announce that he had a 20-year plan for a cleaner kitchen on which he would undertake widespread consultation—but a pile of dirty crockery would be left at the end of the day. That is what he is like. He has a grandiose objective and no means of implementing it.
Conservative Members, by contrast, know how that vision should be delivered. We are committed to the reform of annuities. My right hon. Friend Mr. Curry has introduced a private Member's Bill that would do so. We have voted for such a provision time and again, but the Government tried to stop it every time. We have called for reform of the accounting standard FRS17. I was pleased to hear about today's announcement whereby, in line with our requests, there will be a delay in implementing it until we know what the European standard will be.
We have called for less means-testing of pensioners. We worked with Mr. Field and with the Liberal Democrats to propose an alternative to the pension credit, suggesting that that money could instead have been put into a higher pension for older pensioners, who tend to be poorer, to offer more help to poorer pensioners without more means testing.
No, I want to make more progress in dealing with the perfectly reasonable challenge issued by the right hon. Member for Birkenhead as to what our policies are.
Another policy is based on our view that the burden of regulation on pension funds is too high and needs to be radically cut back. We strongly support the Pickering review, which I am sure that the Secretary of State will talk about in his speech. However, since the announcement of the Pickering review, which was supposed to reduce the burden of regulation on pension funds, we have had, in the past nine months, another 251 pages of regulations, including 67 pages of statutory instruments and 81 pages from the Inland Revenue. Those have been churned out while the Government have boasted of their review to cut the burden of red tape on pension funds. That is the reality of what they do, despite their claims.
Over the past five years, the Government have, in a display of hyperactivity, comprehensively messed up the provision of funded pensions in our country. The Government have taxed them more heavily, cut the value of the contracted-out rebates to which they are entitled and abolished SERPS. The Government have brought in more means-testing and introduced a stakeholder pension whose take up by the eligible target group has been pitiful.
We now face a Labour environment for pension provision, which means less saving, low funded pensions and a poorer retirement for millions of British people. Labour Members should be ashamed of themselves.
I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof:
'welcomes the Government's framework for pensions which will reduce pensioner poverty and encourage saving;
recognises that pensions are best provided on the firm foundation of the sound economy the Government has put in place, with partnership between employees and employers, pension providers and Government;
congratulates the Government on the extra £6 billion paid to pensioners from April of this year and its intention to bring in the Pension Credit which will increase the incomes of around half of all pensioners;
further welcomes the introduction and progress of stakeholder pensions;
recognises that there is still more to do and looks forward to receiving the Pickering and Sandler Reviews and consulting on proposals for reform in the Autumn.'.
I want to stress that the Government not only recognise the pension challenge that the country faces but, through the steps we have taken to reform the structure of pensions—tackling pensioner poverty and rewarding those with modest savings and occupational pensions—and the reviews that we have initiated of pensions regulation, retail savings and tax simplification, we are addressing the very issues that are key to making it easier for people to build up savings for retirement and for employees to contribute.
As the hon. Gentleman ought to know well from looking at trends in the savings ratio, it tends to vary inversely with economic conditions. Characteristically, the savings ratio goes up in recessions and down in periods of prosperity. Actually, he is pointing to the fact that we have had a period of stability, thanks to the stewardship of the economy by my right hon. Friend the Chancellor and the tough fiscal and monetary disciplines that we have stuck to. That is responsible for the savings ratio.
Like Mr. Willetts, I very much welcome the Accounting Standards Board announcement this morning that it is delaying the introduction of FRS17, pending a decision on the international standard. I hope that there is agreement on both Front Benches that although it is vital that there be openness and transparency in accounting, FRS17 has been blamed for some of the closures of final salary schemes. Providers have put the case that the standard forces pension liabilities to be disclosed as a snapshot, when those liabilities may be spread over a longer period.
Ministers in the Department have been conscious of the impact that some providers believe FRS17 has had on schemes. My predecessor had a meeting with the ASB, drawing its attention to the advantages of aligning FRS17 with the international standard, which allows a smoothing of pension liabilities over time. I am pleased that the ASB will look at the international standard and I welcome the decision that our companies do not have to change their accounting practices twice, in 2003 and again, possibly, in 2005.
Of course, FRS17 is not the whole issue; of course more needs to be done to raise levels of saving for retirement. As the hon. Member for Havant said, people are living longer. That is something to celebrate, but it means that pension funds have to go further than ever before.
The reforms to which I have already referred, and especially the pension credit, reward people for saving. The Financial Services Authority has made that clear. Stakeholder pensions make an invaluable contribution in adding to the convenient vehicles that people can use. [Interruption.] Conservative Members ask how people are better off. With the introduction of the pension credit, where the Conservatives penalised people with modest savings and occupational pensions, we will reward them.
We accept that more needs to be done. That is why we set up the reviews, which the Opposition say that they welcome, and why we need to consider bold and radical action to sustain pension schemes and raise the level of pension savings. Our approach and the principles on which it is based are clear. First, there is the basic state pension as the foundation. Secondly, there is our responsibility towards those pensioners who have saved all their lives. Thirdly, there is our continued commitment to tackling pension poverty. Fourthly, there is radical reform to support occupational pensions. I want to deal with each of those issues.
As ever, the right hon. Gentleman misunderstands the purpose of that corporate tax reform, which was to correct the perverse incentive in the previous tax arrangements for distribution in the form of dividends rather than for reinvestment. The impact of such reform can be judged only over a period, but the level of investment in industry is now higher, having reached the highest level for many years, at 14 per cent., whereas it averaged about 11 per cent. in the years of Conservative government. The reform was designed to strengthen British industry and our wealth-generating capacity, which is what enables us not only to enjoy higher living standards but to boost the strength of the foundations of our economy so that we can pay decent pensions in retirement.
I listened very carefully to the speech by the hon. Member for Havant to try and catch one glimmer of what the Opposition's policy is. He mentioned annuities and said that he agreed with us on regulation, but that was about it. Under the Conservatives' stewardship, we had pensions mis-selling on a massive scale and the introduction of much of the burden of regulation on pensions that they now complain about. Their leader said that the minimum income guarantee, which is taking pensioners out of poverty, had "nothing to recommend it"; and the hon. Member for Havant said that the pension credit, which rewards modest savings and occupational income, should be "reconsidered".
On the basic state pension, which should be the foundation of security in retirement, the Conservatives tried to say nothing in public—and we heard nothing about it today. According to the reports of the Opposition's so-called summit last Thursday, their spokesman refused to say anything about what their policy would be, but we have, and can share with the House, not just a memo or a note but the formal letter that the shadow Secretary of State sent to Mr. Mitchell on
"Here is the material I promised you about a funded alternative to the basic state pension."
It continues by stating:
"the vision of moving to a funded alternative to the basic state pension is a powerful and compelling one which you and I share."
That means that their vision is to privatise the basic state pension.
The dividing lines in this debate are very clear. We believe in a partnership, in a balance between state and private funding; the Tories believe in privatising the basic state pension.
We have set out our policy, but what about the Opposition's?
Did my right hon. Friend notice how the Opposition spokesperson regarded the loss on the stock market of £405 billion in less than two years as unimportant in relation to the problems with private pension schemes? Does that loss not show the importance of having a sure foundation of state provision, so that people are not subjected to the vagaries of the stock market that we have witnessed in recent years? In that regard, what is the Government's justification for the 60:40 split?
I hear what my hon. Friend says. She underlines the importance of partnership, of a balance between private and state provision, and of not privatising the basic state pension.
We need to talk about the basic questions of pension policy and the pensions framework. First, should we believe in the basic state pension as the foundation for pension provision in retirement? We say yes, but what about the hon. Member for Havant and his colleagues? They say that they have a compelling vision of privatisation.
Secondly, should we believe in rewarding people with modest pensions and savings with a top-up—the pension credit—rather than the old means-testing of pound-for-pound deductions? We do, but what about Conservative Members?
Thirdly, should we believe in a guaranteed minimum income to continue to tackle pensioner poverty—a minimum that we have increased by 30 per cent. since 1997? We do, but what about them?
Fourthly, should pensioners continue to receive the £200 winter fuel payments, and should those over 75 continue to receive free television licences? [Interruption.] A Conservative Member says "Come on!", but those provisions make a great deal of difference to many pensioners throughout the country. It ill behoves Opposition Members to dismiss them as gimmicks, as they have done in the past.
I am disappointed that the Secretary of State has so far been unwilling to accept any responsibility for the crisis in our pension schemes. In a letter to me, the Church Commissioners confirmed that the Chancellor's tax on pension funds was costing the Church of England some £7 million a year. Many less well-off vicars are about to retire, uncertain of their financial future. Given the difficulties that churches experience in raising money, could the Secretary of State explain how the Church of England is to make up for the deficit in its pension funding that was caused by his Government?
I would set more store by such comments—I accept that they are well intentioned—from the right hon. Gentleman and his colleagues about dividend tax credits and corporation tax credits if they said that they would reinstate them. However, when challenged time and again, they will not say that.
Yesterday the shadow Chancellor gave a major speech on these issues. We have scoured the reports for the commitment that surely would not have escaped the attention of journalists that he was pledging to reinstate the tax credits. So the Tories are crying crocodile tears. Their approach is to keep quiet, hoping that the voters will not notice that they are same old Tories, and more extreme than ever. The policy of not owning up to what they believe in will not work.
Not at the moment.
We inherited a pension system in chaos, riddled with disincentives, which did nothing for the poorest pensioners and penalised those with modest occupational pensions and savings.
The Tories presided over a growing gap between rich and poor pensioners. They left millions in poverty. They did nothing to help the low paid, those in part-time work, carers and disabled people.
I understand that blame allocation is an important part of this process. However, may I go back to the important point made by Mr. Field? No one in the Chamber can be in any doubt that we are in the middle of a crisis of confidence regarding funded pension schemes. I think that there is a six-month window of opportunity, and the Government have put some useful reviews in place that might assist that process.
I do not think that people listening to the debate will be satisfied simply with blame allocation. The key question for me this afternoon is whether the Secretary of State will lead a debate on what will eventually have to be a complete reconstruction of a settlement for funded pensions in the future, because that is what the country is looking for a lead to achieve.
I have given way on several occasions already.
We believe in building partnership for pensions in this country. As well as the steps that we have taken to help today's pensioners, we are putting in place steps to help tomorrow's pensioners, such as long-term reforms to prevent poverty in the future by encouraging people to save for their retirement.
The right hon. Gentleman is too kind. He expresses his concern about future generations; the most important thing is that younger people have an incentive to recognise that they must put money away today for when they eventually retire. When the Conservatives left office, there was more in funded pension funds in this country than in the rest of Europe put together. We had savings vehicles such as personal equity plans and tax-exempt special savings accounts—which the Government scrapped—so that there was an incentive for people to put away money for a rainy day and for their retirement through taxation vehicles as well as through pensions.
What possible incentive is there in the Government's taxation policy, which sees tax as being used only as a penalty as far as pensions are concerned, and not as an incentive? Will the right hon. Gentleman give us one good reason why the younger generation should believe that his policies will deliver for them, because they do not?
The hon. Lady raises an important question about raising the level of savings among the young. The answer is the ISA, a more flexible vehicle which is attracting more savings, especially from younger people. [Interruption.] The hon. Lady specifically asked what we could offer to younger people to ensure that they were saving, and I quite reasonably pointed to ISAs, just as I can point to the reward that we have built into the pension credit system for the future to ensure that saving is rewarded and not penalised. However, we must also continue to increase incomes by building a stable economy, making work pay and helping people into jobs—something that the Conservatives were not so good at when they were in government.
All those measures build on the historical partnership that we have enjoyed in this country—[Interruption.]—between the state, individuals and employers, and between the funded and state sectors. In that partnership, the state provides a basic pension on which people should build. It also provides the state second pension, so that from this April, 18 million people will start to gain from the changes that we have made.
Has my right hon. Friend noticed that Opposition Members have not mentioned the mis-selling of pensions that took place during their tenure of office? Will he reiterate that it is the Government's intention to defend the state pension, while working for improvements towards a decent income for pensioners?
I did indeed note the omissions from the remarks of Opposition Members. As I have reached the passage of my speech where I look to the future and to the forging of partnerships and consensus, I shall not dwell on the first point raised by my hon. Friend. What went wrong under the previous Tory Administration, as well as their failure to apologise for it, is evident to the public.
It is clear that to enjoy a secure income in retirement people need to build up more savings. Over 1.5 million more people are in work than in 1997. Having more people in work means that more people have the opportunity to save for their future. For those of working age who have never had the opportunity to join a company scheme—about half the work force—we have introduced new options for saving for retirement.
People need to be able to make informed choices. At present, pension provision and planning is an incomprehensible maze for far too many people—something that is easier to put off until another day. That must change.
The Government have an obligation, working with providers, to help people to obtain the information that they need to make informed choices.
Last October, in partnership with volunteer employers and private pension providers, we launched combined pension forecasts that will allow people to see more clearly what pension they can expect to receive when they retire. That will form a crucial first step in raising—
We have taken a crucial first step in raising awareness to ensure that people have enough income when they retire. All too often at present, they have a rude awakening when they realise that they will be getting less than they expected. Inevitably, it is also a lot less than they were getting while they were at work. It is a scandal—[Interruption.] Opposition Members are grinning, but when they were in government, they never did anything to enable people to estimate their retirement income.
We shall build on our approach from April next year when members of money purchase occupational schemes, stakeholder pensions and personal pensions start to receive an annual illustration of their future pension rights.
Those are important steps, but we need to go further still. I want talking about pensions and financial planning to be more of an everyday issue. The attention received by this debate about the situation facing the country on pensions will do some good if more people realise that they must consider their pension prospects. They have a right to expect reliable information about how they can save more for the future. To that end, we are working closely with the Financial Services Authority and others in the industry to promote the need to save and to ensure that people have the information that they need to make savings choices that are right for them.
Does my right hon. Friend agree that it is vital that people are given information in pensions statements about the impact of their own savings on their likely receipt of state benefits? Would not it be better if we rewarded pensioners who save by setting the basic state pension at the same level as the guaranteed pension credit, as proposed by the Institute for Public Policy Research? Would that not offer a more robust system for the future?
No, I do not believe that. [Hon. Members: "Why?"] For reasons of cost and the effectiveness of the scheme in concentrating available resources on those who need them most. That is the merit of the minimum income guarantee and the pension credit reform that we have introduced. I must now make some progress.
I was outlining the key drivers in these matters, one of which is ensuring that people have the right incentives. It should pay to save, yet, until we introduced reforms, that had not always been the case. That is why we are introducing the pension credit from next year, and why the Inland Revenue, as part of the review that we are carrying forward, will report later this year on tax simplification. Simplification, of course, is a third key principle.
I have already explained the reason for that policy and the impact that it has had on raising levels of investment in this country, thereby strengthening British industry and services and putting in place a stronger economic foundation, which, surely, is the way to ensure that we can pay higher pensions in the future.
On simplification, we need to make sure that as much goes into the pension pot as possible, avoiding excessive costs in selling or in running schemes. The key next step will be the Pickering and Sandler reviews, which are due to report shortly. As I said, the Inland Revenue will report on its review of tax simplification later in the year. Alan Pickering's report will consider how we can strip away unnecessary legislation and make pensions much simpler, thereby making it easier for employers who run a company scheme, easier for the industry to sell pensions, and, above all, easier for people to save.
The Secretary of State referred again to encouraging saving. He will know that, for nearly 40 years, a measure has been taken of savings across the economy—the savings ratio. Will he tell the House why it is now at an all-time low—a miserable 3.5 per cent.?
The hon. Gentleman was clearly not listening, or did not comprehend fully, when I explained this matter to Opposition Members. I shall give the short version: the savings ratio tends to go down when the economy is doing well, and it tends to go up when the economy is doing badly. That might explain why it was often higher under the previous Administration than it is now, as the economy has been doing so well.
On simplification, we need to take a hard look at the regulations surrounding pensions and make a conscious decision to simplify the system. We need to make sure that pensions are accessible to the people who need them.
Would not large companies find it useful to use as their model the pension scheme that exists in the House of Commons? We now have—it may have been different in the past—a very good pension scheme. What I cannot understand is why we should have that scheme, which is right and proper, when it is denied to many other people. Every effort should be made to ensure that large companies have—or introduce—a final salary pension scheme. What is good for us should be good for others.
We recognise the contribution that final salary defined benefit schemes make more widely in the economy, as well as in Parliament and across much of the public sector. It is important to explain, however, that the final salary or defined benefit scheme is not the most appropriate vehicle for everyone, especially more mobile workers and those who do not have the prospect of progressing up the salary spine, for whom a defined contribution system can offer more. The crucial consideration is the amount of contribution that goes into the pot and the security and return on the investment.
I have given way many times and I must finish my remarks.
Another aspect of the debate is important in informing the national consensus that we need to build. As well as making it easier for people to save, we need to provide more and better opportunities to prepare them for retirement. We need to reverse the trends of the 1980s and 1990s in which, for example, the proportion of men between the age of 50 and state pension age not in work doubled. We need to get rid of perverse incentives to retire when it might suit people to carry on working, perhaps part-time, for longer. Far too many people experience a cliff edge between work and retirement—
The right hon. Gentleman should know.
On Friday, someone could be deemed a valuable member of the work force, but the following Monday find himself shuffled off to retirement.
Youth unemployment was the focus of many Government efforts to get people into work in the 1990s. The focus now must be on the over-50s. Progress has been made. The rate of employment for the over-50s has risen every year for the past four years and is now one of the highest in Europe. Already 900,000 more people aged over 50 are in work than in 1997, but there is still more to do. With increasing longevity, people should be able to choose to combine work with income from retirement not just in the years up to state retirement, but beyond.
No, I am concluding my remarks.
I firmly believe that our framework is based on a combination of state and private provision that strikes the right balance. Like the Conservatives, I do not believe that state pay-as-you-go pensions should dominate, but unlike them I do not believe that we should rely exclusively on funded private pensions. Privatising the basic pension, as the Conservative party proposes, would force everyone to put their retirement nest egg into one basket.
The future is risky and we need a balanced strategy to spread those risks—a partnership between the state and the private sector. We will continue to build on the changes we have made to enhance that partnership. The principles on which our approach is based are clear: first, the basic state pension as the foundation; secondly, our responsibility to those who save; thirdly, our continued commitment to tackle pensioner poverty; and, fourthly, radical reform to support occupational pensions. We will carry forward our work, building on what has been achieved to help people gain security and fulfilment in retirement.
Sometimes we have had cause to agree with the Conservatives' analysis of the pensions issue. One phrase in their motion— "shocked by the Government's complacency"— jumps out because it puts its finger on the pulse of the pension problem. The Government are indeed guilty of complacency on funded pensions. It is striking that relatively little of the Government amendment, on which we will vote later, is about funded pensions. Instead, the Government pat themselves on the back for £6 billion of state spending.
That goes to the nub of the problem, which is that the Government have set a target for increasing funded pensions, but appear to have almost no policy levers to deliver it. It is a paradox that for several years it has been Government policy to increase funded pensions from 40 to 60 per cent. of income in retirement, yet there appears to be no method of delivering that policy goal.
That, I regret to say, is where the consensus between the Liberal Democrats and the Conservatives breaks down. When I look at their motion, I see hand-wringing over measures that they oppose but would not reverse, and a very thin set of proposals for reform, some of which are agreed throughout the House and are not distinctive, and most of which are rather vague and do not amount to a row of beans.
The motion condemns the
"massive £5 billion annual tax on pension funds", but does not propose to reverse it. When we challenge the Conservatives to say whether they would reverse it, they reply that they cannot make spending pledges this early in the Parliament and that they will produce a manifesto. They produced a manifesto a year ago, after the dividend tax credit was abolished, and there was no pledge to reverse that move. The Conservatives had the chance to say what they would have done if they had been elected, and they said nothing, so instead of criticising measures taken several years ago that they have no intention of reversing, they should move forward with a positive agenda, which seems sadly lacking this afternoon.
Is the hon. Gentleman telling me that reversing that £5 billion of taxation is a Liberal Democrat policy, along with all the other pledges that they will never have the opportunity to implement?
Not at all. None of the three main political parties has included a reversal of that policy in its manifesto, and that is the point. It is dishonest of the Conservatives to keep whingeing, "Oh, it's terrible but if we had the chance to be in government, we wouldn't do anything about it." It is also a waste of our time. Let us talk about what they would do.
The Conservatives are in favour of cutting the burden of regulation, almost all of which they wrote. As for the regulations introduced since Labour was elected, will Mr. Willetts list which of them the Conservatives voted against? I put it to him that his party has supported the vast majority of pensions regulations introduced in recent years. I would give way, but there is no response. The Conservatives are weeping crocodile tears. They will not reverse the tax change to which they object; they voted for or waved through most of the extra regulation that they claim to oppose, and they wrote all the rest of it.
The Conservatives say that they want to reverse the spread of means-testing, and we share that desire. But is there a Conservative proposal to put money into the basic pension? When the pension credit was introduced, there was a suggestion that the money might go, quite properly in my view, to older pensioners through the basic pension. Is that current Conservative policy? Is it Conservative policy to put up the basic pension? It has suddenly gone very quiet. There is no such policy. There is a lot of hot air on this issue. The Conservatives complain about measures that they would not reverse or to which they have agreed.
Has the hon. Gentleman noticed that the Conservatives are rather less coy outside Parliament? At a conference that we attended last week, Mr. Willetts speculated about getting rid of the state second pension and the state earnings-related pension scheme. Is that Liberal Democrat policy, or do the two parties part company on that point too?
We diverge on a number of points. The hon. Gentleman, the hon. Member for Havant and I addressed that conference, and the hon. Member for Havant said something intriguing that has not been picked up. I know that saying something on the Floor of the House is not a good way to get it publicised, but I will have a go.
The hon. Gentleman said on the record that pensioners currently get three means-tested benefits: income support, or whatever name it is known by these days; housing benefit, and council tax benefit. His view, and I am sure he will correct me if I misrepresent him, is that three is too many. The Conservatives would prefer there to be two benefits, and housing benefit is the one that he has in mind. The Conservatives are thinking of ending not only the basic state pension but housing benefit. If he wants to correct the record, I am happy to give way, but he explicitly said that we should go from three benefits to two, which, according to my arithmetic, must mean doing away with one.
The Conservatives suggest that there should be simplification. Alan Pickering, for whom I have a great deal of respect, has shrewdly spent a lot of time with the hon. Member for Havant, myself and people who have some influence in the pensions world—perhaps the hon. Gentleman and I do not—gathering a consensus. I strongly suspect that when he makes his proposals they will attain cross-party support. It is true that we want simplification of regulation, but that is not a distinctive policy. Once that is done, what will be left of the Conservative proposals? They are getting a bit thin—and we are nearing the end of the motion.
What is left? On reform of annuities, there is a specific proposal that will benefit a small number of people. We supported that proposal when it was set out in a private Member's Bill, but it will be largely irrelevant to the vast number of people who are suffering the loss of funded pensions now.
I have to disagree with that statement. My constituency experience is that when it is explained to younger people being offered a stakeholder pension that they have to take it as an annuity, it puts them off signing up. That is why the take-up figures for stakeholder pensions are so small. I am talking not about people on high salaries, but about garage mechanics and people like that.
