I beg to move,
That this House
condemns the Government's inaction in the face of the crisis in occupational pensions;
regrets that the Pensions Bill will do nothing to encourage people to save for their retirement or companies to keep open existing defined benefit schemes, let alone start new ones;
recognises with regret that the Pensions Bill will do nothing to help the estimated 60,000 members of schemes who have lost all or most of their pension entitlement;
notes that the Government has twice reduced the minimum funding requirement as well as removing £35 billion in extra taxes from pension funds and has conspicuously failed to amend the priority order on wind-up, despite offers of co-operation from the Official Opposition;
expresses its surprise that the Government has refused calls to instigate an independent inquiry into the extent of the problem;
and calls upon the Government to take urgent action to tackle the current crisis in pensions and to mitigate the unfairness caused to thousands of current and future pensioners across the United Kingdom.
I draw the House's attention to the interests that appear in the Register of Members' Interests.
This is our first opportunity in Opposition time to debate pensions since the publication of the Pensions Bill the other day. We look forward—the expression to use is "with relish"—to ranging widely on Second Reading over the many issues covered in that Bill. Today, however, we want to focus on one serious omission from the Bill, which it ought to have tackled. I refer, of course, to the problem facing the tens of thousands of victims of the winding-up of pension schemes. Those are the people whose houses have burned down, and to whom the Government are saying that the solution is fire insurance for the future. However desirable a fire insurance scheme might be, it is of no comfort to someone who has already suffered the losses that these people have suffered.
Are there not two other related omissions from the Pensions Bill: first, a date set for the publication of the Penrose report; and secondly, a commitment from the Government to do away with the compulsory annuities rule? Both of those are extremely worrying matters for future and existing pensioners.
My hon. and learned Friend is correct. It is a great pity that the House has not yet had an opportunity to see the Penrose report, although we know that it has arrived in the Treasury. With regard to annuities, we continue to fight for the abolition of the pernicious rule that people are obliged to purchase an annuity at the age of 75. We hope that there may be a private Member's Bill before the House through which we can once more address that issue.
Does the hon. Gentleman accept that the Penrose report is nothing to do with this motion and this debate? It muddies the water because the difference between the Equitable Life issue and this issue is that in this case people were often compelled to join occupational pension schemes and were given no health warning whatever that the schemes could go bust, particularly when the Pensions Act 1995 was passed.
Both Penrose and pension wind-ups involve serious financial distress for people, and I hope that Members on both sides of the House can cover both cases with sensitivity, recognising that we have constituents facing significant financial problems in both cases.
I listened with care to the intervention of Kevin Brennan, and of course there is a distinction, academically, between the appearance of the Penrose report and other sorts of distress for pensioners. The fact is that for a pensioner who is affected not only by the wind-up of a pension scheme but by the delay in the Penrose report, that distinction is indeed academic. We should be looking at the distress caused to the individual.
My right hon. Friend is absolutely right. The reason why we have called this debate, and why our hon. Friends are pressing vigorously on Penrose, is that in both cases there is serious financial distress under this Government and people are facing financial insecurity of a sort for which they did not bargain.
With regard to the point made by Kevin Brennan, is not it correct that in 1986 the then Government abolished the compulsion for people to join pension schemes and that anybody who had been compelled previously to enter into a company scheme was free then to leave that scheme?
Does my hon. Friend recall that the Allied Steel and Wire workers suffered a double blow, because the additional voluntary contribution scheme was with Equitable Life? Is there not a link between the two in respect of the hon. Gentleman's constituents?
At least one person whom I have met had the misfortune both to lose his final salary pension as a result of the winding up of a pension scheme and to have put extra pension savings into an AVC scheme with Equitable Life. He suffered a double whammy—an appalling blow.
Members on both sides of the House share the concern about pension wind-ups. It is reflected in two early-day motions, our motion 66 and motion 200, tabled by Kevin Brennan. Between them, the two motions have been supported by almost half the total number of Members, which also reflects the extent of the concern that is felt. Motion 200 goes further than motion 66, which was signed by me and by many of my hon. Friends. It implies that the Government should offer full compensation to victims of wind-ups.
Does my hon. Friend understand the reservations of people like me who strongly support the proposition that compensation should be given for loss if that loss was caused by the negligence, misconduct or other culpable fault of Government or Government agencies, but would find it difficult to support compensation in respect of loss that was not the fault of Government or those for whom Government are vicariously liable?
That is an important point, on which I intend to press the Minister later. We need much clearer information than we have had from Ministers so far about what they think their legal liabilities might be. We hear a variety of reports on the Government's legal position.
The Opposition motion refers to 60,000 people. Can the hon. Gentleman give us an idea of the cost of compensation? If possible, will he break his answer into two parts and tell us how much it would be when there has been culpable error and when there has been no such error?
I should like to make some progress now.
I want to explain to the hon. Member for Cardiff, West that we did not feel that, as a responsible Opposition, we could support an early-day motion that involved unqualified and uncosted obligations to pay compensation to all victims of the pension wind-up crisis. However, the fact that we did not feel able to go as far as he did does not mean that we agree with the Government that nothing can be done. Motion 200 calls for everything to be done; the Secretary of State and other Ministers are doing nothing. Conservative Members believe that something can and should be done, and I intend to set out what I consider to be a genuine and constructive approach to the problem affecting so many victims of the crisis.
Unless the problem is tackled, the Government will not achieve their stated objective of restoring trust and confidence in our pension arrangements. It is impossible to envisage a world in which people once more have confidence in funded pensions when there are so many distressing stories of individuals facing financial disaster because they had funded occupational pension schemes. Conservative Members, who are strongly committed to the strength and vigour of funded occupational pensions, believe that the problem must be tackled. First, I want to provide a little of the history, because it is important to all this.
On the question of the history, the hon. Gentleman will doubtless remember that under the previous Conservative Government, and particularly during the 1980s, companies such as Rolls-Royce encouraged people to opt out of the state earnings-related pension scheme; in fact, they spent thousands of pounds doing so. If he wants to have an honest debate on this issue, will he not accept that the origins of the problem lie in the 1980s, under the Thatcher Government?
No. I regret that intervention because it is not accurate. I shall take the hon. Gentleman through the history, which will show why.
The Pensions Act 1995, which is sometimes blamed for this problem, actually improved the degree of security available to members of occupational pension schemes through the introduction of the minimum funding requirement. It set out to strengthen the protection available to members of such schemes, and the formula on which the MFR was based was full protection for pensioners, and protection for at least the transfer values that would be available for workers who had yet to reach pension age.
For a time, the MFR worked. When we lost office in 1997, the position was as follows. Actuaries advise me that the MFR would have provided 78 per cent. of the value of the pension that a 40-year-old man working for a company with an occupational pension scheme would have hoped to receive. Of course, back then company pension schemes were healthy and many companies had funds available that were in excess of that figure. Then along comes the current Chancellor, with his notorious £5 billion a year tax on pension funds that significantly weakened the finances of many company pensions. What was the Government's response to that weakening? They cut the value of the MFR to reflect the fact that companies were now distributing smaller dividends.
I shall quote how Mercers, a senior and respected firm of actuaries, described the Government's 10 per cent. reduction in the MFR at that time:
"The change is a consequence of pension schemes losing the benefit of advance corporation tax (ACT) tax credits in the July 1997 Budget, following which the gross dividend yield was no longer appropriate for pension funds."
So the value of the MFR was cut by 10 per cent. in June 1998 in response to the change in the tax regime that the Chancellor imposed.
The hon. Gentleman has brought some new information to the House. In 1997, three quarters of a worker's pension would have been protected had the scheme been funded according to the MFR, but can he clarify what would happen when such a scheme winds up? Let us say that half the members are retired and half are still workers. Would the retired members get 100 per cent. and the workers 50 per cent., because the average is 75 per cent., and does he consider 50 per cent. protection to be adequate? Is that what the hon. Gentleman meant?
No, that is not what I meant. I meant that pensioners got 100 per cent. and people of working age got 78 per cent. The basis on which the MFR operated was explained very clearly by my right hon. Friend Mr. Hague in a debate on this subject. He said:
"In broad terms, the aim of the MFR test is to ensure a scheme has sufficient funds to keep paying benefits for members whose benefits are in payment, and to pay minimum transfer values for other members."—[Official Report, Standing Committee A,
That was the philosophy and the basis on which the scheme worked—and it was indeed working—until 1997.
Since 1997, there have been two reductions in the value of the MFR. There was the 10 per cent. reduction in June 1998 to which I referred, and a subsequent 8 per cent. reduction. The effect of that has been to lower the value of the protection that members of company pension schemes now enjoy. Indeed, the actuaries to whom I have referred advise me that a 40-year-old who works for a company that is compliant with the MFR will now find that the funds that so comply would secure him only 20 per cent. of the pension that he would otherwise hope to receive. So there has been a decline from 78 per cent. to 20 per cent. since 1997.
Does the hon. Gentleman acknowledge that, even if he were right about the reduction being the result of Government policy, the minimum funding requirement set out in the Pensions Act 1995 was wholly inadequate because the workers would still have received only a tiny proportion of their expected pension as a result of the MFR? Is that not correct?
I am not saying that the minimum funding requirement was perfect. A proper balance always has to be struck, but it seems to me that the significant changes that have exposed so many of our constituents to the risks and concerns arising from the wind-up of pension schemes have occurred since 1997. That is the period in which the finances of company pension schemes deteriorated and in which Ministers twice deliberately cut the value of the protection provided by the MFR.
As a result of a well-intentioned proposal to introduce insurance, I believe that we now face a further risk. Ministers intend to introduce insurance initially—we do not know how long the initial period will be—at a flat rate. Hitherto, many good employers tried to do better than the MFR. The danger of the current proposals is that they pose the question why any employer should now attempt to do better than the MFR. Why should an employer put more money into pension schemes than the minimum necessary? He might improve the position of his own employees, but with an insurance scheme in place with the same insurance premium for everyone, an employer could cut contributions to the bare minimum necessary to meet the MFR and still access the Government's insurance scheme. A new risk is therefore being introduced as employers will in future see no need to bother paying more than the statutory minimum because of the flat-rate insurance scheme. It makes no provision whatever for employers who are doing better than the MFR.
We are told that at some point in the future we will move to a variable rate that reflects the quality of the funding of the company, but we have no information about when or how that will be achieved. For a time, therefore, we will be in an extremely dangerous position in which companies do the bare minimum and rely on the insurance scheme to fall back on in the event of difficulties.
The evidence is clear that in the past few years the world has become less secure for many members of company pension schemes, and hon. Members on both sides of the House are well aware of the consequences. We are aware that many of our constituents have been affected by a roll call of companies that have wound up their pension schemes. There is the example of ASW, of course, but also Blyth & Blyth in Edinburgh, Bradstock's, Dexion, Kalamazoo, Ravenhead Glass, Richards, United Engineering Forgings and many other companies have wound up without being able to offer anything like the full pension to their employees.
One of my constituents who visited my surgery recently had been employed by Ballast UK. He will be 61 in April and had worked for his firm for 27 years. He had been hoping for a company pension of approximately £17,000 per annum, but was told that he was likely to receive perhaps 17 per cent. We are all aware of such cases and no hon. Member on either side of the House can look such a constituent in the eye and say, "Tough luck, but there is nothing we can do." We all have an obligation to think constructively about what can be done to help people in those appalling circumstances.
My hon. Friend mentioned a constituent who visited his surgery, and I, too, have had constituents visiting me for the same reason. One of my constituents, aged 60, used to work for British United Shoe Machinery and is now wholly dependent on what the state can provide. Throughout his 40-year working life he saved through the pension scheme but is now left effectively destitute—or, if not destitute, has to live a vastly reduced standard of life. Other British United Shoe Machinery employees will face the same, if not identical, difficulties.
My hon. and learned Friend is correct, and all hon. Members know of such examples. That is why it is reasonable for us to ask Ministers what they propose to do about the problem, as our early-day motion and early-day motion 200 both state.
What do Ministers reply when they are pressed on this matter? The Secretary of State said:
"I am sure that my hon. Friend will accept that it would be wrong for me to raise false hopes."—[Hansard, 11 June 2003; Vol. 406, c. 694.]
Last October, he said that
"it would be quite wrong for us to raise false hopes that those people can get extra help unless and until we know that that is the position."—[Hansard, 20 October 2003; Vol. 371, c. 411.]
In January this year, he said that
"the Government are carefully considering the plight of those affected while taking care not to raise false hope."—[Hansard, 12 January 2004; Vol. 416, c. 511.]
In February, he said that the Government
"have been examining whether anything might be done, without wanting to raise false hope, and as soon as I am able to report further to the House, I will do so."—[Hansard, 9 February 2004; Vol. 417, c. 1104.]
Moreover, the right hon. Gentleman was reported on the "Today" programme as saying that while the Government were sympathetic to the plight of the pensioners hit by the problem, he did not want to raise false hope that they could give assistance.
I assure the Secretary of State that he has not been raising any false hopes. In fact, he has not raised any hopes at all among the many people affected by the crisis.
The Opposition invite the Secretary of State today to look forward and to do better than tell us that he will not raise false hopes. Instead, he should make some constructive proposals. It may not be possible to do everything, but it ought to be possible to do something. I shall suggest, to the right hon. Gentleman and the House, what those proposals might be.
First, as an absolute minimum, we need reliable estimates of the numbers of people affected by the crisis. It is shocking to discover how feeble and inadequate are the answers given to parliamentary questions or other inquires about how many people are affected. Ros Altmann, for whom many hon. Members have the greatest respect, is an expert in this field. She has produced estimates, as have other people. The figure of 60,000 people affected by the problem is in circulation, but we do not know whether it is correct.
