Occupational Pensions

Part of the debate – in the House of Commons at 7:03 pm on 20th January 2003.

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Photo of Lynne Jones Lynne Jones Labour, Birmingham, Selly Oak 7:03 pm, 20th January 2003

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 27 February

"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.