The hon. Lady misses the point. The private Member's Bill that I mentioned would not deal with such people—it would be of absolutely no value to them. That is because the sort of pension pot that such folk could accumulate would not put them in the range of those who would benefit from having draw-down or greater flexibility. That proposal was the only example of innovative reform that the hon. Member for Havant gave, but it is largely peripheral to the problem of the big falls that we are now seeing in funded pension provision.
I am grateful. Is the hon. Gentleman aware that the Association of British Insurers has published data on the low earnings of those taking out stakeholder pensions, in contradistinction to the remarks made by Mrs. Browning? The ABI says:
"Where earnings data is known the majority of purchasers earn between £10,000 and £29,000" a year. Does not that give the lie to the hon. Lady's comment?
Not only do the majority of those taking out stakeholder pensions earn between £10,000 and £29,000, but the earnings of the majority of the working population range between those two figures. It is an extremely wide band, and it was not the original target for stakeholder pensions.
One of my concerns about the stakeholder scheme is that the ABI figures show that only one in three stakeholder pensions have been bought by a woman. One of the key features of the pensions debate is that women are almost invisible. Among today's pensioners and people approaching retirement age, it is always women who have grotty pensions or poor pension rights. My concern about the change from 40 to 60 per cent. private provision, which Lynne Jones is right to challenge, is that it is likely to be detrimental to women. Greater reliance on funded but money-purchase pensions, in which people buy an annuity—which is less for women than for men—is likely to be detrimental to women's relative position.
The state second pension will build up over a 45-year period, and it will help only women whose children are now aged five or under. Even in 45 years' time, the poorest women in retirement will not be those who have just hit pension age at 65; they will be the 80-year-olds. Even in 45 years' time, a full basic pension and a full state second pension—which will be quite hard to accumulate—will not lift a woman above the means test. The glory of the Government's goal—the full fruition of their policies—is that in 45 years' time, even if she is good and has a full basic pension and a full state second pension, a woman can be rewarded by needing to claim a means-tested top-up because she does not have enough to live on. That is not a goal that I would set.
If a simple target not of 40 per cent. but of 60 per cent. funded provision is arbitrary and inappropriate, what should be the Government's target? What should they measure to determine the progress of their pensions policy? The answer is so blindingly obvious that it is hardly ever said. Instead of measuring the numbers of billions in funds, which the Government appear to have great difficulty doing, they should measure how many people in the current work force are heading for an income in old age that will give them a decent standard of living. The target of policy should be to deliver that decent income to each individual in the most effective way—whether through state provision, private provision, or a combination of the two. It should not be an arbitrary figure—40 per cent., 60 per cent., or whatever—picked out of the air, because that might not be consistent with the right number of people getting a decent income in retirement.
Such an exercise has been undertaken. NatWest Life produced a pensions index. It asked retired people what sort of income they needed for a decent standard of living, then projected how many of the current work force would, as things stand, attain such standards, and came up with a figure of 21 per cent. A year later, it found that that figure had fallen slightly. We can argue about thresholds and measures, but the principle must be right. We should be debating the proportion of people of working age who are heading for poverty or comfort in old age, not having obscure discussions about hundreds of billions of pounds and inflows and outflows. We have lost sight of the goal.
If we agree that there should be such a goal, the question is what should be done. As Mr. Field said, we have a duty not merely to whinge about the Government's performance, disappointing though it has been, but to say what should be done. I enormously welcome the fact that the Secretary of State for Work and Pensions is talking about flexible retirement and getting rid of arbitrary barriers. He even used a phrase that I have used for a long time, saying that he wanted to get rid of a cliff-edge notion of retirement. I heartily support that.
I hope that, following its review, the Inland Revenue will allow people partly to retire, partly to work for the same employer and partly to draw a part pension. It is absurd to assume that 99 per cent. of the work force are tax dodgers and to set the rules for them. Let us presume that people want to order their affairs to their own advantage but not to exploit the taxpayer. Let us assume that they want the system to allow flexibility in retirement, get rid of arbitrary rules that cut people off at 60 or whatever age, and provide choices. That would help funded pensions and would help to make the sums add up.
As the hon. Gentleman is moving toward making recommendations, will he say whether he favours the Australian occupational pension scheme, in which a certain level of coercion on employer contributions is matched by increases in productivity and tax breaks? That gives rise to much higher predictable income in later life.
I shall come to that very issue. Ideally, we want to enable people who are willing and fit to work longer. The question is how we complement that and get more saving done—the stick and the carrot. We can either force people, as the hon. Gentleman has suggested, or incentivise them. I shall return to compulsion.
The ABI has written to a number of us proposing an interesting scheme. Where, say, two thirds of a company's employees are in a scheme and the employer is contributing, say, 5 per cent., there could be a pension contribution tax credit—not a pension credit but a Government top-up. There could be some subsidy of good company schemes in which employers contribute a fair whack and to which a decent proportion of the work force belong. That idea seems to be well worth pursuing.
The Government may think that the decline in final salary schemes and the amount that is going in are problems, yet they have no control over that amount. It is determined by the entirely private decisions of employers. If the employer decides to cut the contribution rate, the Government cannot say, "No, you can't." They just have to sit and watch. That is my key point. The Government do not appear to have policy levers to stop the problem arising. Why not look at incentives such as the ABI suggests? There could be some reward for employers that run good schemes to which they contribute a decent amount. That could perhaps be financed by reductions in higher-rate pension contribution relief.
I should explain that this is me speaking; this is not yet official party policy. [Hon. Members: "Ah."] It is important that we put on the table the ideas that are kicking around and see what reaction we get. Should not that, rather than reading out prepared speeches, be the point of a debate?
Absolutely. If the hon. Member for Havant had repeated in the House what he said at an IPPR conference, I would have been delighted. We could have kicked the idea around, but it has disappeared. We would not even have to get rid of all the higher-rate relief. The ABI has costed one of its proposals at £900 million; higher-rate relief costs substantially more than that. Higher-rate relief is not delivering a penny of extra pension savings to people who are not saving enough. That is the key. If a finite amount of Government subsidy is going into the pension business and we want people who are not saving enough to save more, it may be worth looking at redistributing money from people who are saving quite well and can look after themselves by putting it into good company schemes over which the Government have no sway. If that eventually becomes Government policy, you heard it here first.
Is the hon. Gentleman saying that he would like to introduce legislation to force companies to make a contribution to pensions? If so, will he say what should that contribution be, and develop an idea in which I am interested?
There are two strategies—the incentive strategy, which provides a tax break to encourage firms to make such provision or, alternatively, as Geraint Davies mentioned, the Australian model, in which employers are required to make a contribution. A typical employer contribution to a scheme is 5 or 6 per cent. Obviously, there are some big variations, but that figure is not atypical. An advantage of a mandatory contribution from employers is that the good guys do not mind because they are already making contributions, and we prevent them from being undercut by the bad guys who are not contributing.
Obviously, the Australian situation is different because there is far more collective labour organisation—national labour unions can offer a deal in return for a pension contribution. The Australian system has achieved a huge increase not just in the proportion of male full-timers with pensions but women part-timers. We must therefore take a serious look at compulsion—we must not be afraid to use that word. It is hard to compel new young workers to pay for a pension. Even for me, telling a 21-year-old with a £10,000 student debt, "By the way, you've got to pay for your pension," is not a saleable proposition. However, we might tell people in their late 20s, before the onset of family responsibilities, "Now is the time to start thinking about a pension." The earlier that we do so, the less severe will be the contribution demanded of them.
I am afraid that I shall not give way. There is a time limit on subsequent speeches, so I do not want to take up too much time.
Do the Government regard incentives as part of the solution, without which they have no lever on employers? Or do they regard compulsion as part of the solution? The Secretary of State is wary of that option, but does not seem to have ruled it out completely, which is probably the right approach. I hope that he will keep an open mind, as there is a widespread view in the industry that we may need to go down the route of compulsion.
I am concerned about where we are heading. The time bomb is not about paying for pensions—it is about pensioners living in poverty. As the hon. Member for Havant said, the Government have just published figures showing that newly retired people are less likely to have an occupational pension than they were a year or two ago. I asked the Secretary of State about those figures at Work and Pensions questions yesterday, but his response concerned a different set of figures, perhaps because my question was not clear enough. However, I was referring to the Department's own pensioner income series, which shows that in 1999–2000, 48 per cent. of single females had a company pension, but in 2000–01 only 39 per cent. had one—a huge fall from one year to the next. In a written answer, the Minister for Pensions told me that that might because of the selection of an atypical group. That may be true, although a sampling variation alone cannot account for a shift of that size. We know what the scale of uncertainty is in samples, and it cannot explain such a big difference. Either the figures are wrong—someone has done something wrong with the questionnaire or survey and, if so, I hope the Department looks into it—or something more significant is going on.
I am one of the women whom the hon. Gentleman is talking about. Before I came to the House, I did not have an occupational pension as I was working in the voluntary sector—that is typical for both men and women in that field. I am always interested in the hon. Gentleman's remarks about the position of women in relation to pensions. Precisely what are his proposals for a rapid improvement in the situation?
I shall address that point in a second.
Either something dramatic is going on that warrants proper investigation or the data are dodgy, which also warrants investigation. The Government cannot continue to take the approach that they have taken in written answers to me—they cannot say that they will collect data for a few more years, then think about the position. By then, they will have been in power for seven or eight years. If something serious is going on in declining occupational pension receipts from women pensioners, eight years is a long time to let that continue.
Sandra Osborne quite properly asked what the Liberal Democrats would do about the situation of women. We want the basic state pension to be far more of a foundation than the Secretary of State suggested, which means that there would be price indexation. We particularly want the basic state pension for older pensioners substantially increased; the majority of older pensioners are women.
The hon. Lady may say that before she is old, she will be newly retired, and that group of women need providing for, as well. With a substantially better pension at 75, women with small amounts of saving could buy a much better pension with it if they had to buy it only for the years between 65 and 75, instead of for the rest of their life. They would get roughly double the pension from a 10-year pension than from a lifetime pension. If the state guaranteed a good income for women at 75, they could get double the private pension at 65. That is one of the possibilities that we want to consider.
There are no easy answers. Making sure that contributions were mandatory at some level over the longer term might ensure that some women were provided for. Also, many women have paid at the married women's reduced rate, and there are still a huge number of them working their way through the system who do not know what pension rights they will accumulate. We believe that the Government should contact those women now to alert them to that fact.
I am about to conclude, if the hon. Lady will forgive me.
The Conservative motion wrings its hands about aspects that it would not reverse and offers practically nothing of substance to take the debate forward. Yes, the Government have been complacent. There are just the stirrings of one or two movements in the right direction. We welcome the Pickering review, such as we know of it, and the prospect of Inland Revenue reform to encourage people to be more flexible in their retirement.
When the Minister looks at funded pensions and the overall pension regime, I urge him not to forget women. I urge him to look at where women are heading and the trouble that is building up for them—which the state second pension will not address for 40 years, and even then, only in a very limited way—and not to condemn women to a retirement of means-testing, but to help women in particular, and people of working age in general, to have a decent income in old age. That should be the goal, and it should be the measure of progress in pensions policy.
Those of us who are old lags at pension debates must have listened with incredulity to the opening speech from the Opposition. It is curious that there was such excitement among Opposition Members about a tax change that has resulted in a £5 billion loss to the pension industry, yet we are to ignore entirely 18 per cent. of £450 billion, which is a result of factors beyond the control of any Government—the change in the stock exchange. We are expected to get excited about £5 billion a year, and ignore the sum of £86 billion that has gone the same way.
I listened with amazement to the idea that 1997 was year zero. I shall deal with more positive developments later, but the wreckage of the pension prospects of a whole generation—people in their 20s, 40s and 60s—originated mainly during the years from 1979 onwards. In 1980, the break was made in the link between pensions and earnings. In 1985–86, SERPS was cut in half. That wonderful scheme was one of the great achievements of the Labour Government, and was introduced by the Minister, Barbara Castle, whose life we shall celebrate a week today at 12.30 pm in Central hall. I hope to see everyone there, and we will bring our banners along. SERPS was one of our major achievements, but one that we neglected to respect and nurture under the present Government.
The hon. Gentleman is perpetuating the myth that it was the Conservatives who first broke the link between pensions and earnings. He neglects to remember that it was Labour who did not implement it. Labour Back Benchers, some of whom are present today, to their credit castigated their own Government for not implementing that link because they fiddled the figures. All the Conservatives did was to formalise what Labour was already doing.
I did not suggest for a moment that the Tories were the first to break the link, but they broke it in every year from 1980 until the time that they went out of office, so it was a continuous period and the result was a huge loss. However, they did worse things than that.
One of the points in the thoughtful speech of Mr. Webb was that many people who are not involved in the pension debate—those who are working, between the ages of, say, 25 and 50—face a bleak future. The main reason for that is that in the 1980s, occupational pension schemes were compulsory for employers. The Conservative Government decided in the name of choice to make them voluntary. Many young people, in the belief that they were immortal and would never grow old and need a pension—they were likely to have been in the child-rearing, furniture-buying days of early marriage—did not contribute to their occupational pensions, even though they were good pensions; they were not only final salary schemes, but were index-linked in many cases. Millions of those people now find themselves without the benefit of any contributions made in those years, and if they start contributing in their 40s and 50s, it is almost impossible for them to catch up without paying 20 or 25 per cent. of their salary. There is a massive crisis on the horizon, and the problem was the result of the actions of the Conservative party.
The great crime was on personal pensions. I fondly remember a golden moment when I was sitting on the Benches where Mr. Butterfill is sitting now and challenging the then Prime Minister about personal pensions, which were being wickedly oversold by very deceptive advertisements. Mrs. Thatcher told me that I was against choice because I was a socialist, but the choice that she gave people was that of jumping over the cliff and abandoning guaranteed schemes that would have given them a final salary pension that was index linked in many cases, and moving on to the hopeless gamble of personal pensions. That was the great sin of the Conservative party.
I shall not contest for a moment the suggestion that the hon. Gentleman is a socialist, as his record is perfectly clear. I have listened to his argument, but does he accept that many people rely on a final salary scheme from their employer? Whatever he says about the 1980s, it is undeniable that in the past year to 18 months, company after company has been abandoning those final salary schemes. There must be a reason for that. We would argue that it has happened because of the different tax treatment introduced by the Government. Does he not accept that the abandonment of a large number of those schemes is a very serious issue for the people who work in the companies in question?
The hon. Gentleman knows that there is a stampede away from final salary schemes. I agree with Mrs. Browning that that is likely to be irreversible and will continue. It is very difficult for us to say to young people in their 20s that they should invest in schemes that will lock up their savings for several decades, which will turn out to be money purchase schemes and will be likely to provide very poor value. What we currently tell our young people—I am sure that we all do so—is that their best way of ensuring prosperity in old age is to go into property. That is another reason why the savings ratio has gone down. The advice is that it would be sensible for grandparents to have stakeholder schemes for their grandchildren, but that it would not be sensible for the young people themselves to do so, for reasons that we know about and because of the way in which things have developed.
SERPS and the basic state pension were the two firm foundations and they have both crumbled a little in recent years. The Labour Government, to their credit, have given increases across a range of benefits for retired people. The amounts are far greater than anything that has been given for at least 30 years, so we can take credit for that, but what retired people now want is the promise, which no party is currently giving to them, that the basic pension that they receive will not fade away with inflation. They are rightly terrified of a disappearing income that will reduce their ability to buy.
SERPS was our creation and I appeal to my right hon. Friend the Secretary of State to re-examine it and rediscover its virtues, which were summarised by the National Pensioners Convention in evidence given to the 1997 pensions review. First—he made the same comment in answer to one of my hon. Friends—it gave this point as one of the main virtues of SERPS:
"Compared with salary-related occupational schemes, it offers total portability and a fairer method of calculation than final salary."
That is what everyone wants—a bit of security. The NPC also said:
"Compared with money-purchase schemes, it offers defined benefits . . . Compared with either, it offers the possibility of . . . enhancing pension rights during periods of non-earning."
We can now add a fourth advantage:
"as a pay-as-you-go scheme, it is not dependent on the vagaries of investment markets."
So what are the Government doing about SERPS? A change of name to "state second pension" has been accompanied by two major improvements, a much better deal for contributors with low earnings and credit both for disabled people and for carers. The 1998 Green Paper, however, proposed a more fundamental change—that from about 2006 the state second pension should cease to be earnings-related for most people, becoming a flat-rate pension like the basic pension. The assumption was that by then stakeholder pensions would be firmly established, and that there would no longer be any need for earnings-related pensions provided by the state.
It is not yet clear how successful stakeholder pensions are likely to be in reaching the low-to-middle earners for whom they were intended, and about whom many of us are very concerned; but the need for a high-quality state earnings-related pension scheme has never been more obvious. The debate gives the Minister an opportunity to clarify the Government's intentions. Do they still intend to destroy the best of what remains of SERPS in a few years' time? If not, will they consider seriously what changes are needed to re-establish it on a firm financial basis and restore public confidence in the scheme?
Poor old SERPS has never been sold. It has never been promoted. Indeed, during the 1980s there were campaigns running it down. The Midland bank, for instance, urged people not to take it up when they could have a £5,000 gift from the Government. But here we have a scheme of quality with guarantees at the end—a scheme that we are allowing to be run down.
The other part of the foundation is the basic state pension. Over the last five years, we could have increased it by the top level of inflation or the level of earnings. We have done that with a number of other benefits—we have delivered for pensioners—but if only we had taken the small step of restoring the link for as long as possible, and given the current inflation rate we could probably have done so for the foreseeable future, today's pensioners would feel much more secure.
I believe that the main lesson of the past 30 years is the failure of the private pension industry. A vast amount of money is lost in administration, selling and commissions, whereas the basic pension scheme represents good value in that less than 1 per cent. is lost in administration. We should recognise the multiplicity of crises affecting all the groups of people involved, and realise that we can tackle them only by restoring the basic state pension, restoring the link and restoring SERPS to its old level, and by investing in that. We should not depend on the private pension industry: we have seen the way in which the wolves in some of those companies have ravaged the pensions of millions over the past few years.
The only way in which we shall achieve a pension guarantee for the future is by using compulsion at many levels of society. I do not believe that, without that compulsion, we can convince the young and middle-aged generations of the need to make the massive contribution to their pensions that will assure them of an adequate income in retirement. We must also face up to something which, although it is obvious, we rarely address—the need for a flexible retirement age. The Queen, who says in her mid-seventies that she intends to go on and on, is a magnificent example to us all as she approaches the prime of life. Many of us have similar ambitions. To achieve them we must go on earning and not raid our pension schemes, allowing others to take advantage of them.
I declare my interest, happily, as a barrister and, rather less happily, as a policy holder of Equitable Life, among other pension companies.
I have already found this debate extremely interesting, particularly the exchange between the hon. Members for Croydon, Central (Geraint Davies) and for Northavon (Mr. Webb) about the virtues of the Australian pension scheme. The virtues of compulsion in Australia were funded in the first year by the trade unions agreeing to at least partially forego any pay rise for that year. That is something that this country ought to examine with interest.
This is a vital debate, and I shall be extremely complimentary, if I may, about my Front Bench for choosing to spend the entire day on this important subject. This issue is central to the whole world: how do we cope with the fact that we are all living longer? If one puts it as simply as that, it looks as though there ought to be a pretty simple answer. Unless we want to live in increasingly abject poverty, we must either work longer or save more money—or, preferably, a mixture of both. It would be preferable for the individual to be able to choose the extent to which he or she worked longer, or saved more, but I believe that there must be an element of one or the other, or both.
It will be up to the Government to decide whether to achieve this by encouragement, compulsion, or, perhaps, a mixture of both. What we should not do is retire earlier, save less, or—still worse—both. Unfortunately, however, that seems, in many cases, to be precisely what is happening now. I would be happy to see an increase in the element of compulsion. I personally prefer the idea of encouragement, but if that is not going to work, we have no alternative but to go down the route of compulsion.
I am disappointed that the Government continue to give the impression that the structure of pensions is basically right. After the important announcement by the Secretary of State yesterday about the difficulties that his Department is having with his figures, it may be that he will wish to revisit the question of whether the structure of pensions is basically right. I hope that he does. There is a massive problem in this country, and in the west, but I hope that he will also treat this as a massive opportunity.
In relation to the fact that we need to work longer, my right hon. Friend Mr. Lilley grasped that nettle when he raised the working age of women to 65 in the Pensions Act 1995—when I was a junior Minister in his Department. That was obviously right; women live longer than men, and for them to be retiring earlier than men was daft. With that one action, my right hon. Friend saved more money for the country than any other Minister or Government in history. Looking back, however, I think that we can ask whether we went far enough. We are still living longer. Every decade, we seem to live another year longer. We are not, however, gradually raising the retirement age on an automatic basis to take account of that. That is something that we ought to consider.
I did not get the impression from the Secretary of State's speech that he was focusing on that need. He said at one point that the increase in life expectancy means that pension funds have to go further than ever before. I am not sure that that is the right way of looking at it. We need to increase pension funds, and make sure that they do not have to go further than ever before, because we are working longer.
That may be a good reason why people should not draw down on annuities early, but I am making a different point, which is that the Government should focus far more on the future. This is a question of sentiment. We should encourage people to look forward to their old age, which they naturally do not like doing. People put off thinking about it, because they do not want to envisage growing older. They prefer not to think about their retirement age. If they have a pot of money, they may be tempted to spend it now. We should encourage them to leave money for their old age and to save as much as possible.
The trouble is that we do not seem to be saving more money: we seem to be saving less under this Government. Opinion polls suggest that most people think that there will not be a state pension by the time they retire. At a time when we are living longer, we are saving less and retiring early. It seems as though the world is going mad.
We think that we are superior to other European countries because we are saving more in funded pensions, but the position is not much better in this country. We have an extremely serious problem. When I was in the Department of Social Security, as it was then, I said that we always had more money in funded pensions than the whole of the rest of Europe put together. How complacent that was. Although that remains true, we have a major problem. I did not envisage the coming into office of a Government who do not appreciate the need to encourage people to put money into pensions.
The reason I say that is because one of the first and most important steps that the Government took was to withdraw ACT relief. When they came to power, they could have taken up the idea of my right hon. Friend the Member for Hitchin and Harpenden of basic pension plus. They could still take up that idea and adapt it in a sophisticated way to the state second pension, as my right hon. Friend has suggested. I think that they should do so, because that would provide every young person with a fund, guaranteed by the Government, as they come into the work force.
I am afraid that I do not have much time left, so I cannot give way.
Such a scheme would build up a fund for young people to give them dignity and choice in their old age. That would be enormously beneficial to the economy of this country.
The Secretary of State has said that the withdrawal of ACT relief was to get rid of a major distortion relating to investment by companies. That may have been a stated reason, but we know that he wanted the money. The effects of the withdrawal of that relief were huge.
I am afraid that I cannot give way, because we have a limit on the time we can speak.
Tesco announced in March 2000 that there would be a 15 per cent. increase in employee contributions to final salary schemes. I agree that there should be increases in contributions to final salary schemes, but that increase was eaten up immediately by the Government's withdrawal of ACT relief.
People are reluctant to think about their pensions. They need to be cajoled into thinking that the Government believe that it is a good thing to invest in funded pensions. When someone like Robert Maxwell comes along, it takes years for the country to recover in pensions terms. When something like mis-selling comes along, it takes years for the country to recover. My right hon. Friend the Member for Hitchin and Harpenden sorted out the problem of Robert Maxwell, and he began to sort out the problem of mis-selling. But when a Government remove £5 billion every year from pension funds, it will take years to recover from it. Unfortunately, the Government have no intention of allowing the country to recover, because they do not intend to change the situation.