Ministers have all the resources of government at their disposal, and they should know the true figure. As a matter of urgency, they should compile reliable data. At the moment, the best list of companies affected by the crisis has been provided by The Mail on Sunday. I pay tribute to that newspaper for the work that it has done, but Ministers should be able to provide reliable information and answer a series of questions. How many schemes have been wound up, or are in the process of being wound up, that have not been able to offer full pensions to their employees? How many people are affected? How many pensioners worked for companies that have gone through the winding-up process? How many people who have not yet retired face the prospect of losing some or all of their pension? What scale of financial loss will they face?
One reason why the Opposition did not feel able to support early-day motion 200 was that we did not know the amount of compensation that would be involved. I have heard estimates that the total cost will be £1 billion, or £5 billion, and I have even heard a claim that it could be as much as £50 billion. Ministers must come to the House and give hon. Members of all parties that essential information; otherwise, we will all be trying to make policy in the dark. Therefore, my first request echoes the request that has come from hon. Members on all sides of the House—that Ministers give out reliable information as a matter of urgency.
Secondly, Ministers must give us their authoritative understanding of the legal position that we face. Many of us are being told that the ASW workers who are taking their case to Brussels have high hopes, on the basis of legal advice, of securing a victory and of defeating the Government. They are basing their hopes on the solvency directive, on the provisions of the Human Rights Act 1998, on contract law, and on the fact that they were compelled, at some point in the past, to join the scheme.
The Government are being taken to court on the matter. Ministers say that they are confident of winning the case, but why are they so confident? Would not it be better to take an initiative to tackle the problem now, rather than risk a humiliating legal defeat in the future? The Government have never offered the House any reliable information as to why they are so confident that they will face down the legal challenges ranged against them.
Thirdly, after years of endless consultations on various aspects of pensions security, Ministers should act. I tabled a written question asking Ministers how many consultation exercises they have conducted on pensions. The reply came that that as there had been so many such exercises that a full answer
"could be provided only at disproportionate cost", which revealed the scale of the consultation. The Government have been consulting on replacing the minimum funding requirement for more than five years, which may be a record even for this indecisive Government.
The Government have been consulting also on their proposals for the full fund on wind-up. When the original proposals were produced in June 2003, the Government said that they aimed at laying those regulations during the summer so that they would come into force as soon as practicable. Miraculously, a few days ago—after we announced the subject of this debate—and with snow falling, the Government finally produced their regulations on pension wind-ups. They nearly did something about the problem, announcing at one point that trustees may utilise the regulations so that they applied to schemes that wind up on, or start to wind up after, the date on which the draft regulations were issued.
If the regulations had applied to schemes that were winding up last June, they would have had a significant impact. In practice, the Government rushed out a corrigendum stating that the provision was a printing error and that the regulations did not apply to schemes that were currently winding up, but only to those that started to wind up after the date on which the draft regulations were issued. The Government announced a policy, then withdrew it on the basis that it was a printing error for which they could not take responsibility. The terrible thing is, that was probably true—but if the Secretary of State is to be believed when he announces that Government policy has been abandoned on the basis of a printing error, no wonder the right hon. Gentleman's credibility on his pensions policy is so poor.
We have also been promised amendments to the priority order facing members of pension schemes. I accept that the order in the Pensions Act 1995 needs changing. I wrote to the Secretary of State in January 2003 assuring him of our support, as a responsible Opposition, for proposals to change the priority order to dispense with the cliff edge whereby there was almost 100 per cent. protection for pensioners and little for current employees. The Secretary of State could have changed the regulations in an afternoon. That does not require primary legislation and would be simple to do. Fourteen months later, we are still waiting for the Secretary of State to do anything. The Government promised to lay the regulations to tackle the priority order by early 2004. Perhaps the right hon. Gentleman can say when the regulations will be tabled. Practical steps could be taken that have not been taken by Ministers, despite our offer of constructive support.
Beyond that, I urge the Secretary of State to be bolder and to debate with the House—perhaps we might call it a big conversation, as that is a phrase on which the Government are rather keen—radical proposals for tackling the priority order problem. Mr. Field is occasionally a friend of Members on this side of the House because of his constructive suggestions on pensions. He has proposed using unclaimed assets as the basis for establishing a fund that could be used to tackle pension grievances. When the right hon. Gentleman submitted that imaginative idea in the form of a private Member's Bill last year, we supported its Second Reading. Practical points need addressing, but in principle that idea is worth investigating. The Government opposed that proposal when we supported it.
There was a proposal also from Ros Altmann that because of the tough terms on which companies that wind up their pension schemes must purchase an annuity, they should be offered some prospect of delaying its purchase while the problem is investigated to ascertain whether a policy can be put in place to tackle it. Have Ministers considered that approach, and if so, what is wrong with it?
Is my hon. Friend aware that Ros Altmann's proposal would not cost the Government anything for five years, and that it would cost £100 million a year after that? When Ros Altmann carefully costed the scheme, one problem she faced was the lack of data on the number of people.
My hon. Friend is right that the crucial problem that she faced was lack of data. We must be careful, but those people are at least using their best endeavours to try to tackle the problem—Ministers have offered no constructive suggestions whatever. I must tell the Secretary of State that I do not believe, given the strong feelings on both sides of the House, that the current position is sustainable. He will not be able to hold his current position for much longer. A number of Government and Opposition Members have signed the two early-day motions on the subject, which is evidence of how strongly we all feel when people who have tried to do the right thing and put money into their company pension schemes find themselves facing serious financial distress.
We are willing to be realistic about the matter. We are not absolutists and we know that it may not be possible to do everything, much as we would like to be able to do so. We know that we cannot do everything, but we must do something. The Government are doing nothing, which is why I urge the House to back our motion.
I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof:
"supports the Government's strategy to tackle pensioner poverty, and to deliver simplicity, security and choice in working and saving for retirement;
condemns the pensions inheritance of 1997, with millions in poverty and the legacy of pension mis-selling;
notes that the Government is spending £9 billion extra per year in real terms on pensioners compared with the 1997 system;
condemns the unfair, unaffordable and unsustainable pensions policies of Opposition parties;
expresses its sincere sympathy for those who have lost part or all of their pension as a result of their employer becoming insolvent;
believes the Government should continue to look at all available options to help people affected, but that it would be cruel to raise expectations if no workable solution can be found;
welcomes the publication of the Government's Pensions Bill;
further believes that the Pension Protection Fund will bring real security for over 10 million defined benefit pension scheme members if their employer becomes insolvent and pensions schemes wind up in the future;
further believes that firms should honour pension promises they have made;
welcomes the Bill as a balanced package, with a new regulator and measures to simplify pensions legislation, making it easier for employers to run good schemes;
further believes that pension reform should be a common cause;
and calls on all Members of this House to support the Government's Pensions Bill.".
I am more than happy to set the record and proposals of this Labour Government against those of the Conservative party any day of the week. The motions in these debates are often not referred to and are perhaps not read as closely as they should be. The Opposition motion this evening merits attention because it reveals the utter emptiness of the posturing by Conservative Front Benchers on these vital issues. It contains not one single positive proposal about what the Conservative party would do to help those affected by pension scheme wind-ups. As usual, Conservative Members allege that £35 billion has been removed from pension funds in taxes, but do they favour either the reinstatement or the reversal of that policy? No, they do not. They feign surprise at the Government's position on an independent inquiry, but do they propose one? No, they do not. They call for urgent action, but do they say what form it should take? No, they do not. The motion and the speech by Mr. Willetts were high on rhetoric, condemnation and regret, but utterly bereft of any positive proposal whatsoever.
The Secretary of State is reading a speech written before he listened to the speech made by my hon. Friend the Member for Havant. One disadvantage of that is that he is wholly failing to take into account what he heard. He mentioned emptiness; not far from this House, there is an empty dome wasting Government and public money. Why do the Government not sell it quickly and save the day-by-day revenue costs of keeping it open?
On the hon. and learned Gentleman's first point, I was addressing the Opposition motion that we are debating, and I shall address each of the specific questions asked by the hon. Member for Havant. Conservative Members go on about these issues, but their motion contains no proposal that would help the situation. Despite reports in The Daily Telegraph that they would call for compensation in this debate, the motion and the remarks of the hon. Member for Havant contain no such call. That is not surprising, because Conservative Back Benchers have been urged not to sign the early-day motion in the name of my hon. Friend Kevin Brennan.
Did my right hon. Friend notice that Mr. Willetts failed to mention the fact that the mis-selling of pensions occurred under the Conservative Government? The hon. Gentleman mentioned the Pensions Act 1995, but the Conservatives took no action to address the problem, despite the fact that Labour Members were tabling early-day motions calling for compensation for the people affected. The Labour Government took action when they set up the Financial Services Authority.
My hon. Friend makes some good points and I shall come to the mis-selling issue later.
Despite the measured tones of the hon. Member for Havant and his offers of collaboration and consensus, his speech was opportunist and opposition for opposition's sake; it was not a positive contribution to the pensions challenges facing the country. It was certainly no comfort to people who are worried about the security of their pension.
The majority of Opposition Members have not signed the motion tabled by Kevin Brennan because it contains two fundamental inaccuracies. The first is that people were compelled to join pension schemes, whereas, as I said earlier, the previous Conservative Government abolished that compulsion in 1986. The second is that the motion asserts that the Government had guaranteed people's pensions, but neither the Labour Government nor any previous Government have given any such guarantee on private sector pensions.
A few moments ago, the Secretary of State said that the Opposition fail to read the motions on the Order Paper in debates such as this, but may I draw his attention to a sentence in the Government's amendment? It states that they believe that
"firms should honour pension promises they have made".
I agree. Will the Government pass legislation to put that statement into effect?
Yes, indeed. That is why we shall debate the Second Reading of the Pensions Bill next week; it is also why we laid the full buy-out regulations before the House yesterday.
I am grateful to the Secretary of State for that reply, but I was referring not to the minimum funding requirement, which is a snare and a delusion, but to the full pensions that people in final salary schemes confidently expected to receive when they reached retirement.
I am grateful to the hon. Gentleman for his comments. I think that he is embarrassing his Front-Bench colleagues by referring to the MFR as a snare and a delusion; only a few moments ago, the hon. Member for Havant was telling us what a wonderful thing it was until the wicked Labour Government came along and made it all go wrong.
There is serious content in the comments of Sir Peter Tapsell. Like him, I believe that a pension promise made should be a pension promise honoured. That is why we introduced the full buy-out regulations, which will require solvent companies to meet their pension obligations in full, and it is why the Pensions Bill, which will have its Second Reading next week, includes a proposal for a levy-based pension protection fund to ensure 100 per cent. of pensions in payment, with 90 per cent. for those not yet receiving their pension, which is in common with other compensation schemes. The Government are acting in the spirit of the hon. Gentleman's request and in line with what the vast majority of workers and other people want.
The hon. Member for Havant called for reliable information, but in this field that has been difficult to come by. The pensions scheme registry maintains a record of schemes in wind-up, but there can be delays in its receipt of that information and it does not necessarily know about the solvency of the reported schemes. The Opposition motion calls for an inquiry to establish the extent of the problem. Elsewhere in the motion, there is a stab at assessing the extent of the problem, which is estimated to affect 60,000 people. I must stress that data limitations make it difficult to be precise, but, on the evidence that I have seen, 60,000 seems to be the right estimate of the scale of the challenge we face.
It is helpful to hear the Secretary of State's estimate—60,000—but will he also give the House some sense of the scale of financial loss, on average, that those people might face?
As the House will understand, that is far more difficult. I am not able to give such an estimate, which is part of the ongoing work—the close examination—that I have repeatedly told the House we are undertaking. Our officials are working on it, and when I am able to report more fully to the House, I will do so.
The right hon. Gentleman must know when he will be able to communicate that crucial information to the House, because we cannot decide whether to pay compensation—if it is so called—until we know the sums involved. Mr. Field knows that, too. So when will we have information on the sums involved?
I should like to be able to do more and to say, "Yes, I will be able to make that statement on this date." I am not able to say when I can say that; when I can, I will. I am as anxious to resolve such things as anyone else, not least because of the real suffering and worry that is afflicting all those affected by this dreadful crisis. No one would want to prolong that for those individuals and their families a moment longer than is necessary. I assure the right hon. and learned Gentleman that we are working to get to the bottom of this as quickly as we can.
In an earlier intervention, Sir John Butterfill suggested that there are two flaws in early-day motion 200, the first of which related to whether firms and Governments had said that workers' pensions were guaranteed. The people involved have leaflets from various Governments and company pension schemes on which the word "guarantee" appears. He also said that people had not been compelled, but the early-day motion says:
"in many cases having been compelled to join their scheme as a condition of employment".
If the hon. Gentleman is denying that, is it any wonder that there was a pensions mis-selling scandal at the end of the 1980s?
My hon. Friend is right: a number of members were compelled to join by their conditions of employment. The hon. Member for Bournemouth, West is also right to say that the Government changed the arrangements in 1986, which took effect in 1988. Of course it can also be argued that no one compelled the employers to include that condition. All those matters must be thought through very carefully before reaching a final judgment on these issues.
On the issue of compulsion raised by Sir John Butterfill, is my right hon. Friend aware that many occupational pension schemes included an element of compulsion because they were part of a wage deal? In relation to the point about 1986, there might not have been compulsion, but lots of companies were given tax incentives to encourage people to leave the state earnings-related pension and join private occupational pension schemes.
