I beg to move, That the Bill be now read a Second time.
The Bill is an important step forward in security and confidence in pensions. It strengthens protection and strengthens regulation. It cuts complexity in the system, making it easier for firms to run pensions and helping to cut costs. It will increase choices for people over the timing and pace of their retirement. It reflects the extensive consultation that we have undertaken. Those are all crucial building blocks for confidence in pensions, rebuilding the pensions partnership for the 21st century. The Bill will, I hope, command widespread support in the House.
I am clear that a pensions promise made should be a pensions promise honoured. That is why, for the first time ever, we will set up the pension protection fund to protect workers whose firms go bust without enough funds to pay their pensions.
We have yet to hear whether the main opposition party supports the key measures in this Bill. The arguments in its reasoned amendment, which I will deal with later, do not stack up. I look forward to it making its position clear in today's debate. Mr. Willetts, however, with his customary courtesy, raised in advance a number of points in a letter to me this weekend. The questions that he poses are reasonable ones, and I thought that it would help the House if I responded to each.
First, the hon. Gentleman wanted an assurance that we would implement the levy in a way that respected risk. I can confirm that, like all sensible insurance schemes, the PPF will have a risk-related premium. This will ensure that those who pose the greatest risk to the PPF pay the lion's share of the levy.
I shall come to the operation of the PPF. We have to ensure that its board is in a position to meet its liabilities, while ensuring that it operates within a framework of reasonable constraints, so that it does not impose an undue burden on schemes or on business. I shall have more to say later about the balance that must be struck.
The risk-related element of the levy will be substantial. Indeed, the Bill states quite clearly that this part of the levy must raise at least 50 per cent. of total revenues, and could raise significantly more. As hon. Members will be aware, this is new territory, and we need to collect the information to ensure that the system can work, so for the first year only we shall in effect treat all schemes as low risk, with a significantly reduced flat-rate fee. After that we shall work closely with businesses, allowing them to switch to the risk-related premium as best fits the normal triennial valuation cycle. But let us be clear: if they want to bring that forward, they will be able to do so. We are clear that we are adopting a risk-based approach and are clear about the principles on which it will be introduced.
In last week's debate the Minister for Pensions guaranteed that the risk-related element would indeed come in after a year. If I read the Bill correctly, it allows the Secretary of State to delay it beyond a year. Will he accept amendments in Committee to withdraw that provision, because if he is confident that that element will come in within a year, why allow himself the power to delay it further?
There will be ample opportunity in Committee to explore all these matters in greater detail, but if we are to refer closely to the Bill now we shall see that the initial period is defined as the period between when the measures take effect and the following
In January 2002 more than 900 workers at the Richards textile factory in my constituency were told that the company pension scheme, a final salary scheme, was to be closed. All have been told subsequently that the best they can receive is between zero and a third of what they expected. I gather that about 60,000 pensioners throughout the country are in a similar situation. The scheme that my right hon. Friend is outlining is extremely welcome, but those pensioners have lost out because they took Government advice to join a pension scheme. What proposals does my right hon. Friend have for my constituents?
First, I understand and echo my hon. Friend's concern about workers affected by the dreadful impact of insolvency on their retirement prospects. As I said at length in the debate last week, and as I have set out on previous occasions, we are looking very closely at what may be done. I have to tread a very fine line here, on the one hand not closing down the possibility of some discretionary assistance and on the other not raising expectations that might subsequently not be fulfilled. I shall have more to say about this matter later.
I was responding to points raised in the letter from the hon. Member for Havant. The Bill is explicit about what we mean by risk. In setting the risk-based levy, the PPF board must take into account scheme underfunding. It will also be able to consider other specified factors such as credit rating and investment strategy.
As I have said in reply to interventions, the PPF's independent board must have operational freedom, within this framework, to use its expertise and judgment effectively to meet its obligation to keep the fund's finances on a sure footing in evolving economic conditions. The board will consult closely with business in developing the levy, and—here I pick up a point made by the hon. Member for Havant—it will publish the detail within the first year of operation.
I am very grateful to the Secretary of State for giving way to me again, but I am afraid I remain mystified. If I have correctly interpreted the brief from the Association of Consulting Actuaries, the association believes that a number of pension funds are, shall we say, saving up claims against the fund until it is established. That indicates to me that it is highly likely—especially given a flat-rate contribution system for the first year—that the fund could go bust before it was up and running.
It sounds to me as though the hon. Lady supports the fund's establishment in principle, although she is equivocating a little. We look forward to hearing from Conservative Front Benchers whether they really support it or not.
The hon. Lady mentioned demands in the early period of the fund's existence. Then and subsequently, the fund will take over the remaining assets of any schemes that have become insolvent. It should also be borne in mind that in the early years the fund will almost certainly need to pay out less than it will in subsequent years. I approve of the balance between the timing of its liabilities, and the extent of those liabilities, and the income that it can raise. I approve of the arm's-length relationship that will operate: we are giving the board responsibility for sorting out its affairs, within the general constraints that I mentioned earlier.
The hon. Member for Havant referred to the estimate of the amount that the levy would need to raise. The estimate is based on actuarial modelling of PPF finances over the next 20 years given a range of assumptions about several factors, including pension scheme funding levels and rates of insolvency. The baseline scenario, in which a £300 million levy is required each year, involves some rather gloomy assumptions: for example, it includes the risk of several insolvencies among the largest FTSE companies over the next two decades. In the extremely unlikely event that things turned out even worse for the PPF—this too relates to the question asked by the hon. Member for Beckenham—the fund would still have the capacity to fulfil its duties, as it has the right to increase the levy above the baseline should that prove necessary. Indeed, it has the right to double it.
Let me now deal with what was said by my hon. Friend Mr. Doran. As I told the House in last week's debate, and have made clear on previous occasions, I am—like many other Members—acutely aware of the awful plight of workers whose companies have gone bust and left their pension schemes underfunded. That is, in fact, an important reason for the House to get on and establish the PPF. It is sometimes suggested that we should make it operate retrospectively, but I do not think that that option bears serious scrutiny. The PPF is essentially an insurance scheme, and no insurance scheme can protect against events that have already happened. None of us, taking out car insurance next week, would expect it to cover us for an accident that we had last week.