We do not have to look into a crystal ball—we can see the effect of the Government's withdrawal of ACT relief in the fall in the savings ratio from 9.5 per cent. of earnings to 3.75 per cent. of earnings. I applaud the Government for saying that funded pensions should move from 40 per cent. to 60 per cent. of pension provision, but we have come to learn that it is necessary to look not at what they say, but at what they do. When we say to the Government, "Stand and deliver", we mean, "Stand and deliver on your promises." Their commitment to move from 40 per cent. to 60 per cent. is excellent, but they should deliver on it. Unfortunately, I suspect that they take it to be an invitation to act as a highwayman and to get rid of the benefits of the strong pensions structure that we had under the Conservative Government. 5.31 pm
Today, we have been offered a rare treat—an opportunity to debate policy with Conservative Members. I congratulate them on that. It is rare because, in many such debates, the Opposition's interest is not in public policy, social policy or anything to do with what interests people outside this House. According to my recollection, this must be my eighth Opposition day speech on pensions.
The debate has drawn us once again into our old comfort zones. We have returned to the old class struggle that we are so used to, and Conservative Members have fallen back on their faithful comfort zone of the markets. In talking about what they would do with funded pension schemes, no Conservative Front Bencher mentioned poverty, people in middle-income brackets, people who have no income because they are carers, people who are living in dire straits because of a failed previous scheme, people who lost all their savings under Conservative Governments, or the need for better regulation. Although Conservative Members seem to have no memory of their 18 years in power, they have a clear memory of the past five years—but not of what has changed in that time. They have forgotten about the complete change to the way in which we deliver support to elderly people in our society. That forgetfulness is the result of the narrow scope of their thinking, which comes down to one change in tax regulation.
Conservative Members do not have a wider vision of how the markets affect funded pension schemes overall, so what sort of vision are they offering us? Advance corporation tax schemes, which were so beloved of them, benefited the shareholders of pension schemes. They were made an offer: "If you take your dividend you'll get a 20 per cent. rebate off the taxpayer." That did nothing to help people to get a better pension when they retire.
Conservative Members made much of the £5 billion a year that is being lost—that is arguable, because it should be offset by the 3 per cent. cut in corporation tax—but they should have looked at the measures as a whole. We are trying to introduce some sense into the market by saying, "If you are going to use our money, which we have invested in your fund, at least put it into long-term investment and do not waste it on shareholder dividends, because that is the wrong thing to do." We cannot ignore markets and their actions—or, sometimes, inactions. Stock markets will have periods of volatility. It is sheer folly to consider a pension period such as this in isolation, because it is narrow in the context of the whole history of funded pension schemes. There has been market volatility before, and there will be again.
The current market volatility is not surprising. Let us look at the markets. What happened with Equitable Life? There was a complete ignorance, or an "ignore-ance", of its duty. [Interruption.] I wonder how Hansard will deal with my pronunciation—it has a problem. There was an "ignore-ance" of its reinsurance duties. From as long ago as 1983, the company ignored its clear and obvious duty to behave properly; the problems did not occur magically in 1997.
Enron cannot have escaped our notice. We now have WorldCom, and there will be others. When the Treasury Select Committee took evidence on the various problems in marketplaces, we found, again and again, that there was over-optimism, a complete failure to ensure duties and a failure by accountants to ensure that people's investments were being taken care of properly. Is it any wonder that there is now no faith in markets?
What would the hon. Lady say to the workers of Caparo, who tonight are facing the closure of their final salary scheme and a substantial worsening of their pension conditions? Would she deny that their fund is being closed because of the dividend tax, or is she saying that they are rich enough to be able to stand it?
I would say to the right hon. Gentleman and to everyone having problems with final salary schemes that to try to narrow the debate and to blame one mechanism is complete folly. We must look at schemes and the markets as a whole.
Does my hon. Friend agree that the companies who are winding up these final salary schemes seem to be using that as an excuse not to plough money into their employees' pension funds?
In my experience, it is not unusual for any company that is failing on any ground whatever to avoid the real and honest issue and to try to blame somebody else, or another simple mechanism. That is easier for them than being honest with the people whom they are letting down.
Is my hon. Friend aware that Mr. Boswell said exactly that in Committee recently? He said:
"There appears to be a growing propensity among employers to pull out of the business of providing contributions themselves."—[Official Report, First Standing Committee on Delegated Legislation,
Companies are doing exactly what my hon. Friend says—using Government policy to hide the fact that they are trying to cut the salaries of their employees.
They are not the first and they will not be the last. I suspect that we will see more of that. That is very disappointing, but what should we do about it? There are mechanisms that we should employ and I hope that Pickering will pick up on some of the market failures and start to look at better regulation.
The Conservative party is usually very resistant to better regulation, which it regards as a burden on employers. However, it is a bigger burden for pensioners, who, as we are now witnessing, have to pick up the pieces of failed market activity.
There is also complete "ignore-ance"—I use that word again—of what has happened with pension holidays. I have heard a few figures bandied around on the issue today, and I will throw one into the pot myself. Tax office figures show that an estimated £19 billion was taken out of pension schemes through contribution holidays by employers and employees—
I was puzzled when Mr. Willetts mentioned a figure of less than £2 billion. However, the TUC has said that, according to Inland Revenue statistics, employers took contribution holidays or reductions between 1987–88 and 2000–01 to a value of £18.57 billion. Does my hon. Friend agree that that is a more accurate figure?
It is very close to my own figure of £19 billion.
The TUC should take some cognisance of this, because it, too, encouraged pension holidays, as it believed that they would keep companies going that in fact needed more investment, rather than short-term mechanisms such as using pension funds to prop up a failing business.
While the hon. Lady is talking about pension contribution holidays, she may care to reflect on the fact that the Government have taken a holiday on the parliamentary contributory pension scheme for the past 10 or 11 years, and that in the past year alone it was 11 per cent.
Does my hon. Friend recognise that, in addition to pension holidays, many companies took the opportunity to raid the funds of pension scheme surpluses, using them for their own ends? Is not that a tremendous problem that should have been resolved at the time?
That neatly takes me back to the point that I am trying to make. We really need regulation that will safeguard funds if we are to tackle the issues rightly raised by Mr. Arbuthnot. Not only do we have an ageing population but the number of people in work will continue to fall, because of demographic change. Currently, we have a high number of people in employment, but the problem is that the total population is falling, so the gap between the number in work and the number who have retired will continue to grow. We must take real cognisance of what the right hon. Gentleman said.
People in work will have to pay a larger proportion of their income to support those who have retired. It is folly to keep peddling the myth that we ever had properly funded pension schemes. The truth is that all schemes were pay-as-you-go, although some were dressed up in different ways. Today's workers pay for today's pensioners, whether in the state or in the private system. If we are to tackle that thorny issue, we must take account of the sort of savings that we should be encouraging young people to build up today.
I am only sorry that time is so limited that I cannot say any more.
I was interested to hear what Mr. Webb said about encouraging a wider discussion on this important topic. Such wider discussions have been going on for a long time. People have been talking about the Australian proposal, which some of us have advocated since before he came into the House. We should remember that the Australian scheme is quite complex. As my right hon. Friend Mr. Arbuthnot said, it requires the trade unions to agree to forgo their annual pay increase in the year in which it is brought in, and then to moderate their pay increases in subsequent years. It also includes a proposal whereby the employees are gradually pushed into compulsory contributions. That has not yet been implemented. I wonder why. It was also accompanied by massive mis-selling, on a scale that dwarfed anything that happened here. Before we rush into any such scheme, we must examine it with more care and deliberation.
The problem is that the whole pension system—especially for private pensions—is in crisis. There is a massive loss of public confidence, and it is essential that it be restored. There is no evidence that that is happening. Only 25 per cent. of companies are now inviting new entrants into defined benefit schemes, the Government's pension figures are wildly wrong, as they now admit, and the savings ratio is down to its lowest since records began. The Minister said that that is a reflection of the wonderful state of the economy. The economy was wonderful when the Government inherited power, but we now have a record and massive balance of payments deficit, the lowest—and declining—growth in the whole of the European Union, and a manufacturing industry that is in recession. That is not my definition of a wonderful economy, and nor is it true to say that a precise correlation exists between the savings ratio and the health of the economy. I urge hon. Members to be cautious. As all independent commentators agree, the Chancellor's growth forecast will not be met. Substantial tax increases are therefore likely, which will prove painful in years to come.
The point is that the public are losing confidence in this sector. Many are buying property not because doing so brings a tax benefit—it does not—but because they consider property the only safe place in which to put their money. There has been a failure to regulate the system properly; indeed, the case of Equitable Life constituted a massive failure of regulation. The actuary for that scheme should have known that the commitments taken on by the company required far greater reserving, and the Treasury that was responsible at the time for prudential supervision should have so required it. People have blamed the Financial Services Authority, but it came rather late to the case; it was the Treasury that failed to regulate.
Some hon. Members say that nothing was right before, and they utter the mantra of mis-selling, but only a minority of personal pension schemes were mis-sold. Had we not introduced them, the sum total of pension provision would be very much lower than it is. Moreover, they were mis-sold in relation to the occupational schemes that people were taken out of. Of course, as we now know, some occupational schemes are failing. Those who thought that they had been mis-sold a scheme might be glad that they bought a personal pension, now that they see their former occupational scheme failing. It all depends on what point in history one considers.
The Association of British Insurers estimates that the pensions savings deficit is about £27 billion. There is a great need to bolster public confidence, and perhaps to move to compulsion. In that regard, I agree with many Labour Members. In a speech to this House nearly two years ago, I cautiously advocated compulsion for everybody, not just employers. At the same time, the Government must themselves do something to boost pension savings. What have they done so far? They have introduced a stakeholder scheme that had one beneficial effect: it reduced costs. As Mr. Field pointed out to me, the effect was major, and we agreed that reducing costs to an industry average of about 1 per cent. was a marvellous achievement. However, the scheme has not proved efficient in reaching its target audience.
The problem is that linking a scheme such as the stakeholder scheme with a minimum income guarantee creates a considerable disincentive to save for those on the lowest incomes. Despite what the Minister said, that problem is not met by the pension credit, which, as he knows, is an extremely complicated scheme. Many of those representing elderly people say that it would be beyond the wit of most of them to work out how to implement it, and that they will not necessarily claim it.
What else have the Government done to encourage people to save? Much has been said about the £5 billion a year that they have taken out in respect of advance corporation tax. Some say that that does not constitute a huge sum, but those with money purchase schemes have to increase their contributions by about 20 per cent. just to stand still. That is a lot of money for most people who are saving, but more important is the message that that sends—a message that has been reinforced by, for example, underfunding of the contracting-out rebate to the tune of £1.5 billion a year. It has been reinforced by other Government taxation and stealth measures. For example, people with personal schemes can no longer take advantage of carry-back arrangements. One advantage of the personal schemes was that people could pay in when they could afford it; when they had a lean year they did not need to pay in, but if they then did better they could claw back from previous years. That arrangement has been prevented by the new Inland Revenue rules. What sort of message is that to send to people who want to save for their retirement?
The Inland Revenue is the villain of the piece. One message that I should like to get across to Ministers is that they should have the courage to face up to the Inland Revenue, which thinks that every pension scheme devised—indeed, almost every savings scheme—is a tax avoidance device for the rich. It is perfectly easy to frame legislation to prevent tax avoidance. The Revenue fears loss of income to the state, but it forgets that if it encouraged people to save for their old age, the state burden would be so much less as to outweigh any temporary disadvantage. That is why it should consider annuity reforms. We need worry less about the type of person who has an annuity than the overall message that it gives. Young people on modest incomes say to me that they will not enter a scheme if it means that they must buy an annuity at the end of it. They want greater flexibility.
The Government should tackle the Inland Revenue. They should take up the very good proposals made today by the Association of British Insurers, to which the hon. Member for Northavon referred. Some of them are excellent and the ABI thinks that, if implemented, they would produce an aggregate of about £10 billion of savings.
I believe that the Government are doing one thing right in asking experts to advise them. What Ron Sandler and Alan Pickering are doing is extremely worth while. I just hope that when the reviews are completed, the Government will have the courage to implement the recommendations.
For the past two days the House of Commons has been reflecting feelings in the country. At Question Time yesterday, the Order Paper was dominated by questions on pensions. As for today, I cannot think of a previous debate on pensions that has had a time limit on Back-Bench contributions. The House is reflecting the urgency that is felt in the country, and in following the comments of Mr. Butterfill, it is thinking about what can be done so that our constituents do not face a leaner and meaner retirement.
There have been two significant changes with the change in the holder of the office of Secretary of State for Work and Pensions. The first is that, during this debate and on other occasions, he has called for a new consensus. In looking for that new consensus, I make a plea for us to look at the Order Paper. Constituents who may be watching the debate and seeing the normal way in which we behave may not have the opportunity of reading the motions and amendments on the Order Paper. I suggest that much of the consensus that the Secretary of State wishes to see in this area of policy is on the Order Paper, and I should like to highlight those points.
The official Opposition talk about the need to increase savings and funded provision. Although one or two people with eccentric views on this side of the House believe that that is not the way forward, the consensus is that we should pursue that policy. The Opposition's other suggestion is to cut regulation. Indeed, we are looking for the Pickering and the Inland Revenue reports to give a framework within which the Government can begin that process.
The Liberal Democrat motion breaks new ground by arguing that we should not have arbitrary targets regarding funding or pay-as-you-go schemes but should instead ensure that an increasing number of people are on a decent pension. I would enter a small amendment, in that we must think about how those pensions are delivered. My hon. Friend Kali Mountford was right to say that, ultimately, pensioners are making a claim on this year's national income. We have to debate the most effective way of delivering that claim. In this country, generally speaking, people have a greater chance of that claim being delivered if they have ownership of capital than if they rely too heavily on pay-as-you-go schemes. However, there needs to be a balance.
Mr. Webb—I call him my hon. Friend, because he is in these matters—said that we must increase the state element in our retirement package. Although some people not too far from the Chamber quite properly claim that the existing pensioner population should have a much larger increase in the state pension, I think that a consensus will emerge, at least in the first instance, that we need to weight the increases in state provision towards the oldest pensioners who are, in general, our poorest pensioners.
My hon. Friend the Member for Northavon also made the point that we need to simplify pension provision because we are strangling occupational pensions, the one big welfare success of the past 100 years. In doing so, we need to reduce the numbers of people on means-testing.
In the Government's amendment to the motion, they rightly draw attention to the extra resources that they have made available to today's pensioners. No other Government's record can compare. The problem is that we are giving that form of help in a way that is undermining long-term provision of savings. Clearly, some changes have to be made; so the Government's recognition in their amendment to the motion that
"there is still more to do" is very welcome.
I conclude with a suggestion about what "still more to do" might mean. It comes back to the point that my hon. Friend the Member for Northavon made about compulsion. This is not a debate about whether or not to have compulsion. There is already compulsion, in that taxpayers pay 4p in the pound on the standard rate of tax to finance means-tested benefits for people who, for reasons that are sometimes very good and sometimes not so good, have been unable to provide adequate pensions for themselves. Under the Government's projections, that compulsion will rise to 12p in the pound when the pension credit is fully operative. That form of compulsion is not sustainable.
The Government say that there is still more to do. I make a plea that, when the door is open to the reviews by Pickering, Sandler and the Inland Revenue, we should recognise that our biggest failure as a country has been our failure to provide people with an adequate basic pension in the first place. I believe that such a pension cannot be delivered simply through a pay-as-you-go scheme. We need to roll up our pay-as-you-go scheme with funded provision so that we offer an adequate pension for everybody.
If we begin to achieve that objective, many of the problems that we have spoken about will be resolved, because we will need less regulation. We will not have to regulate schemes to ensure that they deliver the funds to make good the failure to provide an adequate pension. The worries about mis-selling will be fewer, although not eliminated, because people will know that every penny they save will be added on to their basic, adequate pension rather than being subtracted in the way that governs so much of our current provision.
For two days running, we have reflected the concerns of our constituents, many of whom are genuinely worried that what they thought was to be a decent pension provision and a pension promise will be stolen from them, and who fear that unless the House of Commons acts soon, they will have a leaner and meaner retirement.
I very much welcome the comments made by the Secretary of State during the past few days, because he has called for a national consensus, the beginnings of which are on today's Order Paper. The cornerstone will be to implement an adequate first pension that is part funded and part pay-as-you-go. Would not it be a treat if, instead of our having to go through the Lobbies later on, the Government accepted that there is good in all the motions on the Order Paper, and if all the parties decided that the important thing was to begin to establish that national consensus instead of having three rather boring Divisions at 10 o'clock?
I have declared my interest in the Register, and in the course of my remarks I shall draw on some of my experiences before I became a Member, as a director in charge of investment research and a pension fund manager in charge of considerable funds in the City. That experience seems very relevant as current events unfold.
As I listened to the Secretary of State's remarks, I found it curious that the man who has just managed to get out ahead of the private finance initiative and public- private partnership disasters that are likely to implode in the Treasury—under the rigged accounting that the Government are going in for—should be given the rather difficult task of picking up the unfolding pensions crisis so nimbly left to him by his predecessor. I congratulate the Secretary of State; I admire him for many reasons, but this challenge will prove extremely difficult. It may concentrate his mind to realise that if he fails, he will be off, like his predecessor, to try to sort out the railways, which will prove an even more difficult task for the Administration.
Not only would the right hon. Gentleman be in charge of sorting out the railways, he would also have to sort out the air traffic control system, having previously told the Labour party conference that our air was not for sale.
My hon. Friend is right. That is one of the PPPs that will cause continuing hassle and call into question some of the accounting techniques.
The Secretary of State used curious arguments. He said that the low savings rate was a sign of great success in our economy. He seemed to imply that when we had higher savings rates and people were making much better provision for their retirement and other events in their lives, that was a great failure. I would rather swap our failure—higher savings rates—for his success. Extending his argument, if we took 20 per cent. off his salary—as the Government took 20 per cent. off the dividends going into pension funds—the Secretary of State would feel richer. It would not feel like that to anyone else, but that is the topsy-turvy world of the Secretary of State's economics, which seem to invert everything known to the rest of us.
The Secretary of State also told us that the dividend tax had been extremely good for British businesses; it had been wonderful to take some of their money away and that was one reason they were investing far more money. If that is the way to attain higher investment targets and raise productivity, why do not the Government take even more money away from companies?
Opposition Members are shaking their heads—they know that the Secretary of State's argument was fatuous. The Government have made a series of tax raids on pension funds and companies and they have suddenly woken up to the awful fact that the money is running out. There simply will not be enough money to pay all the promises, meet all the expectations and pay all the bills that the Government blandly assumed would be paid and met by the private sector, despite their tax policies.
Let us consider some of the figures. As some of my colleagues had to point out to the Government, the £5 billion is £5 billion a year deliberately removed from pension funds by the Government—money that the funds could otherwise have invested. Worse than that, the removal of that money must have an impact on the value of all the shares held in the portfolios of those pension funds. That is why I intervened to ask the Secretary of State a simple question: if the Government decide to take £5 billion away from companies, will that lead to share prices rising or falling?
Everyone outside the House—with or without investment experience—could give the Secretary of State the answer. I will give him the answer—based on 15 years' experience at senior level in a leading investment house: all things being equal, it will lead to lower share prices. That is exactly what has happened in recent years as the full consequences of the dividend tax have worked through the investment markets in Britain.
When the tax was imposed, companies were expensively rated. For example, if we take a modest rating of 16 times below the market average reached as the market rose, we would expect £80 billion to be wiped off shares in Britain as a direct result of imposing a tax of £5 billion a year on company profits and dividends. A similar figure is reached by a calculation based on dividend yields. I am sure that colleagues understand how the arithmetic would work.
I have consulted people outside who have told me that my figures were rather modest. Many people would expect £100 billion or more to be wiped off share prices as a direct result of the £5 billion tax. There is a double whammy for the pension fund; it is short of the income to reinvest and the capital value of its underlying assets is falling.
The Government made the extraordinary decision—the Chancellor of the Exchequer again—to impose a substantial tax on telephone companies that wanted to remain in business and continue to develop the mobile telephony that is so important to their future. The Government worked out such a clever system that they managed to relieve the leading telephone companies in Britain of £22.5 billion. Does the Secretary of State think that taking away £22.5 billion would make those companies stronger or weaker? Will it lead them to invest more or less? Will it be good or bad for their share prices? Drawing again on my past experience, I can give the Secretary of State the clear answer that he was unable to offer the House: it is bound to lead to a sharp reduction in the share prices of those companies.
These matters are important, because when the Chancellor imposed that tax, those companies were extremely popular with investors and pension funds in the City, which had massive positions in leading companies such as Vodafone and British Telecom. The share prices of those companies have fallen far more sharply and devastatingly than the market averages, partly because of the Chancellor's clumsy intervention and the deliberate reduction in shareholder value that he created.
If that £22.5 billion—a one-off amount—is spread over a five-year period and we apply a multiple well below that on which telecoms were then selling on the stock market, we would expect their shares to fall by at least £90 billion, as a direct result of the £22.5 billion being removed from their coffers. What happened in practice? Overall, share prices fell by much more than that. At its peak value, Vodafone was worth more than £240 billion in the stock market; pension funds had very large positions in that company. Today, it is worth about £60 billion. About £180 billion was wiped off the shareholder value of Vodafone, some of which is directly attributable to the decision of Her Majesty's Government to lift so much money off the company.
The situation was similar for British Telecom, which also held a large and favoured position in many pension funds; it reached a peak value of about £100 billion. Today, the value of BT and mm0 2 , a spin-off of the company, is about £26 billion. About £74 billion has been wiped off the value of BT. Again, part of that is the direct result of that very expensive tax imposed by the Government.
I am grateful to the right hon. Gentleman for giving way, especially in view of the time limit.
I have been listening carefully to the right hon. Gentleman. Surely he would accept that, especially in the case of the two companies in the telecoms industry to which he has referred, other extremely significant factors had a far greater impact. For example, they over-extended themselves in the amounts that they paid for band wave. To blame the whole fall in share price on the introduction of the ACT regulations is beyond the pale.
The hon. Gentleman has not been listening. In the case of Vodafone and BT, I have been putting more blame on the tax raids specific to the telecoms industry in the United Kingdom. The UK raid had the biggest impact on Vodafone and BT. Furthermore, it was mimicked in Germany, which did not help. As I explained—if the hon. Gentleman had been listening—the fall in Vodafone and BT was far greater than the amount I should have expected as a direct result of the Chancellor's actions. My modest calculation blames the Chancellor for £90 billion of the fall. A lot of that loss was incurred by British pension funds, so they will find it difficult to pay the pensions—[Interruption.] Labour Members seem to think this is great fun, but I warn them that many of their constituents are members of those schemes. Many of their constituents who do not have high incomes depend on those schemes for their future earnings in retirement.
I wish I could, but there is not enough time.
Many people out there with modest life prospects and far less generous pensions than we receive in this place, courtesy of the taxpayer, must today face up to a crisis. Perhaps their scheme has been closed to new members, perhaps its terms are being worsened, or perhaps it is being wound up because it cannot meet its obligations. That is happening because of the combined effect of taking money away from pension funds, taking money away from companies and the dramatic reduction in share prices.
