I beg to move,
That this House
expresses its deep concern at current arrangements for winding-up occupational pension schemes, which leave many people receiving much less than expected for their retirement;
deplores the lack of action by the Government to address this issue;
notes that present workers near to retirement after long service with the employer often receive less than those who retired early after less service;
recognises the great urgency of the issue because of the large number of schemes now moving towards wind-up;
welcomes the proposals in the National Association of Pension Funds document, Pensions—Plain and Simple, for a possible new schedule of priorities on winding-up a final salary scheme with an insolvent employer;
further notes that the Government in its Green Paper, Simplicity, Security and Choice, was prepared to consider such a measure;
further notes that there is widespread support in Parliament for such changes;
and urges the Government to take early action to address the crisis and speedily to introduce new winding-up priorities which take proper account of the age and length of service of non-retired scheme members.
It may be for the convenience of hon. Members on both sides of the House if I say that we intend to split the time that remains equally, and conclude the first Opposition day debate by about 7.30 pm.
The debate could not be more timely, because we face a wide-ranging crisis in the world of pensions. It is a crisis about the incentives to save, which has led to an estimated gap in savings of £27 billion; it is a crisis of increasing costs to pension funds; it is a crisis of confidence in the Government and employers; and above all, it is a crisis of escalating closures and wind-ups of pension schemes. Even when the wind-ups occur, there is a crisis of unfairness in the way that the assets of pension funds are shared. However, what the Government are offering is yet another Green Paper and yet another consultation. Today, we are asking for urgent action, but in one area alone.
This debate is about particular proposals for reform to achieve the fairer sharing of assets when occupational pension schemes are wound up—proposals that command considerable support in the House. Do we really have to wait perhaps for years, when this change could be made speedily?
The hon. Gentleman says that we should not have more debate, and that we should get on with the business of bringing relief to those of our constituents who are being affected adversely by the winding up of their pension schemes. Is he not aware that I have a Bill before the House on the winding up of pension schemes? If the Opposition are so keen, why do they not adopt that Bill and use some of their time to advance it through this House?
The right hon. Gentleman is constructive in this area, and I am always very happy to discuss with him detailed proposals that will help those throughout this country who are involved in pension schemes. Equally, I hope that he will help us by canvassing the Government's support for what I am proposing today.
If the right hon. Gentleman will allow me, I shall outline what we are talking about a little more fully.
The vast majority of problems have arisen where final salary schemes are being wound up and the employer is in liquidation. Of course, there are also cases where solvent employers are winding up, and I shall deal with cases such as Maersk later in my remarks. However, it is in cases involving liquidation and a forced wind-up where the problem is perhaps most acutely felt. The rights of pensioners who are already receiving their pensions, including their right to receive future increases in pensions, are placed above the accrued rights of continuing workers, however long they have been with the employer. So employees who are approaching retirement find that they will receive only a fraction of the pension that they were expecting.
Of course, it is true to say that all future pensions would be paid in full if there were enough money in the scheme, but the pension schemes of insolvent employers are all too often underfunded. The importance of this issue was shown through the recent experience of Allied Steel and Wire, which went into receivership on
The plight of ASW's workers has touched the hearts of people throughout the country, particularly following the "Panorama" programme "How Safe is your Pension?", which was aired on
As the hon. Gentleman knows, as the MP for Cardiff, West, I am well aware of the issues that he raises. Does he agree that, in addition to examining the rules governing the way in which the pension fund is distributed on wind-up, we should also look at the role of the independent trustee? Do the hon. Gentleman's proposals include putting a cap on the percentage of fees that the independent trustee pays himself on the winding up of pension schemes?
I certainly agree that there is concern about that. Reports have shown that substantial fees are being charged by professionals. We should consider that to see whether we can find a way of lowering those costs. What I am trying to do in this short Opposition day debate, however, is to urge the Government to deal quickly and discretely with a small matter, so that the worst excesses of the problem at ASW do not happen again in the coming months while the Government consult at leisure on their Green Paper.
The "Panorama" programme highlighted the experience of John Benson, who described coming home to his wife to tell her that he had lost his job, thinking that his pension was safe, and then about 10 days later having to tell her that in fact he was only to get a tiny part of his pension and that the family were in trouble. He did not understand why he had ended up in that situation.
The Mail on Sunday highlighted the situation of Bernie Tarpar, aged 54, who has 28 years service at Sheerness. He is a technician who hoped to retire at 62, with over 35 years service by then, and to receive about half his salary in pension and have a lump sum with which to visit his family in Australia. He said that he felt bitterly let down. He said:
"Over the years we have shown great loyalty to our employer, who has rewarded us with good pay. But the winding-up of our pensions leaves us devastated and extremely worried."
I have had letters from hard-pressed ASW victims, as other hon. Members will have done, and I have had the opportunity to talk to several of them. I know that the Minister has met John Hayter, to whom I have spoken. He is 58 and has been in the scheme for 28 years. He expected to retire on half salary, but he has been told that he will get half of that. He said:
"We have followed the rules all the way along and then bang—it is taken away . . . They never said my pension might not be safe, not once."
I have a lot of sympathy with the cases that the hon. Gentleman raises. Does he accept, however, as we must all accept, that we are dealing with a pot of money that is inadequate to pay everybody, and unless more money is made available, the flipside of paying more to the people whom he describes, who have suffered badly, is to pay less to retired pensioners? Does he accept that that would create new uncertainty for those who have already retired? Is he saying that if the Conservatives returned to office, everybody drawing an occupational pension from a private company would be at risk of having their pension cut if the firm went into liquidation?
I am about to outline what we are proposing. There is an issue of justice. Somebody who has worked for longer than they planned to, perhaps because they have been asked to do so to allow the company to restructure or to move into administration, can receive far less—half their pension or less—than a person who worked for fewer years and retired early. As I shall make clear in a moment, there are cases in which directors seem to have retired in a remarkably prescient way, taking millions of pounds from the scheme ahead of a change. I shall develop my argument, and I am happy for the hon. Gentleman to intervene if he thinks that there is anything unjust about it.
There are other such cases, such as that of British Federal, where the scheme has a shortfall of £2 million. The National Association of Pension Funds warns us that a large number of schemes are moving towards wind-up. In many cases, existing pensioners are safeguarded, as are rises in their pensions, but employees, who may have longer service, may receive half their pension or less. It is often said that the best workers, those who are vitally needed in the company, suffer most. We hear anecdotally that some of those workers are even encouraged not to retire.
Why are pension funds so underfunded? There is no doubt that a key factor is the loss of £5 billion a year, taken from funds by the Chancellor in extra taxes after he scrapped the dividend tax credits. The Association of Chartered Certified Accountants made a point that is not boring, even though I notice that some Labour Members are yawning because they have heard these things so many times before. They will hear them many more times. The association stated:
"The withdrawal of the tax credit is, in our view, the most important single contributory factor in the problems that currently afflict . . . schemes."
"The Government put us in this mess by taking out, through taxation, £5 billion a year from company pension schemes."
The disincentives to save—[Hon. Members: "Answer the question".] I shall answer the question. The disincentives to save have been described as massive by many people throughout the pensions world. They are caused by the widespread extension of means-testing. The first thing to do is try to find a way of removing some of the disincentives to save. Employers who might be considering investing in a pension scheme know that employees earning less than £20,000 would receive the same amount through means-tested benefits, so what would be the point of them saving for their employees? There are massive disincentives.
I agree, however, that we need to consider incentives for employers to save in pension schemes. We are actively looking into that—the sad thing is that the Government are not. They have taken £5 billion a year out of the schemes so less money is available, while at the same time they have widened means-testing so that there are massive disincentives to save. A consensus on how to proceed is emerging in the pensions world—on how to simplify the system and provide greater incentives to save and to remove some of the disincentives. But what are the Government doing? They sit by complacently and are not even prepared to discuss the matter.
There is a genuine problem; it is faced by my constituents who work for United Engineering Forgings. No one is more sympathetic to their plight than my right hon. Friend the Minister for Pensions. Would not Mr. Heald better serve my constituents and all those affected if he made constructive proposals instead of party political capital?
We are making constructive proposals—that is exactly what I am doing—but it is right to record why we are in such a mess. It is the Government's fault. They introduced a tax that takes £5 billion a year. They have weakened protection for workers by reducing the minimum funding requirement. Actuaries say that it was the decision to relax MFR by 8 per cent. in March 2002 that led to Maersk's decision to close its pension scheme, a point to which I shall return later.
I have given way several times and I want to continue with my speech.
There are other reasons why it is more expensive to buy the deferred annuities necessary to secure the liabilities on wind-up. Assumptions about how long people will live have increased and the cost of index-linked gilts has risen as yields have fallen, yet the Government have failed to explain any of that to the public. If interest rates fall, the cost of providing a pension rises. The failure to point out those consequences meant that few if any pension scheme members have been aware of the new-found fragility of their pensions. As a result, they have been unable to take action to deal with the situation. The effect is dramatic. In 1997, the MFR was adequate on wind-up to buy between 80 per cent. of the accrued pension for a 40-year-old still working for a company and as much as 95 per cent. for a 60-year-old. That has now been reduced to less than half.
Even some solvent companies are moving to wind up their pension funds. One deplores their decision. It is one thing if the choice is between the company's future existence or its pension scheme, but in some cases the choice is purely commercial—which the Government have encouraged by their negligence. It is wrong and short-sighted for a company to turn its back on long-standing employees when it is possible to continue its pension fund. Some people say that a pension is just deferred pay, but to many there is an obligation upon an employer to ensure that people who give their working lives to a company are not without the resources needed in their retirement.
Does the hon. Gentleman agree that the main cause of problems in the pensions industry is the underperformance of the market and the economy? Does he further agree that one of the reasons for deficits is that many companies took long pension contribution holidays, from which they benefited at the time, but are now unwilling to put in the resources needed?
That will not do. The Government tell us time and time again how wonderfully the economy is performing, but when pensions are in such a mess as a direct result of the actions of the Chancellor and the Secretary of State for Work and Pensions, the Government blame the economy. Some of the reasons for pensions being in crisis are external to the Government, but the most significant factor, according to experts, is the Chancellor's decision to increase the tax by as much as he did.
I will not give way immediately. I want to move on to another important aspect.
Two ASW directors were allegedly paid packages valued at £2 million from the pension fund in the year prior to wind-up. Whatever the individual circumstances at ASW, there is widespread concern that directors with detailed inside knowledge can choose their moment to retire, while workers who continue in employment—sometimes at the behest of those very directors—may be left with only a fraction of their expected future pensions.
The National Association of Pension Funds' proposals aim at providing better protection for scheme members nearing retirement when an employer goes into liquidation. They also tackle the problem of directors who retire just before wind-up, by treating all members who have retired in the past year in the same way as those nearing retirement. The proposals would give priority to pensioners in payment but only at up to 90 per cent. of the current level, then to those expected to retire in the next 10 years, who would receive a 75 per cent. pension, and then others. While pensioners in payment would receive a little less and those who continue to work in the company less still, such a scheme would be much better, much fairer and much more just.