My right hon. Friend is aware of the plight of the HH Robertson pensioners in my constituency, which dates back to just before the 1997 general election. Will he consider carefully the issues I raised with him in a parliamentary question, the reply to which can be found in column 697W of yesterday's Hansard? Without proper research into the background information, it would be extremely difficult to develop a cogent system to support workers whose schemes have already gone down. Will my right hon. Friend undertake such research?
It is already being undertaken, and I shall report to the House on the outcome when I am able to do so.
I agree with my hon. Friend that the current data on insolvency wind-ups leave much to be desired. What is available is collected by the pension schemes registry, but it is lacking in three key respects. It does not record whether a scheme in wind-up has a solvent or an insolvent sponsoring company, it does not record the level of funding that a scheme has on wind-up, and it does not record the make-up of a scheme in terms of how many members are pensioners and how many are deferred. We are exploring with industry representatives the basis on which we can establish, given the available evidence, the extent of the problem, the number affected—as I have said, I think that 60,000 is a good rough estimate—and the potential scale of losses. I shall report further when I am able to do so.
I am glad that the research is being done, and I am grateful to my right hon. Friend for the time he has devoted to meeting my constituents, the former UEF workers who have been so badly afflicted by this problem. What is his current response to the proposals of Dr. Ros Altmann, who, as he knows, has done a great deal of work on this and has suggested a possible solution?
I do not want to prejudge any conclusions that we might reach, but I think that there are weaknesses in Dr. Altmann's proposition. We must examine carefully, for instance, the idea that schemes could simply be allowed to run on with no requirement for annuitisation, with the Government being left to pick up some unspecified and uncosted liability somewhere along the track. I have heard Dr. Altmann and others say rather casually—perhaps that is unfair, but it is the impression I have had from some interviews—that this would cost "only" £100 million a year. That is a not inconsequential sum.
Any Government must examine liabilities very carefully, not just in relation to the specific workers whom Members think should be helped—and I understand the case they are making—but in terms of the potential read-across to others who might form a queue at the Government's door asking for similar assistance. There must be a clear set of principles informing any decision to assist some who have been hard done by, and not to assist others. I should also point out, as I did in last week's debate, that legal action against the Government on this matter is outstanding.
The UK Government have been in office for nearly seven years. Why are they coming so late in the day to an examination of the plight of the thousands of people who, through no fault of their own, have lost out in their pension entitlement? Surely the Bill should be used to bring that sorry saga to a close?
The hon. Lady will know that there have been a number of inquiries over the years. For example, the Goode committee evaluated the establishment of what was then called a central discontinuance fund, and recommended that such a fund would not be operable and or necessary. In more recent years, it is clear that the pressures on funds have changed, thanks to the decline in the stock market and to FRS 17. Moreover, the rather belated realisation by some actuaries that we are all living longer is also placing demands on schemes.
As I have explained to the House before, one question has struck me since I began looking at this matter, and at the dreadful plight of the workers affected—why on earth was no protection in place for pension schemes run by insolvent employers? After all, there is protection for people who book their holidays through travel agents belonging to the Association of British Travel Agents, and people quite properly expect their motor insurance to remain intact even if their insurance companies go bust.
We need to get the PPF up and running. That is why we need to get on and put the Bill into effect.
We support the principle of pension insurance, but we are asking about the problem of pension wind-ups. That problem led us to call last week's debate, and it has caused people to protest again today. The Secretary of State has dismissed the Ros Altmann proposal, but will he consider the proposal from Mr. Field? He suggests using the unclaimed assets of banks and insurance companies as the basis for endowing a fund to help people who have lost out because their pensions have been wound up. Would not that be an imaginative approach? It is a great pity that the Government opposed the right hon. Gentleman's private Member's Bill last year. Is there any prospect of them looking at that proposal in a fresh light?
As I told my hon. Friend Sandra Osborne, in connection with the suggestion by Dr. Altmann—and without prejudging the Government's conclusions on this matter—we had several exchanges with my right hon. Friend Mr. Field on the matter of unclaimed assets. The House should take careful note that the fact that assets are unclaimed does not mean that they do not belong to someone, and that it is becoming easier to trace assets. Secondly, if such a fund were to be established, does not the hon. Gentleman think that there would be a long queue of other people, also with compelling cases, who would seek access to it? There may be unclaimed assets, but it is not clear that that would establish the case for hypothecating them for the purpose of a fund.
I welcome this Bill, which is overdue. I am pleased that it will offer a level of protection to a range of workers who do not have it at present. I have two questions: are the Government prepared to pay for those workers who need some form of compensation, and what limits will be imposed? I understand that the Government want to erect a firewall to ensure that other claims are not made for similar compensation packages, but will my right hon. Friend write to the Opposition parties to ask for clarification of their positions? It would be helpful if we could achieve consensus among the political parties as to who would be entitled to compensation.
My hon. Friend makes some good points. I do not want to go over all the matters that we explored at some length in last week's debate, but the Conservative party has been long on regrets and condemnation, and short on specific proposals. I was pleased to hear what the hon. Member for Havant had to say. He could not bring himself to say that his party supported the establishment of the PPF, but he did say that he supported the principle of insurance in this area—or words to that effect. However, I remind the hon. Gentleman that the Opposition have tabled a so-called reasoned amendment that would deny this Bill a Second Reading. There would therefore be no PPF, nor any help in the future for those workers whom he claims to want to help because of what happened in the past.
My right hon. Friend will have noted that the Leader of the Opposition is seeking to reposition the Conservative party so that it appears less fanatically right wing. However, was he not as startled as I to hear Mr. Willetts tell the House with a straight face that today's Conservative party believes that it is appropriate for the state to expropriate private assets without compensation? Is not it true that only new Labour now stands between the bourgeoisie and the revolution?
My right hon. Friend makes his point with his customary wit. It could be that, in trying to reposition themselves towards the centre, the Conservatives have overshot the mark a bit.
The final question in the letter from the hon. Member for Havant had to do with the replacement of the minimum funding requirement. As hon. Members will appreciate, the MFR proved to be an inflexible approach that increased the costs for some employers while not giving members the level of protection that they expected.