Of course, international factors affect share markets, too, but much of the drop in British stocks and shares has been made in 11 Downing street by a Chancellor of the Exchequer who did not know when to stop taking money away from people. That is a disaster for pensions and for savers, and it goes some way to explain why the savings rate is so low and why companies such as Caparo, which is presided over by a chairman who is a Labour peer, must face extremely difficult choices, which I am sure that they would prefer not to face. The money is running out, the shares are not worth enough, the incomes are not flowing in, the Chancellor has squeezed the pips too much and it is beginning to hurt very badly.
The Government have launched new types of pension: stakeholder pensions. Many people think that they are mistake holder pensions—they do not seem popular, and they do not seem to be touching the parts of the income scale that they were designed to help. They, too, will struggle for exactly the same reason. The Government are creating an atmosphere that is hostile to enterprise, to profits and to dividends. I fear that the market has not yet adjusted fully to the massive national insurance hike coming next year. Let us hope that it has discounted some of it. Some £8.6 billion a year will go out of companies. Let us say that half that—£4.3 billion—is directly attributable to and payable by the leading companies quoted on the stock exchange. One would expect a further £50 billion or £60 billion to be wiped off share values as a direct result of that money going out of companies.
Do the Government care? Will they cancel the measure at the last minute? Do they not see that a tax on jobs is the last thing that is needed in the current parlous situation? Pensions are in a funding crisis, much of which is the result of bad policies at No. 11 Downing street.
It is good to see that Vulcan economics lives on. There is a danger in debates of this nature that we try to resolve policies on the basis of the last three weeks' headlines. Much of the Opposition's contribution has been on that basis. Given the nature of the subject, however, we need to take an extremely long-term perspective on pensions and on how people arrive at the pensions entitlement.
Looking back, the biggest single advance in pension provision for the majority of people was probably made by the 1975 changes that introduced SERPS. For the first time, compulsion was introduced into the system for a second pension. Of course, many of the benefits that accrued from that were wiped out by the disastrous changes that took place in the mid-1980s. Notwithstanding that, people retiring today who have contributed only to SERPS on fairly average earnings are getting about £60 a week extra. In half a working life, that is a significant advance, which should not be knocked.
If we consider the three different elements of the state second pension, personal pensions and occupational schemes, the biggest disaster for occupational schemes was caused by the 1988 changes, which led to 2 million people coming out of occupational pension schemes, becoming the victims of mis-selling, and, to date, receiving £13 billion in compensation. With the best will in the world, taking £13 billion out of the asset base of pension companies has an effect on their reserves and on the amount that they can afford to pay out in future years. That has also had a significant impact on, for example, so-called low-cost endowment policies.
Ultimately, the key must be a significant element of compulsion as well as a significant incentives arrangement. Most people do not know about the incentives that already exist in the schemes. They are totally unaware, for example, of the national insurance rebates and tax relief on contributions, which are not sold well enough. That is partly because the whole focus and emphasis—especially following the 1988 changes—is on the personal pension. That puts the public in the hands of dodgy sales people who are not driven by the future needs of those to whom they are selling but by commissions.
The sad thing about personal pensions is that so many are taken out and cancelled in the first three years, at which point the individual concerned has lost every penny that they have put in, as it has been wiped out by charges and so on. As Mr. Butterfill highlighted, the beauty of the stakeholder pension scheme is that it has fixed those costs and driven them down across the entire life assurance sector. They will never return to their previous levels.
The hon. Gentleman makes a good point about driving down costs generally. Is it not a real problem that some costs have been driven down so far that many of the new stakeholder pensions are being issued at a loss? That is not sustainable, and it cannot continue.
I would always call into question people like pension providers and the Association of British Insurers when they start talking about losing money, in the same way as I question their definition of the shortage in pension provision, bearing in mind how much of that they will want to keep for themselves. We need to recognise that they are seeking business. None of the big providers of stakeholder pensions has stopped selling them—that is the acid test. When they stop selling them, there may be a problem, but they are all in the market, and they all want them. A key change has been made to what used to be an evil level of charges. That regime has gone for ever. Charges have been fixed at 1 per cent., which everybody said could not be done. Magically, however, once the change comes into force, the market adapts. That key change must be driven through.
Nobody has so far had the courage to grasp the balance between incentives and compulsion. That is a massive challenge for Government—to grasp the nettle of compulsion while being brave enough to match that with incentives that add up to a decent package. Young people—especially those under the age of 25—are, and always have been, a phenomenal problem. At that age, they are first setting up home, getting married, having children, and buying their first three-piece suite. If one tries to explain to them the necessity of starting pension provision, one finds that the issue is so far over their horizon it is not even on their radar. That is always a problem with occupational schemes, as young people have the option of whether to join up to the age of 25. One cannot get them to join. They say, "What's in it for me? Do you want me to lose 5 per cent. of my salary at a time when I have all these expenses, all these bills?" There must be an element of compulsion that matches that in the state second pension. The carrot must be equal to the stick, however, to give people genuine hope and a reason to save at the appropriate levels.
I am sorry that the hon. Member for Bournemouth, West has left the Chamber, as he has an incredible faith that pension providers will make the right decisions. In 1988, a major pension fund manager in charge of about £44 billion of funds decided to opt out of the equities market totally, and to convert all its funds into cash holdings. Over the next three years, it lost £7.5 billion of income for the funds that it managed.
There are some incredible differences in the track records of pension providers and insurance companies. The returns of some of them—it is the same companies year after year—are such that they should be closed down and barred from the investment business. In general, those companies have paid the highest levels of commission, but their returns are horrendous. There can be as much as a 70 per cent. gap between the best and worst investment houses. The Government need to examine that structure.
It has been only 10 years since the House clamoured for a raft of regulations on pensions to stop the practices that occurred in the Maxwell scheme. There is a great danger in getting rid of all regulation to simplify matters. We only need to lose 1 per cent. of £870 billion, or whatever the figure is, through abuse or weak regulation to have a serious problem. We know what happened with WorldCom and Enron and should be alive to the fact that there are people in this world who will seek any opportunity and use any means available to deprive other people of their money.
It will always be the case that the private sector has cleverer lawyers and accountants than the Government. We need an appropriate level of regulation to protect the interests of our constituents and their future. A landmark judgment by the European Court of Justice in 1994 has not been translated into legislation. The Coloroll judgment said that pensions are deferred wages: they do not belong to the employer or the pension provider but are the property of the individual. Individuals need to know that the state will provide the appropriate regulation to protect their funds so that when they retire they get not a shock but a pension.
I hope that the debate does not disappear into a black hole, because Parkinson's law tends to apply to such matters. The numbers are so large and the time scale so long that the press do not pay much attention. That is wrong because the debate is important. I am pleased that my party chose to allocate a whole day to it and I hope that its importance is reflected in the press.
In a fiercely competitive field, pensions are the Government's greatest failure. They are condemning millions to inadequate pensions and means-testing. I declare an interest in the general subject as the chairman of a pension fund who has taken an interest in such matters for many years.
From a global perspective, the United Kingdom does not stand too badly against our European colleagues. About £1,270 billion is invested in pension funds in Europe, 90 per cent. of which is invested in three countries—the UK, the Netherlands and Ireland. The disparity is that we value our investment in pension funds in a way different from that of most of our European colleagues and there is a serious funding crisis in the UK.
Mr. Field, to whom we owe a great deal, quoted the Lombard Street research group in an article in The Times on
We also face the problem of outflows caused by longevity and fluctuations on the stock exchange. We all know, however, that actuaries can and do take account of longevity. They tabulate their projections on a very long-term basis, which also takes account of variations in stock exchange values. One cannot attribute the crisis in pension funds simply to those two issues. There is the further problem of FRS17, which requires companies to include a reference to their pension fund situation in their annual accounts. I am pleased that that has been delayed while further discussions take place. There is also the problem of the miserly uprating of the contracted-out rebates, which cost each contracted-out pension fund member about £130 a year.
Those problems pale into insignificance, however, when compared with the Chancellor's raid on pension funds in his first Budget. The £5 billion-a-year raid on pension funds has been the major single factor in causing the crisis in pension funds. It adds up to a £27 billion shortfall, which pension funds cannot sustain.
The pensions debate takes place against a background in which companies find it appropriate to phase out their final salary schemes partly because of projected underfunding and FRS17. It also reflects a changed employment system. It is unusual for someone to stay with a firm for his whole career. Individuals are more likely to move from company to company, which is why many employers regard money purchase schemes as more appropriate.
That practice is a reflection of FRS17, which requires companies to take account of their pension fund situation, and of changed employment practices. It is still appropriate in some firms to have the advantageous final salary schemes, but if individuals are not staying with companies for long periods one has to accept that the final salary scheme does not suit such an employment system. A money purchase scheme also has advantages for employees who work for longer periods but who are not expecting to move further up the ladder in their firms, perhaps because they decide to work in a different capacity at the end of their employment, which means that they earn less than when they were younger.
Firms with final salary schemes—this relates to the hon. Gentleman's question—were in the habit of paying 15 to 20 per cent. to the pension fund of each employee, but employers tend to pay 5 to 10 per cent. towards money purchase schemes. If an employer pays 6 per cent. to the pension scheme, the employee contributes about 3 per cent. on average. That 9 per cent. contribution is less than half of what will be needed to allow for a reasonable pension at the end of the employee's period of work.
Those problems add up to a crisis. We need leadership, encouragement from the Government to contribute to pension schemes and incentives. It has been mentioned that people in their 30s and 40s who are concerned with child care and furniture buying think that they can defer making a payment to their pension fund, but an early payment would allow a larger fund to build up.
Something needs to be done. What is the way ahead? First, I have no doubt that compulsion in pension funding is necessary. It is not possible to envisage a sensible scheme unless there is compulsion across the board. Compulsion can be supported for those who cannot afford to pay, but compulsion there must be. Secondly, there must be an admission that the guaranteed minimum pension is unfair and unsustainable. It cannot be continued indefinitely. The right hon. Member for Birkenhead referred to the percentage of national product that it will take if it continues.
Thirdly, the Government need to take decisive action to simplify pension schemes and to ease contributions. There must be tax support for contributions to reverse their collapse to only a quarter of what they were when the Government came to power.
I turn now to an area that has not been mentioned. It is one in which we would have expected a reforming Government to be active, and in which this Government have been supine. They have failed to take account of problems in the "trough", whereby individuals employed in government service find that at a time of pay restraint the Government hold back wages, which means that their pensions are also held down. If someone retires on a low wage held back by the Government for their own purposes, their pension will for ever be lower than that of someone who retired when wages were higher. That trough in public sector pensions is unfair and should be rectified.
Mr. Gardiner looks uncertain. There are cases in the armed forces where, because of a period of pay restraint, a person of a certain rank retires at a wage lower than that of someone of the same rank who retired before or after him. That individual's pension will be permanently affected, and that is unfair.
I am afraid that I cannot give way because time is very restricted.
The Government have also failed to reform by upgrading the pensions of those who have retired abroad. It is monstrous and unacceptable that those who retire within the European Union have their pensions upgraded, while those who retire to the old Commonwealth of Canada, Australia and New Zealand do not. That is unsustainable, and any fair, reforming Government would seek to tackle the situation.
The Government have also failed to reform the provision whereby widows sacrifice a public sector pension when they remarry. I had a case recently in my constituency surgery concerning a woman who has been widowed more than once. When she was first widowed she received a pension, which she sacrificed on remarriage. When she was again widowed, she applied for her pension to be restored, and after she had filled in a rather complicated form, it was restored on a means-tested basis. She has now been widowed again, and although her income and circumstances have not changed, she has been told that she cannot have her widow's pension restored. It is wrong that this elderly and dignified lady should not have her pension restored.
Finally, on a point made by one of my colleagues, the oldest pensioners also deserve further support. Many of them retired after a long period of service and are now very poor. They may be unable to fill in the forms for the various means-tested benefits that might be available to them, and they lose out.
I submit that this Government have failed. They have damaged funded pensions and introduced a massive increase in means testing.
In a pertinent question, my right hon. and learned Friend Mr. Hogg asked the Secretary of State what amount an individual will need to have saved to escape means-testing, and suggested that the amount may be £100,000. My own calculation is that an individual who has saved for his retirement and is not eligible for means-tested benefits will be ineligible for council tax benefit and housing benefit, which come to about £100 a week. That is £5,000 a year, and if one takes an average actuarial calculation and multiplies it by 16 to subtend the capital amount required to produce £5,000 a year, the answer is £80,000.
In other words, under this Government, if people can save £80,000, they will be okay, but if they can save less than £80,000, they are better off blowing the whole amount and not trying to save at all. That is monstrous and unacceptable. The pension credit will not resolve the problem because it is far too complicated and many pensioners cannot cope with the amount of paperwork involved. I therefore condemn this Government for their utter failure on funded pensions.
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.
I am grateful to my hon. Friend. He has saved me from making that point.
Secondly, the real cause of the decline in occupational pensions lies elsewhere, as Mr. Boswell said in the Standing Committee that I quoted. There are several reasons for the changes in occupational pension funds, the main one being that employers face exactly the same pressures as the Government—people's longevity. People live longer, so the cost of maintaining a pension fund is becoming greater. Is that an excuse for companies to close their pension funds?
The hon. Gentleman is right to say that there has been a gradual decline in the membership of funded schemes, but does he accept that it has been far steeper since 1997?
The figures do not justify that because, as I understand it, the latest ones are projections rather than facts.
Between 1991 and 2000, the stock market was booming, so companies were taking holidays from pension contributions. My hon. Friend Sandra Osborne quoted stark figures: out of the almost £19 billion taken by funds at that time, the figure put into pension holidays was 16 times higher than the amount put into reducing employee contributions. In that period, pension schemes were getting a large surplus because of the performance of the stock market, but companies used it to profit themselves, and now that the stock market is going through a more difficult period, they are using the excuse of Government policy to reduce their contributions, which effectively reduces their employees' pay. If they directly reduced people's salaries to that extent, there would be absolute outrage.
It is no surprise that when the TUC surveys people about their conditions of work, it now finds that pensions are their greatest worry. That may start to make a difference to people's attitude to this issue. Employers will find it much more difficult to reduce contributions if individuals begin to treat their pension as part of their salary.
Does my hon. Friend agree that pensions are in people's thoughts so much because the Government have raised awareness of the issue and taken the debate to the people?
There are legitimate issues to be discussed. Unfortunately, the main ones are not those raised by the Opposition today. We never hear what their policies are. Mr. Willetts claimed that he would come on to Conservative policy, but he spent 25 minutes talking about statistics, rather boring those on the Benches behind him. He may come to regret the large attendance that he enjoyed today. He then spent one minute talking about his policies, one of which is to support the Government's policy on Pickering. The only other two that he mentioned were support for annuities, which overwhelmingly benefits the rich, and a reduction in means-testing, but he did not tell us how he would achieve that.
Luckily for us, the hon. Gentleman is rather less coy outside the Chamber. He is fond of being expansive at seminars or in print, as Mr. Webb, whom I am glad to see is still present, and I found at the conference I mentioned earlier.
That is deeply worrying. The hon. Gentleman wrote the last Conservative manifesto, and after his great success at the election he may have a hand in writing the next one. If we cobble together his policy from the indications that he has given, we find that the manifesto is likely to include opting out of the basic state pension, which may be paid for by getting rid of SERPS and the state second pension. That is what he seemed to be saying at the conference that the hon. Member for Northavon and I attended last week.
The hon. Member for Havant said that other Opposition Front Benchers were already enviously eyeing SERPS and the state second pension, especially now that it had been made into what he described as a "rather odd system", with a flat rate. The reason it has been made into a flat-rate system is to make it redistributive, so that those who benefit from the state second pension are those with broken career records or caring responsibilities who have not been able to build up the same entitlement as those who work their whole life.
It is not surprising that the one pensions policy for which the Conservatives—who claim suddenly to have discovered the vulnerable and the poor—voice clear support is a change to annuities, which would overwhelmingly benefit the rich, and the one area that they are prepared to raid to fund their pensions policy is one that overwhelmingly benefits the poor. People outside will notice that.
It is worth wondering what would have happened had the plan proposed by the hon. Member for Havant been introduced—if we had a system in which people opted out of the basic state pension—and the stock market had fallen by £270 billion or £480 billion. People who, because they had opted out, relied on the stock market for the whole of their pension would suddenly have found on reaching retirement age that the value of their pension had been decimated—that it had fallen by 20 or 30 per cent. Our current pensions system would be regarded as a triumph compared with that. People would be beating down Downing street's doors demanding that their pension entitlement be restored to the level it would be under the current system.
Under the hon. Gentleman's plans, this country's entire pensions system would be dependent on the fluctuations of the stock market; that is an extremely strange position to want to be in. Mr. Mitchell, who is supposed to be responsible for this policy area, shakes his head. Presumably, in the Conservatives' system the state would guarantee a fixed sum that people would receive. In that case, in the scenario that I have described, the Government would have to find a huge sum to make up the shortfall. As the stock market fell, the Chancellor would be faced with having to find a huge sum to make good the difference. That is not a sensible policy.
The hon. Gentleman describes the 100 per cent. funded scenario, but he supports the Government's aim of getting one third of the way there—going from 40 to 60 per cent. funded provision. Is he not at least one third vulnerable to that criticism?
Of course I support Government policy, but I thought that the hon. Gentleman's suggestion of monitoring how many people will have sufficient income in retirement while pursuing that policy was interesting.
The real question is how we can further stimulate private saving. According to some estimates, we are saving 50 per cent. less than we should be. The TUC produced a thoughtful document on whether we should look again at compulsion, pointing out that although employees are already obliged to contribute through SERPS and the state second pension, there is no such obligation on employers. It would be worth debating such a proposal. Or perhaps a tax incentive could be used, as the hon. Member for Northavon suggested. I hope that the Work and Pensions Committee, of which I am a member, will consider that important matter soon.
I urge the Minister to consider how to encourage stakeholders further. The last time but one that we debated this subject, the hon. Member for Havant bemoaned the failure of stakeholder pensions. Unfortunately the facts have undermined his case again, because in the six months that have elapsed since that debate the number of people in stakeholder pension schemes has more than doubled. He claimed during that debate that most of those pensions were being sold to children or people who did not benefit from them; in fact, most are sold to people on incomes of between £10,000 and £30,000—precisely the middle or low-income earners who we want to save more. I believe that that policy is developing into a success. Individual savings accounts took a while to get off the ground but then acquired a momentum of their own, and I hope that the same will happen to stakeholder pensions.
I encourage the Minister to consider a couple of suggestions about how to build on that success. One idea is to allow employers to promote the system more actively to their work force. If they have opted into a scheme, they should have more freedom to promote it and encourage people to join it, but they are currently held back from doing so by regulation. I hope that such a recommendation will emerge from this summer's reviews.
Last week, Adrian Boulding of Legal and General made the interesting suggestion that instead of tax incentives remaining as they are now, they should be changed, so that, for example, a lower-income worker saving £100 a month would receive £50 a month in direct cash contributions. Tax incentives should be brought up front. Everyone likes free money, and the way in which incentives currently operate is too complicated for people to realise what benefits can accrue from saving and what help the Government will give.
This is an interesting time in pensions policy—if I can say that with a straight face. There are genuine issues that we should consider, and we shall continue to focus on them. Meanwhile, the Conservatives try to distract people from the substance, and by so doing give cover to those employers who are cynically closing schemes and cutting their contribution rates. That is a genuine issue, and it would have been a much better subject for today's debate.
It is a great pleasure to follow James Purnell, with whom I sit on the Select Committee on Work and Pensions. He mentioned that I shook my head at his comment that falling markets would lead people to rush to the doors of No. 10 demanding to get back into a state scheme. Markets are more sophisticated than he describes, and he knows very well that an examination of long-term stock market trends around the world is encouraging. He should not take a snapshot view of such matters. Furthermore, although I do not know much about the pension investment industry, I do know that as people near their retirement years, the level of risk that their advisers will allow them to undertake becomes much lower. That is why I was shaking my head.
I draw the House's attention to my interests, which are clearly registered. This is an extremely important debate and the Opposition deserve considerable credit for spending a day of their time on it. The Government should have held the debate in their time. My hon. Friend Mr. Willetts made an excellent opening speech, taking time off from correcting the Government's figures, as was made necessary yesterday. The debate takes place against a background of crisis in the pensions industry. For millions of our fellow citizens this debate is extremely important, and crisis is not too strong a word.
It is a pity that the bipartisan approach that often characterises the House's discussion of very long-term issues has broken down to some extent on pensions. I remember proceedings on the Pensions Act 1995, when I was the Government Whip and my right hon. Friends the Members for North-East Hampshire (Mr. Arbuthnot) and for Richmond, Yorks (Mr. Hague) were the Ministers responsible for taking through that complicated legislation; we were faced by Donald Dewar, sadly now deceased. Those were the days. There was a high degree of bipartisanship then, and I am sorry that I shall not be able to do full justice to that spirit during the first part of my speech.
I start by absolving the Government of responsibility for the demographic factors that several of my right hon. and hon. Friends have highlighted. In every other respect, however, the Government have failed to notice the great difficulties. There was an elegant exchange between the hon. Member for Stalybridge and Hyde and my hon. Friend Andrew Selous. Surely the Government must have noticed that between 1997 and 2001 the number of people retiring with a funded pension fell from 67 per cent. to 59 per cent. of the total. The Government must have noticed the tremendous disadvantages arising from the closure of defined benefit schemes. Not only did defined benefit schemes give UK citizens the largest funded pension provision of anywhere in Europe, but the great advantage of such schemes is that they have allowed the country to restructure much of British industry in recent years.
The Government were warned extensively by the industry and the Opposition about FRS17, but they remained blithely indifferent, only taking action extremely late in the day. The £5 billion per annum raid has been mentioned. The full effects of that were concealed while markets were rising, but they are now revealed in ghastly technicolour. My right hon. Friend Mr. Redwood discussed what that £5 billion a year really means. The net present value of £5 billion a year is more than £105 billion—a very large amount of money.
The Government are guilty of woeful negligence in their inattention to the way in which the degree of complexity in the system has increased. It is now so great that almost no one can understand the system. It is the result of the hopeless over-regulating of the selling of pension products—a reaction to the mis-selling scandals and to Robert Maxwell. In the face of such complexity, the industry is grinding to a halt. The Government have been warned, but have done nothing about it. They are doubly to blame bearing in mind the very cushy pensions that we in this House, including Ministers, enjoy.
The hon. Gentleman criticises the effect that he believes FRS17 might have when it is introduced. In the present climate, following Enron and WorldCom, does he seriously mean to maintain that it is not right that companies should show in their books the full extent of liabilities to which they and their shareholders are subject?
The hon. Gentleman misunderstands my point. The right answer to FRS17 has now been arrived at, but the Government were much too late to support the move given that the original announcement did such damage.
The Government's policy is inadequate, complacent and excessively complicated. It started well enough with the pledge to swap the 60:40 role, which we have discussed, but the state second pension will not work. The highly respected Andrew Dilnot said of it:
"It won't last much beyond the introduction of pension credit".
We discussed pension credit in the House in March. A highly respected practitioner from Northern Pensions Resource Group, Sue Ward, said of that:
"It reduces the Government's pensions strategy to incoherence".