It may be that the Government have other proposals, but that suggested change would not prejudice any of them as it would apply only to wind-ups after the proposals have been introduced. My hon. Friend Mr. Willetts has written to the Secretary of State offering our full co-operation in ensuring the prompt passage of legislation to change the priority order. We would like to co-operate with the Government to achieve an early outcome.
The NAPF emphasises the urgency of such reform in its briefing for this debate which states:
"The NAPF urges the Government to take early action to take the winding-up priorities through new regulations."
The association points out that it is not necessary to wait for the redesign of the MFR replacement and adds:
"We consider that this issue is urgent because of the large number of schemes now moving to wind-up."
The Government, in their recent Green Paper, have proposed other suggestions for consultation, but none of those ideas would be prejudiced by that. The Government have played a part in creating the crisis, and the measures that we propose for emergency action would save future pension scheme members some of the agony suffered by ASW and other members, whose plight I have been highlighting.
May I return to the point that I made earlier? I know that Oppositions have never done this in the past, but there is nothing in the Standing Orders of the House that would prevent the Opposition from using some of their Opposition time to introduce their own measures. If this is so important, why does not the hon. Gentleman introduce his proposals or back those that I am putting forward?
The right hon. Gentleman makes a fair enough point, but surely I ought to try to persuade the Minister first. The Government have most of the time available to the House, so they can act with dispatch. The trouble is that they will not. They sit around twiddling their thumbs, producing for consultation measures that we have seen time and again before. There have been 26 consultation exercises, as the right hon. Gentleman says—he agrees with me about that. Surely we should get on to the Government and say, as I am doing, that we should act now.
I have listened carefully to what the hon. Gentleman says about changing the priority order, but does he accept that raising the priority of pensioners subordinates the priority of the debt? Banks therefore run an increased risk and the cost of capital will go up, so those companies could be put under even greater pressure, forcing them into liquidation earlier. All that may cause even more problems that the hon. Gentleman seeks to solve.
The hon. Gentleman makes an important point, but it is not relevant to this proposal, under which the money available to a pension fund should be split up differently, so that working members of the scheme do not end up being so cruelly disadvantaged as they have been in incidents such as that involving ASW. The Government are consulting on another proposal, under which the debt owed by the employer to meet the pension fund liabilities should have a higher priority. That proposal deserves serious consideration, but it is slightly different and the Minister will have heard the points that the hon. Gentleman makes.
The crisis in pensions is wide-ranging. There is a lack of incentive to save, caused by Government action in extending means-tested benefits. At the same time, there is a crisis of increased costs for pension funds, caused by the Chancellor's tax increase on those funds. There is a lack of confidence, with the recent YouGov survey showing that just 4 per cent. of people in Britain trust the Government to keep their word on pensions. It is crisis of escalating closures, which have doubled in the past year according to the NAPF—it is warning of many new wind-ups—but this debate is about the crisis of fairness in wind-up arrangements. We may not be able to solve all the problems immediately, but the Government can act.
The hon. Gentleman is pressing the Government to introduce proposals on the differing range of priorities for pension schemes on wind-up. I accept that such measures are urgent, but would it not sow more confusion to introduce some measures now, while waiting to make further changes until after the Government have consulted on their Green Paper? There is nothing inherently superior in the scheme proposed by the NAPF other than perhaps the priority on which the Government are consulting. Indeed, there would be grave concern about the idea of messing around with existing pensioners' benefits.
The point is that the NAPF came forward with these ideas and, on this particular subject, stressed the urgency of this reform. It is true that the Government are consulting on this and several other reforms relating to wind-up, which they are entitled to do, as they are of some complexity. This issue, however, is one of injustice: what happened at ASW needs to be tackled.
The Opposition are acting constructively. We are promising full support to the Government on this issue. Our motion deplores the lack of action on the issue. We are trying to spur on the Government on behalf of people in this country who have suffered already, and on behalf of those who will suffer if we do not make this change. We want a commitment to action today. I appeal to all hon. Members who care about this issue—and who have seen what happened in the cases of ASW, British Federal and others—for their support to get the Government to act. Let us urge them to action, with no more delays. We want this change now.
I beg to move, To leave out from "House" to end and to add instead thereof:
"acknowledges the crucial contribution of the UK tradition of occupational pension provision;
welcomes the range of measures in the recent Green Paper to strengthen that tradition and to renew the pensions partnership between employers, employees, the financial services industry and Government;
supports, in particular, the promotion of occupational pensions as a means to recruit and to retain good staff through the employer task force and other measures;
notes the proposal to give employees the right to be consulted on changes to an employer's pension scheme;
further notes the Government's consideration of a range of options to bolster member protection in cases where schemes are wound up, including options for a fairer sharing of assets when schemes close, with more priority for workers closer to retirement or those with more years of contributions;
believes that there should be 100 per cent. protection in cases of fraud;
supports the appointment of a new proactive regulator to investigate fraud and maladministration;
further notes the proposed £150–£200 million administrative savings which will encourage firms to open new schemes and keep existing schemes running;
and further welcomes the establishment of the independent Pension Commission to assess how effectively the current voluntarist approach is developing and to make recommendations to the Secretary of State for Work and Pensions on whether there is a case for moving beyond that approach."
We welcome the opportunity to debate the extremely important issue of security in retirement for working men and women. The Government are already consulting widely about proposals in the Green Paper, "Simplicity, Security and Choice: Working and Saving for Retirement", published on
I also welcome the belated acknowledgement by Opposition Members of the need for some form of consensus on pension policy. I am not sure that the hon. Member for North-East Hertfordshire will promote a general consensus, but there has certainly been a move forward in respect of some items raised today, which is to be welcomed. The shadow Secretary of State, Mr. Willetts wrote to my right hon. Friend the Secretary of State, and I confirm receipt of the letter. I am not sure that it arrived before it reached the press, but we have got it. I thank the hon. Gentleman for providing it, and my right hon. Friend will respond in due course. We welcome the capacity of Members to seek consensus on some of these issues.
Perhaps we will also have an opportunity in this debate to explore issues in relation to security in retirement, which we will deal with in some detail. At the same time, I should like to deal in detail with some of the issues in relation to consensus, as that gives the hon. Member for North-East Hertfordshire and his colleagues the opportunity to provide some insight as to where they will stand in the debate on the Green Paper.
Do not be so silly. I have made it absolutely clear that I welcome debates in the House. The Government are committed to respond at the end of the consultation process and to provide opportunities for debate. In the context of the Green Paper, we welcome debate in the House with our colleagues and with Opposition Members. We want as much consensus as possible. Difficult as that may be on occasions, that is what drives us forward in terms of the Green Paper, and, I hope, its eventual outcome and the measures that flow from it.
In relation to that consensus, the hon. Member for Havant wrote on
"powerful and compelling one which you and I share".
We have a right to know what Conservative Members mean.
The protection that people receive if their pension scheme is wound up is very important, and the Government understand why recent events have made the members of some pension schemes question whether that protection is adequate. The hon. Member for North-East Hertfordshire quoted from the letter that the hon. Member for Havant wrote last week to my right hon. Friend the Secretary of State. That letter calls for better protection, in particular through changing the priority order affecting pensioners and scheme members when an insolvent employer is forced to wind up a scheme. The hon. Member for North-East Hertfordshire is correct in thinking that such a change could be made by secondary legislation—as indeed could certain changes involving wind-ups by solvent employers, and that is an area where scheme members are more clearly being made to suffer by their employers. However, he has chosen not to mention that point in the debate so far.
My right hon. Friend will obviously reply to the letter in due course and he will deal with the issues. The hon. Member for North-East Hertfordshire and the shadow Secretary of State were leading members of the previous Government and they know how difficult the issues are and why they have arisen. Indeed, the previous Government introduced the current legislation on the minimum funding requirement for scheme funding protection, and they also introduced the current member priority order on wind-up. The problems that my right hon. Friend and I are currently dealing with were created by the hon. Member for North-East Hertfordshire, but he did not even say that he was involved in the process of establishing arrangements that he now says—and rightly so—are leading to many people being screwed by their employers. He is responsible for that.
Does the right hon. Gentleman not agree that, if circumstances change, one has to change the rules? Will he comment on the figures that I gave from Maersk that show that, in 1997, the minimum funding requirement would have provided between 80 and 95 per cent. funding for a continuing worker. Now the figure is less than 50 per cent.
The hon. Gentleman fails to answer the question. He refers to fluctuations, but he designed the rules to protect workers. However, they have been totally inadequate and have failed to do that. Therefore, the Government have taken steps to start the process of repairing the hon. Gentleman's chronic mistakes.
I must emphasise that the agenda is currently the subject of widespread consultation. Sensible as it is to soften the current cliff edge of the priority order payments between actual and deferred pensioners, the change that the hon. Gentleman particularly proposes could create losers as well as gainers. We would divide up the same-sized pension fund as before, but in a different way. It might be a fairer way, but it would not give everybody priority treatment. Therefore, we as a Government need to think carefully about the issue and to take account of the views put to us in the consultation process before we act. Throughout the process so far on the minimum fund requirement, we have sought to get consensus from all those involved. That is important on such a complex issue.
The hon. Gentleman condemned the Government's proposals for the minimum fund requirement. [Interruption.] Yes, he did—he said that they had been criticised and he criticised them. I know that he has only recently been brought back to the Front Bench from the wilderness but, last May, Mr. Boswell initiated a debate on the Occupational Pension Schemes (Minimum Funding Requirement and Miscellaneous Amendments) Regulations 2002. He said:
"we welcome this broadly relaxing set of regulations. I hope that that relaxes the Minister and other Labour Members.
I believe in giving credit where it is due. My contacts in the Engineering Employers Federation, with whom I have dealt on a number of industrial relations matters over the years, refer positively to the regulations, saying that MFR interim reforms are a 'shot in the arm' for defined-benefit schemes. They say that the reforms respond to most of their wishes for the interim consultation order and that they are pleased with them."—[Official Report, First Standing Committee on Delegated Legislation,
The Government have tried to sort out the complex muddle created by the hon. Member for North-East Hertfordshire and his friends, and we have taken industry with us. Last March, there were a number of changes, including extending the deficit correction periods within which scheme funding must be made good. That was important for employers, as it removed the requirement for annual recertification in schemes that are fully funded on a minimum fund requirement basis. That was important for the security of the fund, introducing stricter conditions when an employer decides to wind up a scheme voluntarily and improving protection for pension scheme members.
The right hon. Gentleman has always taken a close interest in pension issues. I remember that he did so when I was pensions Minister. What points along those lines did he make when those regulations were introduced?
I do not believe that I ever discussed those regulations—[Interruption.] I was in fact on the Opposition Front Bench talking about fiddled figures and unemployment. I talked about fat cats when the Tories did not want to introduce the national minimum wage and refused to do anything about youth unemployment. My gaze was therefore on another set of big issues that the Government, thank goodness, have put right.
One thing is quite clear. Even if the Opposition's decisions were well intended, they were an abysmal failure, and it is the present Government's watch to resolve that problem. At the outset, the hon. Member for North-East Hertfordshire said that he wanted consensus. If he took a bit of responsibility for the problem, I would take the consensus thing a bit more seriously.