In part 3 of the Bill, we are replacing the one-size-fits-all approach of the MFR with funding arrangements that will allow schemes to adopt funding strategies suited to their particular circumstances. Under the new scheme's funding arrangements, trustees and employers will work together to agree a funding strategy to reflect scheme-specific characteristics such as the trustees' investment policy, the age profile of members, staff turnover and life expectancy. That will mean that schemes with high liabilities will face tough standards. However, it will also give some schemes opportunities to save on funding by taking a longer-term approach to investments.The Bill will do much more besides establishing the PPF. Further measures will be introduced to provide increased security and confidence in the system.
Clauses 1 to 80 provide for the establishment of a new, proactive pensions regulator. Its new powers will enable it to step in early where workers face real risks, and it will adopt a lighter-touch approach to well-run schemes that will make it easier for firms to get on and run those schemes.
Clauses 203 and 204 will extend TUPE-like protection to private sector transfers, for the first time. As the unions and other commentators have pointed out, takeovers have been used in the past as excuses to scrap pension contributions. That cannot be right. Addressing that problem is overdue, and the Bill will do so.
We will insist that, where there is a pension scheme in the original company, the new employer will have to keep the pension going or provide a worthwhile alternative. We will also table Government amendments that will provide security for a more mobile work force. We will help people to build up rights in short-stay jobs by enabling them, for the first time, to take the pension that they have built up with them to another scheme. On average, workers who take advantage of that opportunity will gain around £1,000 of extra pension rights to go towards their final pension pot. That will benefit many women workers in particular.
My right hon. Friend said that we must ensure that employers who have established a scheme cannot simply walk away from their responsibilities and leave people without a pension when they had expected a decent one. The regulations brought in last June will certainly protect people, and my right hon. Friend has already agreed that the Government might consider further the question of workers whose pension entitlements were dissipated because their firms went into insolvency. However, will he also look at the position of workers whose pensions were diminished as a result of the actions of their employers prior to June 2003? Those workers receive substantially smaller pensions than they were expecting because their firms' pension schemes were wound up.
Within the terms on which I have already said that I am examining these matters, I shall, of course, be happy to examine those instances too. They illustrate the problem and the challenge of drawing boundaries around groups and deciding who might receive help and who might not. I repeat the warning that I emphasise on every occasion: I do not want to raise false hopes. Certain things may turn out not to be possible, and although it is right to consider such proposals carefully, we must not raise expectations only to dash them.
In a voluntary system, the protection of rights that I have been talking about must go hand in hand with measures that make it more attractive for companies to provide pensions. That is the focus of the second key area of the Bill. We welcome the commitment of many employers who remain committed to providing pensions for, and with, their employees.
The Bill will achieve a number of cost-cutting simplification measures, such as streamlining the requirements on member-nominated trustees and introducing more flexible dispute resolution procedures and less bureaucratic reporting arrangements, particularly in respect of late payments.
The Bill will also change the cap on mandatory inflationary insurance, bringing it into line with current long-term expectations. At 5 per cent., it is out of line with expectations and has grown disproportionately expensive, which raises the risk that some employers will respond by closing schemes altogether. In deciding to make that change, we took the view that most people would readily trade some measure of inflation protection for the security of knowing that they would get a meaningful pension even if their firm went bust. All the inflation protection in the world is useless if there is no pension left to protect.
My right hon. Friend is going through the details of the Bill, which are all very welcome. For instance, he talked about the first 80 clauses—but only 10 of those will apply to Northern Ireland. He also mentioned clauses 203 and 204, and Northern Ireland is excluded from those, too. Why is so much of the Bill not applicable to Northern Ireland? Northern Ireland measures do not appear in the Bill—those that will affect Northern Ireland will be introduced through the Order in Council procedure. Could not the excluded measures be dealt with in the Bill itself? Then, we could discuss why particular measures are not applicable to Northern Ireland. There may be special reasons why they are not, but those should be made clear to the people of Northern Ireland.
My hon. Friend raises some important points, especially for the people of Northern Ireland, and I am sure that the answer to his questions depends on the constitutional arrangements. If it would be helpful, I will ask my hon. Friend the Minister for Pensions specifically to address the extent of coverage in Northern Ireland, and what the procedure is for establishing corresponding rights for people in Northern Ireland where those are not provided in the Bill.
Will my right hon. Friend consider freezing the current acquisition of annuities by pension funds under the Pensions Act 1995, so that when his provision for 2.5 per cent. is introduced, annuities will inevitably be cheaper, which means that the funds available for people coming up to pension age will be substantially increased? That might solve some of the problems associated with people being deprived of pensions for which they have paid during the whole of their working lives.
My hon. Friend raises an interesting and constructive proposal, and I am pleased to assure him that we will examine it further.
Clause 212 changes inflation protection, which gives schemes and their members more flexibility to agree together on the form of pension that suits them best, and eases the funding of future liabilities. It is important to stress the fact that there will be no effect on the value of today's pensions; the change affects only future accruals. Together, those reforms will make substantial cuts in red tape and free schemes to offer and operate pensions more cost-effectively.
We are determined to put people in control of planning for their retirement, and that is the third key area of the Bill. We want to raise awareness and make sure that people clearly understand the choices that they face. The measures in part 4 will help people to plan for retirement through the online retirement planner and the planning advisory service, which will for the first time give people the opportunity to see information on all their pensions together—the state pension and the occupational elements—and to explore their options in order to get the retirement that they want.
The Secretary of State must be aware that there is some concern among pension providers and employers about trying to encourage people to start saving for personal pensions, when the increase in means-testing for pension credit makes it impossible to be certain that people on low incomes and people with debts will be better off in a pension plan in the long term. The industry is worried about that. Will there be scope, either in Committee or later, to make the Bill address that problem more directly than it does now?
If I recall correctly, part 6 contains the clauses that deal with the state pension system. The hon. Gentleman and his colleagues may want to explore what they can do within the terms of those clauses.
No, that was not an invitation; it was helpful advice. As for the guts of the point that the hon. Gentleman raised, if we start looking several decades ahead we can make many different assumptions about the basis on which extra assistance for poorer pensioners might operate, but one thing is absolutely clear: in introducing pension credit we have offered a reward for pensions savings, whereas before there was a pound-for-pound withdrawal penalty, which we inherited from the previous Government.