I am sorry but I cannot give way; time is against me.
The stakeholder policy has been a complete flop. The reason is that there is no compulsion. People can say, "It's not my problem; it's the Government's." Therefore, take-up among the target group has been derisory. Under the law, an employer must have a stakeholder pension scheme, but as there is no compulsion, that is merely a box-ticking exercise. The stakeholder pension scheme has been revealed as a great tax break, but it is certainly not a contribution to a comprehensive pensions policy.
There has been a massive increase in means-testing, to which reference has been made. The 1998 Green Paper rightly inveighed against it, but as a result of the Government's policy, nearly 70 per cent. of pensioners are subject to means-testing.
I want to be reasonably constructive and take up the injunction of Mr. Field. My advice to the Government is to recognise those problems and to do something about them. Let us consider the effect of defined benefit schemes closing down. The unions responded long before the Government. As my hon. Friend Mr. Viggers said, employees' contributions to either defined benefit or defined contribution schemes are estimated to be around 5 per cent., but employers' contributions are expected to reduce from 20 per cent. to 8 per cent. The long-term effects of that for tomorrow's pensioners are absolutely awful, and the Government would do well to listen to the advice of the Association of British Insurers and the TUC about ways of encouraging defined benefit schemes to continue and, if anything, to be enhanced.
My right hon. Friend the Member for North-East Hampshire said that he was a fan of the pension-plus scheme, which the outgoing Conservative Government launched in 1997. I too am a fan, having been a Minister in the Department responsible at that time. I want more funded pensions. If I were starting out in the labour market today, I would not want to place my trust in the words of feckless politicians when it came to my security in old age. I would want to put my trust in a tangible pot of money, which I owned and could see grow throughout my lifetime.
I hope that the Government will introduce a defined benefit scheme for all, which, effectively, they will guarantee. I shall describe a proposed scheme that has seven parts to it. It would be a simple national system, under which we all had ownership of our own fund. Everyone under the age of 25 would join it. On retirement, it would pay out, say, 50 per cent. of the national average wage. A schedule would be published each year by the Government Actuary to determine how much and at what age each individual should contribute. A national insurance rebate would be paid into the funds. There would be 40 per cent. tax relief for everyone involved in the scheme. It could be an annuity. There would be no selling fees. Funds would be approved and registered, and have trustees. Those over the age of 25 could transfer into the scheme and the Government would enhance such funds with an uplift of, say, 10 per cent. as an incentive.
Such a scheme is designed to help those who are currently doing nothing for the sake of their retirement funding. It seeks to answer the question of how we get the mass of our fellow citizens into a defined benefit scheme. It would be a personal fund and could therefore possibly be used for life events such as unemployment or care in old age.
I do not suggest for a moment that what I have described is a perfect scheme—much cleverer brains than mine could work on it—but it meets our concern that our fellow citizens should across the board be able to enjoy some of the advantages that we as MPs enjoy. It is critical that we address the issue. The Government will pay a very heavy price for their neglect of this important area of policy. As the difficulties have mounted over recent weeks, I have been staggered at the Government's inability to grasp some of the concepts, let alone take action. That is why I am particularly grateful to my hon. Friend the Member for Havant for launching this debate.
This debate is part of a larger debate, although I realise that we cannot talk about the wider issues. However, the general public tend to look at the value of pensions and ask what other assistance they might get in their old age with, for example, the funding of care. We should also bear it in mind that people in some parts of the country get free bus passes, but pensioners in others do not. There is a catalogue of such examples.
We must recognise that the Government have done a lot, particularly for poorer pensioners. It would be churlish to say that they have not done so. However, I think that the Government would accept from the Back Benches that we still have a long way to go in considering the welfare of future pensioners.
Has my hon. Friend seen the statement by the Institute for Fiscal Studies, which in congratulating the Government says that pension credit is the most progressive action that it has seen from a Government, and that the income of the poorest of the pensioner population will rise by 8.1 per cent., while the richest will gain only by 0.5 per cent? Is not that the sort of action on poverty that we need?
I am perfectly aware of the statement to which my hon. Friend is drawing my attention, but I will move on.
Most politicians in the 1970s and 1980s knew that we would have a problem in the 1990s and beyond because of an ageing population and early retirement. I remember the big desire of people many years ago to retire in their 50s because they wanted to enjoy leisure and pleasure having come through the war years. Therefore, the problem with funding pensions should be nothing new to the House. Politicians over the years, particularly in the 1980s, did not do very much about it. In fact, instead of helping the situation, they created an aggressive climate.
Mr. Mitchell said that he would not put his trust in state schemes. Considering recent events and the history of the private sector, I am not so sure that I would place too much trust in private schemes either. The issue is very much about striking a balance.
Some of my hon. Friends have said that, on the one hand, the Opposition have accused the Chancellor of taking £5 billion a year out of pension funds, but on the other hand have omitted to say that that was in taxes on dividends. Opposition Members should also remember that the public have a big grievance over privatisation of the water industry, for example. They have seen exorbitant profits made and previous Governments did nothing about it. The Chancellor used that money to fund a number of social schemes, including the fight against drugs, better education to get kids off the streets, and better social services, which were welcomed by many people outside the House. The money was therefore put to good use—it should have been spent in the 18 years in which the Tories were in power.
Employers gained pensions holidays and the £18.5 billion that one of my hon. Friends mentioned earlier. We have not discussed this, but employers in the 1980s were virtually allowed to do what they liked with pension surpluses—contributors did not have much of a say. Some years ago, I introduced a private Member's Bill that would have given pensioner trustees a say in how such money was spent by companies. Indeed, in some areas, people did not receive a pension—they lost it because companies plundered pension schemes, then went bankrupt. I am sure that hon. Members remember some of those companies.
There was also what I call a big sell in the mid to late 80s, when some of the largest companies in the country encouraged the labour force to leave the state scheme and go into a private one. In the past two or three years, people have retired only to find that they have not got the pensions that they thought they would get. The Opposition may attack us, but I have not heard them propose anything—I may be interpreting them wrongly—except for privatising the state scheme. That may be why the hon. Member for Sutton Coldfield does not trust the state scheme—that is all part of the Opposition's psychology.
The Liberal Democrat spokesman drew attention to the fact, slipped in by the Conservative spokesman, that the Conservatives would reduce the number of benefits for pensioners from three to two. Which one will go? Will it be housing benefit? Will it be amalgamated with another benefit and then reduced? The Opposition owe the House an explanation of exactly what they intend to do. The Opposition agree with certain things that the Government are going to do, but they have not spelt out their policy to us or the country. It is no good them criticising us if all that they can say is, "Well, we are only two or three years away from a general election. We are just working up our policies." I am afraid that that does not wash.
In the west midlands, new employees at a number of companies—including the Caparo Group, which has already been mentioned, and Peugeot—are not allowed to enter the company scheme. Moreover, existing occupational schemes are being changed—I know that trade unions are involved in negotiations on that. We can see the trend that major companies are following—they want to ditch occupational pension schemes which, by the way, were a component of wage deals many years ago. When the Opposition talk about the proportion paid by the employer and the employee, they should remember that that calculation came into wage deals. Someone would ask for an increase of 7 or 8 per cent., but would settle for 4 or 5 per cent. On that basis, they would either get extra holiday or a decent occupational pension. The Opposition tend to forget that.
In conclusion, our debate has been worth while. It could have been part of a broader debate, but no doubt we shall return to these issues when we discuss the general welfare of pensioners and proper packages for them, which I touched on earlier. However, I welcome this Opposition debate. Usually, when someone calls for a debate, they have some policies that they would like to introduce but we have not heard anything apart from agreement, and minor disagreements, with the Government. All in all, the debate was long overdue and well worth while. I hope that the Government take note of what Back Benchers have said, although I do not expect them to introduce changes overnight. However, I hope that my colleagues realise that we can offer all sorts of pension schemes, whether private or state, but people want a decent pension to live on.
We have heard a great deal about the Government's overall pensions policy and its failings. By contrast, I want to focus on a specific aspect of pensions policy—what happens to company pension schemes when a company hits financial difficulties and perhaps goes into receivership? How transparent are those schemes and are they adequately regulated? I shall give two examples from my Chesterfield constituency, which are relevant to every individual who pays into a company pension scheme anywhere in the country. They are also relevant to Government policy, which aims to encourage greater reliance on private pensions while running down the inadequate basic state pension.
The Minister for Pensions, for example, told Parliament on
"We are committed to encouraging private saving to meet the long-term demographic challenge of an ageing population."—[Hansard, 12 November 2001; Vol. 374, c. 568.]
The Minister said that that would be achieved with a package of measures, better information for current and future pensioners and better regulation of the pensions industry. The experience of United Engineering Forgings and Dema Glass in my constituency, however, shows that at the moment, company pension schemes are not transparent enough and are not adequately protected. If those examples are added to the scandalous mis-selling of pensions in place of SERPS, the mis-selling of endowment mortgages and the failures of Equitable Life, it is clear that people's private investments and savings for their retirement are not adequately protected. How can the Government expect private individuals to invest more and rely more on private schemes?
At UEF and Dema Glass in Chesterfield, the final salary pension schemes were initially in surplus—by 120 per cent. in UEF's case—and were used to fund early retirement with an enhanced pension as a way of streamlining the work force. When the companies began to experience economic difficulties, causing a shortfall in the pension funds, the work force were persuaded, through misleading information, to continue and even increase their payment into the funds, with assurances that that would safeguard the schemes for the future. When the companies closed or went into receivership, the funds were inadequate to pay pensioners the money that they were owed from pensions that they had paid into—in some cases, for nearly 40 years. To add insult to injury, the administrators of the respective schemes took their extensive fees and costs from the dwindling and inadequate pension funds.
I shall give some examples of the way in which people in Chesterfield were hurt by those scandals. On
"The Government preaches, 'Take out a private pension,' but they have failed to put into place legislation that prevents the employer from taking the employee's money. After the Maxwell shock, the employer should never again be allowed to do this."
My constituent's daughter was also present at our meeting. She is in her early 20s—exactly the person, we are constantly told, who is being targeted by the Government to save for retirement. She was about to start paying into a company pension scheme run by the reputable international retail firm for which she worked in Chesterfield. However, she asked me what was the point—the company, which seemed successful, might not be able to pay out in 30 years' time, just as Dema Glass, once a major Chesterfield company, had seemed a safe bet for many years, but was now bankrupt and could not pay out from the pension funds. So much for the Government encouraging more private pension savings, especially among the young.
An employee at UEF Chesterfield Cylinders wrote to me:
"The loss of pension will cost my family, based on the last company pension statement I received, thousands of pounds per annum at sixty-five. These figures apply to most people approaching thirty years' service. How can it all disappear? We wait to see what the final figure will be, but estimates vary widely between 50 and 70 pence in the pound . . . We hear all the time that people must stand on their own feet and make provision for their retirement, which is totally opposed in my view to the actions of the same Government who seem bent on destroying the whole system of company pensions."
Finally, another employee of UEF Chesterfield Cylinders branch—a Labour councillor, by the way, which shows that this is not a partisan issue—told me of his disillusionment at the fact that after nearly 40 years of paying into the company pension scheme to guarantee a secure retirement, he had effectively been robbed, when it was too late in his working life for him to do anything about it.
I have raised these matters in detail on a number of occasions. For example, I wrote at length to the Minister for Pensions on
I would not normally intervene in the debate, but the hon. Gentleman should be absolutely honest in his remarks. I held a debate in the House, met the workers and met a group of Members of Parliament who are working on behalf of the workers. The hon. Gentleman never turned up to the debate. When he raised the issue on the Floor of the House, I offered to co-operate with him on these matters, and I do so now. I received a letter from the work force thanking me for the work that I am trying to do on behalf of them and their Members of Parliament in an extremely difficult situation. I do not mind the hon. Gentleman backing up what he is trying to do in support of his constituents, but he should not do so by misrepresenting what I am trying to do on their behalf and on behalf of the other Members of Parliament who have raised the matter with me.
On the occasions to which I referred, and others, and in several letters to two Ministers, I received assurances—which I can read out word for word, if the right hon. Gentleman wishes, as I have them with me—that measures already existed to protect such pension schemes. However, the point that has been made repeatedly by me and by other Members of Parliament who have UEF-owned firms in constituencies from Scotland to Lincoln to London is that no law was broken in either the UEF case or the Dema Glass case.
In both cases, clever use of existing regulations allowed the company pension schemes to be legally plundered. That was legalised robbery. The regulation and public transparency of such schemes must be improved. Again, I ask the Secretary of State or the Minister for Pensions to consider the suggestions and questions that I put to them, for example on
In both the Chesterfield cases quoted, the work force were persuaded to keep the schemes going last year, and even to increase their payments into the scheme in the case of UEF. Had they known the real business position and financial situation of their companies, they probably would not have agreed to that. What action will the Government take to ensure that work forces are provided with all relevant financial information in similar situations?
Should the actuary for a company pension scheme provide annual reviews, rather than just three-year forecasts? In the UEF case and the Dema Glass case, the forecasts seemed to suggest that if workers continued to pay into the scheme or increased payments by 2 per cent., the scheme would be safeguarded. When the figures finally became available, after the firm went into receivership or closed down, it became apparent that that was not the case.
Should actuaries be required to make new forecasts whenever a new issue arises that could seriously affect the viability of the pension fund—for example, when a company faces financial problems, when a company encourages workers to take early retirement as an easy form of redundancy, and so on?
Following the Maxwell affair, the mis-selling of endowment policies, the Equitable Life problems and now the examples related to company pensions, it is imperative that the Government undertake a major review of the financial services industry, if they are to restore public confidence in the schemes on which the Government insist people should rely to look after them in their old age.
I welcome many of the positive measures that the Government have taken for pensioners, particularly poorer pensioners, but I shall concentrate my remarks on final salary pension schemes, largely based on a tragic situation in my constituency. In that regard, Paul Holmes has rather stolen my thunder, as the case also involves United Engineering Forgings, which is located in my constituency, his constituency and four others throughout the United Kingdom.
I shall not dwell on the comments that have been made about the possible reasons for the current problems with final salary pension schemes. I am worried that, with constant talk of crisis, an atmosphere is developing in which employers may feel vindicated and even encouraged to walk away from long-term commitments and responsibilities that were entered into in good faith, as part of the terms and conditions of employment based on a short-term view.
For those who have benefited from occupational schemes, they can be said to be one of the most positive social developments in the post-war years, encompassing a partnership in retirement between the private sector, employees and the state. That is why the Government must take steps to ensure not only that final salary schemes are preserved, but that the millions who do not currently benefit are brought into an effective, workable and fair system. As other hon. Members have said, if it is good enough for Members of Parliament, it is good enough for the rest of the work force. I echo the comments in relation to compulsion that have been made this evening. That is well worth serious consideration.
I shall elaborate on my constituency problem, on which I have been working for some time. My right hon. Friend the former Secretary of State for Work and Pensions, who has taken on the task of sorting out the transport system, often said that occupational pensions are part of the remuneration package agreed by employers and their employees or their representatives. It should therefore be seen as part of a contract that one party cannot just abandon at will.
I have previously raised the matter in a Westminster Hall debate, to which my right hon. Friend the Minister for Pensions referred. I have a copy of the debate, and I do not see any record of a contribution from Paul Holmes, and he certainly did not raise with me the possibility of taking part. It is unfortunate that he has failed to recognise the efforts of other hon. Members in that regard. I make no apology for raising the issue again this evening, as it is extremely important and involves more than 1,000 people. As was obvious from his intervention, my right hon. Friend is well aware of the situation. I thank him for meeting me and other hon. Members, and for his helpful response so far.
The UEF workers had a final salary scheme introduced in 1974 as part of the annual wage award. As my hon. Friend Mr. Rooney said, many people regard their contributions to their occupational pension as part of their terms and conditions. The workers from UEF in my constituency call it their wages for retirement.
The work force include many long-term employees who believed that they were following the advice of successive Governments in making provision for their retirement. That has not come about in the past couple of years; it has been on the go for 20, 30 or 40 years. People have faithfully contributed over that time, but as matters stand, they will not get their expected pension from their accrued final salary scheme when they most need it, as they enter retirement and old age.
As the hon. Member for Chesterfield stated, it was not until the company went into administration in June 2001 that a shortfall of £12 million was identified by the independent trustee and the pension scheme was wound up immediately. Time does not allow me to recount the whole sorry tale, but a number of aspects are relevant to the debate and have wider application. I shall try not to repeat what he has already said.
The majority shareholder was Prudential Portfolio Management Ventures Limited, a member of the Prudential Group that, as hon. Members know, has a major involvement in pensions. It is rather strange that the hon. Member for Chesterfield did not even mention the role of Prudential. I can assure him that the work force feel that it is crucial. I would have welcomed him, had he joined me at the various meetings with Prudential management and at the protests outside the company to try to get it to live up to its moral responsibility to the work force. If he wants to join the campaign in future, he is more than welcome to do so.
The company took short-term decisions to benefit its shareholders and, I believe, had a conflict of interests that meant that it did not take responsibility for the proper management of the pension scheme, as it should have done even under current regulation. As the hon. Gentleman said, an important factor in the demise of the UEF pension scheme was the abuse of early retirement benefits as a carrot for voluntary redundancies, which ensured that many employees of 55 years and more received their fully accrued pension when they accepted redundancy. Many hon. Members have commented on the added pressures on pension funds that are caused by increasing life expectancy. We are all aware of that issue, but the problem is made worse if the number of people who receive their full pension at a lower age is greatly expanded, even if there is no health reason for them to retire early, and if the fund does not have sufficient assets to withstand the extra pressure.
The final decision in the UEF case lay not with the Government, but with the company, as it decided to allow people to go for early retirement in order to cut its wages bill—and that is exactly what happened. The misuse of funds is deterred by restrictions on the amount that can be invested from the fund to the employer's business, but what if the fund is over-burdened and due account is not taken of future requirements? As things stand, it appears that that is not illegal. The bottom line is that, after paying in all their working lives, the former UEF workers will be entitled to a greatly reduced amount and may have to rely on state benefits. Despite all that has happened, and much to the surprise and consternation of those who will suffer, there is nothing illegal about that.
I and representatives of the work force from throughout the UK met Mr. Jonathan Bloomer, group chief executive of Prudential, on
I await with eager anticipation the publication of the various pension reviews that are currently under way. I hope that they will encourage the retention and development of occupational schemes, which are far better than the available alternatives, and that they will point to early legislation. I hope also that the Minister will give an indication as to when we can expect legislation to be introduced to ensure that what has happened to the UEF workers will never happen again to other workers.
Many Opposition Members fully support the Government in their intention to try to shift the balance of pension provision so that 60 per cent. of pensions are provided by the private sector and 40 per cent. by the public sector. We give that support not because there is any magic in a particular ratio, as Mr. Webb pointed out, but because we want as many pensioners as possible to benefit from the independence and security that they have built up through their own provision. We also want sufficient money to be left over to allow Governments of years to come to concentrate on the genuine fight against pensioner poverty and to fund all our other public services.
There is much support on the Opposition Benches for the general direction in which the Government have set out, but we must recognise the startling situation in our country today. Most social conditions have improved for the people of this country over the years: their pay has gone up and their working conditions and other entitlements have improved. The next generation of pensioners who retire with the benefit of occupational schemes will be in a very much worse position than the generation that is retiring now.
I do not feel that the Government have fully grasped that situation. Indeed, I am afraid to say that there is an element of complacency on their part—they have given us a 70 per cent. overstatement of the funds going into occupational schemes. One would have thought that someone had conducted a reasonableness test, but it appears that the conclusion drawn was that everything in the garden was rosy. We have also heard from the Government the assertion that the stock market is massively up on 1997 levels, but, again, we know that that is not the case. The Opposition are genuinely concerned that the scale and depth of the problem have not fully been appreciated.
In particular, I point to the demise of defined benefit schemes. Many hon. Members have said that it is outrageous that we, as Members of this House, are privileged enough to be members of an extremely generous and excellent scheme, while others face serious difficulties. We should want the benefits of similar schemes to be as widely available as possible to our constituents.
I take issue with an assertion made by my hon. Friend Mr. Viggers, who suggested that we may not need to be too concerned about the demise of defined benefit schemes because the world of work is changing, people have a portfolio of careers and so on. Indeed, the Government have sometimes given a similar impression in recent years. According to research from the Economic and Social Research Council, however, the average job tenure is increasing, and did so by almost 20 per cent. in the 1990s. The evidence, which is quoted in the current issue of Pensions World, suggests that people are not necessarily moving from job to job, but are spending longer in one job than in the past. Defined benefit schemes are, therefore, as relevant today as they ever have been and provide a tremendous advantage to employees who are lucky enough to be members.
It would be churlish not to accept that two of the major factors in the pensions crisis are wholly outside the Government's control. We all know that people are living longer—it is a worldwide phenomenon for which we are all grateful—and that the effect on pension funds is severe. We also know that we are currently in a period of extreme market volatility; I do not think that there has been a similar example of the stock market falling for two and a half years, as it has done for the past 30 months or so. Market volatility and increased life expectancy cannot be blamed on the Government.
There are other factors, however, for which the Government must take some responsibility: the complexity faced by the pensions industry today, the tax situation and the failure to get to grips with encouraging people to save. Labour Members have criticised the Opposition on the basis that they have not heard us give any positive policy proposals, but I intend to devote the rest of my speech to what I think should be done about the pensions crisis. I should like to raise four different areas in which I think that we can make strides to deal with the problem.
First, we should help employers whose costs have risen because of extra tax on pension funds and extra national insurance contributions. The cost to employers of employing people and providing pension schemes has gone up, so, like the hon. Member for Northavon, I think that there is great merit in the scheme proposed by the Association of British Insurers, which has suggested the introduction of a pension contribution tax credit. The ABI also proposes certain requirements in that regard. It suggests that employers should make a contribution of at least 5 per cent.—I hope that Labour Members will welcome that—and that the schemes should have a membership of at least two thirds of all eligible employees.
To recognise the cost to employers of providing pensions in a competitive market by introducing a form of tax credit would be a step in the right direction, and the expression on Ministers' faces suggests that they are not wholly ruling out that idea. I hope that it will be given serious consideration as a way of recognising the difficulties that employers face. As we are a responsible Opposition who realise that a tax credit will have a corresponding reduction in expenditure, my proposals for recouping that cost are an increase in VAT and perhaps a reduction in parts of the DTI budget. We heard no suggestions from the Liberal Democrats about where the money should come from. As the Government in waiting, the Conservatives always cost their proposals carefully, and will continue to do so.
I am reluctant to interrupt such a thoughtful and non-partisan speech, but perhaps I can help the hon. Gentleman by describing the faces of his two Front-Bench colleagues, the hon. Members for Daventry (Mr. Boswell) and for Hertsmere (Mr. Clappison). "Stony" would imply too much warmth.
One of the advantages of not being a Front Bencher is that Back Benchers have slightly more freedom to expand thoughts that may or may not be taken up by the Front Bench. I will of course abide by my party's decisions as and when they are made, but I hope to contribute to debate on them.
My second proposal is for a reduction in complexity. When the National Association of Pension Funds asked its members what single factor would most help the industry, they said "Simplicity". Friends of mine who work in the industry say that they would go into meetings a few years ago with a slim A4 ring binder; now they must take several lever-arch files full of regulations and so forth. Those of us who are not involved in the industry probably cannot fully appreciate the demands that MPs have made on it. Of course we want regulation—good regulation, to ensure that employees are not ripped off—but we must consider all its consequences. It must be effective, but it must not reduce supply and make employees worse off.