We have launched a comprehensive, tiered consultation on the Green Paper proposals.
Is the right hon. Gentleman seriously denying that the cost of securing pensions has become far more expensive under his Government as yields have fallen? There is far less money to pay for pensions as the Chancellor has taken £5 billion a year in tax, but the right hon. Gentleman is saying that we should leave things as they are and not change them at all. The decisions that we made in 1997 were made on the basis of the facts available at the time, so should he not make some decisions based on today's facts?
I thought that the hon. Gentleman was going to make an incisive point, but he made the same point during his opening remarks and on previous occasions. The abolition of the dividend tax credit, he said, was part of an overall package of reforms. He failed to answer when asked about that, so may I advise him of what the hon. Member for Havant said when asked whether he would reintroduce the dividend credit at the end of last year? In The Observer on
"Actually, I don't think we'll be doing that. Helping pension funds doesn't mean going back to the same system we had before, you know."
Opposition Members may huff and puff, but they have no intention of making changes. However, we have introduced a new system to encourage long-term investment by employers in the British economy. The hon. Member for North-East Hertfordshire cannot back up his point. Indeed, his party will do nothing about the problem.
There will be a wide-ranging consultation on the Green Paper with employers, industry experts and the unions, who will be asked about the themes of extending working lives, tax and savings, and the new regulatory approach. In addition, my colleagues and I will hold seminars on a number of specific issues in the Green Paper. There will be technical workshops at which officials and pensions experts will discuss in detail specific changes, and there will be regional events in England, Scotland, Wales and Northern Ireland at which grassroots views will be sought.
Much has been said about consensus. At those workshops, it would be useful on a technical level to engage all the Opposition parties. Is the right hon. Gentleman willing to extend that invitation to us?
My right hon. Friend the Secretary of State will write to Opposition parties about that, because it is important that we get this right. There is nothing to be gained either intellectually or politically in not involving Opposition parties as far as possible in these complex issues. Having given that commitment, correspondence from my right hon. Friend will be forthcoming.
Will the Minister give the House an assurance that while that process is taking place, he will make representations to the Treasury to ensure that the Inland Revenue does not continue the process of looking at the specific rules that apply to pension funds and pension providers? That has been revealed in the media on a number of occasions in recent weeks, and the suggestion has clearly been that the Revenue is looking for more, rather than fewer, ways to raise money from pension schemes and pension providers.
If the hon. Gentleman has not read the Green Paper, I suggest that he does so. It covers a range of issues of tax simplification, including reducing eight regimes to a single regime. Since the proposals were published on
It is important that we hold events involving community organisations at local level. Those will be arranged.
When we came to power, fewer than 2 per cent. of pensions mis-selling cases had been satisfactorily resolved. We immediately sought to accelerate the process by naming and shaming the worst industry performers. By the end of last year, more than 99 per cent. of consumers with mis-selling claims had been compensated. Total compensation has reached £11 billion, and tough disciplinary action against laggard performers has resulted in £11 million of fines. Not a moment was spent by the Conservative party in supporting that activity or protecting pensioners ripped off by the policies of the last Tory Government.
On a point of order, Mr. Deputy Speaker. Was it in order for the right hon. Gentleman to criticise me for not speaking about the mis-selling of pensions from the 1980s, when the subject of the debate is winding-up arrangements?
I am interested to discover that the hon. Member for North-East Hertfordshire is so sensitive. I was not speaking just about today. I was speaking about our attempts since 1997 to resolve the debacle. We got no support from the Opposition, even though it was they who created it in the first place.
I shall deal with the wider issues of protection.
I have dealt with that. By the end of my remarks, the hon. Gentleman will find that our proposals for consideration are far more comprehensive than what he has to offer. He raised issues about genuine protections, and I shall deal with those.
The new kind of regulator will be an important step forward. As good as Occupational Pensions Regulatory Authority was—it was introduced by the previous Government—in many cases it was not sufficiently proactive and merely reacted to situations. Following the quinquennial review and the Green Paper, we decided to introduce a new regulator that would be risk-focused and flexible, that would target resources on schemes and weaknesses causing the greatest stress to scheme members, and that would produce quality advice and guidance to whistleblowers to help to identify materially significant breaches. We wanted to change its role so that it would be proactive rather than reactive.
We will introduce new rights to information and consultation. When changes to pension schemes are proposed, we want to ensure that better information is available so that employees' choices are easier to understand. We are setting up an employers taskforce to actively involve employers and encourage them to highlight the value of the pensions that they provide. We are encouraging all employers to provide better information to help to extend pension provision and take-up by employees.
I am interested in what the Minister is saying about information. That may be at the core of the problem. The pensions mis-selling scandal, the Equitable Life debacle and various other matters have seriously undermined the public's belief in pensions. Do the Government have specific proposals to rebuild that faith in the pension system? Without that, we will get nowhere in reforming the system.
I could not agree more with the hon. Gentleman. That is why we established the Penrose inquiry into Equitable Life. The Government will study its report closely. That was also the purpose of the Green Paper. One of the key elements in restoring faith in the pension system is improving the protections offered by the system that we inherited. The fair sharing of assets—
I hope the hon. Gentleman will not mind if I do not give way. Numerous colleagues want to speak. We will have many opportunities to debate these matters, and I have given way six or seven times.
We want to ensure that when a scheme winds up, the assets are divided among scheme members as fairly as possible. I met my hon. Friends the Members for Cardiff, West (Kevin Brennan) and for Sittingbourne and Sheppey (Mr. Wyatt) and their constituents who have been affected by the winding up of the Allied Steel and Wire pension scheme. I know that the statutory priority order introduced by the Pensions Act 1995 and associated regulations are inadequate. We deal with that issue in proposals set out in the Green Paper. For the record, it was the hon. Member for North-East Hertfordshire who was the Minister who introduced the regulations.
In the Green Paper, we are consulting on whether people who are approaching retirement age should be given higher priority when a scheme's assets are distributed on wind-up or whether those who have been members of their pension scheme for a number of years should be given higher priority—a proposal that my right hon. Friend Mr. Field has been promoting. We are also consulting on whether there should be fairer sharing of assets between those with larger and smaller pensions when a scheme winds up. That might involve setting a cap on the level of pension that those with the highest pensions might receive if limited assets are available in the scheme. That deals with one of the points made about fat cats who try to use short-term gain to get bigger access to the assets of the scheme to the detriment of the workers.
However, we recognise that, while changes to the priority order could mean that some people get more protection, that would be to the cost of others who receive less. We will therefore carefully consider the responses to the consultation. Only then will we decide what changes to implement and when. I am due to meet members of the all-party group on steel to discuss recent developments in pension provision in the steel industry and their concerns about protection of scheme members' rights. I look forward to hearing their views.
The statutory priority order can be modified by secondary legislation and we will consider how best to implement any proposals in that regard. On fairer sharing of assets and amending the priority order of creditors, when pension schemes such as those of Allied Steel and Wire or United Engineering Forgings are wound up because their sponsoring employer becomes insolvent, they are categorised along with unsecured creditors at the bottom of the list of creditors that can make a claim on an insolvent employer's estate. We are considering moving pension schemes up the order of priority for payment, possibly by creating a new a category of creditor that would give pension schemes higher priority than they have at present. That is another recognition of what was said in the discussions that I had before the Green Paper's publication.
Given that consultation on the Green Paper will inevitably be detailed and will almost certainly prove relatively lengthy—I state that not as a criticism, but simply as an observation of reality—is there any possibility that the right honourable Gentleman will be prepared to consider for the benefit of affected parties the retrospective application of his final proposals?
On retrospection, the honest answer has to be no. However, there are issues about real time. There will be occasions on which wind-ups are not complete, but changes have been made in the wind-up regulations. In such circumstances, a decision has to be made on whether a scheme that has not been fully wound up will be covered by any changes that are made during that time. I am prepared to write to the hon. Gentleman about the matter, as the area is difficult and complex and I do not want to mislead him. I have been firm about the first part of his question and the second is worth looking at. Furthermore, I know that he has raised issues about a particular company. I have a policy to meet hon. Members, from whatever part of the House they come, with regard to issues relating to particular companies. If he wants to avail himself of that policy, I shall be more than happy to concur with his wishes.
The hon. Gentleman has an opportunity to make a speech, and I could rightly be criticised for giving way far too much. I have given an absolute commitment to the House to return to the matter and I dealt honestly with the two difficult issues that it involves.
We will also consider issues relating to insolvent employers in terms of insurance and centralised clearing house facilities.
My right hon. Friend said that the priority order might influence what happens to the benefit of pensioners. Does he accept that while the prioritisation of pensioners over debt may lead banks not to foreclose on them so quickly, the fact that debts are down the pecking order might mean that they foreclose earlier on the companies involved?
I said that we were consulting on a number of measures and I did not go out of my way to indicate a preference as to those proposals. The issue must be considered in the Green Paper and large numbers of employees are rightly asking us to consider it. We will consider whatever recommendations arise on the basis of what is said by stakeholders, and I note what my hon. Friend has said.
We are again asking for consultation on insurance issues and the establishment of different funds far better to protect pensioners. We are improving compensation arrangements where schemes become insolvent because of acts of dishonesty—100 per cent. compensation will be provided in such cases—and looking at ways to improve arrangements in respect of underfunded benefit schemes where there is still a solvent employer. We are also looking to protect scheme members where a Government are seeking to define benefit provision, as we want to ensure that employers who want to make changes adequately consult their employees.
On transfer between private companies, we are bringing forward proposals on transfer of undertaking regulations to protect pensions. I was the Department of Trade and Industry Minister who introduced changes in the relevant European directive to protect pensions in public-to-public and public-to-private transfers for the first time in Britain. That will now be the case in respect of private-to-private transfers. I look forward to changes following the end of discussions on the Green Paper.
On renewal of partnerships, we are doing two very important things in the Green Paper. First, we are establishing the pensions commission to deal with a whole range of issues independently of the Government. Key people are stakeholders and all of them have skills and knowledge. The commission is intended to provide in the short term and the medium to long term a source of information that is independent of the Government and the Opposition, while giving them a capacity to ask questions and seek information about pensions issues. It will give advice about issues such as compulsion. The Government have not closed the door as some might suggest in trying to ensure that both state compulsion through national insurance contributions and the voluntary system can work more effectively. We have said that the matter should be considered closely by members of the commission over the next few years.
We will also introduce an employers taskforce, whose membership will, I hope, be announced soon. Its aim is to provide a bridge enabling employers to work with the Government and trade unions to achieve best practice and innovation and ensure that employees save more for the longer term and that more of them participate in bringing investment into pension schemes.
The commission will be working on a programme. First, it will consider statistics on pensions; secondly, it will consider the wider situation. I take note of what my hon. Friend said, as it is important that the commission does effective work. That is exactly the Government's intention in establishing it.
I like the hon. Gentleman dearly and we have spoken over many years. I assure him that next time when I speak in a debate in the House and he is present, I shall give him the first chance at my neck. There is a rash judgment if ever I heard one.