My hon. Friend's points are well made and they further complicate the landscape, but no one would dispute the fact that a large proportion of those schemes' members were obliged to join under their conditions of employment. They were perhaps not even subsequently aware that they could opt out; nor, if they had sought advice at the time, would anyone necessarily have advised them to opt out. We all know that if they had had the good fortune to be in a sound scheme, rather than one that would later go under, they would have done better to stay in that scheme in any event. That gives this issue its particular poignancy, with the difficulties of identifying the challenge that we face and of being clear about what is the right thing to do.
I apologise for not being here at the beginning of the debate; I was involved in another debate in Westminster Hall. Is not the point that my right hon. Friend is now stressing crucial in two respects? Not only are we trying to represent our constituents, but if we are trying to make a case for the Government using other funds in compensation, the way in which we ring-fence the group involved is very important. We are talking about a group of people who had to join their occupational pension scheme as a condition of employment, so they are in a different position from me, for example. I voluntarily contributed to Equitable Life, so I could not expect the compensation that, if the Government were able to reach a decision on a compensation scheme, people in other schemes would expect to direct to his door.
I take the point that my right hon. Friend makes. He mentions Equitable Life. I should make it clear that that is something on which I have always declared my interest in the register, which is consistent with the advice of the registrar given at the beginning of 2003. The matter is no longer registrable, but it is declarable when raised within my ministerial responsibilities. I have not had any dealings on Equitable Life at the Department for Work and Pensions or the Treasury, and my hon. Friend the Minister for Pensions would have to respond to any points about that.
On the general point that my right hon. Friend makes, when issues of compensation or discretionary assistance—that is not the same thing—are raised, it is important to have a clear idea about how and where boundaries could be placed around those who would be eligible. We continue to examine such matters closely. I take the point behind the argument that he makes, but, equally, there would be those who would say that as a consequence of it, a distinction should be drawn between those who were in such schemes in 1988 and those who joined later. How fair that would seem to people who joined the schemes later and thus did not receive assistance illustrates the problem when drawing boundaries. There are also problems when considering time. Most members of the Maxwell pension scheme, thanks to the rescue plan introduced by Sir John Cuckney with the help of my right hon. Friend and other hon. Members, have received a large proportion of the pensions that they were expecting. As some schemes have not done well, it is not difficult to understand why members who had lost out would knock on the door to ask for assistance and compensation. I mention those points only because my right hon. Friend raised the valid issue of the importance of drawing a boundary and the difficulty of so doing.
When considering that boundary, would it be appropriate to examine whether people were given anything amounting to an adequate health warning about the pension schemes that they joined? Surely it is the case that no rational human beings would bet their retirements on a single share—namely, the share of their employer. People were not told that they were required to do that.
I take my hon. Friend's point, but the whole House can appreciate how difficult it could be to establish whether people had received such advice. I am not erecting these problems as excuses for why we are unable to announce an assistance scheme, but citing them as serious issues that must be thought through before we can reach a final decision.
At the risk of raising false hopes all over again, is my right hon. Friend saying that he does not rule out compensation and that he is still looking at the issues and statistics?
My hon. Friend urges me to repeat that we are not raising false hopes, and I shall have to underline that at some point in my speech. As I have said in the House before, given all these workers' anxieties, which we understand, we must be able to look them in the eye. They must know that we have been absolutely straight with them all along. I say again that we must not raise false hopes, but it would be wrong to close off consideration of these issues until, or unless, we are absolutely certain that nothing can be done. That is the spirit in which I respond to my hon. Friend's point.
I was not entirely sure what Mr. Field said, and I did not want the Secretary of State to get too much comfort if he was inferring, as some of us might have thought, that the Government could have no liability arising out of Equitable Life. When they see fit to publish the Penrose report, we hope that it will be published in full. If it shows that Lord Penrose has decided that there was clear culpable behaviour by the Department of Trade and Industry and, perhaps, the Treasury, will the Government not rule out the fact that their culpability should give rise to compensation?
For reasons that I made clear in my declaration a few minutes ago, my hon. Friend the Minister for Pensions will deal with that aspect of the hon. Gentleman's points in his reply to the debate.
I return to the series of questions that the hon. Member for Havant—
If we are to try to support Ministers in introducing some sort of scheme, it is very important that they do not think that, when we achieve that, if we do, we shall then pile in with the next one. Therefore, I was trying to say that if Equitable Life has a case it will be because of the report that is to be delivered. It should not be because the Government have met what I regard as the legitimate grievance of people who were made to join pension schemes and have now lost all or most of their pensions. I was trying to say that we shall ring-fence it in that way and not use as a battering ram any advance the Government make here to try to get every other old claim through as well.
My right hon. Friend makes very succinctly the point about the importance of a firebreak and avoiding a more general read-across or some sort of domino effect. Again, the whole House will understand why the Government have to examine that very carefully.
No. I wish to make more progress.
The hon. Member for Havant raised the legal position. Again, the House will understand that, with the Government before the courts, there is a limit to how much I can say about this matter. He asked what made us so confident of the legal position. I can say only that it is on the basis of the advice that we have received. The claim being made against us is that we failed to implement the solvency directive. I am advised not only that we complied with it, but that the European Commissioner said that we had complied with it. That is the position in essence. The case has not progressed fully, and there may well be other dimensions of the claim yet to be made, as well as other legal aspects that the House will understand we must examine very carefully.
The hon. Gentleman asked about the full buy-out regulations applying to firms that started to wind up after
The hon. Gentleman also raised the question of the priority order. I can confirm that we shall move forward in the very near future to rebalance the order so that the basic benefits of those in the run-up to retirement and other deferred members take precedence over the indexation of pensions in payment. That will achieve a substantial rebalancing. Many members may gain 20 per cent. of their pension, so it is a worthwhile interim change before the pension protection fund comes into effect.
I was of course aware of, and indeed shared, the enthusiasm of my right hon. Friend the Member for Birkenhead, echoed by the hon. Members for Havant and Northavon (Mr. Webb), for looking at a secondary rebalancing of the priority order among deferred members, to upgrade the rights of those deferred members with longer scheme memberships against those with shorter tenures. Those proposals had attractions, but we consult on regulations, and one of the things the consultation revealed was that that approach was impracticable, as many schemes do not keep the data needed to impose it. They do not hold the information on how long people have been members; they cannot tell the difference between someone who has been a member for a short time with a high rate of contributions and someone who has been a member for a longer time with a lower rate of contributions.
It is worth reminding the House that all that the proposals to rebalance the priority order can ever achieve is some redistribution of losses, lessening them for some scheme members, but increasing pain for others. The real aim must be to cut, not redistribute, losses for members of schemes in wind-up. That is what the PPF is all about. Conservative Members need to decide whether they are in favour of the fund or against it.
The final point made by the hon. Member for Havant was about unclaimed assets. The fact that assets are unclaimed does not mean that they do not belong to somebody. With electronic methods, it is becoming easier to trace assets and more people are doing so. Even if appropriating assets for public, Government or even charitable purposes, as happens in Ireland, were deemed appropriate, what gives that particular group of people who have been hard done by a prior claim to those assets compared with all the others who, I am sure, also want to make a claim? Again, it is a seductive idea, but I doubt whether it is right or practicable.
I am grateful to the right hon. Gentleman for giving way, particularly as I attended the House every week that the Pensions (Winding-up) Bill introduced by Mr. Field was blocked. On the question of unclaimed assets, is it not right that there could be no higher public interest than to protect the public's confidence in pension saving? Surely, that is so important to the future of our country that using the unclaimed assets for such a purpose could not be said by anybody to be anything other than a sensible ordering of priorities.
The hon. Gentleman makes a persuasive argument. As the Secretary of State for Work and Pensions, I cannot say that I would not be tempted by such an argument to get more resources to help with an intractable problem in pensions. However, I do not believe that he is so naive as to imagine that if suddenly there were a fund containing millions or tens of millions of pounds there would not be a long queue of deserving causes knocking at the door. Indeed, to develop his point about the importance of confidence in pensions, there is another argument that would add to the weight of evidence—if the matter is so important, is there not a proper claim on public funds anyway? In other words, the case for using unclaimed assets could apply equally powerfully to the use of public funds, if that were feasible and if and when we had explored all the issues.
The hon. Member for Havant also spoke in detail about the minimum funding requirement. As he said, the MFR was set out in the Pensions Act 1995, and the secondary legislation that subsequently took effect in April 1997 requires MFR valuations to be carried out in accordance with a guidance note issued by the Faculty and Institute of Actuaries. Revisions to the actuaries' guidance note reflected professional judgments on a range of relevant variables that change over time, including some mentioned by the hon. Gentleman such as interest rates, annuity prices and demographic trends.
To be honest, I do not know, but I shall go away and check. If the change had the impact claimed by the hon. Gentleman on any of the factors that I have listed, clearly that would be reflected. However, I do not subscribe to his argument, which treats the tax change in isolation. Whenever the Opposition raise that change, they fail to take account of the fact that it was part of a more comprehensive restructuring of corporate taxation, which cut the rate of corporation tax from 33 per cent. to 30 per cent., with great benefit for businesses large and small. We would have to factor in the effect on pension funds as well.
When the MFR revisions were carried out in June 1998 and March 2002, I do not recall any Conservative Members lobbying the Government or making representations to override the professional advice that we were given at the time. It is easy for the hon. Member for Havant to say now that different decisions should have been taken. Ministers took those decisions on the basis of professional advice and in line with the secondary legislation specified by the Pensions Act 1995, which was passed by the Conservative Government.
I suggest that if the right hon. Gentleman looks back over a series of debates taking place at that time, he will see not only that I was an original critic of MFR, but that I consistently said that its composition needed to be reviewed because it was not working in the best interests of scheme members.
I acknowledge the hon. Gentleman's remarks about his contribution to those debates, but I cannot recall the Opposition in general arguing that what was being done was wrong.
I have dealt as thoroughly as I can with the points made by the hon. Member for Havant, by his colleagues and by my hon. Friends.
All Labour Members welcome my right hon. Friend's suggestion that he will carry out a full assessment of the cost of any compensation package. Will he net off any savings that might be derived from benefits? When the figures are published, we should like to be able to see the cost to the Exchequer, and we need to know what the likely savings would be in benefit terms.
It always makes sense to take as rounded and comprehensive a view as possible of the relevant factors in cost-benefit analysis, but I would not want to set off another complicated exchange with Conservative Members about the assumptions that we are making about pension credit in 20 years' time.
The Secretary of State is doing a brilliant job of not raising any false hopes. As he has been speaking for half an hour and is coming to an end, may I invite him to say something constructive about what the Government will do about this problem?
I have been saying a great deal that is constructive about the careful and principled way in which we are approaching this very difficult challenge. We owe it to those affected to do that without raising false hopes. If it is not possible to do anything, as might ultimately be the case, they need to know that that has been the position all along. At the same time, we should not prematurely close off the opportunity of assistance if we can identify a proper basis on which it can be done.
I stress the distinction that I made a few minutes ago between the possibility of assistance and the question of compensation. I am not a lawyer, but I take the point that was made by Mr. Hogg: compensation has implications of legal liability, which, for reasons that I explained, I do not accept. There is no doubt, however, that these workers and their families have a compelling case on human grounds. That is why it would be wrong to close off the possibility of assistance while there is any chance that that might be made available through their existing deemed buy-back rights, improved procedures or other means.
Looking to the future, the lesson that we should all draw from this is that a pension promise made should be a pension promise honoured. That is why it is right that we have implemented the full buy-out regulations. That is why it is right to introduce the Pensions Bill, which establishes the pension protection fund. It will ensure that such a position cannot arise again and I therefore hope that hon. Members of all parties, whatever their other reservations about Government policy, the state pension system and so on, will support the Bill and get the pension protection fund in place so that scheme members have the protection that they deserve.
I must confess that when I found that we had a debate on winding up occupational pension schemes approximately a week after the publication of the Pensions Bill and a week before Second Reading, I was slightly bewildered. I tried to work out why we were holding a separate debate about issues that we shall discuss again next Tuesday and, I suspect, for the next happy couple of months.
I admit that an unworthy thought crossed my mind. The Conservative motion contains a great deal that is sympathetic, but it does not take us any further—indeed, it more or less says, "something must be done." It
"calls upon the Government to take urgent action" but does not define the "urgent action." I was concerned that the debate essentially represented the Conservative party covering its back. The shadow Chancellor's statement about public spending identified health, education and state retirement pensions as priorities, but also suggested that no other spending commitments were permissible. I was therefore concerned that the Conservative party was trying to sound sympathetic to the 60,000 workers while not wanting to spend any money on them. I believe that it is important to unite on this issue and I shall therefore assume that I was wrong to draw that conclusion.
The discussion between the Front Bench spokesmen has revealed some interesting developments. I want to ascertain the extent to which we can find consensus. We want the Pensions Bill to be amended to provide assistance, compensation or simply some money. I strongly suspect that the 60,000 people who have lost out do not give a fig whether the provision is called compensation or assistance; they simply want the money that they were expecting to live on. I should be happy if, at the end of his deliberations, the Secretary of State decided that although the Government saw no case for compensation, they were prepared to provide assistance on a discretionary basis that effectively tackled the injustice. I am prepared to swallow such phraseology if it provides legal cover for the Government. My main concern, like that of many other hon. Members, is to ensure that the injustice that such a large number of people have suffered is tackled. It is therefore welcome that the Secretary of State is giving himself some room. If pressing for assistance rather than compensation helps, I can live with that.