Would it not be further protection against the risk of people deciding not to take out occupational pension schemes, but to rely on pension credit instead, if the people who have lost out had been assisted? There would not then be thousands of people advising others not to take out occupational pensions because the promises made in the past were not worth the paper they were written on. In any case, should we not offset the cost of any assistance that might be offered against the amount of pension credit that the Government will inevitably have to pay out to those people if they are not assisted?
The logic of both those points is impeccable. Of course, what is happening to schemes now, and what has happened to schemes in the past, has a bearing on confidence in the future. That is why we are creating the pension protection fund. In exploring the cost-benefit implications of any proposals, it makes sense, as I said in response to interventions in our debate last week, to judge such matters in the round.
To support our wider aim of increasing the coverage of personalised pension information, we will take powers in the Bill to allow us to require pension schemes to issue combined pension forecasts, where experience and evidence suggest that that is a necessary and effective step.
I must tell the House that, in several areas, we shall need to table amendments. The time factors that have made that necessary stem at least in part from the late publication by the European Union of the occupational pension directive; from the need, which the House will understand, to co-ordinate some of the provisions with the tax simplification measures to be included in the Finance Bill; and from the complexity of the underlying legislation that the Bill replaces or amends.I assure the House that it remains our intention to introduce, as Government amendments, measures such as the immediate vesting for short-term workers and the ending of the requirement to offer additional voluntary contributions. Subject to ongoing work, we shall also introduce easements in section 67 of the 1995 Act to allow the rationalisation of accrued rights.
I can also tell the House today that we will table an amendment to require employers to undertake consultation when they make major changes to pension schemes. I can assure the House that it will be more than a rubber-stamping exercise—it will involve recognised trade unions or approved workplace information and consultation arrangements.
Would the Secretary of State go further than simply requiring consultation on the part of employers? Would he consider requiring them to give adequate notice before they close a defined benefit scheme and, in cases where they do close such a scheme, preventing them from using it for themselves?
Sensible and proper consultation must involve the giving of notice, so I am sure that the spirit of my right hon. Friend's suggestion will be taken into account.
The further amendments are obviously important, so can the Secretary of State tell the House when he expects us to be able to see them, because we must have enough time to reflect on them before they are debated in Committee?
I would be pleased to meet the hon. Gentleman, Liberal Democrat Members and others to discuss how best to handle the matter in a timely fashion. I understand the impatience and frustration of the House when substantial as well as technical amendments—often necessary in Bills such as this—have to be considered. I want all hon. Members to have a reasonable period of notice and decent briefings in respect of the amendments so that we can debate them properly. I apologise in advance for the demands that that will make in Committee and on Report, but I believe that it is important to cover those further areas of debate. I do not think that any of our constituents would thank us, whichever part of the House we sit in, if we were to delay necessary measures or hold back the Bill.
I have read the Opposition's so-called reasoned amendment for declining to give the Bill a Second Reading, but I have to say that their arguments do not stack up. They advance four reasons for declining a Second Reading, which I shall answer in turn.
First, the Opposition say that there is no encouragement to save or for firms to keep schemes open, but what could be more important to encourage saving than the confidence that people are going to get a pension that they have saved for, with the protection against insolvency or fraud that the pension protection fund provides? Encouraging people to plan for the retirement that they want is the whole point of the improved information and advice set out in part 4, which I understood the Opposition supported.
Secondly, the Opposition talk yet again about a means-testing culture, so let us remember the big difference between the system that the Conservatives operated and what we are delivering through the pension credit. Under their system, there was pound-for-pound withdrawal of benefit for those with modest savings and occupational pensions, while the pension credit gives rewards for saving.
Thirdly, the Conservatives point to measures on simplification, but they should reflect on all the simplification measures that appear in the Bill—on nomination of trustees, on disputes, on scheme-specific funding and on proactive regulation, as well as the further simplification measures to which I have referred. Fourthly, they point to the estimated 60,000 people who have lost out through insolvency, but just as last week, they make no constructive suggestion as to what should be done. Again, we have seen stories spun in the press that they are going to support retrospection, but when it comes to making any commitment as to what they would do, none is forthcoming. Now that their shadow Chancellor has committed them to spending less than the Government, anyone who believes that workers would do better under the Tories than under Labour has forgotten their arithmetic as well as their history.
To conclude, if the Opposition decline to give the Bill a Second Reading, they are positioning themselves against extra protection for more than 10 million members of final salary pension schemes. They are positioning themselves against increased security, against making it easier for companies to run schemes and against giving people more choice about when they retire. In short, they are against simplicity, security and choice in pensions.
The Bill complements the other steps that we are taking to renew the pensions partnership such things as informed choice, much of which does not require legislation; the work of the employer taskforce in identifying and recommending best practice; the independent Pensions Commission in examining the question of compulsion for the future; and everything we are doing through pension credit and the new Pension Service to tackle pensioner poverty all have a crucial part to play.
In extending TUPE, putting a proactive and tough regulator in place, cutting through the layered cake of complexity, opening up new choices for retirement and, crucially, through the pension protection fund, the Bill provides a major step forward for pensions security and confidence, and I commend it to the House.
I beg to move,
That this House
declines to give a Second Reading to the Pensions Bill because it fails to provide encouragement for individuals to save for their retirement or for companies to keep open existing pension schemes or start new ones and does nothing to mitigate the effect on the savings culture of the expansion of means-tested benefits in retirement;
it omits measures permitting simplification and amendment of pension schemes' terms, abolishing compulsory AVC provision, simplifying anti-franking provisions, permitting people to continue working part-time for a company after retirement, abolishing or modifying Guaranteed Minimum Pensions, and new vesting arrangements;
and further fails to provide help for the estimated 60,000 people who have already lost all or most of their pension entitlement.
First, I draw the House's attention to my entry in the Register of Members' Interests.
I welcome the opportunity to set out my party's approach to the Pensions Bill and the wider pensions crisis. We tabled the reasoned amendment because it is a most unsatisfactory Bill. One reason is that it has taken so long in coming. At least we now have a feeling of relief that it has finally appeared. The minimum funding requirement, which it replaces, has been under almost continuous review since December 1998. The Pickering inquiry was set up in September 2001 and we had a Green Paper in December 2002.
We have heard today that important provisions that are not in the Bill before us are still to be added. The Secretary of State was suitably apologetic about the various aspects that will require further amendment, but I have to say that he has consulted on these matters for years. He is like an ill-organised teenager who knows that the exam has been due for years, but is still in a panic when he suddenly realises that he has to sit the test in few days' time. The Bill manages to be both late and panicky—an unusual combination, but that is what we have before us.