Opposition Members hint and wink about some issues relating to pensioners, giving the impression that they are prepared to consider a consensus. As a consensus and bridge-building politician, I welcome that. [Laughter.] I do not know why there is so much laughter about that, as it is absolutely true.
In the spirit of reconciling Conservative policy with consensus, perhaps the hon. Member for North-East Hertfordshire can give us an insight into the development of his party's policy on pensioners and older people. Only a matter of weeks ago, Mr. Flight, shadow Chief Secretary to the Treasury, boldly stated in the
"digging through current spending, and had found opportunities for cuts".
He said that those cuts could total 20 per cent. of public spending across the board of Government activity. When numerous Conservative spokespeople confirmed that over the holiday, they made no effort to exempt pensioners from the share of agony that £100 billion of cuts will cause. Why? We want some answers at the end of the debate. If Conservative Members genuinely support those policies, there will no consensus between hon. Members on pensions in the long term.
Let me give some examples of what Conservative policies would mean. The basic state pension would have to decrease by £15.49 for a single pensioner and £24.76 for a pensioner couple. The minimum income guarantee would have to be cut by £20.42 for a single pensioner and £31.16 for couples. That figure could be further reduced. The former Tory leader told the House in 1999 that there was nothing to recommend the minimum income guarantee. It is Conservative policy to eradicate it.
The winter fuel payment would be cut from £200 per pensioner household to £160 or less. The hon. Member for Havant made it clear that he believed that it was a gimmick and implied that a Conservative Government would drop it. In 2001-02, we spent £16 million on cold weather payments; the Conservative party would slash that figure by £3 million. I could go on about pensioner credit, capital allowance, attendance allowance, bereavement lump sum payments, carer's allowance, TV licences, bus fares and the health and social services budget. The Opposition propose cuts for them all.
We require an answer: would the Opposition cut cold weather payments or the home energy efficiency scheme? Would they cut pension credit, which would mean a cut of £400 a year or 20 per cent. across the board? We have invested an additional £2 billion, yet the hon. Member for North-East Hertfordshire has not told us whether the Conservative party will support the introduction of pension credit in April.
The Opposition would reduce capital allowances by £2,400 from the current £12,000 to £9,600. That would fundamentally undermine the concept of pension credit. They would cut attendance allowance by £11.25 a week. That is a disgrace and I hope that Mr. Brazier, who winds up the debate, gives an absolute assurance that the proposals that the hon. Member for Havant made before Christmas will be scrapped and put in the bin.
The subject of our debate is important and it is proper that the Conservative Opposition have chosen to use some of their allocated time for it. It is important to individuals who have been affected and the many who will be affected, although they do not yet know it. Their expectations of a comfortable retirement will be utterly devastated and many of us will have to respond to our constituents by telling them that, as matters stand, nothing can be done for them.
We have all heard of the Allied Steel and Wire case. Although the company would prefer not to be a cause celebre, it has become a classic case of what can go wrong under the current regime. The ASW workers told me that many joined the scheme when it was compulsory. The Minister nods and obviously appreciates the point, which has not been brought out in the debate. Joining the scheme was a condition of employment at ASW.
All hon. Members who supported such legislation or would like to reintroduce compulsion must ask whether the public sector has a responsibility that goes beyond simply saying that perhaps workers can contract back in. Since the law of the land meant that they had to join the schemes, and they did not make a misguided financial decision, perhaps the public sector owes them a greater obligation than has so far been acknowledged.
The hon. Gentleman is a keen advocate of compulsion in pension contributions, for which the TUC is also campaigning. However, does he agree that, for the reasons he outlined, it would be wrong to make it compulsory for workers to contribute to an employer's scheme if there were no separate state earnings-related scheme that they could choose to join instead?
I half agree with the hon. Lady. We are in favour of compulsion, but on top of what? What is the state's role? We support compulsory membership of a private sector scheme for those above specific minimum income levels in addition to an adequate basic universal state pension. All pension provision carries risk. The hon. Lady is understandably wedded to state pension provision. However, the Conservative Government ripped the state earnings-related scheme to shreds. That was a political risk. Anyone who pinned hopes for income in old age to that scheme was severely disappointed. No mechanism is without risk, and we would prefer it to be shared.
We have heard of the ASW case. In my constituency, BAE Systems is a major employer. It projects that, in three years, its pension fund will be £1 billion in deficit. We have heard about a fund that will be £2 million in deficit, but the figure could be £1 billion for BAE Systems in a few years. The Secretary of State for Defence queries whether it is genuinely a British company and is perhaps thereby softening us up for not giving it a contract. There could be a combination of a fund in huge deficit and a company that faces commercial difficulties. The system cannot cope with funds that are vastly under-financed and companies that get into trouble. I was slightly disappointed that the Minister did not go further and outline some of his proposals in the Green Paper that could cope with such a problem.
I want to emphasise the human cost of the problem by mentioning the case of a constituent who came to see me only yesterday, unaware that the House would debate the issue today. She is two years from retirement after working for her employers for more than 20 years. Last June, the pension fund was closed. The company will not wind up the fund because it is solvent and if it wound up the fund, its under-financing would mean charges that would drive it out of business. It is possible to transfer out, but the value of doing that is woefully inadequate.
My constituent was expecting a pension of £22,000 a year. She has been told that the transfer value will buy her a pension of £4,000. She was devastated and asked whether I could do anything. I said that we would debate the subject in the House the following day, that I would bring the circumstances to the Minister's attention and ascertain whether any aspect of the Green Paper or any other proposal could deal with the problem or offer my constituent consolation.
I was tempted to be rude about the Conservative motion but I realised that I helped to draft it. However, I am an academic and could therefore probably do both.
Clearly, the state of the stock market puts pressure on funds. It has been performing badly and is a specific cause of underfunding, coupled with the dividend tax credit—a policy that the hon. Gentleman did not propose to reverse.
I began to consider the origins of the motion. At the beginning of December, Conservative Members tabled early-day motion 304, which gave an uncritical welcome to the proposals of the National Association of Pension Funds to change the order of priorities when a scheme winds up. That organisation claims that not only retired members but those within 10 years of retirement should be a priority. I am worried that, under the proposal, people in their late 50s who join a company would go straight to the top of the queue whereas those who worked for it for 30 years since leaving school would be at the bottom and could get nothing.
Distance from retirement is therefore not the only factor that matters. People who are close to retirement cannot do much else, but most of their pension eggs may not be in the current employer's basket. Length of service therefore matters as well as proximity to retirement. I therefore amended early-day motion 304 and advocated introducing
"new winding-up priorities which take account of both the age and length of service of non-retired members."
I am delighted that the final sentence of the Conservative motion refers to introducing
"new winding-up priorities which take proper account of the age and length of service of non-retired scheme members."
I anticipated thanks from Mr. Heald for my contribution to the motion, but I expect that he ran out of time.
The refined position therefore takes account of people's closeness to retirement, because they will have no time to make other arrangements, and the number of eggs that are in a specific basket. Both aspects matter and should be taken into account.
As the Minister highlighted, Conservative Members cannot be allowed to get away with the start of the motion, which I did not write. It states:
"this House expresses its deep concern at current arrangements for winding-up . . . schemes, which leave many people receiving much less than expected for their retirement; deplores the lack of action by the Government to address this issue".
The Minister pointed out that the author of those schemes was sitting on the Conservative Front Bench at the moment. He did not mention, however, who the members of the Standing Committee on the Pensions Bill were in 1995. We have spent some time today trying to find that out, and we discovered that those who brought in the framework that we are debating today included the previous leader of the Conservative party, Mr. Hague, and the present one, Mr. Duncan Smith, whose name, unless my eyes deceive me, appears at the top of the Conservative motion. The structure that he is criticising is, therefore, one that he himself introduced. It would be inappropriate, however, to be partisan on an occasion such as this.
One of my concerns about the motion is that it is extremely narrow. In other words, it takes a point at which there is not enough money in a fund, and proposes a very narrow debate on who should get a share of that money, and who comes first in the queue. I intervened earlier on the hon. Member for North-East Hertfordshire and gently suggested that, if those who were near retirement and with long service received a higher claim, we should all be honest with them. We should be saying to every one of today's retired occupational pensioners that they might receive less pension. In other words, we would be giving new security to a group of people who might, perhaps, have a disastrous cut in their pensions, but we might also be sowing a new insecurity among millions of private sector occupational pensioners who have hitherto always had the first claim on pension funds.
It is, of course, the case that 90 per cent. is the level of underpinning guarantee for those who are on even as protected a form of income as an annuity, under the terms of the protection provided by the different annuity companies, so there is a good precedent for that in relation to pensioners with private sector schemes.
I take that point. Indeed, 90 per cent. is not an arbitrary figure. It is a figure that is already used in protection schemes. The point that I am trying to make is that, at a time when there is a crisis of confidence in private sector pensions, we must all bite the bullet together and say to all Britain's 5 million—something of that order; several million, anyway—retired occupational pensioners that they will have a less high priority when the funds are divided up and that they might get less next year than they would have got this year. We should not try to pretend that that is not a consequence of focusing our help on those close to retirement and with long service.
The hon. Member for North-East Hertfordshire was, regrettably, absolutely silent on how we should ensure that there is enough money in the pot in the first place. By all means, let us have a debate on how to carve up an inadequate fund and give it out more fairly. Of course we should do that, but what can we do to ensure that there is enough money in the first place? The Government are proposing fewer actuarial valuations, as a measure to reduce the regulatory burden on employers who run schemes. That is the goal towards which they are heading. That worries me, because a fund could satisfy the minimum funding requirement at a particular point in time, but things could then go wrong. The stock market could fall, for example, and life expectancies could increase. The fund might then have insufficient money in it before it was wound up. So, at the point at which it was wound up, things could have gone horribly wrong without any corrective action having been taken.
I am pleased to see that she will be. Will she clarify whether that measure will provide sufficient safeguards? Regular valuations are, one would hope, like an amber light. They are a warning that something needs to be done. If valuations were infrequent, things could go badly wrong and a scheme could be wound up at the wrong time. It would then be frozen, and nothing could be done about it. I hope that the Minister will be able to satisfy me on that point.
We have not talked much about the regulator. My hon. Friend Mr. Rendel raised with the Occupational Pensions Regulatory Authority in the Public Accounts Committee whether another Robert Maxwell case could happen. The response of the regulator was, broadly, yes. She was not convinced that there was enough protection in place to prevent that.
While the hon. Gentleman is right about that, does he accept that the regulator was saying that a determined fraudster or criminal could get round most of the rules that anybody could devise?
That is absolutely true. Indeed, the Maxwell case showed how an imaginative fraudster could get money out of a pension fund. My hon. Friend the Member for Newbury was pointing out, however, that we need to do more to ensure that there is proper scrutiny of funds before things get out of hand. That means prevention rather than cure; it means amber lights, warnings and trigger mechanisms. That is what I am driving at. There needs to be a much more effective system of spotting problems before things go wrong. Today's debate, however, is essentially about how we bail things out when they have gone wrong.