The motion does not mention compensation and Mr. Hogg highlighted that by tabling an amendment that referred to it. The Government's response so far has tended to be, "We can't have retrospection or an insurance scheme that applies retrospectively to people who suffered their loss before the insurance was introduced." I am not calling for that. I am not suggesting that we should have an insurance scheme that insures people who had not paid any premiums when they suffered their loss. The argument that we cannot have retrospection does not stack up. All sorts of people suffer losses, and all sorts of Governments compensate them for or assist them with the consequences. Nobody says, "You can't do that because it's retrospective." People cannot be compensated until they have suffered a loss. Compensation must always happen after the event, and there is no great issue of principle at stake.
At least some of us who propose that there should be some compensation or payment for those who have lost their pension do not argue that that should be part of the new scheme. Indeed, the last thing that we want to do is weigh down a new scheme with such considerable debt. Compensation or payment should be totally separate from the scheme.
That has always been my view but Ministers appeared on the main evening news bulletins on the day the Bill was published and argued that we could not help people retrospectively. The straw man of retrospection was put up only to be knocked down. I am grateful for the right hon. Gentleman's confirmation of my view. However, compensation or payment is a matter of natural justice, leaving the aside the legal niceties of the insolvency directive and so on.
My general point is that Governments often take action after the event to compensate or help people who have lost out. That is not my understanding of retrospection, which is applying a law to people who acted before that law came into force. This issue is different because it is about compensation, or assistance—call it what we will. I therefore hope that the Government will stop saying on the radio and television that they cannot take this action because it would be retrospective. It would not be retrospective action, because it is about compensation or assistance.
Is not a further point that the Government have a responsibility always to act in the public interest? To restore confidence in occupational pensions, it is very important that after the establishment of the pension protection fund—which is very welcome—there are not tens of thousands of people around saying, "Don't join an occupational pension scheme; look what happened to me."
That is right. One problem with pension reform is that there is always a lot of history. Just as pension mis-selling has done real damage to the private pension sector, so tens of thousands of people who had lost their occupational pensions could do damage to the future of occupational pensions. That has to be true.
Another important thing to come out of this debate is the Secretary of State's confirmation that the estimate of 60,000 workers is in the right ball park. I think that that faithfully reflects the tenor of his remarks. That is an extraordinarily significant remark for him to make, given the Government's argument about blank cheques. I have to say that the Conservative party's objection to signing early-day motion 200 now goes out of the window because we know what average industrial sector workers' earnings were, so it is not beyond the wit of man to estimate the broad order of magnitude of the losses. Clearly, there will be a range of figures on that. No one knows for sure, and I shall return to information in a moment; but we now need a declaration of principle from the Conservative Opposition. Now that we know that we are not talking about a blank cheque because we have an order of magnitude, do they accept in principle that there is a natural justice case for compensation or assistance of some sort?
If we are going to move forward together, we do not need Sir John Butterfill and Kevin Brennan to fall out with each other; we need them in the same Division Lobby. Conservative Front Benchers should be able to agree that we can have a pretty good idea of the amount involved because the Secretary of State has confirmed on the record that the rough figure of 60,000 is correct, we know what average earnings are, and we have a lot of detail from some of the schemes about typical deficits.
Only a few hours ago, we were discussing the national insurance fund, whose revenue for this year was overestimated by £1.5 billion and whose administrative costs were underestimated by £750 million. That was in just one year. We are not talking in this debate about anything like that sort of annual sum. All of us who have spoken sympathetically to ASW workers and others have a duty to say, now that we have a rough idea of the number of zeros on the figure and of the scale of the problem, whether we are in principle willing to sign up to some sort of assistance or compensation scheme.
I understand why the Conservatives were not willing to sign the early-day motion prior to today, but I hope that now they will be prepared to sign on the dotted line in principle—I am not too worried about particular early-day motions—and that all of us who have shown sympathy can make an unambiguous statement. The Government motion shows sympathy, but even they would accept that these workers need more than that. We should now go forward in as united a way as possible and say that, even if we query the compensation issues, as hon. Members have today, there is an issue of natural justice involved.
It has been said that Ros Altmann and the pensions action group are more or less alone in coming up with figures, and I am pretty sure that the figure of 60,000 workers is broadly consistent with what they have come up with. A sum of £100 million per year has been mentioned as the long-term average cost. Essentially, when the pension protection fund comes in, no new liabilities will accrue under the regime. There will be a cap on the amount; it is not an open-ended commitment, because it will come to an end when the pension protection fund is introduced. In the first four or five years, there will probably be no cost to the Exchequer because the funds will already have money in them, and it is important that that money is not spent on poor value for money annuities. There are things that could be done very quickly, as Mr. Willetts has mentioned. That seems to be the order of magnitude that we are talking about.
To put this in perspective, at the start of the year, the Department for Work and Pensions had a line in its annual report for unallocated expenditure that will rise to £200 million next year. This is almost the spare cash that the Department has not yet decided what to do with.
I would suggest that the hon. Gentleman looks again at the figures. If we are talking about 60,000 people, current annuity rates, and a very modest figure of £1,000 per year lost pension—although I am sure that it will be higher than that—that would result in a ball-park figure of £1.2 billion as a capital buy-out, not the few hundred that he is talking about.
The hon. Gentleman is confused on two counts. First, I am talking about the £100 million not as a one-off cost but as a recurring annual average cost over the lifetime of a scheme. Secondly, if we go for this sort of approach, we do not have to buy these grotty annuities; we can allow the capital that is left in the funds to go on appreciating. The sum does not therefore work out in the way that the hon. Gentleman suggests, but I am grateful to him for giving me the opportunity to clear up that point.
A number of us have paid tribute to the pensions action group and to Ros Altmann and the campaigners for getting this issue so high up the agenda and for being more or less the only people putting information into the public domain, perhaps until today. Is this not an issue for the Government? I am appalled to hear that we can do nothing about the injustice of long-serving workers getting next to nothing because the people who run the schemes do not even know how long the workers have been in them. Even the most basic record keeping seems not to have been carried out.
One might say that such record keeping would be another burden on the scheme, but it seems a pretty minimal burden to have to record when someone joined a scheme and put their money into it. We are talking about incredibly basic record keeping. We are also talking about public money; tax relief and national insurance rebates apply to these contributions, and there is tax relief on the fund. The situation is just horrifying, and I hope that the Minister will be able to tell us that there is to be better record keeping—as a minimum—in the future. The Government have been remiss in not obtaining the information on the numbers affected throughout all the time that this issue has been current. That has been a long time now. It is shocking that we cannot make good policy because of a complete lack of decent information.
The hon. Member for Havant raised the issue of the minimum funding requirement. I remember sitting on the relevant statutory instrument Committee for the second of the debates on the MFR. My initial reaction was to think, "This is undermining people's protection", but the Government said that their actuaries had advised them that the measure was appropriate. The Conservative members of the Committee then said that they did not want to put burdens on occupational schemes. That was the other argument: they did not want to overdo minimum funding requirements, because people would shut the schemes. The Conservative members of the Committee—whom I shall not name—then nodded the provision through.
I was determined not to be partisan, so I had better stop at this point. We must all stop using this issue to say, "Let's get one over on the Government" or "Let's get one over on the Tories". I hope that we are all serious about doing something about this issue, as I believe that the Secretary of State is. I am not suggesting that the Liberal Democrats have a monopoly of virtue in this regard. I wonder, however, how long it will take to achieve. Now that we have a rough idea of the orders of magnitude involved, surely we need to crack on with it, and we need to do that in as non-partisan a way as possible. I therefore hope that we can look at the Pensions Bill in a collaborative way that will enable us to put something forward that is precise and that will give real hope—rather than false hope—to the people who have been affected by these issues. The onus is on all of us to do that, and I hope that today's debate—and perhaps my contribution to it—will have taken that agenda forward.
I welcome this debate, particularly in relation to occupational pension schemes. The workers involved have been referred to, and if we recall the early 1970s, we remember that the workers always saw contributions to their occupational pension schemes as part of their wage deals. That developed in the 1980s, and from about 1986 onwards we saw a hard sell at companies such as Rolls-Royce to encourage people to opt out of SERPS—the state earnings-related pension scheme—and to get into private pension schemes. Tax incentives were introduced, and some companies obviously used the employment regulations of the time to encourage people to be part of those schemes, or to make it compulsory. One way or another, elements of coercion were used to get people—certainly those working in factories—to join those schemes. Of course, they joined those schemes in good faith, and they thought that it was a step forward, because they would ultimately gain some sort of security in old age. We now find that that security was on shifting sands.
Hon. Members will remember that I said in an intervention that one thing that the Tory Front Bench spokesmen omitted to mention was the mis-selling of pension schemes. That was a calamity, and there were no calls from the then Government to do anything about it. All sorts of reasons were given why compensation could not be paid out at that time, which led this Government, when they came into office, to set up the Financial Services Authority. Any Back Bencher who has been involved in Treasury matters will know that these issues have been raised with the FSA on a number of occasions. For the House's information, it is not generally known that the financial services people have paid out in compensation something in the region of £2 billion to £5 billion as a result of the mis-selling of some of those schemes. Those are old figures, and there are probably more up-to-date ones. The idea that the Government have not done anything over the past six or seven years is therefore an illusion. The truth is that they have stated to do something through the FSA.
Compensation has been mentioned. Because people entered those schemes in good faith way back in the 1960s and 1970s and, obviously, in the 1980s, and because there was a hard sell, on which there has been a report, I am one of those who think that we should consider some form of compensation. We can debate what the figure should be, and work it out, but a heck of a lot of people are involved.
My hon. Friend made an important point in the early part of his speech when he said that pension schemes are, in effect, deferred wages for many workers. In paying them compensation, therefore, all that we would be doing would be paying them the wages that they were promised.
To elaborate on that point, I can remember that when I was involved in negotiations many years ago people would accept 3 per cent. as opposed to 5 per cent. because it was a deferred wage, and most people understood that. Although I welcome the fact that the Secretary of State has not closed the door on compensation, I hope that he will give due weight to the views expressed on both sides of the House as it is a major issue. If it is not addressed, we will have perhaps 60,000 people on benefits who should not need to be in that position. That is the difference between the poverty line and a little bit of affluence. I hope that the Secretary of State will bear that in mind.
On the whole question of pensions, we would not be having this argument if the previous Government had not started their coercion, as I call it, in 1986. It goes without saying that we would not be debating it if we had a proper old age pension fixed at a reasonable level, possibly linked to earnings, although there may be other ways of doing it. The problem with linking it to earnings is the issue of what category of earnings should be chosen or what average, which can get us involved in all sorts of arguments. In the absence of a decent pension being paid, though, the argument about the link gains credibility. At some point, future Governments will have to address the question of what we call a decent pension. At the moment, while about 2.5 million pensioners have been taken out of poverty and given assistance, the number is not really diminished, because if we change the goalposts, we find that other people come into that category.
I was interested in the point made by the Opposition about the link. As I said in an intervention, they abolished the link when in Government, and I find it strange that they have suddenly gone populist. They must have discovered pensioners groups somewhere—they were always there, but the Tories did not know that when they were in Government. As a result of their conversion, the Opposition are formulating their policies on the Swiss concept—they consult the canton to decide what they are going to do. That is very interesting. They poked fun at us about the big conversation, but listening to what they were saying earlier, I think they have one heck of a conversation going on. I am interested that the Tories are suddenly becoming the listening party. They are having all sorts of consultations with all the pensioner groups whose existence they never acknowledged when they were in power; now that they are the Opposition, they suddenly find that those groups matter. We always knew that they did, which is why we continually raised pensioners' issues when we were in Opposition.
If my hon. Friend cares to walk the road between Havant and Damascus, he will find, among the discarded McDonalds wrappers, many abandoned policies that the Tories were happy to implement during their last period in office.
It seems to me that we entered the era of Pol Pot politics in 1997 so far as the Tory party was concerned: that was year zero, and every misdemeanour was laid at our door, but history shows that the Tories are very good at blaming others for their own shortcomings.
I see that Mr. Waterson is dying to intervene.
May I lure the hon. Gentleman away from Cambodia for a moment? His main complaint seems to be that restoring the link with earnings is our policy. If it became his party's policy tomorrow, would he be happy about that?
Of course I would be happy about it, but I would see it as only a short-term measure. The one thing that cannot be avoided by Government or Opposition, although the Opposition tried to avoid it when they were in power, is the fact that people are entitled to a decent pension. Until that is dealt with, there will always be this to-ing and fro-ing across the Chamber.
We now have to tackle the new phenomenon of final salary pension schemes and the moving of goalposts. My right hon. Friend's proposals are a step forward, but something that has not been addressed so far—certainly not when the Conservatives were in Government—is the issue of pension holidays. Companies would take pension holidays, and after four or five years there would suddenly be a problem with pension funds. I find that strange; there should have been some form of compulsion. Another thing that went on when the Conservatives were in power was the use of pension funds to finance other businesses. Conservative Members speak of people complaining in their surgeries about pensions, but I am sure that Labour Members' surgeries have been visited by people complaining about one of those two practices. Some of the companies involved eventually folded.
As I have said, the Government's proposals are a step in the right direction and we should not be negative about them but should view them as something on which to build. We should take a leaf out of the Conservative Government's book, and do things gradually. They cannot be done overnight.