The Bill is very long, but it also contrives to be, on close inspection, sadly lacking in the substance and detail that we require properly to appraise it. Many of the clauses set up frameworks and committees or appoint bodies, but lack crucial information about the substance of the key provisions. There is much on administrative mechanisms, but little on the tough choices that any Government have to take in tackling a crisis as serious as the one we now face. Inside this rather fat Bill, therefore, is a rather thin Bill trying to get out. It has surprisingly little in it, and Ministers cannot expect the House to do its proper job of scrutinising legislation unless we receive more crucial information. It is most disappointing, to make the point again, that the House will vote on a programme motion in a few hours' time, fixing a timetable for the Bill, when we have heard from the Secretary of State that we shall have to wait for amendments to be tabled on many crucial aspects of it.
Let me turn to the measures at the heart of the Bill. Above all, there is the issue of insurance for pensions. We support the principle of pension insurance, but we are not satisfied that the Secretary of State has set out the correct way of implementing it. I wholly agreed with him, however, when he remarked that it is odd that we insure our holidays with the Association of British Travel Agents, that we insure our bank deposits, yet we do not insure our pensions. The principle of having some insurance for our pensions is wholly right and we fully support it.
It would be interesting to hear from the Secretary of State why, on his watch, the Government's approach to pensions insurance has changed so radically. In October 2002, the then pensions Minister his right hon. Friend Mr. McCartney, came to the House for an Adjournment debate on this very subject. I shall quote him at some length, because we need to hear from the Secretary of State exactly why the Government have changed their minds in the subsequent 15 months.
The right hon. Member for Makerfield said:
"My hon. Friend"—
I do not know whether he was referring to Kevin Brennan, who was present at that debate, or another hon. Member—
"called for the introduction of a form of pension benefit guarantee. The Government have previously considered . . . schemes . . . Both issues of a central discontinuance fund and compulsory insurance were consulted on . . . Both options received little support. That is mainly due to two factors. First, the majority of schemes are well run in this country. Those who are members of schemes and the trustees who represent them were not supportive of the idea that they should top-slice their well run schemes to assist the underfunding of poorly run schemes."
Has the Secretary of State decided that the schemes are not well run after all?
The right hon. Member for Makerfield went on:
"Nor was there any great support for the idea of a fund linked to an insurance-based system. An insurance system would have to be created to re-invest in the risk associated with it."
I think that he meant equities.
"There was little support when we consulted on that."
It is important that we understand where the Opposition are coming from. Is the hon. Gentleman saying that the Conservatives want to dismiss those two precise points, which were subject to discussion during the passage of the 1995 Pensions Bill, which became the Pension Act 1995, and that they have fundamentally changed their mind since the Committee stage of that Bill?
I am trying to find out what has happened to the Secretary of State's thinking since he took office, because 15 months ago he sent his Minister for Pensions to the House of Commons to explain about insurance and central discontinuance funds. The Minister said:
"There is therefore no possibility at this stage of the Government acceding to such a request."
I want to know what has changed.
The right hon. Gentleman, who is now the chairman of the Labour party, said that
"the issue of compulsory assurance arrangements raises the potential for abuse and a moral hazard. Some schemes may neglect their responsibilities and obligations to their members, in the knowledge that their liabilities will still be met in the event of insolvency."—[Hansard, 16 October 2002; Vol. 390, c. 441–42.]
I do not recall seeing the hon. Gentleman in the House last week when we debated pension wind-ups at some length. I explained clearly what I thought had happened since 1995.
Is it not fruitless to pursue this line? It is a bit of debating fun, but the truth of the matter is that, like the Government, the Conservative party has changed its mind on this matter. The Government have been informed by events, and they consulted on their Green Paper and had a pretty clear answer. The moral hazard is present in all forms of insurance, but Governments should act on the immoral hazard of people losing their pensions.
The hon. Gentleman says that I am raising debating points, but I am trying to find out what is going on within Government about this matter. The fact is that there has already been one significant change of course in the past few months. I always study The Scotsman carefully, but it particularly caught my eye when I saw the headline "Brown hit by revolt over Pensions Bill" in today's edition. The article says:
"A source close to Mr. Smith said he was furious that a Bill which 'should have been a triumph for him personally and the government' was being blocked by someone who was supposedly his ally."
I think that that is a reference to the Chancellor.
"'Andrew is frustrated that his flagship piece of legislation is being overshadowed by a row over providing compensation for 60,000 people.'"
It would be interesting to hear from Andrew whether he is frustrated, and what is going on.
That story is utter rubbish. Further to the intervention of my hon. Friend Kevin Brennan, is not the truth of the matter that the Conservative party is changing its mind, and it is being dragged kicking and screaming in the direction that we have set, because we have shown leadership on this issue whereas the Tories showed none?
No. The Secretary of State has shown followership: he has not shown any leadership. We are all trying to tackle the serious pension crisis in the light of changes, including the tax imposed by the Government and the reductions in the value of the minimum funding requirement.
I appreciate that the Secretary of State addressed some of the questions about insurance that I put to him in the letter that I sent him in advance of the debate. He did not answer all of them, but he referred to it, and I am grateful to him for that. I make it clear that we support the principle of insurance, because we think that it can bring security into this sensitive and important area. Does the Secretary of State recognise that, if it is mishandled, it can make a bad situation worse? That is why it is important that the design is right. A badly designed insurance scheme could make the situation even worse than it is now, which is saying something.
I think that the hon. Gentleman has been referring to my Adjournment debate in Westminster Hall. I am pleased that the Government have changed their mind on this issue. Does the hon. Gentleman understand that there is an urgency about this situation? He says that he supports the principle of insurance, so why is he not supporting the Bill on Second Reading? Will he explain his party's position on how to ensure that workers who have already been deprived of their pensions get justice?
I make it clear again that I strongly support the case put forward by the workers who have suffered in wind-ups. This is an important subject, and it is why we had a debate in Opposition time last week, when we raised a variety of points and put a variety of suggestions to the Secretary of State. One of the problems with the Bill, and one of the reasons why we think the Bill is defective, is that it does nothing to tackle the problem of wind-ups. For the record, the Adjournment debate from which I was quoting was initiated by Mr. Wyatt. Hon. Members on both sides of the House are concerned about this subject.