A further key issue is how we ensure that, once we have this pot of money, a bigger proportion of it goes to the pensioners and workers, and a smaller proportion to the financial institutions that wind up the schemes. We have heard of cases in which independent trustees of the company who are put in to wind a scheme up have charged £100 to answer the inquiries of The Daily Telegraph. It is outrageous to charge £100 to deal with a media inquiry. The Minister described himself as a socialist the other day. I wonder whether he has ever thought of nationalising this process.
The other socialist, yes.
There is clearly a serious issue here. Once we have reached the stage at which there is not enough money in the pot, the money must not—for goodness' sake—go to pay the financial people. It must go to the pensioners.
Some schemes take decades to wind up. For example, I have known pension schemes to take 30 years or more to be wound up. That is totally unacceptable. What are the Government doing to make wind-ups a great deal quicker? In our view, scrapping contracting out would make the whole process a good deal easier. What are the Government doing about that?
The scope of the motion is extremely limited. It is about carving up an inadequate pot more fairly. We do not have a problem with that, but that is only a small part of the process. My biggest concern is that the Government have produced yet another Green Paper that will further delay any effective action in relation to the much wider canvas that I have painted.
I shall cite one example of just how slow and indecisive the Government have been. Back in 1993, when the Goode committee was examining these issues, it considered what is called a central discontinuance fund—the idea involves a pot of money that can be dipped into when a fund goes wrong—but decided that that did not represent a viable solution. In September 2000, the Department responsible for social security implemented a consultation to consider a central discontinuance fund. In March 2001, the response to the consultation found that
"very few were attracted to the idea" and that the Government would not act as guarantor. There was very little support for the proposal. Then, on page 65 of a Government report published in September 2002, we learn that
"an alternative approach would be to introduce an insurance scheme, perhaps a central discontinuance fund, providing pensioners and non-pensioners with greater protection" and that
"we would welcome views on these options".
So, presumably we are going to hear yet again the same views as those that were put forward in 1993 and those that were given 18 months ago. This will mean more delay while we go back to the same ideas that have already been rejected, and no serious action appropriate to the scale of the problem being taken. There is a huge agenda involved here, of which this motion touches on just a tiny part. Yes, let us share out inadequate pension pots more fairly, but, for goodness' sake, let us act urgently to ensure that those funds have enough money in them to begin with, so that this issue need not arise.
Order. May I say to the House that, if hon. Members impose on themselves a voluntary limit of about eight minutes, it might be possible for me to call everyone who is seeking to catch my eye.
I also wish to add a sense of urgency to today's debate. All hon. Members have been lobbied by steelworkers who have recently lost not merely their jobs and the prospect of a decent pension but, often, their homes as well, in that they will have inadequate income to complete their mortgages. They, and many others among our constituents who have recently been affected by the closure of their pension schemes, are looking to this debate to see what action the Government might introduce in the short term to abate the suffering that they are experiencing.
If the parliamentary answer that my right hon. Friend the Minister for Pensions gave me the other day is accurate, it is clear that, since we came to power in 1997, a large number of our constituents have already been affected by the closure of their pension scheme. It would be a foolish person who thought that the situation was going to become easier over the next few years, rather than the opposite. Of course, one applauds the way in which my right hon. Friend has approached this debate, as well as his enthusiasm for the whole issue of pensions and his keenness for consultation, but I hope that he will take back to his colleagues the fact that the House does not think that consultation alone is going to be adequate. There comes a point at which the consultation has to cease and action has to begin.
Mr. Webb, who spoke for the Liberal Democrats, was right to point out that some ideas in the recent Green Paper go back at least to the Goode committee, and many of the others, which are presented as a novelty, were in the 1998 pensions or general welfare reform Green Paper. So, merely to say that one is consulting on them is clearly not adequate, but neither is the Opposition stance.
I suggested to the Conservatives that, if they are serious about the plight of those who find themselves in pension schemes that they were made to join but which they see winding up, they could be the first Opposition in the history of this Parliament to dispense with show debates and demonstrating a great deal of anger about the Government's lack of action, and introduce legislation themselves. In place of a further debate on the serious decline of occupational pensions, might they not consider introducing legislation? If they are interested in introducing legislation on winding-up arrangements, may I describe to them the Bill that my hon. Friends and I have already introduced?
The right hon. Gentleman knows the considerable respect in which he is held by the House and, indeed, by the Opposition. He will recall that in the previous Session we tried to assist him with every possible co-operation on his measure to take housing benefit from unruly, antisocial neighbours, but his colleagues on the Front Bench wrung their hands while the Liberal Democrats talked it out.
The good thing about today's debate is that, this time, the Liberal Democrats want to support a Bill that goes beyond merely dividing up the sums. In the three minutes that I have left, may I describe to the House the Bill that my hon. Friends the Members for Cardiff, West (Kevin Brennan) and for Sittingbourne and Sheppey (Mr. Wyatt) and I have introduced?
First, while we accept the Liberal Democrats' point that the current way of dividing funds is inadequate, there ought to be greater weighting to the contributory years that people put in a scheme rather than to their age. Of course there must be protection for pensioners, but clearly it is not right that those who have been in a scheme for 30, 35 or 40 years are pushed down the list by somebody who may have been in it for only five, but who is retired and so begins to scoop their whole pension entitlement.
So, the Bill's first aim is to have a winding-up formula based on contributory years rather than age. Its second aim is to deal with those legal and professional advisers who milk such schemes. All of us know examples involving our constituents or those of other Members in which the professional fees have taken a fifth of the pension savings. We cannot allow that to continue.
No, no. We all want to get into the debate.
The Bill's third clause says that while we may have proposals to protect funds in the future, some of our constituents have been badly affected already. What are we going to offer them? The Bill proposes that we introduce a gentle levy on orphan funds, which are funds that the insurance companies have built up, sometimes over 200 years, involving people who had policies, but died without claiming. Surely those who, as the hon. Member for Northavon said, were made to join pension schemes should have some stake in those unowned assets, which we should not allow to be of book value in the insurance companies.
Looking to the future, the Bill's fourth clause would introduce an insurance scheme for those who do everything required of the pension scheme to pay their contribution, but find that the funds are not there to pay that entitlement. On that, we need to act collectively, hence the clause. Clause 5 asks the Secretary of State and his colleague the Minister to introduce within a time scale a measure on where we should put the pension debt as against a company's other debts.
Although my hon. Friend Mr. Gardiner has left the Chamber, we might say that putting pensioners up the list of debtors would, for example, make the banks close companies more quickly. My view is that, as in the recent closure of the steel fund, the banks make a careful calculation. They had recently lent to the company, and they thought, "If we push it out of business now, we will get all our money back. We don't want to continue to take a risk." In fact, had the banks been pushed down the list, that company might not have been pushed into liquidation.
I make a plea to my right hon. Friend the Minister for Pensions and to the Opposition: there are many issues in the Green Paper and we need detailed discussion, but increasingly, over the next couple of years in the run-up to the general election, many more of our constituents will be affected by the closure of their pension scheme, and we could legislate this year.
Our Bill is coming back to the House in early March, and it would be wonderful if the Government took it over and rewrote part or even lots of it. Let us have fewer crocodile tears from the Opposition. Let them say that they will use their time to give a Second Reading to the Bill, which my hon. Friends have already introduced. Most of the people affected so far come from constituencies represented by Conservative Members, so most of the Bill's supporters are Conservative Members.
I have a huge regard for the Minister for Pensions and for what he knows and does in relation to pensions, so I hope that he does not take it as a discourtesy when I say that it is a great pity that Mr. Field did not remain in his job. Had he done so, we might not be facing some of these problems.
I declare an interest as a member of Equitable Life and as a pensions barrister. I also declare an interest as one of the guilty men who introduced section 73 of the Pensions Act 1995. Experience has shown us that the priorities highlighted by my hon. Friend Mr. Heald need fine tuning. That makes the problem sound small, but it has turned into a major one. We all know that it arises from a more fundamental issue than a stock market collapse—the fact that we live longer, join the working population later because we spend longer in education, retire earlier and save less. Possibly the most important issue of all is the post-war baby boom, which we have yet to take account of in funding our pension schemes.
We have a recipe for a catastrophic old age for many people, and the system that we have set up to cope with that potentially catastrophic old age is not at all simple. It is expensive, complicated, intimidating and run by a set of trustees who are largely unpaid and frequently untrained, yet they bear huge responsibility for our future in old age. The Government have introduced some fairly sensible measures in some places to deal with that. The Myners, Pickering and Sandler reports impress me, as do many points in the Green Paper, notably on the simplification of taxation, but the radical nature of the problem brings me back to what the right hon. Member for Birkenhead said: it does not seem to have been addressed by a radical solution. Overall, there is nothing in the Green Paper to start people saving when they would not otherwise do so.
I take as my text a letter that Professor Blake from the Pensions Institute sent to the Select Committee in August. He is a highly respected, independent academic who deals with these issues. He asks about the word "crisis" and says:
"The word 'crisis' may be an exaggeration, but it is certainly the case that within a few short years what was the envy of Europe, namely a good well-funded private pension system sitting on top of an admittedly poor-in-comparison-with-the-rest-of-Europe basic state pension system, appears to be on the verge of possible disintegration."
The first cause to which he attributes that is the ending of tax relief on UK equity dividends.
The issue of winding up schemes has become extremely urgent. The National Association of Pension Funds confirms in its report that the issue is urgent. What sense of urgency have the Government shown? I am afraid that they have not shown very much. I agree with the right hon. Member for Birkenhead, who stresses the need for urgency.
Two measures are required: the first is difficult, and the second is easy. The difficult one arises out of Professor Blake's letter, in which he considers how we can get out of this mess. He highlights certain relationships and says:
"higher state pension entitlements reduce the need to save privately for retirement, but have no discernible effect on the timing of the retirement decision higher occupational (defined benefit) pension entitlements have the effect of increasing private savings, but also of encouraging earlier retirement higher personal (defined contribution) pension entitlements have the effect of increasing private savings, but also of delaying retirement."
We need to increase private savings and to delay retirement. The evidence given by Professor Blake points to higher defined contribution pension entitlements, as the closure of final salary pension schemes is now commonplace.
There is nothing wrong with money purchase schemes, provided—it is a huge proviso—that companies pay into those schemes the same amount as they were paying into their final salary schemes, or more. A major problem is that companies have tended to pay much less into their money purchase schemes than they were paying into final salary schemes. What does the Green Paper suggest to address the need for higher defined contribution payments? I am afraid that the answer is nothing. Companies that pay more into their schemes encourage individuals who would not otherwise be given to saving to decide to save in a defined contribution pension scheme.
Therefore, the first thing that the Government should do is to give companies major incentives to pay more into their defined contribution schemes. If the Government do not do that, we run the risk, as set out in Professor Blake's letter, of retirement becoming a 20th century concept—something that came in towards the end of the 19th century and went out at the beginning of the 21st. We as a country would find that change devastating.
The second thing that the Government must do is relatively easy. They must accept the urgent need for a change of priorities. The priorities that arose out of section 73 of the Pensions Act may have been right or wrong at the time. If they were wrong, I accept my fair share of responsibility. They are certainly wrong now, and something needs to be done about them. What we require from the Government is not endless consultation, but action this day.