My third proposal is to help those near retirement to bridge the gap between the world of work and the world of retirement. There is no reason, for example, why such people should not be able to take part of their pension in advance while continuing to work part-time.
It is also ridiculous that someone who has worked for Tesco all his or her life cannot push trolleys there in retirement. The same does not apply at Sainsburys. Why is there a rule preventing pensioners from working for their former employers? The Minister for Pensions nods; perhaps progress will now be made.
I am afraid I cannot give way. I have only one minute left.
My fourth proposal is intended to encourage saving, which is vital. I support the statutory money purchase illustration that will be produced from next year, but why should it not apply to all types of saving? Let us look seriously at inheritability. Young people in particular should have a real sense of ownership of their pension savings.
We should ensure that it always pays to save. Elements of pension credit, unfortunately, prevent that from being the case. Steve Bee, Scottish Life's pension chief, said recently on Radio 4 that about 1 million people might not be better off because of means-tested benefits.
Improvements could be made in stakeholder pension regulation. We should also ensure that those looking for pensions receive the best possible advice. Independent financial advisers are having a tough time at present because of polarisation in their industry, and there is a desperate need for good advice for employees. This is a complicated area. Employees need much more impartial advice that they can trust, and I hope the Government will take account of that.
I am pleased to have an opportunity to contribute to this excellent debate. Let me first congratulate the Government—surprisingly—on the measures they have introduced to help pensioners. As my constituency contains a higher percentage of over-60s than any other part of Europe, pensions have a special meaning for me. I congratulate the Government on the minimum income guarantee, the pension credit and free eye tests, to name but three of many useful measures.
Mr. Viggers, who is unfortunately not here now, said that he wanted to be part of a reforming party. Perhaps he should cross the Floor, for he will certainly not achieve that on the Conservative Benches.
What concerns me, however, is ensuring that the pensioners of the future do not fall into poverty. For the benefit of those who have heard part of this speech before, I shall concentrate on final salary pension schemes, and discuss ways in which the Government can try to protect employees as more and more companies—sadly—end such schemes.
A final salary pension scheme is a defined benefit scheme guaranteed to pay a person who retires a pension based on that person's final salary. It allows people to plan for the future: they know exactly how much money they will have, where it will come from and, if it is index-linked, by how much it will increase. Membership of such schemes has declined in recent years, but final salary pensions are still the dominant type of occupational pension. The problem is that the schemes have become more expensive for employers, for a number of reasons. As has been said, there are demographic factors such as the increase in life expectancy. Other factors are policy changes, such as the introduction of the minimum funding requirement and FRS 17, and economic events such as the fall in stock market returns.
Those economic conditions and policy changes have had an enormous impact on employers who used to offer final salary schemes. We need to consider how the Government can instigate policy changes to remove some of the pressure. I fear that if we do not remedy the problem now, the full impact will not be felt for 20 or 30 years.
The alternative being adopted by companies is a defined contribution or money purchase scheme that transfers any investment risk to the individual and away from the company. If the stock market underperforms, the employee's pension is likely to be smaller than it would have been under a final salary scheme. Pensioners in my constituency, and those approaching pension age, will want to know exactly what they will receive. They do not want to be involved in a gamble or a lottery, in which they buy the right ticket on a Saturday if they are lucky.
The TUC has conducted some interesting research whose compelling results illustrate the difference in employer contribution rates between the two types of scheme. For example, in the case of someone earning the average wage, the difference accrued in one year is more than £2,000—or £40 a week. Nearly half the companies running defined contribution pension schemes put in 5 per cent. or less of employees' salaries. In a typical final salary scheme, companies contribute 10 per cent. or more. According to the National Association of Pension Funds, the long-term average employer contribution to a final salary scheme is 15 per cent., while the average employer contribution in a defined contribution scheme is a mere 6 per cent. Without final salary pension schemes, retired workers could be 30 per cent. worse off.
A vast number of companies have closed their final salary schemes to new employees, citing the aforementioned factors individually or collectively. BT closed its pension scheme—as a member of that scheme, I declare an interest—to new employees on
I thank the hon. Gentleman for that contribution. I shall completely ignore it, as I should. I will say, however, that many withdrawals of money and opt-outs happened when his party was in power.
Will not my hon. Friend be relieved when that particular example being used by the Opposition crawls out of the Chamber and dies? It is a very minor matter compared with the cost to 10 million pensioners of the breaking of the link by Mrs. Thatcher in 1980, which costs them a minimum £15 billion a year. Does my hon. Friend agree that Bob Spink should be ashamed of that?
If the hon. Gentleman is not ashamed, he certainly should be.
With money purchase schemes, the size of an individual's pension pot on retirement determines the size of the pension. If the individual has not put in enough, or if investment returns have been poor, there may not be enough to fund a decent pension. At the moment, that situation is made immeasurably worse by the very high price of annuities. The law currently obliges people to use their pension fund to buy an annuity.
If we look up annuity rates in the financial pages of the newspapers, we find that, to buy a half-decent pension at the moment, someone would need an absolutely huge pot of money. For example, for someone to obtain a retirement income of £10,000 a year, and a half pension for their partner should they die first, plus inflation-proofing of up to 5 per cent. a year, they would need a pension pot of at least £250,000. For the vast majority of people, that is a non-starter. The pension industry is currently saying that, to ensure a reasonably decent pension, we need to save between 20 and 25 per cent. of our salary for the whole of our working life. For all but the very rich, that is just not feasible.
There are also implications for employee relations in the closure of final salary schemes. While it may not be a breach of contract to close a final salary scheme, it could be regarded as the breaking of an implicit promise in the employer-employee relationship. Apart from the obvious damage to the commitment that employees have to their company, the loss of a guaranteed pension and reduced contributions may increase wage demands as employees seek to maximise their pensions. A disturbing tendency is also emerging—directors are keeping their own final salary schemes while removing them from their employees. That must be stopped. I ask the Minister to ensure that, if there is no law to cover this, there will be in future. There cannot be one law for directors and no law for employees.
The unions are very concerned about the dangers of closing final salary schemes, and I pay tribute to Amicus and Connect, the union for professionals in communications—I draw to the House's attention the disclosure of my membership of Connect in the Register of Members' Interests—for the work that they have been doing to inform people of why final salary schemes are needed and must be brought back. Earlier, I mentioned that Ernst and Young was one of the employers who had closed the scheme to existing employees. This company has now been forced to reopen the scheme owing to the sheer pressure that it faced from its employees. Do we really want to go down the industrial action road? Who would win in those circumstances? I also have to ask how the company can go back into a final salary scheme once it has come out of it.
The problem with the minimum funding requirement is twofold. First, the test for the schemes is too onerous. Secondly, a scheme that is fully funded under the MFR rules—one that can meet its pension obligations—is in fact overfunded. In other words, the MFR is too cautious. It might seem absurd to make that statement, but actually it is not. Under the MFR rules, schemes have to be returned to fully funded status within a fairly short time—now 10 years. The only way that that can happen is through employers making sizeable payments to their pension schemes. That is the nature of the second problem, because it places the onus on employers to make up the shortfall, although in many cases the shortfall is really nothing of the kind.
Another problem is FRS17. This is a new accounting convention, designed to force companies to show any shortfall in their pension scheme funding as a liability on their balance sheet. I disagree with some of my colleagues on this, because I do not agree with the measure. We should either modify it or get rid of it. It is supposed to aid transparency in company accounts, but all it does is add the money in one fell swoop to the liability of a company. That can drastically affect the company's share price, which can also have a knock-on effect.
Funded pensions are important to every person, not only in the Chamber but in the whole of Britain. This is not an issue to be taken lightly, and it is certainly not an issue on which to score points. I have tried not to do that. The Government are trying hard, and they have gone a long way, but—as my colleagues have said—there is still a lot to do.
As we have heard, the funded pension system is in considerable difficulties. The amount already saved is unclear, as is the amount being saved, and employers are opting out of occupational pension schemes. Pensioners and future pensioners are uncertain as to their future pension incomes, and many people are uncertain about their entitlement, not least because the system for income maintenance in retirement is so complicated.
Conservative Members have referred several times to the complicated nature of the pension system. Last Friday, I had the daunting task, as a relatively new MP, of trying to explain part of the pension system to a puzzled constituent. I will certainly not go into it again today, except to list some of the features that I was trying to explain: the state retirement pension; the minimum income guarantee; the state second pension; the stakeholder pension; occupational pensions; private pensions; and the pension credit. That was without going into disability or housing benefits. Many pensioners are bemused—as, occasionally, are Members of Parliament, when trying to explain all these various provisions.
Final salary schemes are in considerable difficulties. The TUC estimates that there are 1.8 million fewer people in such schemes today than there were 10 years ago. Only 200,000 of those people are likely to have transferred to money purchase schemes. What has happened to the other 1.6 million? The assumption must be that they now have no form of occupational pension. The Association of Consulting Actuaries estimates that only 37 per cent. of final salary schemes now remain open to new members.
John Robertson referred to the case of BT, which closed its scheme some 14 months ago. New workers will now be lucky to have a pension worth 25 per cent. of their final salary. Since the scheme closed, about 3,000 workers have joined BT, and a Communication Workers Union official has estimated that the average contribution of new joiners to their pension was 4.7 per cent. in that period, matched by 4.7 per cent. from BT. That represents a considerable saving to the company, and, as James Purnell said, it means a pay cut in the future.
That is the situation for new entrants, but people who are already in the scheme are worried that it will be closed, forcing them, too, into a money purchase scheme. The hon. Member for Glasgow, Anniesland mentioned that the average employer contribution into final salary schemes was 15 per cent.—I understand that it was actually 15.4 per cent.—whereas the contribution to a money purchase scheme is 6 per cent.
The Government have a policy of changing the ratio of state to private pensions from 60 per cent. state and 40 per cent private to 40 per cent. state and 60 per cent. private by 2050. There must be serious concerns about that. Future pensioners are suspicious, not least because of the pensions mis-selling scandal, the Maxwell scandal and now the Equitable Life debacle.
A change in the ratio is not guaranteed to provide pensioners with a decent income in retirement, which must be our aim. There are particular difficulties for people in areas such as my own and throughout Wales, where incomes are lower and the ability to save is much more restricted. There are difficulties for individuals, and a difficulty for Welsh society as a whole. We have an employment structure that is skewed towards lower paid jobs, which are much more common. The difficulty in the pensions system is a difficulty for the community in general.
The Government make great play of the stakeholder pension. The Welsh economy is overwhelmingly made up of small businesses with fewer than five employees, so those employees will not necessarily get access to stakeholder pensions. Take-up may be a problem in Wales, especially among the lower end of the target group—those on incomes of £10,000 up to about £18,000. We in Plaid Cymru look forward with great interest to the publication of the comprehensive take-up figures in October.
We need a better system of funded second pensions that will reach the lower paid, especially those in small enterprises such as those I have mentioned in Wales. We also need a proper retirement pension, and a redistributive rise in that pension is essential.
We began the debate with a contribution from Mr. Willetts, who is back in his place. He had a packed audience on his side of the Chamber, and there was an air of expectation. I think that Conservative Members were looking for the man to put "fun" back in "FUN-ded" pensions, but his contribution fell flat and it was more like putting the "dead" back in "fun-DED" pensions. He gloated about what is happening in the stock market. In the last two Prime Minister's Question Times, the Leader of the Opposition—once in person and once by proxy—gloated over what has happened to the stock market. As many of my hon. Friends have said, it is what has happened to the stock market that has most damaged funded pensions in recent times, not the actions of the Government.
May I make a little progress, and if I have time at the end I shall come back to the hon. Gentleman?
The irony is that, according to Tory philosophy, everyone's pension entitlement should be dependent on the casino of the stock market. That is how private pensions work. The hon. Member for Havant said that his party's vision is that older people should not be dependent on state benefits. If they should be independent of state benefits, presumably that means that they should be totally dependent on benefits from other sources, so they would be dependent on the whims of the stock market
As the hon. Gentleman knows, the formula of private funded pensions plus the element of compulsion that some of his colleagues have called for would enable the providers of private schemes to have a field day. Many tears were shed by Conservative Members for the actuaries and investment managers, whereas little was said—in the hon. Gentleman's opening speech nothing was said—about pensioners, their living standards and their expectations.
Private funded schemes have suffered because the value of the stock market has gone down. It has gone down so far that a few days ago it was back to 1997 levels. That has been painted as a tragedy, but in another context the economic situation of 1997 was described by Conservative Members as a golden legacy. If we are starting off with a golden legacy at worst, with the stock market already improving, it is to be hoped that this hiccup is almost over.
The stock market fell in recent days not because of actions by Governments, but largely because of fear in the markets as a result of the signals that have been sent from WorldCom, Enron, Xerox and others, from a sky darkened with greedy, fat cat chickens coming home to roost—if I may mix my metaphors. [Interruption.] One takes a risk when mixing metaphors.
The reason why we in this country need not be so concerned as people elsewhere—although we should not be complacent—is because our economy is not a free for all. We have regulated our economy, successfully combated inflation with a healthy target of 2.5 per cent., reduced interest rates to a manageable level, and stabilised the economy. We have recognised that unbalanced distribution of income and wealth is destabilising, and we have combated the forces, such as unemployment, that feed economic instability. The actions that we have taken in the past five years have put us well on the way to conquering poverty at home and in the developing world.
The Conservative party does not want to talk about the economy. The reasons for that are obvious. We have created a situation in which investing in enterprise is safe, because interest rates are reliable, the stock market can operate fairly, and savings can grow faster than inflation. We remember the days of 15 per cent. interest rates, 4 million unemployed, and the scandal of pensions mis-selling, which was worth £34 billion to pension holders and was too long ignored. That exploitation of the gullible by the greedy, connived at by the friends of the Conservative party, damaged people not just for today but for the rest of their lives, especially for their retirement. We remember Black Wednesday, Black Monday, black every day of the week, when the Tories were running our economy.
I am on a wave, so if the hon. Gentleman does not mind, I may come back to him later as well.
The Tory years were not bad for everyone. It has to be said that there were some winners. Between 1979 and 1997, the average net income of pensioners rose by 64 per cent., compared with the rise in real average earnings of 36 per cent. That sounds good for pensioners, but whereas the top fifth of pensioners saw their incomes rise by 80 per cent. in that period, the bottom fifth saw theirs go up by just 34 per cent. Eighty per cent. of a lot is much more than 34 per cent. on the income of the poorest, which is very little. In 1997, the richest fifth of our pensioners had three times the income of the poorest fifth. Rich pensioners got richer under the Tories, and poorer pensioners got poorer.
Occupational pensions are only part of the story. We must consider the background, pensioner incomes and pensioner needs in general. Pensioners get income from six different sources: state retirement pension; income from investment; occupational funded pensions; income- related benefits; disability benefits; and earnings. Ninety-eight per cent. of all pensioners receive the state retirement pension. I believe that the Government's policy for the state retirement pension and the undertakings that have been given are right. I would not favour the restoration of the link with the rise in earnings, because we have done more since 1998—£3 billion more—for the poorest pensioners than a simple restoration of the link with earnings would have done.
In 1997, after 18 years of Tory government, four workers in 10 were still making no voluntary provision for their entitlement over and above the state pension, which was then only £68 a week. Two million pensioners were living in poverty. In the past two years alone, we have increased the state retirement pension by £8 for a single pensioner and £12.80 for a couple. Many over-75s claim a free television licence, which is worth £2 a week, and the winter fuel allowance for all pensioner households and men over 60 brings in an extra £200, which is equivalent to £4 a week, at a time of the year when fuel costs are highest.
The second category was investments. In 2000–01, 70 per cent. of pensioners had income from investments. That sounds great. It sounds as though they are looking after themselves. They are playing the market, taking the risk and investing in their future. Or are they? Of those people who had income from investments, 57 per cent. had incomes from investment of less than £10 a week, so presumably those investments are largely post office and building society accounts. They are exactly the people who were penalised by the benefits system. For every £1 that they received, they lost £1 in benefit entitlement—in marginal cases, they would lose more than £1 for every extra £1 from their investments. But not any more. Many have been picked up and helped by the minimum income guarantee, and 5 million people will get help of around £8 per week—up to £13.80 per week—from the pension credit when it is introduced next year. Nobody will have to live on less than £100 a week when the pension credit comes into effect.
"is long overdue, and my hope is that it will provide support for some of the most deserving people in this country."—[Hansard, House of Lords, 18 December 2001; Vol. 630, c. 165.]
That was Norman Fowler, the former Secretary of State for Social Services. It is worth adding, as regards investment income, that 5 per cent. of pensioners—those who need no help, and should expect no help, from the state—have investment income of more than £200 per week.
On the third category, 60 per cent. of pensioners receive income from occupational pensions. Of those, more than half had an income from occupational pensions of more than £50 a week, and one in six had an income from occupational pensions of more than £200 a week. Clearly, those pensions have taken a long time to build up, with a lot of money put into them as an investment. Not everyone is offered or can afford occupational pensions. So we introduced stakeholder pensions, of which 815,000 have been sold so far. Stakeholder is holding its own in the market and is clearly going to be a success, as even Conservative Front-Bench Members have conceded in unguarded moments.
About a third of pensioners received income-related benefits in 2000–01. Many, but not all, of those would formerly have been on income support, but can now get the minimum income guarantee. I should say for the record, "Telephone 0800 028 11 11 for more information, and get your claim in now." Some 800,000 people claimed the minimum income guarantee last year, and the Department for Work and Pensions has details of another 100,000 who did not qualify then, but qualify now because of the relaxation of capital rules. That is very welcome for them.
Income-related benefits are necessary because the system as it stands fails too many people, particularly: women who paid a reduced married women's stamp, often because they had been wrongly advised to do so over the years; women with broken contribution records owing to their commitments as parents; 2 million disabled people unable to work full time or permanently; 2 million carers—often women—dedicated to family members, but unable to care for themselves; and 4.5 million workers—again, often women—who do the dirtiest, most miserable and often most thankless jobs on full-time incomes of less than £10,800 a year. Since April, those people have had available the state second pension, which will build on the experience of the state earnings-related pension scheme—SERPS—in the past. For the categories that I mentioned, we will assume an income of at least £9,500 a year and credit them as such into the state second pension to ensure that they will have more then they could expect under the previous system.
The fifth category of income is disability benefits, which are received by about one fifth of pensioner households. They will not be taken into account as they are supposed to meet the added costs of dealing with disability.
Between 1979 and 1997, investment income rose by 103 per cent.—
I am left with the almost impossible task of following the high oratory of Mr. Levitt, but I shall attempt to do my level best. Indeed, I wish to emulate John Robertson, who at the commencement of my speech vacated the Chamber. Were he here, I would point out to him that my constituency, East Devon, is also home to many pensioners. I think that it has one of the greatest concentrations of pensioners in the country—that is, of course, of those who are not in Glasgow, Anniesland.
It is perhaps worth remembering the hopeful words of the 1997 Labour manifesto, which stated:
"We believe that all pensioners should share fairly in the increasing prosperity of the nation. Everyone is entitled to dignity in retirement."
That is a lofty aspiration, but alas, like so many other Labour promises, it has remained just an aspiration—although I begin to doubt even that.
For pensioners, the problem with pensions is that they are too complicated. According to Government estimates, 1.7 million pensioners receive payments under the minimum income guarantee, but Help the Aged estimates that some 2.5 million pensioners are entitled to such support. In other words, only one in five of those eligible claim the minimum income guarantee. Some suggest that that equates to as many as 770,000 people, all of whom are losing an average of £22 a week, thereby saving the Government nearly £900 million a year. That is a poor reflection on a flawed system.
I am afraid that I will not.
Pensioners are, rightly, proud. Many do not wish to be in receipt of benefits when they would be satisfied with what they regard as an entitlement. That is often at the root of it all. The minimum income guarantee claim system, which is designed to overcome the stigma of means-testing pensioners, is not working. It has cost more than £50 million to date, with no significant increase in the number of pensioners taking up their entitlement. The introduction of the pension credit is expected further to add to the complexity of the means test, and will bring more than 50 per cent. of pensioner households into the claims-led process of the minimum income guarantee or the pension credit. How does that square with the Department for Work and Pensions information sheet, which clearly states:
"The dependency culture in social services needs to end. They should be refocused to promote independence, helping people to live in their own homes and do as much as possible for themselves"?
That statement is all about the independence of pensioners, yet the Government's strategy is seemingly to make them ever more dependent. Far better the alternative that was well articulated by my hon. Friend Mr. Willetts at the start of the debate. He suggested, among other moves, arresting the spread of means-testing by putting the cost of the pension credit into a higher-rate pension for older pensioners. That would be welcomed by many of my constituents. The elderly feel very let down by the Government. Many of them are people who have saved all their lives and were brought up in a perhaps more frugal—certainly a more responsible—age, when they were taught to be accountable for their own behaviour and certainly for their own retirement. That is the attitude that gave rise to the maxim, "Look after the pennies and the pounds will look after themselves."
This afternoon, the Secretary of State said that the Government have a responsibility to those who save. Dead right they do, but there is precious little evidence of their practising what they preach. What about those who saved all their working lives to take out private medical insurance and not be a burden on the state, only to see the tax benefit swept away, forcing many of them back on to an already overstretched national health service? That was one of the incoming acts of a pernicious Government. What about those who have suffered as a result of being forced to purchase annuities at the age of 75? It has taken a Conservative Member, my right hon. Friend Mr. Curry, to introduce a Bill to reform that requirement.
In my constituency I have many pensioners and many pensioner activists, not least Mr. Venison and Mr. Applebee, whom I warmly congratulate on their forming of the Devon and Cornwall pensioners convention and the Devon action forum. A Minister promised some time ago on a radio phone-in programme that he would go to visit them, but they are still waiting.
I am extremely grateful to the Minister; as usual one must wait for a public announcement, rather than a response to a private letter. None the less, I am grateful for an answer for which the pensioners to whom I referred have been waiting for a year and a half or two years.
The Minister will be aware of the grey power of these pensioner conventions and forums. They are getting increasingly fed up with not being listened to and, as they see it, with being preached at. They are no longer happy to remain a silent minority.
At the end of the conference on better government for older people, the Prime Minister said:
"We can make a real difference to the lives of older people by engaging them in strategic planning and policy making. We can ensure that our services are delivered in the right way by consulting with and listening to them."
Those are Empty words to the tens of thousands of pensioners who now live in a state of heightened anxiety.
Help the Aged has said that the Government's approach to pensioners reflected widespread discrimination against older people in public policy. Research has shown that one in two Britons believe that older people are treated as if they were on the scrap heap. That is not exactly a ringing endorsement of the Prime Minister's approach and I suspect that that is a sentiment shared by his father-in-law, who is active in these matters.
Another worrying factor is the crisis of confidence that the Government have now created. There was the derisory 75p rise in the pension and, as we have heard this afternoon, the £5 billion a year raid on pensions resulting from the reforms to advance corporation tax. We have also seen the acceleration in closures of final salary pension schemes resulting from that short-sighted act. The Prime Minister has argued that the market has compensated because the stock market is now doing so well. My belief is that the stock market has come off another 130 points today, so that argument now rings rather hollow.