I repeat what I said in the debate last week. A clear majority of Members have signed either early-day motion 66, to which I do not subscribe—sorry, I do subscribe to early-day motion 66, as it is our EDM. It is early-day motion 200, tabled by the hon. Member for Cardiff, West to which I do not subscribe. I must get it round the right way—we were there first. By subscribing to one or other of those two EDMs, just about a majority of hon. Members are saying that we cannot leave those 60,000 people with nothing. I hope that the Secretary of State will take account of that widespread feeling on both sides of the House.
Many Labour Members will be pleased to hear that commitment to help to form some compensation package for the workers who have already lost a large chunk of their pensions. Will the hon. Gentleman set that out in writing? Will he send it to the Secretary of State and place a copy in the Library so that we can all be clear about his party's proposals to deal with this important issue?
I am one of the Secretary of State's more regular correspondents. I am sure that he always enjoys receiving my letters. I wrote to him in January 2003 offering cross-party consultation on the specific point of the priority order in wind-ups. That does not magic any new money into existence: I do not claim that it does. However, it solves the cliff-edge problem of complete protection for pensioners and little, sometimes zero, protection for workers, however long they have been working for a company. I wrote to him in January 2003 saying that we would support measures to tackle that problem. It could have been done in an afternoon by amending regulations. It has still not been done. The right hon. Gentleman has tabled draft regulations, but we have still not been told when they will be implemented.
On the priority order, I made it clear in last week's debate that we sought to pursue the solution originally advocated not by the hon. Gentleman but by my right hon. Friend Mr. Field, which gave greater priority to those who had been in schemes for longer. After the consultation on the regulations, we found that the measure was not possible because such information does not exist for a significant proportion of schemes. We will introduce an amended priority order shortly that will give a higher priority to older members, and that is the truth.
I am pleased that that will happen shortly, but I shall remind the Secretary of State of the history: I wrote to him in January 2003; the draft regulations appeared on
I understand the point that the hon. Gentleman is making on the priority order. However, I may have missed something, because I have still not heard what the Opposition would actually do to create the funds necessary to compensate workers who have already lost money. I want to see such compensation; what is his suggestion?
That is right; I remember the hon. Member who did it.
We have been trying to be constructive and have indicated a constructive way forward, and I accept the constructive approach put forward by the right hon. Member for Birkenhead. We voted for his proposals on Second Reading—what more can we do to show that we think that they are constructive? Of course, the matter requires further detailed work by the Government, who have had a long time to do it. Instead of long waits after consultations for straightforward matters such as the priority order to be tackled, it is about time that we had some practical assistance. Meanwhile, every time a pension scheme is wound up, there is no help for existing workers. Constituents, including a Ballast UK employee, have come to my surgery and discussed such cases. No hon. Member can tell constituents who face such financial distress, "I am sorry, there is absolutely nothing that can be done for you." That is why we had last week's debate.
Is the hon. Gentleman saying that he would not promise any Government money for any solution that his party proposes for those who have lost out because of insolvency in their pension funds?
We could not support early-day motion 200 because it was an unconditional and retrospective commitment of public expenditure. The hon. Lady is smiling as if she has scored a great triumph. Some hon. Members are calling for everything to be done, but as a responsible Opposition we cannot say that. The Secretary of State has done nothing; all we say is that something—even if it is not perfect and even if it is not everything—should and can be done. We have proposals on the table to make that possible.
One of the reasons why we called last week's debate on the winding up of pension schemes was to give the House an opportunity to concentrate on that specific subject because of its importance. I recognise the subject's importance, which is why Labour Members have intervened so often. However, I have other points to make on other aspects of the Bill that go beyond the winding-up crisis, and after I have taken an intervention from the Liberal Democrat spokesman, I hope to move on to other aspects of the Bill.
The hon. Gentleman says that its retrospective nature was one reason why he would not sign early-day motion 200. Two days ago, he was quoted in The Independent on Sunday:
"We will be tabling an amendment to enable the pension protection levy to provide retrospective compensation".
Was he misquoted?
It is not possible to use the insurance levy collected by the fund to pay compensation retrospectively for funds that have already wound up. One constructive suggestion is that, when the administrative framework of the pension protection fund is set up, it should be possible to operate a levy on current employees for future security—setting up administrative arrangements is one of the Bill's main provisions. At the same time, it should be possible, for example, to endow a compartmentalised fund with some of the unclaimed assets after a suitable period has elapsed, and the administrative arrangements of the pension protection fund could then be used to help people who have lost out from the winding up of pension schemes in the past. A future levy could not be used to compensate people retrospectively. When the administrative arrangement is in place, I envisage that it will be possible to endow it with funds from the source suggested by the right hon. Member for Birkenhead in order to help tackle the problem. I apologise if the quotation in the press did not make that clear.
The hon. Gentleman has dealt with part of the problem because he is trying to identify where the resources may come from to set up such a fund. He has not involved himself in the question of who would be eligible to claim from that fund. It is difficult for the Government to sign up to that agenda until they know who will be eligible. It would help if his party introduced its own proposals on who would be entitled to compensation and how a firewall could be built.
Conservative Members have introduced more proposals and have tried to be more constructive than the Secretary of State. All we ever get from him is, "No false hope," We heard it again today. We have been doing our best with the limited resources of opposition to contribute constructively.
One crucial problem, which the hon. Member for Sittingbourne and Sheppey mentioned, is how little information we have received. We established the 60,000 figure in a written answer only last week, when we had been asking for that information and tabling parliamentary questions for months, if not years—it is a bit like getting blood out of a stone. We have done our bit: we have made it clear that we recognise that there is a problem, we have offered cross-party support on the priority order; and we supported the proposal from the right hon. Member for Birkenhead on Second Reading. It is about time that the Secretary of State came forward with some ideas.
Does my hon. Friend agree that one of the problems that Dr. Altmann identified is that schemes are more heavily in deficit if they are required to buy annuities? There is merit in exploring alternatives to the purchase of annuities, and there may be other means of securing that capital more efficiently for those who are adversely affected, which is a point that I shall deal with later if I happen to catch your eye, Mr. Deputy Speaker.