I have tried two or three times to get my Pensioner Trustees and Final Payments Bill through the House, without success. Nevertheless, although the law says that trustees must represent everyone, groups of retired people who are members of pension schemes feel that they have no voice, and are left out when decisions are made. Over the last 12 months, I have had a number of meetings with retired Rolls-Royce employees. As many as 300 or 400 people have turned up from all over the west midlands, which gives some idea of the strength of feeling—a strength of feeling that is beginning to gain momentum among the former employees, and doubtless among those of other companies.
On numerous occasions, along with my hon. Friend Mr. Robinson, I have spoken to the Minister about the scandal of former Massey Ferguson employees who were faced with a "take it or leave it" redundancy proposal, and who, more importantly, never received from their pension scheme what they had put into it. The last I heard was that the issue had gone to the High Court, and the Secretary of State was saying that we would have to wait and see what decisions it made. Whatever the decisions, however, and even if the issue is being addressed, there remains a great deal of bad feeling among Massey Ferguson's former workers—certainly in Coventry—about what happened to them.
My hon. Friend Kevin Brennan has, from time to time, mentioned steelworkers. He will find that the employees of Massey Ferguson were in exactly the same position. I certainly had a lot of sympathy with him when he raised those issues, because I—along with my hon. Friend the Member for Coventry, North-West—was among those making representations to the Secretary of State. It is about time that my hon. Friend and I had another meeting with the Secretary of State to talk about the future of Massey Ferguson workers. [Interruption.] My right hon. Friend is grinning, but as he knows, we shall certainly return to that issue.
In some ways, in a debate such as this, pension schemes are only part of the problem. In addition to the need for an adequate pension is the question of care and how to fund it. That is all part of the big equation. From time to time, social service departments are in conflict with the private sector over the cost of providing care. Thanks to a measure introduced by the previous Conservative Government, people had to find their own means and methods of paying for care. The cost of care varies thorough the country, which is part of the pensioners' lot. That is why, in trying to understand the plight of pensioners, we must take a number of factors into consideration. For example, it is not too long since we had the problem of bed blocking. On investigating that problem, we discovered that we did not have sufficient social workers to ensure that people returned to the accommodation and care that they needed on leaving hospital.
The issue of pensions is complex, therefore, and we cannot talk about occupational pensions in the abstract; we must consider the plight of pensioners in its entirety. Of course, in some parts of the country, such as the west midlands, pensioners get free travel, but in others they pay a 50 per cent. fare. To a certain extent, we must congratulate the Government on introducing that fare. It constitutes progress, but pensioners nevertheless feel strongly about free travel, which allows them to see friends in different parts of the country with whom, perhaps, they grew up, but who moved away. In discussing these issues, we must therefore start to think about the general needs of pensioners. In fairness, however, it must be said that this Government have done a lot for pensioners, particularly those on the poverty line.
Nobody will deny that the pension protection fund is bound to be welcomed. It has been a long time coming but it is finally here; let us hope that it goes from strength to strength. The introduction of a regulator should have happened years ago, and it will be very interesting to discover how the regulator will regulate the various pension schemes and occupational schemes. Many people will also welcome the simplification of paperwork. Pensioners often have to fill in reams of paperwork that they do not really understand. Such simplification is really a job for the regulator. Pensioners are often aggravated by the amount of form filling required when they apply to local authorities for benefits or rate reductions. We have raised this issue with Treasury Ministers from time to time to see whether such forms can be simplified.
It will be interesting to discover how the state pension lump sum develops. I should point out to the Secretary of State that we will certainly monitor that proposal, on which there is not too much detail. Nevertheless, it, too, is a step in the right direction. There is also the vexed question of informed choice in promoting pensions. The regulator should probably consider that issue, and here we come back to the mis-selling of pensions and the hard selling that occurred in the days of Conservative Government. I would certainly welcome the provision of such information.
The key measures that the Government are trying to introduce include safeguarding accruable pension rates during periods of statutory paternity and adoptive leave. If we think about it, that issue has never really been addressed before, and there will be a particular impact on women. The lack of pensions, particularly occupational pensions, for women, often forces them on to benefits. If the fact that they have to rear a family was taken into consideration, they might be in a far different situation.
The House would certainly want to monitor the capping limit in relation to price indexation. It is one thing to link a pension to the price index, and quite another to link it to average earnings. There is a difference. Overall, however, we talk about capping issues, and Secretaries of State under previous Governments always had the right to decide whether to link pensions to prices or wages and to do it through regulation; the discretion has always been there. It is up to the Secretary of State, in discussion with the Chancellor, to have a good look at that.
The trade unions and the TUC have given the proposals a cautious welcome on the basis that they are a step in the right direction. For many years, many people outside the House—it certainly continued when we came into the House—raised those issues because we all knew that we would reach pensionable age ourselves at some time in the future. That sounds a bit mercenary, but, seriously, anyone who has watched the plight of pensioners over the years and done case work or attended surgeries knows how easy it is to come across heartbreaking stories. They often happen because people do not know what benefits they are entitled to. People need to be experts to work out what benefits are available and who should get them.
Pensions are often increased in line with inflation only to be taken away by increases in council tax. That is a Catch-22 dilemma that many pensioners face, but I notice that the Government are going to take the necessary action to deal with the situation. There are a number of ways of doing it. They can cap councils and stop them increasing the tax that way, but that is a short-term measure. We know what happened when the previous Government capped councils. Programmes and revenues were capped, which meant school buildings and council houses could not be repaired, so it is only a short-term measure.
The real measure that the Government should take is to ensure that councils are properly funded. In Coventry, for example, when the Opposition were in Government, we lost something like £600 million in grant from the central Government as a result of the change from the old rates to the poll tax. That is a lot of money in Coventry's circumstances. We often find that councils are asked by successive Governments to introduce measures without the necessary funding. All in all, I note that the Secretary of State is saying that his measures will go a long way to ensure that the burden does not fall on the taxpayer. Again, that remains to be seen.
I finish by saying that I welcome the Government's proposals, and I hope that they will be introduced in the form of legislation. However, I still believe that the Secretary of State must reflect more on the question of pension holidays and the ability of companies to use pension fund money for other purposes. Mention was made earlier of the Pensions Act 1995, introduced under the Conservative Government; that was a very weak Act that did not address the fundamentals that I have raised in the House today.
I hope that the Secretary of State will take some of my points into consideration, and I remind him that I hope to have a further meeting with him, together with my hon. Friend the Member for Coventry, North-West, about the plight of the ex-employees of Massey Ferguson.
It is rather refreshing when a political party such as my own admits that it got some things wrong and that they need to be put right. It is right to say that we got some things wrong in the Pensions Act 1995 and that we want to sit down with the Government to work out how to improve things. That does not always happen. There is no doubt that there were faults in the 1995 Act, although some have been compounded or made a good deal worse by the present Government's subsequent actions.
It is undoubtedly true that the priority orders introduced by the 1995 Act are wholly inappropriate for the circumstances in which many pensioners, prospective pensioners or deferred pensioners find themselves today. It is wholly unfair that existing pensioners under a scheme that is being wound up continue to receive full pensions, while other scheme members on the verge of retirement get almost nothing.
There is an urgent need for change. My colleagues on the Front Bench have said that they would be happy to engage in bipartisan talks to see how such change could be achieved. I think that the Liberal Democrats would go along with that as well.
I see that Mr. Webb is nodding in approval. The matter is urgent. Action needs to be taken now, and it is astonishing that it has not been taken before.
The 1995 Act was rather a hurried response to the Maxwell scandal. It attempted to patch up the holes that that affair revealed in the pensions system. Like all hurried legislation, the Act was not perfect. There have been plenty of opportunities to improve it since it was enacted almost nine years ago. The previous Conservative Government, and the present Labour Government who came to power in 1997, have had plenty of opportunity to sort out the defects. I am worried that nothing has been done, even though some of us have said repeatedly that the 1995 Act has defects that need to be resolved.
There is another considerable problem. The regulatory regime—the Occupational Pensions Regulatory Authority, and other bodies—is not dealing with the difficulties that have arisen in some of the many schemes to which Kevin Brennan referred, and in other schemes that are now in liquidation. The Government must think about how to deal with the problems that have arisen and how to alleviate the plight of the people who have been affected so severely.
I do not go along with the hon. Member for Northavon, however, whose approach was typical of the Liberal Democrats. He seemed to say that Government money should be used to bail out all the people who have been affected. Everything would then be lovely, at a cost of only a few hundred million pounds a year. However, that few hundred million would not then be available to the health service, education or any of the other things at which the hon. Gentleman's party has pledged to throw money.
Many people who are faced with a black hole in their pensions look at the very rich farmers who were compensated for losses as a result of foot and mouth disease, and other tragedies, and ask, "Why was it good enough for the farmers but not for us?"
The hon. Gentleman makes an interesting point. It is a matter of the existing legislation or the priorities of the Government of the day. My point is that it is not appropriate to say that we can always throw money at the problem. That is especially true in respect of private sector schemes, some of which have been the subject of pretty dirty dealing.
I make no specific allegations, even with the benefit of parliamentary privilege, but some companies have been very badly run, with directors running off with the money or using it for inappropriate purposes. In some schemes, the trustees have not properly guarded the funds that they were supposed to look after, and other schemes have not been regulated properly by the Occupational Pensions Regulatory Authority. Litigation may follow in all such cases and some of the money may be recovered. If the regulatory authority is at fault, the Government might be an appropriate compensator. However, to say that the Government should write a blank cheque to bail out any private sector scheme that is in trouble would be to encourage the misbehaviour that we want to discourage. In many ways, the Pensions Bill is a good one, and it is designed to prevent such misbehaviour in the future.
My hon. Friend speaks from vast knowledge and experience. Does he think that there will be any effect on the behaviour of those who run pension schemes and the risks that they take, knowing that in future—if not retrospectively—there will be a safety net along the lines of that which has existed in America for some 30 years?
My hon. Friend makes an important point. There is the risk of moral hazard. If there is a safety net, some employers may be discouraged from behaving correctly. For that reason, there should never be a flat-rate contribution to the pensions protection fund, but it must relate to the level of risk—so that employers who do not behave correctly pay a much higher premium than employers who behave in the best interests of their work force.
I criticised the minimum funding requirement in 1995 and have done so ever since because it directs people, through actuarial advice, to specific forms of investment—overwhelmingly to index-linked, predominantly Government bonds. The more bonds that people buy in a diminishing bond market—and it has been diminishing—the lower the yield. The way that the MFR operates requires the purchase of more bonds if there is not enough income to cover the liabilities—then the yield may fall still further. It is a like a black hole that spirals ever downwards, sucking in money from a lower and lower yield. That is not necessarily always the fault of the Government, but perhaps of the actuarial profession in being terribly short-sighted in the way that it has viewed liabilities—thinking that the only way to match a future liability to pay pensions is to buy a bond that will provide an income in the future. If the yield keeps falling, the bond will not even achieve its primary objective. Successive Governments—including those of my own party and the present Government—have failed to address that fundamental flaw in the MFR mechanism.
Is it not the case that MFR directions of the kind to which the hon. Gentleman refers have relatively little influence on the price of bonds compared with minimum strategic economic actions such as changing interest rates? One cannot attribute everything to the MFR.
The hon. Gentleman is entirely correct that bond values are attributable to a series of factors—including the fact that Government borrowing has decreased, so the supply of bonds has diminished. That may be a good thing, but it has nevertheless been a contributing factor, for which the Government should have compensated in the make-up of the MFR.
Another factor is that regulators are increasingly telling insurance companies that they must cover more of their potential liability by bonds rather than equities. We saw that with Standard Life, which was recently told that it must sell a chunk of equities and buy something seen as more secure. Standard Life, having done that, and to everyone's surprise, now has, through bonds, double the liability coverage required by statute—yet the yield to that company's policyholders will be substantially reduced. The fall in yields is attributable also to changing market conditions. The point that I am trying to make is that the Government and the actuarial profession must be far more sensitive to how the market has changed and examine other forms of investment.
In my capacity as chairman of the parliamentary pension fund, I recently went to a seminar held by PricewaterhouseCoopers on alternative investments. Statistics show that investments in, for example, commercial property over a 30-year period have been less volatile than bonds, which are supposed to protect against volatility, and have shown almost double the yield. Should we not ask the actuarial profession why we have not put more—not all of it—into commercial property? Why are we not investing in derivatives that protect against future changes? We should have a range of investments because there are more choices than equities versus bonds—we should have mixed portfolios. Successive Governments have, however, failed to do that, which is why the MFR is a problem today. I shall give up that particular hobby-horse, but I was challenged to say whether I objected to the MFR in the past, and I objected to its composition.
Ideologically, I imagine that the hon. Gentleman favours thrift and self-reliance. We face a situation in which people worked hard, saved hard and anticipated a good pension, but are getting next to nothing. Does he accept that there is a basic injustice there that must be addressed in a way that goes beyond legal action by those who can afford to take it? Is there not a bigger issue?
There may well be a bigger issue, and we must quantify the scale of the problem, how it has arisen and whether the Government have failed to regulate, which would give them a moral responsibility. The hon. Gentleman is right to raise that point. All I am saying is that there are all sorts of demands on the public purse, and compensation may mean one less hospital, somebody not getting a hip operation or education not being provided properly. We must all suffer a degree of pain if we compensate everybody. We currently live with a compensation culture where everybody must be compensated for everything and the Government bail out every lame duck. We cannot go that far, but the hon. Gentleman is right to say that it is a question of balance.
The reforms that the Government are introducing and the changes that they have made since they came to power have had a pernicious effect. The difficulty is that if we are to encourage good employers to provide good pension schemes, they must have some incentive to do so. Most of the Government's actions have provided disincentives—there was no worse disincentive than their £5 billion a year grab on all our pension schemes.