Occupational pensions have an inherent strength, partly because they have the widest possible membership. We should take account of the fact that the changes in April 1988, which led to 5 million people leaving occupational pension schemes, resulted in £13 billion being paid in compensation because of mis-selling. All that money came out of insurance companies' reserves, so it is not available now to get us through the difficult times that the financial world faces. In the past 15 years, employers have taken about £31 billion in contribution holidays. Had part of that money been put into schemes during those years, many of the difficulties would have been dealt with.
I want to dispel the myth that means-testing by the Government is a disincentive to save. No one in their right mind, whether they are 21, 31, 41 or 51, says to themselves that, as there is a minimum income guarantee of £98 a week, they do not need to save, because that is fine for their retirement. No one in their right mind wants to retire on £98 a week, and no one consciously takes that decision.
Much has been said about the need to protect workers. It is staggering that those words have been used by Conservative Members, but we live and learn. Information and consultation have also been discussed. Frankly, information is fine, but not consultation, because consultation gives no rights to workers. It is the ability of working people and members of a scheme to influence decisions that counts, not the fact that they are consulted when the scheme is in a mess and the company wants to close it. That is no good at all.
We had the Goode report in 1993, a Green Paper in 1998, and now we have the 2002 Green Paper. They all raise the same issues, which have been ducked. This problem has gone on for far too long, and it is time that we grasped the nettle and took action. A vital component of that action must be proper training and support for trustees of pension schemes. At the moment, the position is quite scary. In view of their responsibilities, the training and skills that they are given to manage schemes are appalling. They should have much better support.
Dubious comments have been made about the minimum funding requirement, and I am amazed that no one has mentioned FRS 17. It is not a problem in itself; it is a warning when a fund is out of kilter. The problem is the response that is taken to it. In the past couple of years, it has been used as an excuse for closing down schemes. When a problem has been identified, it should be cured in the shortest possible time, but not necessarily overnight. Better regulation of the response to deficiencies thrown up by those two requirements would be far preferable.
I find it difficult to get into a debate about who has priority when a scheme goes into liquidation—it is like shifting the deckchairs on the Titanic. It is more important to consider what mechanisms can be put in place so that when a scheme unfortunately goes into liquidation there is adequate funding from somewhere, be it Government, a discontinuation fund, an insurance fund or a mutual fund. However, that would not affect what will happen in the next year or two, even if we brought in legislation today. This is a matter for the future.
When schemes go into liquidation, an independent trustee is appointed. That is an introduction to the world of the golden salary. A company in Bradford called Lund Humphries went into liquidation, and an independent trustee was appointed at a fee of £100,000 a year. He was working on the scheme four hours a week on average. It took six years to wind up the scheme, because there was no incentive for him to do so. The longer it went on, the longer he got his £100,000. One of the issues that came up was the length of time it takes the Government to give notification of the minimum pension guarantee. For that scheme, it took 18 months. The Government could provide such information a lot faster. There should be tightly controlled time limits on winding up a scheme once it goes into liquidation. The accountants are ripping people off. Not the pensioner, not the worker but the trustee is the No. 1 priority. He, with his £100,000 a year, must come first.
Many years ago, in 1990 or 1991, the European Court made a judgment that became known as the Coloroll judgment. It decided that pensions were deferred wages. That judgment has never been effected in British legislation, but it would change our landscape dramatically. A pension scheme's assets would become the property of the workers rather than the company. Decisions and power would lie elsewhere, and there might be a rather different response to market conditions.
If we had any doubts about the seriousness of the issue we are discussing, they have surely been dispelled by the realisation that 25 million of our fellow citizens are members of occupational pension schemes. That includes all the members of public-sector schemes. Over the past five years or so, some 30,000 schemes have had to be wound up. This is indeed a real, live, serious issue, which will sadly continue to affect many of our constituents.
The Government acknowledged the seriousness of the problem when they tried, with legislation introduced in April 2002, to do something about the delay in winding up schemes that many Members have mentioned today. I understand, however, that fewer than 10 per cent. of those running schemes who were required to report the winding up of their schemes to the Occupational Pensions Regulatory Authority by June 2002—some 4,000—had done so by that date, and considerably fewer schemes had been wound up. More effort must be made to ensure that schemes are wound up speedily.
Members have rightly expressed concern about the costs of winding up schemes. Last October, the BBC's "Money Box" programme estimated that in the past few years about £800 million had been taken unnecessarily from schemes owing to the inefficient use of lawyers and actuaries. It said that trustees should have a duty to shop around and secure the best possible value for scheme members, to prevent the haemorrhage of funds from schemes that are already underfunded.
It is particularly worrying that so many of our fellow citizens do not understand their lack of pension rights. A recent poll showed that 55 per cent. of people assumed that their pensions would be safe, and that their entitlements would be paid in full if their schemes were wound up. It is very worrying that so many of our fellow citizens believe they will be safeguarded when that is not the case. The Government's role is to educate them, so that they can take their own precautions should they choose to do so.
It has been suggested that solvent employers whose schemes need to be wound up should be allowed to pay the accrued benefits owed to scheme members over the remaining working lifetime of those employees. I hope the Government will view that proposal sympathetically. Most of the problems that we have heard about today, however, involve employers who become insolvent when schemes are wound up. That does indeed lead to the worst situations. As many Members have said, it is particularly sickening when directors or senior executives who are privy to information use retirement schemes to secure their own future benefits at what turns out to be the expense of their employees. Their pensions are safeguarded, while employees with deferred pensions suffer as a result of what has been taken from the pot. That is especially unacceptable: we can fairly describe it as another example of the unacceptable face of capitalism. I hope that the Green Paper's proposals to deal with it will be implemented.
It is also vital for us to protect those with long service. People with 30 or 35 years' service face a triple jeopardy: the loss of their jobs, the possible loss of their homes, and the loss of their pension assets. Part of the solution is to remedy some of the unfairness involved in dividing an admittedly inadequate sum, but that is not enough. It could be described as rearranging the deckchairs on the Titanic. Given the great unfairness favouring those who enter a scheme just before it is wound up, there must clearly be a readjustment of priorities to favour those with long service. No one has mentioned the other half of the solution, however. I suggest a mutual insurance scheme for occupational pension funds.
The United States has a pension benefit guarantee corporation, which takes a small levy from all occupational pension schemes. The concept of insurance is the prudence of the many coming to the aid of the misfortune of the few. It may not always be the perfect solution, but it would go a long way towards remedying the problem here. I speak as, probably, one of the few chartered insurers in the House. I urge the Government to look seriously at the American example. Although the premiums have risen lately, evidence suggests that the arrangement greatly helps those whose schemes have been wound up. We should think about both making current arrangements fairer and adopting an insurance scheme such as the one I have described.
Insurance could be particularly useful in a context that has emerged in my constituency, where General Motors withdrew some £167 million from the AWD pension scheme. That affected many employees in my area. The action was legal at the time and the scheme was apparently solvent when the money was withdrawn, but surprise, surprise: it transpired that the scheme was not adequately funded. The pensioners did not receive their entitlement. The Government should seriously consider giving employers a duty to buy commercial rather than mutual insurance in such instances. Employers who had withdrawn a sum would have to pay it back to scheme members if the sum was later found to be inadequate.
I urge the Government to look at the insurance markets. The London insurance market is one of the most sophisticated in the world, and I think that it can be part of the answer to the problem with which we are grappling.
I welcome the debate. It is a pity that we do not have more time, but I understand that an important debate on herbal products will follow. That shows the Opposition's priorities.
I do not agree with the motion, which is too narrowly drawn. The Opposition think that they have a good story to tell, but no one really believes that. After all, the Opposition introduced Flash Harry into pensions in the first place in the 1980s with the mis-selling scandal. While I accept the Minister's word that he seeks consensus and that the Opposition seek it too, it crossed my mind that the words "Conservative" and "consensus" have one thing in common: they both contain the word "con".
I will leave that cheap jibe, as the hon. Gentleman calls it, and move on to the issues in question.
The Green Paper is a sensible kick-off point for the debate and the discussion. I thank Ministers, in particular my right hon. Friend the Minister for Pensions, for the meetings held with me, my hon. Friend Mr. Wyatt and workers from Allied Steel and Wire during the past few months to discuss ways through the crisis. My right hon. Friend Mr. Field is right when he says that the firm went under because it was so easy for the banks to pull the plug. The firm had a full order book, so potentially it could have been solvent—but pulling the plug was an easy option for the banks because they knew that their money was guaranteed.
Let us remind ourselves of the injustice—that is what it is—that the workers of Allied Steel and Wire have faced. One of them telephoned me just last week. He had worked for the company and its predecessors for 38 years and entered the pension scheme as a condition of his employment. At the time, it was a nationalised industry: workers were employed by the Government when they started their scheme. Let us remember that.
Neither the man who telephoned me nor the workers to whom I have spoken ever dreamed for one minute that their pensions were not safe. They never had a big health warning strapped across them saying, "You are putting your money into a vehicle that, a year or two before you are due to retire, could be worth next to nothing." No one ever gave them that health warning, whatever the complexion of the Government in power.
The issue of independent trustees has been raised. I read with interest recently an article in which Eddie Thomas, director of the independent trustee Law Debenture, said that my right hon. Friend the Member for Birkenhead appeared to assume that the smaller the pension scheme, the cheaper the wind-up. My right hon. Friend had pointed out that it had cost £800,000 to wind up a scheme that was worth just £5 million. Eddie Thomas said:
"Small funds can involve a lot of work that is disproportionate to their size. I don't think it is generally appreciated how much work there is in winding-up a scheme. We have to recognise that in a winding-up case all the chickens come home to roost."
The animal metaphor that the workers whom I have met have used about independent trustees is not chickens coming home to roost but snouts in the trough. That is exactly what has been involved in some of these cases.
There are some sensible suggestions in the Green Paper about giving greater priority to those workers nearer retirement. We have debated that this evening. There are suggestions that we should reorder the payment of creditors to get rid of the perverse incentives for banks to withdraw, make pensioners preferential creditors, or perhaps give them some new status that would put them higher up the pecking order when pension schemes are wound up.
There have been suggestions, which I strongly support, that we should look again—it does not matter how many times it has been looked at—at setting up a mutual insurance scheme, such as exists in Sweden, or the central discontinuance fund model in the United States of America. I have been told by some people—I have done a bit of economics in my time—that moral hazard is a worry, as I am sure Andrew Selous knows. The worry is that pension fund trustees will not seek to get the best out of the pension fund for members because they know that they can be bailed out; it will change their behaviour. Technical and academic debates about moral hazard mean nothing to workers who face the immoral hazard of losing their pension when they are nearing retirement if a company is going bust. I thank my right hon. Friend the Minister for Pensions for listening at all those meetings we had. It is good that those issues have become a central plank in the Green Paper and that the Government are taking them forward seriously.
What the Green Paper does not do, perhaps what it cannot do, is what we are trying to do in the Bill that my right hon. Friend the Member for Birkenhead has introduced and that I support: it does not attempt to assist those who are currently affected by wind-ups in insolvency. We have a moral duty to seek every avenue that we can to try to help those workers.