As always, my hon. Friend makes an important point, and I hope that he has an opportunity to develop his argument.
Will the Secretary of State provide more information about one aspect of the insurance scheme? He covered several aspects in responding to my letter, but I should like him to address the important question whether the Government stand behind the scheme; he mouths the word, "No". It is not a matter of what the Secretary of State says in the Commons but of the underlying reality of the arrangements. What matters is the substance, not the words. I remind him that the scheme is being created by a vote in the House of Commons. He will appoint the chairman of the scheme, fix a ceiling for the levy that the fund can charge and fix the value of the benefits covered by the scheme. Can he really say that it would have nothing to do with the Government if such a scheme were to fold? Would he dare to try to get away with saying that the insurance scheme had to fold in the only circumstances in which that might arise—if several large companies had seen their pension schemes collapse and been unable to meet their pension promises?
If the Secretary of State would be willing to walk away from the scheme in such circumstances, because it could not be guaranteed by the Government, why is it that the action plan he published last June stated:
"The Government will improve the security of pensions by . . . introducing a Pensions Protection Fund to guarantee"—
I stress that word—
"members a specified minimum level of pension when the sponsoring employer becomes insolvent."?
How can the Government advance proposals that state that they guarantee a specified minimum level of pension and then say that they would not stand behind the scheme?
I have made it clear that it would be the responsibility of the fund to meet its obligations and make good a decent pension for the people uncovered. The risk cannot be nationalised, and I suggest that it is not wise to nationalise it. The hon. Gentleman makes the case for underwriting. If the pension protection fund were established, with the approval of the House, would he commit a Conservative Government to underwriting it—yes or no?
I am not talking about whether we say that it should be underwritten. I am asking the Secretary of State, who has to take responsibility for his own proposal, how he can promise people a guaranteed benefit at the same time as claiming that it will not be supported by the Government. That is the question that he needs to answer about his proposals.
Other proposals should have been in the Bill, but they are not. The Secretary of State gave a long list of such proposals when he identified several areas on which he would table amendments. A cause close to his heart is the so-called cliff-edge effect for people who retire and go from full-time employment to no employment. We all remember his soundbite—at least, his sound-nibble—on that, and I agreed with him. He made a fair point when he said that people should be able to go back to work part-time and also collect their pension. The Bill says nothing about that. What will he do about that proposal?
I welcome the fact that the Secretary of State said that section 68, which rationalises the treatment of accrued rights, would finally be tackled. It has been an issue for a long time and it is time that it was addressed. We look forward to seeing the further provisions when they are announced.
On the issue of the ability to work part-time and draw down a pension, the bulk of the legislative change required will be for the Finance Bill. It is a tax legislation issue and I envisage that it will be covered by other measures that we will introduce to bring pensions legislation in line with the provisions in the forthcoming Finance Bill.
Behind the omissions and the subjects added to the Bill lies a theme. What began as a measure to simplify matters and ease the burdens on pension schemes will instead add to them. Alan Pickering's inquiry was set up in September 2001, and when the Secretary of State reported on its publication to the House, he said:
"Pension simplification has to be at the heart of any strategy to encourage greater pension provision. We need to deal with the complexities built up over the years by successive Governments."—[Hansard, 11 July 2002; Vol. 388, c. 1053.]
That was right, but his agenda of simplification and cutting the burden of regulation has disappeared from view. The problems began on the day that he made that statement. The Conservatives made it clear that we were willing to support deregulation, but the Liberal Democrats—typically opportunistically and immediately—said that they would oppose any tactical proposals that might be made.
The Bill fails to implement Pickering. Instead, it will add new burdens to business. The National Association of Pension Funds has said:
"The Bill makes life more complex, not simpler, for those running Defined Benefit pensions in the UK. It fails to deliver on many of the positive proposals recommended by Alan Pickering in July 2002."
The Association of Consulting Actuaries has said:
"Much of the simplification agenda designed to ease burdens on employers and schemes—the original reason why legislation was planned—has failed to reach the Bill at this stage."
Instead of easing the burdens on companies running pension schemes, the Bill will place an even greater burden on them. Nowhere is that more starkly demonstrated than in the provisions on the obligations of trustees. The extra obligations and duties on trustees run the risk of detaching pension funds from their members, and we do not want to see that happen. The provisions will professionalise the trustee function and make it even more difficult for representatives of employees, or other people with a legitimate interest in a company pension scheme, to serve as trustees because the task will be professionalised. The ACA also said:
"there are real concerns that this proposal could lead to many trustees 'walking away' from the role due to the onerous obligations being placed upon them."
One of our biggest concerns about the Bill is that the whole trust model on which British pension funds have been based for so long is under threat because of the burdens that will be placed on people who continue to try to run pension funds on a trustee basis.
Does my hon. Friend agree that leading firms of pensions lawyers now take the view that the responsibilities that would be imposed by clause 200 would make it impossible for anybody other than a firm of professional trustees to serve as trustees, with all the cost that that involves?
My hon. Friend makes a powerful point. Labour Members wish to encourage employees to become involved in company pension schemes, and many trade unions try to get their members to serve as trustees of pension schemes, but the view of many experts is that these proposals will make it less likely that employees of companies will be willing to serve as trustees. Members on both sides of the House agree that that would be undesirable.
I chair the trade union group for Labour Members. The hon. Gentleman makes an interesting point, but in fact the trust model is under threat and that is why we have the Bill. It is the failure of the trust model to do anything other than replicate the establishment view of the pensions experts that has led to the crisis in many areas of pension activity. He asks about the right balance between imposing duties on trustees and recognising that they must have such duties imposed on them. Part of the answer must be that trustees should receive adequate training. What proposals does he have in that area?
One can always agree that training will help, but how much training, would people be willing to undergo it, how onerous would it be and what time commitment would be involved? As my hon. Friend Sir John Butterfill put it, we will soon reach the stage at which the function will need to be contracted out to professional advisers, but that is the last thing that any of us want. Trust funding of pensions is under threat.