The hon. Gentleman says, "Oh no", but one must keep referring to that point because the sum of money is significant—it equates to about £600 a year for every pensioner in an occupational scheme in this country.
The Chancellor's explanation will not comfort many pensioners. This morning, I received some figures relating to that point from the Association of Consulting Actuaries. About one third of defined benefits schemes remain open to new members. Despite the Government's attempts to persuade people to choose other forms of pension saving, other schemes have not been frightfully successful. On group personal pensions, for example, only 44 per cent. of firms offer such arrangements, and the combined contributions of employer and employee are about 8.6 per cent., which is nothing like enough to provide an adequate pension in retirement. As for stakeholder schemes, only 37 per cent. participate in those or other stand-alone schemes and the average combined contribution is only 4.8 per cent., which will produce hardly anything and certainly will not reach the level of the Government's pension guarantees.
Only 36 per cent. of defined benefit schemes in smaller firms are open to new members. Worryingly, the fall-off in defined benefit schemes—which are the best form of pension for employees, provided that the company or scheme does not go bust—is greatest in the small schemes. That is because they cannot cope with the level of regulatory burden. However, we have increased that burden. My party did it in the Pensions Act 1995 and the Government will repeat that in the Pensions Bill, which is in other ways an excellent Bill. The Government do not understand the cost and the impact of the burdens that are likely to be imposed.
I shall not address the entire Pensions Bill today, because we shall have another day in which to do so in rather more detail. However, I shall give an example. One of the problems with the Pensions Bill is that it inserts into our legislation, almost in toto, the draft directive from the European Union. The draft directive was created by Commissioners from countries that do not have occupational pensions in the same way that we do. Only the Netherlands and Ireland also have significant local schemes. Most of the others have only sophisticated state schemes. However, the Commissioners see fit to publish regulations that apply principally to us, even though this country has more in pension savings than any other. The Dutch have more per capita, but we have more in total.
The level of burden that the Bill will impose is huge and it will drive more and more small employers out of defined benefit schemes. Clause 200, for example, will take the requirement for knowledge for trustees to a professional level. Historically in this country, trustees have been ordinary people, including pensioner trustees or trade union-appointed trustees, who have no specialised knowledge but good common sense and sound judgment. They take advice if they do not know something. They know that they have to appoint a scheme actuary and a scheme lawyer, and consult investment advisers and fund managers. Under the Pensions Bill, the trustees will have to know all that themselves. Clause 200(4) states:
"An individual to whom this section applies must have knowledge and understanding of . . . the law relating to pensions and trusts . . . the principles relating to . . . the funding of occupational pension schemes, and . . . investment of the assets of such schemes, and . . . such other matters as may be prescribed."
I attended a seminar held by S J Berwin, also in my capacity as chairman of the parliamentary pension fund trustees, and I was told that most pension lawyers and actuaries would not fulfil those requirements.
Does the hon. Gentleman agree that part of the problem that we face is that many people who had responsibility for pension schemes did not have the knowledge that they needed to manage them? We need trustees who know what they are doing. The problem is companies that do not wish to invest in their employees. Employers are good at looking after their own pension schemes and pay, but they are less likely to want to invest in providing proper pension schemes for their employees.
To a degree, the hon. Gentleman is right, but there is a great advantage in having trustees who are not particularly specialist. There could be an ordinary pensioner representative, as there is in our scheme, or there could be trade union or work force representation. That is a good thing. All those people may not be experts, but they can employ experts. Perhaps there should be a minimum standard for trustees. Hon. Members' trustees, of whom I am one, are all taking the examination in essential pensions knowledge of the Pensions Management Institute, which is a good thing. I suspect, however, that we shall be among the minority of such trustees.
The Pensions Bill would place such burdens on trustees in terms of required knowledge that no ordinary trustee will be able to take them on. Firms will be able to comply with the measure only by employing professional trustees. If they do that, the input of those with an intimate relationship with the scheme will disappear and the costs will go up enormously. Only the bigger firms will be able to cope.
I readily acknowledge that the hon. Gentleman has greater expertise on pension funds than me. I have some sympathy with his point about trustees. Trustees in the trade union movement have a degree of training, but I should not like them all to be financial experts at the expense of the people they are supposed to be representing. We need to find a balance, so I have sympathy with what the hon. Gentleman says.
That is absolutely right. Trustees should have a minimum standard of knowledge. I should be happy if the Government were to say that all trustees must have obtained the certificate of essential pensions knowledge from the PMI or something similar, which would limit the requirement under the Bill to something that most trustees could probably achieve. If, over six months, they did a bit of homework and spent some of their free time learning the subject, they could probably obtain that qualification, but the open-ended provisions in the Bill are ridiculous. They have been lifted straight out of the draft directive, which is madness.
In Committee, I hope that we can take such silly burdens out of the Bill and get on with the good things that it contains.
I had not intended to speak in the debate, but as a member of the Select Committee on Work and Pensions I am interested in the subject.
The Secretary of State told us that about 60,000 people are affected. Constituents of mine and of my hon. Friend Mr. Purchase were done out of their pensions by what went on at Chart Heat Exchangers Ltd., formerly IMI Marston Ltd. There are serious questions to be asked about who was, or was not, minding the shop for that scheme, but that must be for another day as there are legal considerations.
I am heartened that we have the figures, but we need to put them in perspective. Devastating as the individual stories of our constituents are, we are talking about only 0.5 per cent. of pensioners. There are 12 million pensioners in the United Kingdom; we are talking about 60,000 people—a small, albeit important, proportion.
Will my hon. Friend clarify that point? We are not talking about 0.5 per cent. of all pensioners; we are mainly talking about deferred pensioners—people who have not yet retired.
I am setting the figure of 60,000 against the 12 million total. The figure includes some prospective pensioners, as well as some people who should be receiving a pension but are not.
I am heartened by the Secretary of State's remarks today, as, in response to a question from my hon. Friend Kevin Brennan, he did not seem entirely to close the door to assistance—the word we now use rather than "compensation". Farmers received compensation for foot and mouth; assistance is what we hope some of our constituents might receive for what went on in some of those pension schemes.
The motion refers to the "crisis in occupational pensions". That assertion has not been backed up by evidence—for example, that less money is being saved in schemes. In fact, more money is being saved in pension schemes. There may be difficulties with confidence, but there is no structural crisis in pensions in the UK.
The pension protection fund proposed under the Pensions Bill—I will not say much about that Bill, as we will shortly debate it on Second Reading—will further increase confidence. It clearly cannot be retrospective, yet the Government are criticised by some Members who wish to have it both ways. They say, "Ah, well, all the pension protection fund premiums should be risk based"—the implication being that its start should be deferred until the risk figures are available and can be taken into account when setting premiums—yet the same Members criticise the Government for not setting up the fund before next April. They should not try to have it both ways, and I welcome what the Government are trying to do to get the fund off the ground quickly and generate the information. We ought to look at pensions more broadly than we often do in the House.
I very much agree that it is better to get the fund up and running, but the problem is that the Government have not yet confirmed whether they will move away from the flat rate and, if so, over what time scale. The Opposition and the hon. Gentleman need to press the Government on how quickly they will move to a risk-based premium.
I certainly support risk-based premiums and the hon. Gentleman is entirely right to suggest that hon. Members on both sides of the House should continue to press the Government on the time scale, but I am delighted that the April 2005 time scale has been announced because it will at least get things moving, even though flat-rate premiums will be used.
I want briefly to discuss the structure of pensions in the United Kingdom. The motion refers to encouraging savings. The cost of tax incentives for pension contributions—the forgone tax revenue—is about £14 billion a year. That is a huge amount of money, and the better-off in our society disproportionately take advantage of those arrangements. Half that benefit is received by the top 10 per cent. of taxpayers and a quarter of it by the top 2.5 per cent. of taxpayers.
Massive amounts of money are involved, but does that money change people's savings behaviour? Evidence from the Department for Work and Pensions shows that it does not. Page 289 of the evidence volume published last year by the Select Committee on Work and Pensions—of which I am a member—that accompanied its report, "The Future of UK Pensions", says:
"The Committee asked . . . whether there is actually any evidence for tax incentives to encourage people to save for their pensions."
It was me who asked that, I say parenthetically. It continues:
"There has been considerable academic work on the impact of tax incentives on savings behaviour. Its conclusions can be very broadly summed up as follows:
— there is little evidence that tax incentives can significantly increase the overall level of saving;
— but they can significantly affect its allocation."
That refers to where the money goes. Tax incentives are vastly expensive, but it is questionable whether they alter behaviour in a way that society wants.
The hon. Gentleman is getting into dangerous territory. The crucial argument—indeed, it has been put by Kevin Brennan and other hon. Members—is that we are talking about deferred pay. As it is deferred pay, it is taxed only when it is received as pay. He argues that there is a special tax privilege. The tax-free lump sum represents tax relief, but apart from that, the money is taxed when people finally receive their deferred pay. That is a perfectly logical system; it is not a special tax privilege.
It may be perfectly logical to the hon. Gentleman, but the other side of the coin is, as he says, that the sum is taxed when it is received in retirement. The Government's additional tax from that sum is estimated, from memory, at £8 billion, so the net cost—14 minus 8—is £6 billion a year, which is a considerable sum.
I will not give way because I am limited for time and I know that another hon. Member wishes to speak. I wish to develop the point that I am making.
My hon. Friend Mr. Cunningham talked about a decent state pension. He is entirely right. I am not an actuary, but, according to the figures that I have calculated, if we got rid of the tax relief on pension contributions and put 1 per cent. on both employers' and employees' national insurance contributions, we could have a basic state pension of £150 a week for a single person and £250 a week for a couple. The Government could then get out of the pensions business in any other sense and get rid of all the regulations on private pensions. We could say, "If you want to save for your old age, save for your old age, and if you don't want to save for your old age, that's fine because the state will guarantee that you will not starve in your old age." Pensions have tax breaks to stop people starving in their old age by encouraging them to save. If the basic state pension is relatively high, the state does not need to encourage people to save for their old age, and tax breaks are not necessary. The Government amendment mentions "simplicity, security and choice". My proposal, which should be considered in a public debate, is to whack up the basic state pension massively and get rid of all layers of complex regulation—and that is covered by the amendment.
Sir John Butterfill said that final salary schemes—defined benefit schemes—were better than money purchase, or defined contribution, schemes. There is mixed evidence of that because the situation depends on the historical snapshot that one considers and what the stock market did at that time. The attraction of a defined benefit, or final salary, scheme is that people think that what they will get out of it is certain. That is true in the public sector, but I predict that final salary schemes will wither and die in the private sector because such schemes have historically relied on a trading company topping up its scheme in bad times. We have increasingly seen over recent years that as companies go bust, they get out of such pension schemes, so the certainty of final salary schemes for private sector employees is going out of the window. Confidence has been eroded in the private sector, but not in the public sector.
Of course, any view of the relative attractiveness to employers of defined benefit and defined contribution schemes varies according to the investment climate of the time. When we had a boom, all employers thought that DB schemes were wonderful because they could take contribution holidays. If they had been in defined contribution schemes, they could not have done that because they would have had to pay the same amount—the attraction of a contribution holiday would have disappeared. Everything depends on the snapshot of time at which one considers the situation.
The hon. Gentleman makes my point for me. Money purchase schemes can be just as attractive, or more attractive, in the long run because they do not give employers the incentive to take pension contribution holidays—they carry on paying into such schemes. Final salary schemes will wither and die, and, although it might be heresy to say it, I think that is good thing. Such schemes discriminate against the low paid and women—they are predominantly the low paid in those schemes. If people work in the same low-paid job for 30 years, they traditionally receive thirty eightieths of their pay under such schemes. People who work for 20 years in such jobs and get promoted so that they work for 10 years in higher-paid roles get the whole thirty eightieths—not just ten eightieths—of their pension paid at the higher rate. The schemes discriminate against low-paid people who do not receive promotion, and although the trade union movement traditionally defends them, we should have another look at them in the private sector because as confidence and certainty change, they will wither and die.
If the complete lack of appreciation shown by Rob Marris of the importance of saving and having vigorous funded pension schemes, including defined contribution schemes, for the economy and the security of human lives and families is typical of the Labour party, it is not surprising that it has presided over such a disaster in pensions and savings in our country over the past six years. I accept that that was a political remark, but it was required and emerged spontaneously because of the hon. Gentleman's speech. Nevertheless, given that we are contemplating a serious problem, I hope that we can try to reach the maximum possible degree of consensus.
I hope that the House will agree on at least three points. The collapse of the pension schemes of companies that have become insolvent has been an unmitigated human disaster for many people. It emerged during the debate that the number of people affected is probably approximately 60,000—it was interesting that the Government confirmed that figure. That will inform the debate in the country as a whole.
The second point on which I hope there will be a wide measure of agreement is that the collapse is a disaster in a second sense, because it has done traumatic damage to people's confidence in pension schemes, to the credibility of our whole pension system. That can only flow through, inevitably, into a lesser inclination to contribute to pensions, which is most unfortunate.
Even though there may have been shortcomings in the 1995 Pensions Act—I have always thought that it was excessively bureaucratic—there was created in the 1980s and early 1990s a climate in which people felt that their pensions were secure. That was an enormous comfort to individuals, and it was an enormous benefit to the economy that we had a very large amount of savings generated through the pension schemes that emerged. I am afraid that we shall pay a terrible price for the blow to credibility that has resulted from the collapse of schemes and the fact that some people have been left high and dry. It follows a whole series of blows to pensioners, potential pensioners and the pensions industry.