In many cases, the workers we are talking about are the best of British. They have worked through to close to retirement. Often, they have been asked to carry on working and not to take early retirement. They have been loyal, flexible and productive.
At Allied Steel and Wire, workers have had to accept many changes in working practices. They do not have a guaranteed pension fund after 30 years' service, as one would in the fire service. They had to accept radical changes in working practices to keep their jobs. Then they lost their jobs. Fortunately, some of them may get them back, but they have still lost their pensions. They were still conned. They were told by successive Governments to save for retirement and to join their company pension scheme. To them, it is all a swindle. To be frank, if I were in their shoes I would feel the same way, and so would hon. Members. Therefore, we have a moral duty to look at every way to help them and to call on the Government to find a way.
No stone should be left unturned, as the Minister for Pensions said in a previous debate in the House, in looking for solutions. My right hon. Friend the Member for Birkenhead has come up with an ingenious Bill that we should look at carefully. About 40,000 individuals may be affected because of the liquidation of their pension schemes in wind-up. To make good the losses, the Bill proposes a distribution of a small amount of the orphan asset funds that are held by insurance companies prior to setting up a permanent system based on the suggestions in the Green Paper.
Pensions are supposed to be about security, not risk. Why should the workers bear the risk when it is the banks and shareholders who are supposed to bear the risks when companies go bust? The Government's objective is dignity and security in retirement for today's and tomorrow's pensioners, to use the Government's own words, so let us look carefully at those proposals and see whether we can help the people who feel that they have been conned.
We have heard a lot of talk about consensus. Perhaps the consensus that dare not speak its name but that is emerging is that successive Governments of all political colours have failed to provide adequate protection for current employees in cases of insolvency. We are almost unique in the industrialised world in lacking any protection for workers in those situations. I think that the Government now accept that if the guiding principle of the Goode committee on pensions law reform was to provide maximum security, the legislation based on it, the minimum funding requirement, has been an unmitigated failure in meeting that objective.
We have heard of the bleak situation facing the workers at Allied Steel and Wire. I spoke to John Benson only this morning. There are plenty of other examples—we have heard of United Engineering Forgings, Albert Fisher and others. Frustratingly, the solution has been lying in the in-tray of Ministers in both the current and previous Administrations. The idea of a statutory safety net for occupational pensions is not particularly new or original. It was the Government Actuary who first proposed a central discontinuance fund in his evidence to the Goode committee 10 years ago. He said in a memorandum to the committee:
"Because many schemes would find it difficult to secure their liabilities on discontinuance, a mechanism is needed for handing over the liabilities to another vehicle, similar to an ongoing pension fund . . . The answer would appear to be to have a Central Fund . . . The fund would simply act as an administrative arrangement and investment vehicle for running off the liabilities of discontinued pension funds."
If only the Government then or now had listened to the advice of their own Actuary, we would not be in this mess today.
The Government have floated the idea of a mutual insurance system or a central discontinuance fund on a number of occasions. Indeed, they have commissioned research or consulted on those two options on no less than four occasions over the past five and a half years. At the time of the last round of consultation two years ago, the Government claimed that the responses received were overwhelmingly against mutual insurance or a central discontinuance fund.
That strikes me as a little curious and strange to say the least, given the fact that the Trades Union Congress, the Confederation of British Industry, the National Association of Pension Funds and Pensions Management Institute have all been lobbying for the introduction of a central discontinuance fund for the past 10 years. Indeed, when in opposition, the Labour party tabled an amendment, during discussions of what became the Pensions Act 1995, to create a central discontinuance fund. Unfortunately, that was conveniently forgotten when Labour won the election.
It strikes me that the Government cannot have it both ways: they cannot sanction an increasing reliance on private provision without providing adequate protection against the danger of fund collapse. It is no accident that in every country where widespread private provision exists, a central discontinuance fund or a mutual insurance system is an integral component of the pension system. As we have heard, since the Pension Benefit Guaranty Corporation was set up in America in 1974, the benefits of hundreds of thousands of scheme members have been saved from the failure of their pension funds.
The Government have said that they will look again at these ideas in the Green Paper, but even if they do improve provision and protection for future generations, that will not address the plight of former workers at companies such as ASW, as Kevin Brennan pointed out. The Minister has again ruled out any prospect of retrospection, but retrospection is precisely what happened in similar situations in the United States when the PBGC was established. More than 200 companies that had gone into liquidation were retrospectively brought under the terms of the relevant legislation.
As has been said, a strong argument exists that the Government have a moral responsibility to the affected workers. Before the recent introduction of the stakeholder pension, legal rules actually prevented people from contributing to a private pension if they were in an employer's scheme. That meant that people had no way of providing any other retirement income for themselves, yet their contributions were not properly protected. The responsibility for that surely lies with the Government. However, if the Government refuse to accept their moral obligations in this regard, they must live up to their legal obligations. Article 8 of the 1980 European Union directive on insolvency rights requires member states to protect pension benefits in situations of insolvency. This provision has never been fully implemented into UK law, and as a result the Government are liable to be sued for compensation. That is the opinion of Denton, Wilde Sapte, the UK's leading insolvency and pensions practice, and of Thompsons, the employment law firm that is acting on behalf of ASW employees, who are members of the Iron and Steel Trades Confederation. I understand that last week Thompsons employed a Queen's counsel to take this matter further.
Faced with a lawsuit on behalf of ASW workers who are in the ISTC, the Government must ask themselves whether they are prepared to send Government counsel into the courts to rob redundant steel workers of their entitlements under European law. That would be a new low for the Government. Instead, I hope that they will make it clear that they intend not only to provide real protection for future generations of workers, but—as has been argued—to compensate in full the former workers who have been failed by the inaction of this Government and of previous Governments.
I am told that I must finish by 7.10 pm, so although there is much that I would have liked to say, I will have to curtail my comments. Today's debate reminds me of one that my hon. Friend Richard Burden and I initiated back in 1994, concerning the Teampace pension fund. The directors of that company, Michael Spiers and Kenneth Shaw, were able to milk dry the pension funds of companies that they took over to such an extent—and to their own benefit—that they decided to wind up the company, leaving the pension scheme £2 million in the red. During that debate, the then Minister—a former Member of Parliament for Tatton—said that that would never have happened if Goode's proposals for minimum solvency requirements had been in place, but as we have learned today, that that was not in fact the case.
I must also place on the record that the then Government were unable to deal with an application for those individuals to be disqualified as company directors because the Department of Trade and Industry did not have the resources to deal with the many claims arising from insolvency schemes. As far as I am aware, those individuals, whose activities verged on the criminal, can still act as company directors to this day—unless they have been caught with their hands in the till elsewhere.
That shows that every time pensions scandals arise, Governments and Members are under pressure to do something about the injustices suffered by our constituents. That remains the case, but the question is whether, ultimately, we can do anything to offer the security that people expect from their pension schemes. It is rather like trying to patch up an old mattress—as soon as one part is dealt with, another spring pops up elsewhere and problems occur. We have heard about some possible solutions, and measures outlined in the Green Paper, those suggested by the National Association of Pension Funds, and those in the Bill of my right hon. Friend Mr. Field may have a contribution to make. However, the ultimate crisis is the underfunding of pension schemes. The fact is that we are not putting away enough money for our pensions—a fact that can be attributed to a combination of demographic changes and the poor performance of the stock market, particularly in this country.
It is disingenuous—indeed, it beggars belief—for the Opposition to suggest that a major factor is the Government's decision to end tax credits. That may have a small effect, but given that more than £400 billion has been wiped off the value of stocks in the FTSE all-share index in the past couple of years, the taking out of the system of a few billion pounds a year through Government measures is not the major point. As the Financial Times said in its leader of
"The fact is that companies are no longer getting a free ride from the bull market towards paying for ex-employees in their long retirements. Now that pension fund surpluses are disappearing, they want to dump that responsibility. Another few billion a year from the government would not change their minds."
Some of the proposals in the Green Paper, such as the simplification of the tax regime, are welcome. The Government say that that will save a few hundred million pounds in administrative expenses, which is all well and good. There are other proposals such as the re-prioritisation of assets, which is the major burden of the Opposition's argument. However, one does not get insurance for nothing. Under current proposals, if better mutual insurance schemes existed, or if better compensation existed where fraud and dishonesty were involved, the costs would be met by a levy from pension funds. That would actually add to the cost of the pension funds. Although there may be benefits in terms of confidence, the fact is that massive shortfalls in pension funds may well occur.
In putting forward in the Green Paper their exemplifications of what people might expect from pension schemes, the Government assume that the return on investment will be 6.55 per cent., which is 2 per cent. above their predicted rise in earnings over the long term. We do not know whether that is true. There will always be risks in a system that is based on stocks and shares. That is why, as I said earlier, I hope that the pensions commission will consider the interrelationship of the state system and private pensions. There is no virtue in having a set percentage of pensions provided by the state or by the private sector; what is important is the total amount of money that we save for our pensions.
We have had a good debate, despite the fact that the time has been squeezed by two statements. I was particularly struck by the speech of my right hon. Friend Mr. Arbuthnot, who outlined very clearly just how serious is the crisis facing the pensions industry in this country. He did not seek to lay all the blame at the Government's door, but he made it clear how much worse they have made the situation.
In 1997, the Government inherited an economy in which private pension savings, across the different categories of schemes, were more than those in the rest of the EU put together. Since then, the proportion of people who reach retirement age with a second pension has fallen from 67 per cent. to 59 per cent. The rate of closure of pension funds to new members is accelerating, and 12 million workers have no pension arrangements at all. That is a shameful record.
We chose today to focus specifically on the wind-up of company pension schemes. Mr. Field made it clear that that is the most urgent aspect of the entire crisis. I realised how bad the situation was when a constituent of mine who worked for ASW, or Sheerness Steel as we used to call it, came to see me. He was just weeks from retirement, and he told me that after nearly 40 years with the company, he will not know for two or three years what his pension entitlement is, and he may receive less than half of the amount that he was expecting.
We have discussed a number of issues today. First, and central to the crisis and to our motion, is the issue of priority, and we made it clear in our motion how we see that. A number of Members, including my hon. Friend Andrew Selous and Mr. Rooney, mentioned the important issue of the role of the independent trustee. A survey by Higham Nobbs, which looked at many closures, showed that up to £800 million appears to have been wasted in excessive fees. The conclusion of those industry specialists—that the average wind-up takes far too long and is too expensive—should give us all pause for thought. Other issues mentioned include the priority that a debt to a pension fund should take and the question of insurance, compulsory or not.
Against that background it was very depressing to hear the Minister for Pensions take almost a quarter of the total time allocated for the debate to make a speech in which he largely attacked the Opposition on matters that have nothing to do with this. He can argue quite reasonably that when consultation is going on, he cannot give his views on the particular points in our motion. However, hon. Members on both sides of the House have pointed out that we are in the middle of the Department's 26th consultation on pensions, and many people want this narrow and desperately urgent issue unbundled from the rest.