Yesterday, we had the most recent admission: that the Government have been working on grossly over-estimated figures for the level of contribution to funded pension arrangements. All these factors are making the savers of today—the pensioners of tomorrow—deeply cynical about the idea of a pension at all.
When that is combined with the worrying drop in the savings ratio—which is at its lowest since records began in 1963—we begin to get some idea of the scale of the problem. There is a very real possibility that millions of people will retire without enough money to live on.
It is not just the pensioners whom the Government must now seek to convince. It is all those people in work who are thinking about their retirement and do not wish to be dependent on the state, which, to my way of thinking, is always an unreliable source of largesse.
It is perhaps timely to remember what the last great Liberal, David Lloyd George—
My hon. Friend corrects me; the only and last great Liberal. When introducing old age pensions in 1909, Lloyd George said:
"How we treat old people is a crucial test of our national quality. A nation that lacks gratitude for those that have honestly worked for her in the past whilst they had the strength to do so does not deserve a future for she has lost her sense of justice and her instinct for mercy."
We are a prosperous country, but today's pensioners are not sharing in that prosperity. The Government must, as a matter of urgency, look at ways of rectifying that.
The value of assets in our pension funds is falling. The proportion of recently retired pensioners with occupational pensions has declined from 67 per cent. to 59 per cent. between 1997–98 and 2001. The proportion of workers without a funded pension has risen from 40 per cent. to 44 per cent. in the last two years.
Of course we understand the demographic problems and the fact that people are living longer. Of course we appreciate that radical solutions are now needed. I am interested in the possibility of raising the age of retirement and being more flexible about the dividing line between being in work and being retired. But this crisis is a crisis of the Government's own making and solving it requires a commitment that, to date, has been sadly lacking.
Thank you, Mr. Deputy Speaker.
"Means-tested benefits for the poorest have rarely if ever been more generous. With the introduction of the pension credit next year they will become more so. Serps, the state earnings related pension scheme, is paying out the most generous second-tier pensions that the state will ever provide. And millions of pensioners are benefiting from the mighty growth in occupational pension schemes that happened in the 1950s and 1960s.
There are still plenty of troubling cases of poverty among pensioners—not least the failure of all those entitled to means-tested help to claim it. But average pensioner incomes have risen faster than the rest of society in recent years, and the average newly retired pensioner has never had it so good."
The present growth in pensioner incomes, partly from the Government, has come on the back of a beast of burden that is rapidly becoming extinct. I refer to the occupational pension schemes that give defined benefits in relation to final salary. We have heard that those schemes are closing and Mr. Willetts has provided two clear reasons why he considers that to be so; one for each of his brains, perhaps.
First, the hon. Gentleman blames the reforms to advance corporation tax by this Government and the £5 billion a year taken in tax. This, he says, has inevitably damaged the value of defined-benefit funded schemes. The Secretary of State has already explained that the advance corporation tax reform levelled the playing field to encourage better investment decisions by removing the distortions of the asymmetry of the tax burden between retained profits and dividends paid. The point is that money previously paid as dividend is now being reinvested in the company to increase productivity. Previously, the tax concession distorted that decision.
Not at the moment.
The current policy, by putting reinvestment on a level with shareholder dividend, actually enhances shareholder value in the long run and serves to eliminate distorting red tape, as the Opposition motion demands. A shareholder can always realise any future dividend stream in a capitalist market simply by selling their shares.
It may surprise the House to know that a company such as Microsoft has not issued a dividend in 15 years. Indeed, its official policy is:
"Microsoft does not currently issue dividends on common stock or have a direct stock purchase plan, choosing instead to reinvest profits into operations. Although our Board of Directors periodically reviews this policy, Microsoft has announced no plans to change the policy."
Yet no fund would think on that basis that it was unwise to hold Microsoft stock. Indeed, most fund managers would say that they cannot afford not to hold Microsoft.
Conservative Members like to use ACT as a stick to beat the Government. The fact is that they fail to understand the workings of the market and how shareholder value is measured in more ways than dividend income.
The real test that the hon. Member for Havant needs to apply to ACT is the integrity test; would he abolish it? He would not, and he will not. As such, his two brains may blame it for the demise in occupational schemes, but his two faces want to retain it for the revenue that it brings to the Exchequer. That is a fundamentally dishonest position to adopt before this House.
The second accusation that the hon. Gentleman made is that the savings ratio is too low. I agree with that. What he did not do was explain what he saw as the causal link between Government action and that low savings ratio. He did not do so because he could not. The report by Oliver Wyman and Co., entitled "Targeting the Savings Gap", has identified a £27 billion gap in the savings provision that we as a nation require to fund a comfortable retirement.
The hon. Gentleman was gracious enough to accept that the provision by Nigel Lawson in the Finance Act 1986 to cap occupational schemes at 105 per cent. of value was a disastrous measure that led to employers taking superannuation holidays that the hon. Gentleman calculated at £1.4 billion per year. Over the intervening period, that is £21 billion that employers have taken from their employees. He will, I am sure, accept that that is £21 billion at 1984 values. The compound effect on occupational schemes has been simply enormous.
There are real problems facing our pensions system. Demographic shift is real, with males living on average eight years longer than they did 20 years ago. That brings increased liabilities for pension funds and tends to lower annuity rates. The demography is a critical problem, but real incomes have far outstripped the rate of growth in life expectancy, so it is not that the money is not there, simply that it is being spent on different priorities and, I might conjecture, different savings vehicles that members of the public are now choosing to use rather than putting their money into pension schemes.
Mr. Mitchell was good enough to absolve the Government of responsibility for the demographic shift. I would have said that if there is one thing that it is possible to lay at the Government's door it is the fact that people now live longer, given the improvements in public health, employment and social conditions. However, I wonder whether he will join me in blaming those employers who are using the ending of final salary schemes to reduce their contributions to their workers' new money purchase schemes. The House will be appalled to find that, typically, workers now see only between 6 and 11 per cent. of their pay going into their defined contribution scheme, where previously it was 15 to 20 per cent. going into a defined benefit scheme.
Much is made of the savings ratio, but I am surprised that more hon. Members have not spoken about the savings distribution across the population. Within limits, I would far rather that we had a lower savings ratio that comprised a much wider distribution across the population, showing more people saving for a comfortable and adequate retirement rather than fewer people saving for a wealthy and luxurious retirement.
The savings ratio is of course important, and statistics show that in this country we put about 5.5 per cent. into our pensions savings, while in other countries in Europe the figure is up to 16.5 per cent. Even if we made up the full £27 billion, we would not catch those countries up, so much more needs to be done on the savings ratio, but equally we must see the effect of the distribution pattern.
The savings ratio is important, but the savings distribution is what addresses the real evil faced by our constituents: poverty in old age. I welcome the steps that the Government have taken to tackle poverty in old age: the reduction of VAT on fuel; the £200 winter payment; the minimum income guarantee; the stakeholder pension; and the introduction, when it comes, of the pensioner credit. Those are real and valuable changes that target £6 billion of resources on the many who are not well off, rather than the few who are.
I want to look forward to the future changes for which the Pickering and Sandler reports may call. Flexibility is a requirement of any pension system that is to meet a labour market that now expects to have mobility to a new employer at least every decade of one's working life. Flexibility and portability must be built into pension products.
I warmly welcome the courageous and thoughtful speech of Andrew Selous. I am happy to agree with him that incentives to employers would capture positive externalities for the Government by encouraging more people to save for retirement. I urge him to be more radical, however, and to embrace compulsion. I urge Ministers to consider making tax concessions available only to those employers who contribute double their employees' contributions, up to a combined maximum of 15 per cent., so rewarding employers who encourage their workers to save up to 5 per cent. of their wages by topping that up with 10 per cent. employers' contribution.
Clarity and transparency are vital, and are sadly lacking throughout the financial services industry. That is nowhere more so than in pensions, where the financial benefits are so long deferred and mature only at a time when, by definition, other earned income has largely ceased. If people's pensions fail, they are vulnerable in a way that they are not at any other time of their life. That is why the disaster that is Equitable Life has had such a dramatic effect on public confidence in the industry.
In today's Financial Times, we read of yet another increase in Equitable's market value adjustment—the penalty that members must pay to take their own money elsewhere. The article says:
"Equitable has no fat at all. It is now cutting into the flesh and will eventually get to the bone. They are looking down the back of the sofa for 50p bits to put in the meter to keep the lights on."
The problems at Equitable were complex, but at heart they relate to actuarial failure properly to represent the company's liabilities. In such an environment, I find it disturbing and distasteful that some Opposition Members have criticised measures such as FRS17 that will force companies to record properly in their accounts the full liabilities that they face. I welcome the better regulation that is being brought to the financial services industry and look forward to reading both the Pickering and Sandler reports.
One of the most important recommendations in the Oliver Wyman report about the savings gap is that provision of personalised financial advice is absolutely essential if we are to encourage people to save. I commend to Ministers the suggestion that a nationwide system of financial advice bureaux should be inaugurated, along the lines of citizens advice bureaux throughout the country, to ensure that people have access to advice as recommended by the Financial Services Authority's consumer panel.
My time is up, but I am grateful for the opportunity to speak to the House on a most important issue.
I apologise for not having been here for the whole debate. I feel a little cautious about contributing, partly because I have been preceded by a host of former Conservative pensions Ministers, as well as the distinguished former Minister, Mr. Field. Collectively, they have forgotten more than I ever knew about pensions. I was preceded also by my hon. Friend Mr. Swire, who made an excellent speech. I am also cautious because, as the youngest member of the Conservative parliamentary party, and one who has been here only a year, I am uneasy about talking about retirement—but I suppose that that is one of the hazards of politics.
I have great respect for the right hon. Member for Birkenhead, and even more so now that I sit next to him on the Public Accounts Committee. He talked about the need for consensus. Among the party political brickbats of this debate, there has been much consensus, as expressed in the opening speeches my hon. Friend Mr. Willetts and the Secretary of State.
One consensus is that, whatever our good intentions as politicians, we cannot rely on the state indefinitely to provide a secure income in retirement. On all the polling evidence, that consensus is shared by most people of my age or younger. It is even questionable whether the amount provided now is adequate.
The second point of consensus for most people, including most Government Members, is that the answer is to increase the contribution of the private sector—by how much is an issue that I will return to later. The Opposition support the Government's target, stated in their 1998 Green Paper, to increase private sector contributions to the nation's pensions from 40 per cent. to 60 per cent.
I hope that we can also agree that, sadly, progress towards that target has hit choppy waters in recent years, although we may disagree about the causes. The evidence is there. The right hon. Member for Birkenhead was right to say that there is a sense of urgency among our constituents about the pensions crisis, which now appears every day in our newspapers, and a feeling that the people whom they elect need to tackle it urgently.
The evidence is clear. The Association of Consulting Actuaries produced figures showing that fewer than four in 10 of final salary pension schemes are still open to new members. The parliamentary scheme is an exception—as I can say as a new Member. The Department for Work and Pensions' own long-term prediction for the pension credit suggests that 65 per cent. of pensioners could be receiving it by 2050. That is hardly evidence of that Department's confidence that we are moving in the right direction in terms of reducing dependence on state provision.
As I have said, I suspect that the consensus starts to break down when we consider the causes of the crisis in funded pensions. Although hon. Members do not all agree on those causes, there is a great deal of agreement within the pensions industry. Some of the causes are outside the Government's control. Mr. Gardiner, my hon. Friend Andrew Selous and others talked about growing life expectancy, but life expectancy is increasing at only about one year per decade. In terms of the existing £1,000 billion-worth of pension liabilities, that represents an extra liability of only some £3 billion—a large sum, but not that impossible to deal with in relative terms.
Of course, we must also consider the recent problems in the stock market, and the double whammy—to use a very good phrase—of a falling stock market and low gilt yields. As a result, people have not only smaller final pension funds but low annuities. However, they are not the only factors. Earlier this year, the Minister for Pensions himself conceded in Personnel Today—a publication of which we are all doubtless avid readers—that the
"layers of regulations have been loaded on to the pension regime resulting in too much red tape".
I welcome the Government's efforts to deal with that. As Conservative Members have pointed out, almost everyone accepts that the pension tax, which was introduced in 1997, has impacted on pension funds. The accountancy firm Chantry Vellacott calculated that someone of my age needs to save an extra £200 a year to make up for that tax.
If Labour Members are a little suspicious of Chantry Vellacott, they should at least take note of Tesco, which gave the pension tax as the reason for increasing contributions to its final salary scheme by 15 per cent. As Peter Thompson, chairman of the National Association of Pension Funds, said last month, the Government's actions since 1997 have
"led to a scenario where employers can be forgiven for taking a view that the Government is at best neutral about whether they make pension provision for their employees".
What can be done to make the Government better than neutral—or, as some have suggested today, not hostile—about expanding personal provision? How can they be helped to meet their 1998 target of a 60 per cent. contribution to pensions from the private sector? Several suggestions have been made today, including some particularly bold ones from my hon. Friend the Member for South-West Bedfordshire. I am not entirely convinced that I want to enter the next election campaigning for an increase in VAT, but I am happy to listen to his arguments in the coming years. The hon. Member for Brent, North—another member of the Public Accounts Committee—also came up with some interesting ideas.
The consensus is that we need to look again at the FRS 17 rule, which has clearly damaged company confidence in pension schemes, particularly in the current financial market. As the Minister accepted, we need to reduce red tape dramatically, and to clear the current mine field of Government pension schemes that almost no one—except perhaps my hon. Friend the Member for Havant—can understand. The Government also need to acknowledge the impact of changes such as the 1997 pension tax, and to see what can be done to address it. Conservative Members believe that the annuity rule also needs to be dealt with. In that regard, my right hon. Friend Mr. Curry has introduced an excellent Bill, which has consistently been voted for at various stages during its legislative passage.
Those important steps would go a long way towards tackling the current crisis, but I wonder whether we should think more boldly than that. This is the point at which the young Back Bencher usually gets into trouble, but there we go. One of the greatest divisions in our society is between those who have capital and the security and confidence that that brings, and those who do not and who, as a result, lack security and are exposed to some of the cold winds of life. The Government talk about raising people out of poverty, but all their measures are directed at increasing people's weekly income. Important though that is, it does not address their lack of capital—by which I mean property, savings, a private pension and the resulting security and confidence. The introduction of the right to buy council houses was a massive boon to those people, as even Labour Members now accept. It gave many thousands of people a chance to own their own home, and we can see the difference on visiting most council estates. We can tell almost with the naked eye which properties are owned by people and which remain owned by the council, because people often take a lot more pride into property that they own. That is a visible example of the pride and some of the benefits that ownership brings.
However, that policy is more than two decades old, and precious few new policies have been introduced to address capital poverty since then. The Government's now forgotten, half-hearted and ill-conceived baby bonds scheme was originally intended to address precisely the problem that poorer people do not have a capital base to help them as they start out in life. Is it not time that we turned to personal pensions as we consider how we can give everyone a stake in the future and the security of a decent income in retirement?
The motion before us calls for
"better incentives for people to save".
Given what the hon. Gentleman has said so far, does he think that, in line with the comments of my hon. Friend Mr. Gardiner, those incentives should be concentrated at the lower end of the market, where savings are least?
I certainly want to increase savings among the poorest in society, but how we do that is another matter. Although it became lost in the election battle, the Conservative party had the very good idea of taking all savings out of tax, so that people are taxed only once on their saved income.
Before the 1997 general election, my right hon. Friend Mr. Lilley, as Secretary of State for Social Security, produced a breathtakingly innovative scheme that was of course misrepresented in the party political battle. I suppose that that is just a hazard of democratic politics, but the scheme showed us the way forward. Indeed, my hon. Friend the Member for Havant came up with a voluntary version of it at the last general election.
Given that the political consensus has moved on and there is now recognition that a problem exists with pension provision, it is time to look again at how to provide a personal pension for all, without preconceptions and accusations of privatisation. We need to give people real security in retirement, the confidence that comes with capital ownership, and a real stake in society. The Government once said that they were prepared to think the unthinkable on welfare reform, but they have not had the courage to match that early rhetoric. The greatest prize of all in welfare reform is giving everyone a funded personal pension. That prize is within our grasp, and we should reach out and take it.
I am glad to have this opportunity to discuss pensions, for two reasons. First, the issue is raised increasingly by my constituents and has always been very important to them. Secondly, as my hon. Friend Kali Mountford said, it heightens the distinction between the Labour and Conservative parties. When we discuss pensions in the House, Conservative Members always talk about advance corporation tax, stocks and shares, annuities and equities, while Labour Members talk about relieving poverty and supporting the weakest in our society.
We need to concentrate on the gaps in the speeches of Conservative Members. I listened carefully to the detailed proposals of Mr. Mitchell. I tried to intervene on him, but—because of lack of time, I am sure—he did not give way. I wanted to ask whether his proposed scheme would replace the state pension scheme. That is the hole that exists in everything that has been said by Conservative Members. I would like a clear statement from the Opposition about whether the pension schemes that they are discussing would replace a state-funded pension scheme.
If a scheme were to be additional to the state-funded pension scheme along the lines of the original Beveridge vision that there should be a good funded pension scheme for everybody, with a basic state pension, would the hon. Gentleman accept it?
I would certainly accept that, but I am not convinced that that is what the Conservative party is proposing—quite the contrary, in fact.
This is a vital issue. I believe that the pensioners in my constituency who voted Labour in the last general election did so because they were pleased with the pensions policies that had been pursued between 1997 and 2001. By the time the last Conservative Government left office in 1997, a single pensioner was supposed to live on £68 a week. Pensioners recognised that substantial steps had been made by this Government in improving the lot of the poorest pensioners and of pensioners in general. They did not like the Conservative proposals at both the 1997 and 2001 elections for privatisation of the state pension scheme.
My voters had experienced the private sector before with regard to pensions. I make no apology for returning to the record of the Conservative Government in the 1980s when they presided over the most appalling shambles in the pensions industry. First, they removed the link between earnings and the basic state pension. Secondly, they allowed a completely unregulated private sector to persuade people who were involved in defined benefit schemes to switch over to defined contribution schemes. That was commission-driven, and poor advice was given to individuals at the time that the transactions were made. As a result, it was necessary for the Labour party, when it came to power in 1997, to put together a scheme to solve the pensions mis-selling problem. That cost the pensions industry £34 billion in total. That is the scale of the Conservative party's incompetence. It will have had a substantial effect on the viability of the pension funds that we are discussing today.
We have heard a lot today about advance corporation tax. I genuinely believe that any scheme that encourages long-term investment rather than the short-term swapping or selling of shares is a good thing. One of the weakest aspects of the British economy over many years is that we have invested in the short term far too much and in the long term far too little.
The Chancellor's proposal in 1997 and the action that he took was right. We must remember what he did with that money. He supported the poorest pensioners in our society and increased their income. That was the right thing to do; it was perceived by the public as the right thing to do, and it is why the Government were returned to office in 2001.
It is no good for the Conservatives to try to blame the Government for the present difficulties with final salary pension schemes. Most companies involved in, or terminating their involvement in, such schemes do not seem to understand that the scheme imposes obligations on them. The companies promised to pay their employees a decent pension and they should honour that promise. That means making consistent payments to pension funds—not taking contributions holidays that last for years.
My constituents have been affected by the actions of Iceland and the Caparo group. In the 1990s, both companies took substantial contributions holidays that greatly affected their pension funds. During this debate, I have not heard one criticism from Opposition Members of individual companies which have acted in that way.
I am grateful to my hon. Friend for pointing out to the House the folly of drawing out funds too soon. Is he as horrified as I am at the current scam—recently revealed on television—which has affected some of my constituents? People are being encouraged to give up their pension rights by selling them on to another company which gives them a lump sum but they receive a smaller pension later. People do not realise that they can ill afford to do that. Should not such loopholes be covered by regulations?
I have heard no condemnation from the Conservatives of companies that have taken long contributions holidays. Individual employees are being heavily penalised. Companies are merely notifying their employees that the schemes are ending. There is no consultation and no discussion—no partnership at all. That is where blame really lies for the shortfall in pension funds.
As we all know, pensions are complex and difficult. The debate has been interesting—I have sat through all of it—and there have been shafts of light and some consensus on both sides of the House. We all agree that, if possible, pensions should be simplified and we are looking forward to the proposals of the Pickering inquiry in that regard.
I am sure that my right hon. Friend the Minister will take note of the general feeling that is developing that compulsion is a coming idea in the pensions sector. Choice was the mantra in the 1980s, but that did not lead to a happy outcome. We have to accept that there should be compulsion on employers and employees alike to support individuals in their old age. If individuals are not supported in old age by contributions that they made earlier in life, the state will end up footing the bill. Although encouragement is always more popular with our constituents, the time is right for us to listen to the calls on both sides of the House for the introduction of compulsion. It should start with those companies that promised to pay into pension funds and failed to do so.
I am listening with attention to the sensible things that the hon. Gentleman is saying. Does he agree that it is not a question of whether there should be compulsion—it already exists—but of how much that compulsion should be extended?
Everything I say is sensible. [Hon. Members: "Hear, hear".]
I am certain that the Minister has listened to all that I have said. The debate has been interesting and I am certain that he will have seen the shafts of light that have been thrown on the subject—although there have been some dark clouds. I am certain that he will take on board the fact that a consensus is developing on a serious issue that we must all address.
Over the years, I have been privileged to have the opportunity to speak on this subject on several occasions, both in the Chamber and in various Bill Committees. I have also written papers on it. I shall not follow Ian Lucas very far: sadly, I do not think that a consensus is emerging at all—far from it—although there is consensus that something needs to be done.
What I found very sad about the Secretary of State's speech was an absolute unwillingness to come to terms with two desperately serious crises—arguably, they are alternative sides of one coin—that have happened on his watch. I shall not try to pretend that either is wholly the Government's fault, although both are partially the Government's fault—my hon. Friend Andrew Selous split what is the fault of the market from what is the fault of the Government rather neatly. Both these crises have happened on the Government's watch, however, and, before the Government can seek to address them, they must acknowledge that they are happening.
The first crisis is the collapse—not the fall, but the collapse—in the savings ratio. When I intervened on the Secretary of State to ask him how he accounted for the fact that the ratio was 9.5 per cent. when the Government took office and that it is now 3.75 per cent., he brushed it off as a cyclical factor. As for the current state of the economy, it has a modest growth rate and a relatively low unemployment rate—[Laughter.] Almost a quarter of children in Britain live in households in which there is no wage earner, so there are question marks over the unemployment rate. Even if one were to accept that the economy were booming, which no commentator suggests, how is it that at no point since records began almost 40 years ago has this ratio ever been down at the level of 3.75 per cent.? Surely, it should be manifestly clear that we cannot continue in that way.
The second crisis, which is very much the other side of the coin, is the deterioration—which is sliding quickly into what may become a collapse—in the pension expectations of middle-aged and younger people across a wide spectrum of earnings. The hon. Member for Wrexham made the point, which I think has been raised by every Member who has spoken today— I was absent during the middle of the debate—about pension mis-selling. Whatever mis-selling may have taken place—there is no doubt that it existed to a degree—the last Government left behind two immensely powerful statistics. First, more than two thirds of all people on the cusp of retirement had private or occupational pensions. Secondly, we had more pension assets saved than all the other countries in the EU put together. The contrast between that and the position today could hardly be greater.