The third point that I hope the House will agree on is that there can be no marks at all for coming here and simply expressing sympathy for the victims of a disaster and not doing anything about it. The people who have to do something about it are the Government. It is no defence for them to tell the Opposition, "You haven't come up with any practical proposals." For heaven's sake, they are the Government—though I regret that—and it is up to them to come up with a solution. They have come up with none.
The Secretary of State, who I regret is not here now, said this afternoon that he did not want to excite false hopes. One understands that. He added that he did not exclude the possibility of some compensation. If he does nothing, he will have aroused false hopes by putting things in that way. Unfortunately, he did not say that it was necessary for the Government to have more information or that certain preconditions had to be fulfilled before a decision could be made. In fact, it does not appear to me that the Government need any more facts than they have. They have simply tried to avoid the unpopularity of saying explicitly and frankly to the House this afternoon that they will not do a damn thing. I fear that that is their intention. They do not want to say that, because they know how unpopular that announcement would be, so they hope that they can get away with that kind of evasiveness, no doubt hoping that the political heat will go out of the issue.
Would it not be helpful if the hon. Gentleman and his colleagues explicitly stated that they would support my proposal that, for example, some sort of assistance or compensation—call it what you will—should be paid to at least the worst cases among the workers concerned? Is the hon. Gentleman prepared to tell the House that now, and perhaps to support early-day motion 200?
I am not prepared to support early-day motion 200, for reasons that have already been given this afternoon, when it was very helpfully analysed. I do not want to go over them again, but I will live up to what I have just said and try to make some constructive and helpful suggestions, which I hope the Government will take on board.
The first thing that the Government have a moral responsibility to do is to make an estimate of the extent to which they have directly and explicitly contributed to this disaster through the abolition of the dividend tax credit. That must be a calculation that it is perfectly possible to make on the basis of the portfolios held over the relevant period of years since 1998 by the relevant pension funds. I am sure intuitively that substantial amounts of money are involved. It was inadequate and spurious of the Secretary of State to say that the abolition of the dividend tax credit was just part of a reorganisation of corporation tax, that the mainstream rate had been reduced and that that had to be taken into account.
The implication was that the abolition of the dividend tax credit or the so-called pensions tax was not a net tax-raising measure at all. It was part of a rearrangement of corporation tax. If the Secretary of State reads his remarks this afternoon in Hansard he will be thoroughly ashamed, as that was an extraordinarily disingenuous comment. We all know that the abolition of the dividend tax credit was conceived by the Chancellor as a massive net revenue-raising measure, and the inevitable consequence of that abolition were equally massive losses from gross funds.
Is the hon. Gentleman advocating a return to the previous tax system, and is he saying that that is the Opposition's position? There are a lot of crocodile tears on the issue, but no constructive ideas. The hon. Gentleman is criticising the Government but has not suggested any options himself.
I may have been hasty in accepting the hon. Gentleman's intervention, as I was about to propose a practical idea based on the dividend tax credit. We ought to start a debate about the amount of compensation that could reasonably be made by the Government from the figure that I have just asked them to produce—namely, what they have raised incrementally from the schemes that have collapsed following the abolition of the dividend tax credit. There is no doubt that that will be a significant sum. In some cases, it may have pushed into insolvency schemes that would not otherwise have become insolvent. In other cases, the deficit will be much greater than would otherwise be the case. The Government have a moral responsibility to be straight with the public and to quantify the extent to which they have deliberately contributed to that disaster. We should have a discussion about the appropriate level of compensation to be paid by the Government based on that figure.
The Government should deal right away with the disaster—I am not talking about closing the stable door after the horse has bolted and the Pensions Bill that we will debate next week—experienced by people who are suffering now. They should do something this week to change the guidance to trustees of schemes from themselves and the Occupational Pensions Regulatory Authority, which, frighteningly, has led trustees to take perverse measures. In most cases, when a company has gone broke and its pension scheme is insolvent or below full solvency it automatically winds it up and buys annuities at a disadvantageous price—as Members will know, the annuities market is entirely a seller's market and is distorted—which is a bad deal. Alternatively, the company sells the whole equity portfolio—the fall in the equity market over the past couple of years has largely contributed to the problems in these schemes—and moves it all into cash or fixed-interest securities. Again, that is the worst possible reaction, because it means that as the equity market takes an upturn, it is impossible for the schemes to recover lost ground. That does not make sense when the market—one never knows what the bottom or the top of the market is—has had an exceptionally striking fall from an historical high. It is crazy to get out of equities altogether, which is the absurd and damaging course of action that trustees have taken.
Something must therefore be done quickly about the guidance given to trustees. I suspect that they are taking such action because they have been advised that, to protect their position, they must go for the so-called lowest-risk solution—either buy final annuities or move into fixed-interest securities. As I have explained, that is the worst possible thing to do—trustees should increase their investment in the equity market, and they could increase their protection against a further fall in equity market through an appropriate derivative. As we have seen in the derivative market in the past few months, when the market is historically low, the cost of such protection is correspondingly low. The investment management strategies pursued by trustees in this situation have not been rational, and the Government should do something about that immediately. That point has not been made, and it badly needs making.
I have two more proposals, which are focused on how the Government should go forward in trying to prevent the repetition of such a disaster. When something like this happens, the legislature must try to ensure that it is less likely that the ill from which we have suffered will recur. The first thing that the Government should do is to consider making pensioners preferred creditors. The situation that we are addressing results from a combination of factors. When a company collapses, it becomes insolvent and can no longer make statutory contributions to the scheme, and the scheme can be wound up only at a considerable loss because it is itself insolvent. That unfortunate combination of circumstances is particularly likely to arise during a downturn in the economy when the stock market is at an historical low and there are a greater number of insolvencies in commerce and industry. That was the situation in 2002 and 2003. We should consider changing the law to make pensioners preferred creditors of companies that have become insolvent in those circumstances, exactly as employees are preferred creditors at present, because a company that collapses has to pay its contractual obligations to its employees for the work that they have done.
I recognise that one has to consider the disadvantages of any such move. I am not suggesting that it could be made retrospective, because suppliers have traded with the companies concerned, or lenders have lent to them, on the basis of the existing rules, which cannot be changed retrospectively.
I hope that my hon. Friend would exclude from those preferred creditors the directors who may have been pumping up their own schemes just as the company was going bust.
I thoroughly agree with my hon. Friend, who makes a just comment.
As far as credit ratings are concerned, we must bear in mind that if my suggestion were to be implemented in law, there would be no significant change for the vast majority of companies where lenders or suppliers see no real prospect of their going broke. There would be a problem between creditors only where a company became insolvent.
My final point is very important. We must look again at the whole issue of pension holidays. One aspect of the fundamental lack of symmetry in the present situation is inherently suspect—namely, that if a company finds that its pension scheme has a surplus, it can take a pension holiday, but if it has a deficit it does not have to make it up immediately. That is asymmetric. Nor does it make sense in terms of accounting or economic theory, because one has a liability that one should be providing for over the years as it accumulates. There should be a ceiling up to which it is not possible for a pension surplus to result in a pension holiday. Actuaries should advise on that ceiling, taking into account the expected fluctuations in the markets.
Clearly, at a time when equity markets are at an historical high, a well-managed scheme will always be in surplus. That should not mean that companies should cease to make any contribution unless the surplus is such as to provide protection against the likely cyclical downturn in the market. There should be symmetry on both sides. We should not have a situation in which companies can be expected overnight to make up a deficit in their pension fund because there has been a sudden fall in the market, but equally, by the same token, we should not have a situation in which if the pension scheme has a surplus of £1, the company can declare a pension holiday. That is thoroughly unreasonable and needs to be looked at again.
I am afraid that since this Government took over, the pension system, which was a flowering garden in the 1980s and early 1990s, has been turned into a desert.
The figures that my hon. Friend Sir John Butterfill cited—I am glad that he did so because they should be known throughout the country—say it all. Only one third of defined benefit schemes remain open. Since 1997, hardly a week has gone by without the closure of a defined benefit pension scheme. The pensions system was steadily built up under various Governments, especially the Thatcher Administration of the 1980s, but we can go back to the 1950s. It was one of the glories of our country, an enormous economic asset and a great asset to individuals and their families. It has been eroded.
The rhetoric of current members of the Labour party—for example, the hon. Member for Wolverhampton, South-West—tries to rationalise the appalling position and pretend that it is thoroughly commendable that our pensions system is breaking down. I cannot imagine a more perverse or destructive policy. If this afternoon's debate has exposed the Labour party's genuine direction and goal on pensions, it has been worth while.
Unlike some Labour Members, I enjoyed listening to my hon. Friend—and near neighbour—Mr. Davies, who rightly pointed out that barely a week goes by without an announcement of a company closing down a final salary scheme. Last September, the Confederation of British Industry published a survey of 551 companies. It showed that half of employers had a final salary scheme that closed last year and that only 27 per cent. of firms continue to offer a final salary scheme—the figure last year was 43 per cent. The position is therefore serious, as my hon. Friend pointed out. John Cridland, deputy director general of the CBI, said the other day:
"On pensions the dam has burst as rising costs overwhelm employers who are increasingly being forced to pull out of final salary schemes for new employees . . . We need radical proposals that will make pensions simpler and more affordable."
My hon. Friend Mr. Willetts made an excellent and impressive opening speech. As he pointed out, our recent position was not only the envy of the world but extremely stable and exceptionally robust. Although Labour Members derided his words, he was right to point out that the Chancellor's smash-and-grab raid on pensions—£5 billion a year—started the rot. Mr. Cunningham said that there were strong, logical tax reasons for the change to advance corporation tax at the time. That may be true. The stock market was booming and many companies were taking pension holidays. However, the stock market subsequently went into decline and many schemes started to lose substantial amounts of capital value. Surely that was the time to reverse the policy. What was right in the Chancellor's first Budget was wrong two, three or four years later. The policy has taken a huge amount of money out of pension funds.
My hon. Friend the Member for Havant also pointed out that minimum funding requirements were lowered by 10 per cent. in June 1998 and subsequently by a further 8 per cent. The position is therefore bleak. Today, we have heard about several companies, including Allied Steel and Wire workers and Dexion, about which The Mail on Sunday wrote recently. I want to bring to hon. Members' attention a company in my constituency. Its parent company went into liquidation and the subsidiary company in my constituency is called Fisher Frozen Foods.
The Albert Fisher Group went bust in May 2002. There were 1,000 employees in the scheme—many in my constituency and that of my right hon. Friend Mrs. Shephard. Although the scheme was under some pressure, the directors took a pension holiday as recently as four years ago. At the time, the fund was in surplus, but, as some hon. Members have pointed out, the tax regime bore down on the funds that were in surplus and getting too big. There was a tax disincentive, which was another big mistake.
The scheme suffered a shortfall two and a half years ago. New trustees tried to make it up by raising contributions from 10 per cent. to 20 per cent. The parent company, Albert Fisher Group plc, then went into liquidation. The deficit on the pension scheme was £35 million, which works out at roughly £35,000 per employee.
That figure, however, is distorted. I have several constituents who were middle managers for Fisher Frozen Foods, and I spoke this afternoon to one who was with that company for about 20 years. Over that period, he invested 5 per cent. of his salary in his pension, while the company contributed 10 per cent., and his pot was in the region of £300,000. He has lost 90 per cent. of that pot. It is not surprising that, along with the employees of Allied Steel and Wire workers, Dexion and the many other companies that my hon. Friend the Member for Havant mentioned in his opening speech, my constituent and others like him are very angry indeed. As he pointed out to me, he is particularly angry and upset because a number of younger people took early retirement from Fisher Frozen Foods literally weeks before the Albert Fisher Group went into liquidation. They received their full entitlement, but those who stayed with the company, even those who were substantially older than that cohort, will receive 10 per cent. if they are lucky, as 90 per cent. of the value is being lost.
Pinguin, the Belgian company that took over Albert Fisher's Fisher Frozen Foods subsidiary, refused to honour the final salary pension scheme. That was understandable, because Pinguin bought the company from the receiver when it had many serious problems, and not surprisingly, it refused to top up the pension fund.
Will the hon. Gentleman acknowledge two points? First, one reason why employees on the cusp of retirement cannot access their full pension fund is because of the Pension Act 1995 and the regulations that it introduced. Secondly, in most such cases, including that of the Allied Steel and Wire workers from Cardiff, we are not talking about large pensions. We are talking about people who, after working for 30 or 40 years, might expect a maximum pension of £13,000. Therefore, if there were to be compensation, it could be capped at a reasonable level.
The hon. Gentleman has done much work on this subject, and he and I were at the meeting of the all-party group on occupational pensions two or three months ago. I shall come back to his points in a moment when I mention retrospective compensation.
As my constituent said to me today, to lose money that the company has paid into his pension scheme is one thing, but in his view—hardly surprisingly—to lose what he himself has paid in is pretty outrageous, especially when he looks at neighbours who are receiving their full pension and enjoying a happy retirement, even though they are younger than him.
My hon. Friend the Member for Havant dealt very well with retrospective compensation. We badly need substantially more data. How can we commit ourselves to that retrospective compensation until we have those data? Can the Minister tell the House why those data are not in place? That seems extraordinary when there have been so many parliamentary questions on the issue.