I shall ask Ministers two questions, and the Under-Secretary may choose to answer them in her speech. First, are the Government willing to consider unbundling the issue of wind-ups from the rest of the package? Secondly, is the Minister for Pensions seriously saying that there can be no retrospection at all? I hope that I misheard him, because this matter may affect many thousands of people. Nobody, least of all Opposition Front Benchers, would argue that measures should apply retrospectively to the time before the Green Paper was published. However, many companies at the margins have read its small print very carefully and asked themselves whether, if they are going to bail out, they should not do so quickly before the provisions bail in. Why cannot the Under-Secretary say that measures will apply retrospectively from tonight, if not from the publication of the Green Paper? Otherwise, the Government are providing a huge incentive for the problem to get worse and for more companies to back out of their commitments before the rules change.
In a typically articulate speech, Adam Price made a powerful case for insurance and a central discontinuance fund. However, he did not fully explore the downside of that idea, which obviously lies in the likely costs that must fall ultimately on the taxpayer or on pension funds, many of which are already struggling. I listened with interest to Lynne Jones. I am not sure that I agree with her recipes, but she brought her extreme concern and interest and her knowledge of the subject to the House, as she always does.
I hope that the Under-Secretary will make it clear that the Government understand two points that go beyond the central crisis in the pensions industry and which they have refused to acknowledge—they simply go on and on consulting. First, they must accept that the crisis in winding up is the red-hot tip of the crisis as a whole. Secondly, if they announce possible action and give detailed options that put extra burdens on companies but do not make their measures retrospective to the date of the announcement, they will worsen the problem, and thousands of people will suffer.
Will the Government unbundle this urgent issue from the rest of the package? We have made it clear what we think, and we are willing help them to take legislation through the House, if it is even needed; the central issue of priorities could be handled by secondary legislation. Will the Under-Secretary also address the point about retrospection?
The Opposition take our responsibilities seriously. We have repeatedly drawn attention to this issue. We have set out our views in black and white in the motion about what should be done about the central issue of prioritisation. We have even offered the Government every possible co-operation in taking swift action in the House to tackle the problem. When are the Government going to take action?
I welcome the debate, which although short, has been robust and fascinating. I welcome the fact that the Opposition are buying into some of the proposals in the Green Paper, which shows a willingness to develop a consensus for moving forward. Certainly, on pensions, the wider the consensus that we can achieve, the better. We look forward to hearing what else they have to say and what other parts of the Green Paper they agree with, because the motion is very narrow.
Many Members from all parties and many people outside the House are concerned about ensuring an appropriate level of protection for the interests of pension scheme members on wind-up, whether or not insolvency is the cause. That is partly because there have been high-profile cases to which right hon. and hon. Members have referred. My hon. Friend Kevin Brennan, Mr. Heald and others have talked about ASW.
If we value our voluntary system of private pensions, and we do, pension promises must be kept. That is an important part of the partnership. The question is how we can balance appropriate protection for members, which is tremendously important, with sufficient flexibility and the lowest possible costs, which will make the provision of pension schemes appealing to employers as well.
My right hon. Friend the Minister for Pensions set out our proposals for improving protection on wind up, so I shall refer to only one or two of them before I deal with some of the points that have been raised in the debate. In the Green Paper, we are already consulting on whether there should be a fairer sharing of assets between those with larger and smaller pensions when a scheme winds up. We are looking at capping the level of the highest payment where there are limited assets. In his opening remarks, the hon. Member for North-East Hertfordshire appeared to show some sympathy for that, so we look forward to the support of the Opposition on that proposal.
Where there is a wind-up of an underfunded scheme, we are looking into possible changes to the priority order, introduced in 1995 by the Conservatives, to ensure fairness for those affected. However, it is right that we should listen to what everyone affected might think of the proposals, as the National Association of Pension Funds noted in its parliamentary brief for this debate. Despite the calls for immediate action, citing the ideas of the NAPF, which we heard from Opposition Front-Bench speakers, the association itself says that further discussion with interested parties would be necessary to finalise the fairest and most practical solution. The NAPF does not suggest that we move immediately to producing a set of regulations but that we should get things right before we go forward. I approve of that.
The motion expresses deep concern at the current arrangements for dealing with pension funds affected by employer insolvency. As we have already heard, the Conservatives devised those arrangements, so it is touching that they are now championing workers' rights. I prefer to look at the Conservatives' record, however, and to judge them on the basis of what they did when they had the chance.
During their 18 years in office, the Conservatives did nothing to enhance protection for workers affected by insolvency and redundancy and they themselves devised the order of priority between unsecured creditors on the wind-up of schemes that they now criticise. When prompted, the hon. Member for North-East Hertfordshire remembered that in fact he was responsible for that when he was an Under-Secretary at the former Department of Social Security. As Mr. Webb kindly reminded us, the responsibility did not lie only with the hon. Member for North-East Hertfordshire; both the current Leader of the Opposition and their previous leader were involved in setting out that order of priority.
It is not as though there was no pressing problem of company insolvency and redundancies during the Conservatives' time in office. They were engaged in systematically wrecking the private pension provision of millions of workers by promoting mass unemployment. That did not happen by accident; they did it on purpose. Creating mass unemployment was an instrument of economic policy for the Conservatives. They were also engaged—just for good measure—in allowing the mis-selling of private pensions on a truly staggering scale, so people who did not lose their jobs might have fallen foul of that.
No, I do not have time.
In fact, the Conservatives were so keen on the ideological policy of promoting private provision at any cost that they actually incentivised private pension sales to the tune of £3.6 billion. They threw millions of workers on to the dole as an instrument of economic policy while presiding over the two worst recessions this country has endured since world war two.
If people came out of that with their occupational pension intact they were lucky. Millions did not. Not only in my own city of Liverpool, where three quarters of manufacturing jobs were lost in 18 months between 1979 and 1981, in an avalanche of factory closures and pensions closures engineered by—
It was not only in Liverpool that we suffered the loss of three quarters of our manufacturing jobs within 18 months; more than 2.6 million manufacturing jobs were lost throughout the country, many of which had good pension schemes. That avalanche of job destruction and that wanton industrial and social vandalism were wreaked deliberately by the party that said that unemployment was a price worth paying. The Conservative record speaks for itself.
I shall now deal with some of the points that were raised during the debate, so I hope that Opposition Members will be pleased. The hon. Member for North-East Hertfordshire referred to the so-called £5 billion raid on pensions. The Opposition keep repeating that figure yet they never mention the off-setting effect of the corporation tax cuts that were introduced at the same time. The withdrawal of payable credits removed a major distortion in the tax system that encouraged companies to pay out their profits as dividends rather than retaining them for reinvestment in the business. It was designed to create a more neutral environment for planning and investment decisions that would encourage long-termism rather than the damaging short-termism of the previous arrangements. In any case, when Mr. Willetts was asked whether he would reintroduce the dividend credit he said, in The Observer on
Many right hon. and hon. Members referred to concerns about independent trustees and their behaviour on wind-ups, especially the fact that they take a great deal of money out of funds because they have higher priority than other creditors. The law requires independent trustees to disclose the scale of the fees that they charged within the past 12 months. Such transparency is important.
Independent trustees should also be able to demonstrate to the pensions regulator that they are acting professionally and in the best interests of the members. If that is not the case, the Occupational Pensions Regulatory Authority can replace trustees where there is evidence that those appointed by the insolvency practitioner are failing to carry out their duties responsibly. The proposals in the Green Paper for a more proactive regulator should strengthen those powers. I hope that that will reassure my hon. Friends the Members for Bradford, North (Mr. Rooney) and for Cardiff, West and my right hon. Friend Mr. Field, who made a particular point about that.
The hon. Member for Northavon, who speaks for the Liberal Democrats, made some points about speeding up wind-up. The Government are also concerned about the length of time that it can take to finalise arrangements when a scheme winds up. We introduced new legislation last April that places greater visible accountability on the people involved. We need to reduce costs to make the whole process more efficient. The new rules mean that OPRA has a more proactive role and we expect it to ensure that the improvements actually come about.
Several Opposition Members referred to the closure of defined benefit schemes, although Mr. Arbuthnot struck a somewhat discordant note in respect of his party and made an interesting speech that advocated the increasing use of defined contribution schemes. I agree that there is nothing inherently better about defined benefit schemes; it is the level of contribution that matters. At present, contribution levels tend to be less—about half as much—in defined contributions schemes than in defined benefit schemes. Although it is true that closures of defined benefit schemes have been accelerating over recent years, only 1 per cent. of them closed in 2001. We need to keep the matter in perspective. Many employers are still committed to their defined benefit schemes.
The hon. Member for North-East Hertfordshire stops me from dealing with the points that were made in the debate.
I welcome the conversion of the Tory party and their new-found deep concern for the workers. However, I am a suspicious sort and so I suggest to the workers and their trade union representatives that they beware of Tories bearing gifts. Sometimes wolves appear in sheep's clothing. Pensioners will judge the Tories by what they did when they had the chance, not by what they say now when they are about as far away from power as I am from being recognised as the tallest woman in Britain.
The Conservatives described the £200 winter fuel payment as a gimmick. They opposed free television licences for the over-75s. They said that the minimum income guarantee had nothing to recommend it. They said that they would reconsider the pension credit, which rewards people for saving, and their leader has been a long-standing advocate of wrecking the basic state pension, of which he once wrote that it should become a function of the private sector.
To top it all, the Conservatives are now advocating a 20 per cent. across-the-board cut in public expenditure, which would devastate pensions. All that from the party of VAT on fuel, charges for eye tests and pensions mis-selling—and from the party that slashed SERPS not once but twice. It cut inherited SERPS in half, then did not bother to tell anyone. No wonder the Opposition kept their motion so narrow—they did not want their record examined. But we remember that record and will keep reminding the people of Britain that despite the Tories pretending to be the workers' friends, they cannot be trusted on pensions. I commend to the House the amendment in the name of my right hon. Friend.
Question accordingly negatived
Question, That the proposed words be there added, put forthwith, pursuant to
Mr Deputy Speaker forthwith declared the main Question, as amended, to be agreed to.
That this House acknowledges the crucial contribution of the UK tradition of occupational pension provision; welcomes the range of measures in the recent Green Paper to strengthen that tradition and to renew the pensions partnership between employers, employees, the financial services industry and Government; supports, in particular, the promotion of occupational pensions as a means to recruit and to retain good staff through the employer task force and other measures; notes the proposal to give employees the right to be consulted on changes to an employer's pension scheme; further notes the Government's consideration of a range of options to bolster member protection in cases where schemes are wound up, including options for a fairer sharing of assets when schemes close, with more priority for workers closer to retirement or those with more years of contributions; believes that there should be 100 per cent. protection in cases of fraud; supports the appointment of a new proactive regulator to investigate fraud and maladministration; further notes the proposed £150–£200 million administrative savings which will encourage firms to open new schemes and keep existing schemes running; and further welcomes the establishment of the independent Pension Commission to assess how effectively the current voluntarist approach is developing and to make recommendations to the Secretary of State for Work and Pensions on whether there is a case for moving beyond that approach.