Already, in just five years, the first of those figures—67 per cent.—has fallen to between 59 per cent. and 60 per cent. The figures for comparability of pension assets are not available because the Government cannot even provide information about our own pension assets at the moment. Mr. Gardiner, who made an interesting speech, quoted figures that were undoubtedly wrong. Had they been true, however, they would have been a damning indictment of how that comparability has slipped. When we do have some real figures, we will no doubt see how badly that comparability with the rest of Europe is slipping.
When the Conservative party was last in government, the one area of our pension provision that, as an occasionally rebellious Back Bencher, I sought to attack, was the changes that we introduced in 1988 that combined a more generous income support arrangement for the poorest pensioners with stringent capital testing for their counterparts who had managed to save a little. [Interruption.] I see the Minister nodding—
We all have problems with eyesight. It is one of the signs that we are approaching pension age. The Minister and I still have some way to go.
Although our record on pensions across most of the earnings spectrum was by far the best of any Government, the message was that we had a problem at the bottom with a rapid growth—about a sixth—in the proportion of people who became dependent on income support within three years when they saw the penalties for having a bit of capital and the extra rewards for not. What is extraordinary is that the Government seized on the only big mistake that the last Conservative Government made: they introduced the minimum income guarantee, a greatly expanded version of income support, that relies heavily on means-testing and on which the new structure of the pension credit is built. At the same time, they introduced a range of measures, listed by one of my hon. Friends after another, that undermined occupational and private pensions.
Of course the markets have slipped, for a variety of international reasons, but £5 billion a year in tax removal capitalises at about £100 billion, an enormous sum to take from the capital value of our pension funds. Other of hon. Friends, including my hon. Friend Mr. Willetts in his excellent speech, referred to the progressive squeeze on the contracted-out rates for those choosing to contract out of state pensions. That is an extraordinary measure for a Government who say that they want to reverse state dependence from 40:60 to 60:40.
We have to step back when we consider policy and look at the bigger picture. My hon. Friend the Member for Havant was right to the allude to the bold policy proposal, encased in an amendment taken on the Floor of the House which had the support of the Liberal Democrats and Mr. Field, to scrub the plan for the means-tested pension credit. Under the Government's measure, pensioners face not only a combined tax and withdrawal rate of 40 per cent., but extremely intrusive forms and a complicated set of conditions. For example, people who go abroad for more than four weeks lose the credit and have to start again.
The measure also penalises people who want to work, which brings me to the second policy point outlined so clearly by my hon. Friend. We have to find ways to encourage people to work longer. Labour Members poured a great deal of scorn on the annuity measure introduced by my right hon. Friend Mr. Curry. The Government's great mistake is that they have focused on the relatively small percentage of people on whom their measure would have an impact now. As people live longer and those of working age become more prosperous, it is inevitable that the percentage who could benefit from liberalisation—who could do more to provide for themselves—will rise. My father has just celebrated his 75th birthday. He continues to run his own small business and provides full-time employment for three young men, all with young families. He is livid that some bureaucrat has forced him to take out an annuity when he had continued to make pension contributions year after year.
I mentioned that great legacy of the last Conservative Government—the 67 per cent. rate of those retiring with pensions of their own provided by occupational or private schemes—which has fallen seven or eight points, an average of one and a half points for each year of this Labour Government. I also mentioned the collapse in the savings ratio. The markets may well recover. I do not know; I am not a pundit. What I am certain of is that the crisis in the collapse in the savings ratio, and the crisis in the fall in the proportion of people who are members of pension schemes and of people who retire each year as members of pension schemes, will not reverse on its own unless three broad areas of policy change. Let me remind the House of those. They have all figured in my speech.
First, we have to get away from means-testing. The most elegant and simple method is the one that was encapsulated in our amendment to the State Pension Credit Bill: instead of a creating another means-tested benefit, we should put the money into a better basic pension and focus it on the over-75s.
Secondly, we have to stop penalising those who wish to work. For goodness' sake, we need people to work longer, and the present annuity arrangements penalise those who do, as indeed does the pension credit, by the back door.
Finally, above all, the Government have got to get the figures right. We have had enough debate, and I am not going to attack the Government again for getting their figures wrong. But until we have proper, accurate statistics that reveal what is going on, it will be almost impossible to formulate decent policies, and the Government owe it to the House to straighten that out. Pensions matter, not only to the generation coming up to retirement but to the whole generation behind them.
I apologise for being absent for some of the debate because I was at a meeting in the House. This has been an interesting debate, and there has been much consensus between Members on both sides of the House, which is important.
The title of the Opposition motion is "Funded Pensions", but we will miss a wonderful opportunity if we talk only about funded pensions. The TUC calculated that 5.8 million people were in funded pension schemes in 1991, but it is vital that we recognise that a vast number of people have no funded pension at all and no opportunity to join an occupational pension scheme. If we are to move towards compulsion, it has to operate with the aim that, in the long term, everyone will have a pension on which they can survive. If that is not the case, compulsion will not be accepted.
All previous Governments have failed the pensioners of this country because they have not created the conditions in which people do not need the likes of the pension tax credit or the minimum income guarantee. There are poor pensioners who, without the minimum income guarantee, would find themselves in abject poverty. I sincerely believe that this Government should be applauded, not denigrated, for having targeted those people. I believe also that the pension tax credit will make a difference to people in small occupational pension schemes, many of whom are excluded from housing benefit and council tax benefit.
It is unfortunate that people think about retirement only towards the end of their working life. We do not encourage young people to think about the funds that they will want when they retire. We have to find a way to convince them that there is a need to save for retirement because it is only when they find that they have no pension that they will realise that their standard of living will dramatically reduce and that they must depend on state benefits.
Occupational final salary schemes are the best, whether the pension is based on a 60th, an 80th or a 100th of the salary. Benefits are defined, so people understand that for every year that they work for the company, they will receive a 60th, an 80th or a 100th. We should tell companies that are considering abolishing their occupational pension scheme that if they need to make a move, it should be to a scheme based on 80ths or 100ths, but they should continue to provide a final salary scheme.
I worked in a company a long time ago. People say that I was only employed in that company, but I worked at times. I was a full-time union convenor. We were aware that there were two different forms of provision for staff and manual workers in that company: one group paid 2.5 per cent. and the other 5 per cent. We set up a pensions advisory committee, sat down and discussed how we could best rectify the problems and arrive at a common scheme. We were successful.
Horrifically, the women in that company were not allowed to join the pension scheme unless they had 10 years' service. The equal pay legislation allowed us to tackle and eliminate the belief that women should not be part of a pension scheme because they were not providers. It is important that we understand that women have been neglected. Mr. Webb made that point tonight. We have to do something to improve the lot of women who, because of their circumstances or bad advice paid the small stamp and found themselves living in poverty.
Recent events are not unique. British Airways decided to close its final salary scheme in 1984, and an 18-year battle to establish who owned the surplus ensued. The question of who owns a surplus is always an issue with any pension scheme. The company claims that it owns it, but employees say that it represents deferred earnings and that they should have a say. Last month the Court of Appeal ruled:
"the situation in which the whole of the surplus can be said to be permanent is likely to be exceptional and may only occur when the fund is close to dissolution".
In effect, the court said that no pension surplus can be considered sufficiently permanent to warrant its removal during the life of the fund; it can be removed only when the fund is being wound up, because it cannot be clearly identified before then.
The Finance Act 1986 made a difference to final salary schemes. It was decided that 5 per cent. overfunding would lead to any surplus in excess of that being taxed at, I think, 35 per cent. or more. The overfunding had to be got rid of within five years. The company I worked for told us that there was a £270 million surplus in the scheme and that it intended to take out £150 million. We argued strongly that benefits should be improved instead—and they were, to such an extent that we moved to a 60th scheme and introduced early retirement for people who were seriously ill. Such people's pensions were calculated as though they had reached 65 and were beneficiaries of the scheme. We also made the scheme non-contributory, so everyone who was a member of the scheme prior to 1987 became a free member of the scheme.
It was a very good scheme. Now, however, the company realises that the position is serious. It has decided that all employees—even those who were members of the scheme before 1987—will have to contribute 6 per cent. of their salary. There will be no new pensioners with a minimum 3 per cent. annual increase in their pension, and there are to be changes to all forms of early retirement. Active employees and deferred pensioners will now be subject to actuarial valuation reductions—they were not when we negotiated the scheme.
In the current circumstances, some schemes are in trouble, but I believe that by deciding not to take the easy option of closing the final salary scheme, but instead looking for ways to solve the problems, the company I worked for has shown the way forward. We have to protect this country's final salary schemes. If we do not, people who are currently middle aged may well lose out and face great difficulties when they reach pension age, and the Government at that time will have to support them. It would be better to remedy the problems now than to allow them to continue. That is why I have been critical of all previous Governments. We have taken our eye off the ball, and we seem to be doing the same thing tonight by concentrating solely on funded schemes.
Many issues have been raised in respect of how we might do business in future. It is true that an overwhelming number of companies decided that they would take contribution holidays. When the sun shone on the stock market, that was the right way to go as far as they were concerned. When taking those contribution holidays, companies often did not apply them to their employees. Employees have suffered a double whammy—they have not had the pension scheme that they should have had, and they did not enjoy a contribution holiday. They have been badly affected. One of the saddest and most distasteful aspects of the episode of closures of final salary schemes has been the retention of the schemes by top-level management. We must address that. What is good for the employee is good for the employer.
That behaviour is another example of the corporate greed that seems to be infesting our economic system at the moment. According to the TUC, between 1987–88 and 2000, employers took contribution holidays—reductions in the value of pensions—worth £19 billion. That might not mean a lot on a yearly basis, but if that money had been invested and used properly, we would not be in the position we are today. The TUC has also said that the scrapping of final salary schemes has saved employers £4 billion since 1995, as contributions to money purchase schemes are on average 9 per cent. lower.
There is no doubt that we have tried to address some of the problems through the stakeholder pension scheme, but I do not think that those pensions will be sufficient for employees when they become pensioners. We must consider the question of compulsion and how we can maintain and continue to develop final salary schemes. If we do that, we will have success.
Much of the debate has focused on the word "crisis". I dispute that there is a crisis in pensions in the United Kingdom—and that is partly because of the steps taken by the Government in the past five years.
We have heard much in this debate—I will not go into detail—about the state second pension, which is being introduced to give better provision to the 18 million people who have been unable to build up pension rights, particularly those who have been unable to work because they are caring for others or have disabilities. The state second pension is skewed towards the low-paid.
The pension credit will also assist pensioners of modest means. We have the minimum income guarantee, which has vastly raised the living standards of a certain section of our poorest pensioners. We have the winter fuel allowance and free television licences for the over-75s. The Government have restored free eye tests for pensioners, too.
There has also been a massive increase in national health service funding. I have been present for almost all the debate, but I do not recall hearing the point—it is often overlooked—that two thirds of NHS spending is on pensioners. The more money that the Government put into the NHS, the more they help pensioners.
Stakeholder pensions have been introduced. I do not accept the Opposition's suggestion that they have been a complete failure. These things take time to build. More than 800,000 people who did not have a pension vehicle a year ago now have one. More than 90 per cent. of employers who did not provide access to a pension scheme now do so.
Does the hon. Gentleman accept that an awful lot of those 800,000 people have transferred money from other schemes? The investment is not new money. An awful lot of them were buying stakeholder pensions for their grandchildren. The number of those in the target audience that the Government want to reach is very small.
I am not sure that that was a brief intervention, but I do not accept that the position is as the hon. Gentleman described.
Mr. Brazier mentioned the situation in the European Union. Certain organisations often spread the canard that the United Kingdom has the worst pension provision in the European Union. I shall cite statistics, which, for the benefit of the Opposition, are not from the Office for National Statistics, but from Eurostat. They show that for expenditure on social benefits for old age in European Union countries in 1999—the position in the United Kingdom has undoubtedly since improved—we were above the EU average and were the fifth highest of all EU members.
I said that there were more savings in the rest of the EU put together when the Government took office. According to the unreliable figures available, the position has since deteriorated substantially.
I do not accept that the position has deteriorated, although it may have a changed a bit. My understanding is that the UK still has more provision than the rest combined because of the way in which pensions are structured in this country.
On the Conservatives' record, past performance is not always a good indication of future performance, but in this case it just may be. The Conservatives want to get rid of state provision. The Leader of the Opposition said:
"Basic pension provision should become a function of the private sector."
"The vision of moving to a funded alternative to the basic state pension is a powerful and compelling one which you and I share."
At the general election a year ago, the Conservatives floated the idea of getting all young people to have a private pension, and receive nothing from the basic state system. We need to be aware of the direction that the Conservatives are taking on pensions.
Mr. Swire talked about a crisis of the Government's making. I do not accept that there is a crisis and I certainly do not accept that it is of the Government's making. Someone who entered the labour force, as many did, aged 14 in 1951, and retired at 60 in 1997, when the Government came to office, would have had only 11 years under a Labour Government but about 35 years under a Conservative one. In many cases, their pension provision came from the Conservatives or, sadly, did not come from them. In the mid-1980s, the Conservative Government removed the requirement that employees should join an employer's occupational pension scheme if they had one, and there was a free-for-all. Ironically, some Conservative Members are now asking for compulsion in pension provision.
In the mid-1980s, as has been said, the scandal of pensions mis-selling was building up. The bottom line is that it cost billions of pounds to put that affair right, but we have not seen the end of its confidence-destroying aspects. Many people, especially the young, are reluctant to save for old age because their parents, aunts and uncles were ripped off. Many of the 2 million who were reimbursed had to go through hell and high water to get compensation and only got it after pressure from the Labour Government.
A national bus company was ripping off its workers by taking their surplus—that problem was only sorted out under the Labour Government. Conservative Members have spoken about people working longer and retirement being phased in. I fully support that. Ironically, however, the Conservative Government were busy getting everybody to retire early so that they could fiddle the unemployment figures, whereas there are more than 1 million more jobs under Labour, and it is a realistic prospect for people over 65 to continue working, perhaps part-time, because jobs are available.
I shall turn to an issue that has featured in our debate—the stock market—and the remarks of Mr. Redwood. He said that he had been a pension fund manager in the City, so his economics may be better than mine, but I am not so sure. He seemed to suggest that the decline in the sale values of stocks had adversely affected people's pensions. It does not. What affects people's pensions from stocks is the dividends that they get from those stocks. The key issue is whether the dividends have gone down. He was speaking about the absolute value of those stocks, not simply about the taxing of them. I do not accept that the stock market has gone down because of Government policies.
The other issue is much more important in terms of the regulation of the pension industry. FRS 17 has been mentioned repeatedly in the debate. Many, many companies took pensions holidays, particularly with the 105 per cent. rule about which we have heard. They took the money in the good times, but they do not want to pay it up now that the bad times are here.
It is clear from the way in which those companies have operated that their propaganda has been extremely successful. The propaganda machine of those large, greedy corporations suggests that FRS 17 was already compulsory, but it will not be compulsory until 2003 or 2004. The companies suggest that the reason for the difficulties with their pensions was that crazy Government regulation, but the regulation was not crazy, and it was not in force as a compulsory measure.
I accept the need to simplify the regulation of pensions, but I do not accept the flavour of the Conservative Opposition's argument about lessening the burden of those regulations. That leads us back to the Maxwell saga. Also, lessening the burden of regulation would mean, to the Conservative Opposition, that we are out of step with our friends in America, who are going the opposite way.
A Standard and Poor's report released recently shows that for many years many big corporations in America have not had transparency at all. They have been fudging the figures and some, like WorldCom and Enron, have been lying. They have been boosting their profit figures by including income from their pension funds, ironically, by adding back charges when they are buying companies, and by not allowing for the cost of share option plans. Some of those big companies are household names now, such as Enron and WorldCom, but they also include Microsoft, General Electric, The Gap, Apple, Yahoo! and IBM.
If General Electric's profits are correctly reported, for example, they come down by $1.93 billion from $2.23 billion in 2000. That is a huge drop. Cisco Corporation is another example. We must be careful with funded pension schemes and with the transparency of their figures. That requires tight Government regulation. I hope that Ministers will assure me that we will continue to have tight Government regulation of pension funds, in spite of the exhortations from the Opposition.
Finally, I hope that Ministers can reassure me that the intersection of pensions and the Transfer of Undertakings (Protection of Employment) Regulations will be looked at. Pensions are excluded from the acquired rights directive, but that does not mean that the United Kingdom must exclude them. I hope that we can consider that issue again.
We have had an interesting debate characterised by 24 Back-Bench speeches, on my count. The great majority of them were thoughtful, though not demonstrative. In their totality they show a degree of concern about the growing problems in relation to pensions that is eloquent in itself.
There are basically two reasons why Government policies, and ultimately Governments, can fail. The first is when they are caught out in malice. Under new Labour, markets are supposed to be accepted. The euthanasia of the rentier is out of fashion, and we have not heard too much about it today. Under the surface, however, in some of the contributions made by Labour Members—for the avoidance of doubt, I stress that they came from the Back Benches—there was a certain return to the mean and a distrust of the capitalist system that far exceeded any of its measurable excesses.
Nevertheless, much more common than that especially pathological characteristic of left-wing Governments is the reluctance of Governments of all colours and times to face reality, arising from a mixture of what may be complacency and may well be arrogance. The proposition of Her Majesty's Opposition in our motion is not about Government malice. Indeed, we open the motion with a generous and specific endorsement of the Government's own aim, as stated in their 1998 Green Paper and repeated thereafter,
"of increasing from 40 per cent. to 60 per cent. the proportion of pensioners' incomes that comes from the private sector".
I should perhaps add in parenthesis that that still leaves the 40 per cent. that comes from the public sector, which is entirely relevant to the position that we will develop in future, despite some of the hares that have been started from the Government Back Benches.
The hon. Gentleman referred to hares being started; he can kill one off straight away. Can he guarantee that the state second pension and SERPS will remain part of his party's plans and that he will not allow it to be raided to pay for the priorities of the other spending Departments represented on his Front Bench?
I have already dealt with the generality and made it clear that, on the specifics, we shall consider the best measure of approach. That is why we have been taking the advice of all parties that have a contribution to make. Sadly, I was not present to hear the hon. Gentleman's speech, but I am quite ready to read it in Hansard. Of course, we take advice from the TUC, just as we do from the CBI. Indeed, I shall refer to them later.
This debate is in ample measure directly about this Government's complacency and arrogance in the face of a "deepening crisis" on pensions. If Ministers object to our using that phrase, I hope that they will reflect that it is not ours, but that of the TUC. In the Government's first term, the only pensions crisis that they wanted to acknowledge was the conveniently soft target of those who had mis-sold pensions. Today, however, the boot is on the other foot. Yesterday, when the new Secretary of State—we wish him well—came to the Dispatch Box, his first public act was to admit to mis-statement of pensions statistics on a truly heroic scale.
I may say that responsibility for the matter is still being argued in the briefing battle between the Office for National Statistics and the Department. It is an internal matter for the Government, but it might never have come to light without the assiduity of my hon. Friend Mr. Willetts. At any rate, as this Secretary of State is new to his post, he has the chance to make a fresh start and leave his unfortunate legacy behind. The position on funded pensions, although it is indeed serious, as hon. Members in all parts of the House have acknowledged, is not irretrievably hopeless, provided that Ministers drop their complacency and take positive action now.
In a thoughtful article published this week, which has already been mentioned, Nicholas Timmins pointed out that many of those retiring today on occupational schemes may still be relatively well off. That colours our view of the situation, but I doubt whether the same could be said for those with final salary or personal pensions who are trying to secure an annuity at today's low rates with their pension pot, unless they were safeguarded by a timely switch to a bond-based fund—although all pensions have sadly been battered by the slide in stock markets.
The real crisis, however, is not for today's pensioners, but for those of tomorrow. I gather that I am not the only member of my generation—those of a certain age—who remembers the famous Pearl Assurance advertisement concerning the desirability of having a pension. For the sake of greater accuracy, I have procured a copy. The advertisement gave five age-based viewpoints covering four decades, beginning with that of a sleek 25-year-old: "They tell me the job is not pensionable." And so it went on—the same person reporting every 10 years, with fewer hairs and more worry. At 45, he was saying, "How I wish I could look forward to a pension."
That advertisement appeared from my childhood until my early working years, from 1951 until it was last used in 1970. That is 32 years ago, I am ashamed to say, but I remember it vividly. It long pre-dated the introduction of personal pensions, and even the explosion of company schemes that took place in the 1950s; but if a warning bell was required then for entrants to the labour force who I hope now enjoy the fruits of their retirement, it is required no less now for the labour force entrants of the 2000s, who must also be looking forward at least 50 years.
I have made reasonably adequate provision, although like most of us, I think it is not as much as I might have hoped, and it is certainly not worth as much as it was a week or two ago.
As responsible Members of Parliament on both sides of the House, we recognise that pensions, as the longest term of all businesses, need the greatest possible consensus. It is quite unlikely that the present Government will continue for the next 50 years, as I think that even they would acknowledge. That is why we have been willing to involve all interests in our policy building. My simple request to the Government is this: drop the soundbite in favour of sound policies for the future.
The debate has already documented the decline in occupational pension schemes and in the overall savings ratio. So far, Ministers have gone around oozing complacency and even suggesting that such schemes have been on the slide since 1967, but it is clear that only now, after a long period of relative stability, are there real and evident signs of decline. The number of schemes being closed to new members, as reported to the NAPF, rocketed from 18 to 46 in one year. Other studies have shown that up to half the remaining companies are contemplating closure. The debate has revealed widespread concern about the implications of the new accounting standards for the viability of future schemes—not least for their acceptability to financially hard-pressed companies.
One aspect of the current situation that is often overlooked is the growing disparity in size and even interests between the existing labour force and former pensioned employees. That may be one reason why until recently the TUC and member unions did not engage as assiduously as did Mr. Tynan—as was clear from his account—in negotiations on behalf of staff.
One well known company that briefed me for the debate has 900 employees contributing to its pension scheme; yet it has 2,000 members with deferred benefits, and 2,500 pensioners receiving payments. It described its action to repair an estimated £30 million deficiency in its scheme as a draconian recovery programme involving annual lump sum payments by shareholders, increased employee contributions and/or reduced benefits, and a shift in future investment policy away from the United Kingdom stock market to bonds, or even abroad. Some companies, of course, cannot do that.
Conservative Members do not mind the Prime Minister's reference to the stock market going up or down, but we do object to Ministers' using it as a yo-yo. One minute it is a justification for the tax raid on pension funds when markets were booming; the next minute they lapse into silence because, as has happened now, the markets have fallen below their original level.
The one clear discretionary policy intervention by Labour Ministers has been the withdrawal of advance corporation tax relief on pension funds. At the time, they thought that no one had noticed. Modestly, I have been re-reading some of the speeches that I made in the Standing Committee of that five-year-old Finance Bill, in 1997; in one of them, I said:
"The guts of the issue is that the Government have been sold a package to raise £5 billion through a device that they believe will not hurt individuals. They believe that it is sufficiently obscure and difficult to pin down that nobody will notice what damage they are doing . . . It will damage the interests of investors and, therefore, in the long term, those of Great Britain."—[Official Report, Standing Committee A,
We warned people, and now, after the longest fuse in history has been lit, the hand grenade is going off in the hands of the Ministers who wanted to throw it. Our pensioners are suffering collateral damage, and the low savings ratio that has resulted is a desperate threat to future prosperity. All this has been compounded by the regulatory complexity that the Government must urgently and fully a