Will the Minister tell the House his views on the proposals made by Ros Altmann from the London school of economics, who came to the meeting organised by the all-party group on occupational pensions four or five months ago? She made it quite clear that because of the huge cost of buying annuities, to which my hon. Friend the Member for Grantham and Stamford alluded—the market for annuities is extremely difficult for buyers at the moment—if changes were made to the regime, the ongoing cost to the Government of retrospective compensation would be about £100 million.That cost is a fraction of the cost of the dome, a fraction of the cost of the increased bureaucracy involved in running Whitehall since 1997, a fraction of the cost of an asylum system in chronic meltdown and less than the cost of the proposed devolved assemblies that no one wants.
So far as the Pensions Bill is concerned, the Government will be judged not just on their actions for people who will be affected by future schemes, and future meltdowns or wind-ups of schemes, but on what they do for people who are really suffering now. Those people have lost everything that they were looking forward to—a happy, prosperous, or even simply a bearable, retirement. That is how the Government will be judged, and I look forward to the Minister giving various answers when he winds up.
This has been a very interesting debate. We have ranged far and wide, and all the enthusiasts gathered here can regard it as an aperitif to the debate next Tuesday on the Second Reading of the new Pensions Bill. The excitement in the Chamber is palpable as I remind Members of that.
I declare an interest as I have some private pension provision. We heard a good speech from Mr. Cunningham. I am delighted that he agrees with our policy of restoring the link. My hon. Friend Sir John Butterfill spoke with his usual massive authority on this subject, and I am delighted that our pensions are in his excellent and reliable hands. A fellow member of the Select Committee, Rob Marris, understated the extent of the current pensions crisis, but if he returns on Tuesday, I will tell him a bit more about why I disagree with him, and vice versa. My hon. Friend Mr. Davies provided an excellent analysis of many of the problems besetting pension schemes and provided some good ideas for solutions. My hon. Friend Mr. Bellingham, who has taken a close interest not only in the specific case to which he referred of Fisher's but in the more general issues, made a welcome contribution.
Mr. Webb spoke knowledgeably. As I understand the policies of the Liberal Democrats, they have signed early-day motion 200 and would write a cheque tomorrow, or at least the day after. That is not, of course, what my party proposes at the moment, as my hon. Friend Mr. Willetts explained.
This problem is gathering pace, even as we debate it. I noticed only today in The Independent a report that the insurance broker, Jardine Lloyd Thompson, announced yesterday that it is closing its final salary pension scheme to new entrants. It has injected £50 million of its own money to try to alleviate the £157 million pension deficit in its fund. It is not alone. It believes that that is the largest injection of any FTSE company relative to the size of its pension fund. Even companies that are trying to do the decent thing are struggling in the present climate.
I want to dwell in most detail on the Secretary of State's speech. We heard the usual mantra about not wanting to raise false hopes. While I understand the logic of putting that caveat into every speech that he and his colleagues make on this subject, it must become monotonous, not least to those who have already lost their pensions. A real danger exists—I say this in sorrow rather than in anger—of the Government becoming part of the problem, not the solution. As I said, the Pensions Bill has been published, and we will debate it in detail next week. It was published to a chorus of disapproval. I have yet to find a single comment from any organisation, serious newspaper or anyone involved in the pensions industry—except possibly the TUC—that did not criticise it, often for its timidity, and, of course, for the fact that it deals with problems in the future.
It was pretty clear, as my hon. Friend the Member for Havant pointed out in an intervention, that the Secretary of State had written his speech before he had taken account of what my hon. Friend had to say. Carrying out the role of a serious official Opposition, my hon. Friend set out a range of possibilities—[Interruption.] It is the Secretary of State and his colleagues who are meant to be in charge of this area of policy, yet on
When pressed, the Secretary of State said that 60,000—the number of members of schemes who had lost most or all of their pensions—seemed to be the "right scale". So we have managed to nail down one corner of the tent. He then said that the Government were not in a position to estimate the figures arising from that 60,000 figure. What we do not know is what he or his Department are doing to work on those figures. What work is being done, by whom, with what purpose and on what time scale—if not by the right hon. Gentleman's Department, perhaps by the Treasury? As we know, the DWP is a wholly owned subsidiary of the Treasury in this Government.
Mr. Field talked about drawing the boundaries. The Secretary of State seemed rather taken by that idea, as if it had never occurred to him before; but surely it, too, is part of the process. Throughout the debate, we have tried to tease out of the Secretary of State and his colleagues just how deeply the Government are and have been thinking about solutions to a problem that will not go away and will not be resolved by the Pensions Bill. I must say, with respect, that the Secretary of State seemed a little like a very well-meaning member of the public who had wandered in with a few thoughts about what might be the solution, rather than a Cabinet Minister with the resources of the entire civil service at his command. Surely there should be a battery of Wykehamists with double firsts working night and day on this problem. Perhaps there are; if there are, may we be told about it?
We were told that something would happen about the priority order in the near future. We have heard such expressions before—"soon", "in the near future" and the like. They could mean anything. They could mean "by the time the snow is falling next year". The point about the priority order is that it was always going to be an interim measure, applied until the Bill became an Act. What is happening, and when will it have happened?
As we near the end of the debate, will the hon. Gentleman finally tell us whether he and his fellow Front Benchers believe there is a moral case for compensation or assistance for these workers?
The hon. Gentleman has been the intervention king today. What we have not heard from him are his ideas about what should happen. Let me remind him that the official Opposition have taken this first opportunity since the publication of the Pensions Bill to call a debate in our Opposition time.
Although the country faces an unprecedented crisis in savings and pensions, there is nothing in the Bill to encourage saving for retirement. Although final salary schemes continue to close at an alarming rate—I have just given one example—there is nothing in the Bill to encourage an employer to keep a scheme open, let alone open a new scheme. Although some 60,000 people have lost all or most of their pension entitlement in the last few years, there is nothing in the Bill to compensate them or even give them the hope of compensation. Meanwhile the Government, who for the moment are in charge of the issue, stand by impotent while the pensions crisis rages. As my hon. Friend the Member for Havant pointed out, it is as if there had been a household fire and, rather than offering to call the fire brigade, the Government merely offered insurance to cover the next fire.
Our motion rightly accuses the Government of inaction in the face of the pensions crisis, and I commend it to the House.
I agree that this has been a wide-ranging debate, and I think that it has been an important one. The pensions question is rising on all the agendas that count in our society, and rightly so. In fact, it is really a series of questions. When I reflect on the issues that have been discussed, I conclude that part of the pensions question has been determined by the past, that we need to address the present, and that we must also have a strong regard to the future.
The incomes of today's pensioners, many of them very poor and in their 80s and 90s, are largely determined by their social circumstances, education and family and employment histories dating from the 1920s and 1930s. The position of today's elderly women, in particular, needs to be seen in that context.
I shall say something about the pension credit later, but in looking to the future we are talking about incomes that today's young people will retire on in the middle decades of this century. They will experience an economy, educational opportunities, careers and family patterns that are radically different from those experienced by their grandparents or great-grandparents. So in some respects, the task of the Government and of Parliament is to understand and respond to a social and economic history that stretches over some 120 to 130 years.
We have had some notable contributions and interventions during today's debate: from my Front-Bench colleagues; from my hon. Friends the Members for Coventry, South (Mr. Cunningham) and for Wolverhampton, South-West (Rob Marris); and from the hon. Members for Bournemouth, West (Sir John Butterfill) and for Grantham and Stamford (Mr. Davies). All were noteworthy in their own way. I always enjoy—I had better not say in particular—the contributions of the hon. Member for Bournemouth, West, who, as has been acknowledged, is a great expert on these issues. As he pointed out, he largely welcomes the Pensions Bill, contrary to what one of his Front-Bench colleagues said. That colleague may want to take note of his hon. Friend in that respect. Indeed, many others have also welcomed the Bill.
In a slightly more self-interested way, we took note of the fact that the hon. Member for Bournemouth, West, who is chairman of the parliamentary pension fund trustees, said that he and his fellow trustees are sitting a learned institute's pensions exam. We were all very impressed by that. I noticed that from a sedentary position, my hon. Friend Mr. Purchase said that he hopes that they pass it.
I shall not discuss in detail our strategy for the future because there is not sufficient time, but let us remind ourselves of some salient points. Although the concern of Members on both sides of the House has understandably concentrated on groups of existing workers who are in difficulties, we need to look at the future and at the pension protection fund. To dismiss this as insurance tomorrow is a trivial comment, if I may say so. I have drawn on the experience of a visit to Washington. I learned from the Pension Benefit Guaranty Corporation, which has widespread political and other support in the United States—from industry and from unions—and a track record of more than 25 years. I believe that if we can establish the fund, subject to the will of this House, it will become a permanent part of our pension and social security architecture, and will be seen one day as a major social policy innovation introduced by my right hon. Friend the Secretary of State. It will offer real guarantees for the future. When company schemes go bust, existing company pensioners will have 100 per cent. of their pension guaranteed, and scheme members of working age will have 90 per cent. guaranteed.
I put it to the House that this is a policy worth supporting and worth getting right. Our deliberations in Committee will be very important in this respect, and we will consider all useful contributions. Mr. Webb said that he will enter into such discussions in a spirit of consensus, and I welcome that. We will not have a monopoly of wisdom on the details; we need to get things right.
The policy will be funded by an annual levy and from the income of the assets that the fund takes over from company pension schemes. Although in the first year there will be flat-rate levy of only 50 per cent. of the eventual levy, within a year we will roll out the risk-based levy, which will be at least 50 per cent.—I repeat: at least 50 per cent.—of the whole levy. We are very determined to have a risk-based element, contrary to what was said in a knee-jerk press release from the Liberal Democrats, which was published the day before the Bill's publication. I was about to say that the Liberal Democrat in question was either foolish or prescient, but he cannot have been the latter because he got it wrong.
I cannot add to what my right hon. Friend said about any assistance that may or may not be forthcoming to those groups of workers who are currently affected. It is not sensible for the Opposition to mock the phrase "not holding out false hope", because I believe that it would be foolish to do so. We are in a very difficult position, in which only the most unwise voices somehow think that the state can nationalise all risk. It cannot, but we are examining sensible suggestions and much work is going on.
In common with other Members who have met groups of workers, the ministerial team, which has met a large number, cannot fail to be moved by their plight when these honest and decent people speak about the contributions that they have made, sometimes for 40 years. They often speak in a dignified and quiet way about the effect on their marriages and their health. No one can fail to be moved and the House will have welcomed our debate on those important points.
I take the Minister's point about the "false hopes" argument— I thought that I had already dealt with it—but when he says that much work is going on, can he give the House some idea, in the dying minutes of the debate, what sort of work is going on and to what it is directed?
Now is not the time to go into the detail, but we are examining the problems very carefully. As my right hon. Friend said, when we reach a conclusion one way or another, we will come before the House.
I was asked about Equitable Life and the Penrose inquiry. All I can say is that Treasury Ministers have made it clear that they intend to publish the report in full as soon as possible. They will keep the House fully informed.
Although the pension protection fund has gathered much interest around it, in some respects of equal importance in the Bill are proposals for a pensions regulator. By targeting the badly run and highest risk schemes, the regulator will enable well-administered and secure schemes to continue without unnecessary regulatory burden. The hon. Member for Northavon spoke about the importance of having clear requirements on information, and we can deal further with that important matter in Committee. We have also set out proposals for full buy-out and will have an employer taskforce to set out ideas about good practice in occupational pension schemes.
One or two Members referred to another aspect of the pension question—pensioner poverty. When we came into power in 1997, the state pension system was lacking in investment and was in a state of disrepair. Many people were poor, particularly older elderly people and often women. Indeed, single pensioner women were expected in 1997 to exist on £68.80 a week. By introducing the minimum income guarantee and now the pension credit, we have increased that income in real terms by one third, which is important. We have also reduced pensioner poverty by about 60 per cent. since 1997.
The Conservative proposals to place all the emphasis on raising the basic state pension—the Conservatives are now born-again earnings linkers, rather too late in our history—represent a hole that they are digging for themselves. It will mean that the poorest pensioners on pension credit will receive less—or little more—than the better-off half of pensioners. That is the logic of their proposals. Indeed, that was admitted a year ago by no less than the then shadow Chancellor, now the leader of Her Majesty's Opposition. It was an honest remark and the current shadow Secretary of State needs to heed his leader's wise words when he said:
"Those who are entitled to the pension credit and do claim . . . will not be better off" under the Tory proposals. That is the logic of the scheme.
Question accordingly agreed to.
Mr. Speaker forthwith declared the main Question, as amended, to be agreed to.
That this House supports the Government's strategy to tackle pensioner poverty, and to deliver simplicity, security and choice in working and saving for retirement; condemns the pensions inheritance of 1997, with millions in poverty and the legacy of pension mis-selling; notes that the Government is spending £9 billion extra per year in real terms on pensioners compared with the 1997 system; condemns the unfair, unaffordable and unsustainable pensions policies of Opposition parties; expresses its sincere sympathy for those who have lost part or all of their pension as a result of their employer becoming insolvent; believes the Government should continue to look at all available options to help people affected, but that it would be cruel to raise expectations if no workable solution can be found; welcomes the publication of the Government's Pensions Bill; further believes that the Pension Protection Fund will bring real security for over 10 million defined benefit pension scheme members if their employer becomes insolvent and pensions schemes wind up in the future; further believes that firms should honour pension promises they have made; welcomes the Bill as a balanced package, with a new regulator and measures to simplify pensions legislation, making it easier for employers to run good schemes; further believes that pension reform should be a common cause; and calls on all Members of this House to support the Government's Pensions Bill.