There is an alternative approach, which is for the Secretary of State to sort out the mess in his own backyard. It is no good him telling everyone else involved in pension provision what they have to do if the Government will not do their bit by sorting out the complexity of the state benefit system. I ask the Secretary of State to recognise that there is a problem with the state benefit system. He is almost alone in believing that the spread of means-testing to more and more pensioners is a desirable or sustainable long-term approach for state benefits for pensioners. Let me quote from Alan Pickering, whom the Government invited to produce the report on which the Bill was supposed to be based. He said:
"I hope that the government will realise that it is in the minority of one that thinks means testing is sustainable. It is not a firm foundation for building a pension . . . Before we can modernise the world of private pensions we need to modernise the state pension."
That was what Mr. Pickering said, and he is right. It is no good for the Government to impose more and more obligations on the funded pension sector when they do not reform benefits.
As so many Labour Members are in their places, I should tell them that although this is not the occasion for a full exposition of our policy, I shall none the less make two simple points. First, if they are concerned that increasing the value of the state pension to roll back the spread of means-tested benefits will be badly targeted because the money would go to large numbers of affluent pensioners, I invite them to look at the figures for income distribution among pensioners.
I shall give the gross incomes for pensioner couples in fifths. The income for the poorest fifth is £165 a week; for the next fifth, it is £221; for the middle fifth, £276; for the next fifth, £373; and for the top fifth, £889. The average income of pensioner couples—£385—is higher than the income of the poorest four quintiles; in other words, most pensioners have modest incomes and there is only a relatively small number of pensioners on high incomes on whom such a policy would be "wasted", although they have paid their national insurance contributions. I should rather tax them at 40 per cent. than have means-tested benefits withdrawn, a minimum rate of 40 per cent. and rates that go up to 90 per cent.
Can I be clear about what the hon. Gentleman is proposing? As I understand it, he is not proposing an overall increase in pensions but a flat rate rather than a means-tested system. Would not that mean a dramatic cut in the income of the poorest pensioners in Britain?
There will be no reduction in anyone's income. I shall tell the hon. Gentleman about the poorest pensioners—it was the second point that I wanted to make. Last week, we received the latest figures on the take-up of means-tested benefits. I have to tell the House that there is an increasing problem among the poorest pensioners—those who do not claim the means-tested benefits to which they are entitled. A higher and higher proportion of the eligible non-recipients, the pensioners entitled to means-tested benefits but who do not claim them, are in the lowest sector of income distribution. The most devastating statistic in the report was that we have reached the stage where, even before disability benefits, 65 per cent. of the pensioners entitled to means-tested benefits, but who do not claim them, are in the bottom quintile of income distribution—they are among the poorest 20 per cent. of pensioners. They are the people who are not helped at present. Either the Secretary of State will have to bring us to a fantasy world where everyone claims the means-tested benefits to which they are entitled or he will have to accept that a large number of the poorest pensioners are not being reached by his means-tested benefits.
Having quoted those statistics, the hon. Gentleman referred to the fact that people were not being reached at present. He should accept that the statistics are outdated and precede the introduction of the pension credit.
The Secretary of State finally got round to publishing the figures last week, so I can only tell him that I would be very happy to use more up-to-date statistics; all he has to do is provide them. Meanwhile, I shall work on the basis of the best statistics that he can offer—the take-up statistics that he produced last week.
I am grateful to the hon. Gentleman. He expresses concern about the interests of the poorest pensioners, but is not his policy—to introduce an earnings link for the basic pension, but remove the earnings link from the minimum income guarantee—regressive?
We shall have to wait to hear from Ministers what their plans are for uprating the pension credit. I have regularly asked the Secretary of State what his plans are for its future. Labour Members assume that the pension credit will be earnings-linked in future, but we shall have to wait and see. So far, we have heard no statement from the right hon. Gentleman about his intentions for the pension credit if he were re-elected.
It is not simply that we need that information so that we can assess our proposals against his but that it is very relevant to the Bill. How can he require private pension providers to deliver pension illustrations stretching way into the future when he will not even come to the Dispatch Box and tell us what may happen to the value of means-tested benefits in two years' time? How can there be proper modelling of people's pension prospects without a reliable and authoritative statement from the Secretary of State about what is to happen to the uprating of means-tested assistance for pensioners?
One of the omissions in the Bill is that it fails to tackle—
I should like to make some progress, as I know that many Members want to speak.
There are no provisions in the Bill to reform state benefits, although I welcomed the modest encouragement from the Secretary of State to table amendments in Committee to try to address that serious omission. My hon. Friend Mr. Waterson, who will be fighting energetically in Committee, will, I am sure, have taken note of the Secretary of State's remarks.
The other failure in the Bill is that it contains no new incentives to save. Over the past few years, the Government have been systematically stripping away incentives to save. Contracted-out rebates are no longer set on an actuarially fair basis and a £5 billion a year tax has been imposed on our pension funds.
I should like to conclude my point.
In a rash moment, when the Secretary of State was challenged on how he expected people to save for the future, he said:
"The answer is the ISA, a more flexible vehicle which is attracting more savings, especially from younger people."—[Hansard, 2 July 2002; Vol. 388, c. 103.]
Since the right hon. Gentleman made that statement, a new 10 per cent. tax has been slapped on our individual savings accounts. Whenever people start to save, including in the ways in which the Secretary of State says he believes, they promptly have a new tax put on them.
The hon. Gentleman is most generous. Does he accept that the Conservatives were in power for many years and created the poverty that meant that people could not save for retirement, but that we are changing that culture and he should be ashamed of what happened in the past?
I am afraid that what has happened is that the savings rate—the amount that we save as a nation—has not risen since 1997; it has been declining since 1997. There are many reasons for that, but among them, I am afraid, are the Government's policies. Taxing our savings and spreading means-testing is not the way to encourage people to save. That is why, sadly, the Bill will not tackle the savings crisis facing our country.
Many Members on both sides of the House want to speak, so I shall conclude.
Of course, the Opposition support the need for insurance for pensions, but because the Bill fails to improve incentives to save, fails to tackle the need to reform the state benefits system and fails to answer crucial questions about how the insurance scheme will work, we have proposed our reasoned amendment, which is a far better approach than the one taken in the Bill. I therefore commend our amendment to the House.
Order. Before I call the next speaker, I remind the House that Mr. Speaker has placed a 15-minute limit on all Back-Bench speeches, which applies from now on.
I rise to congratulate my colleagues on the Treasury Bench on the Bill. In my short contribution, I want to set out four cautions about the Bill, but I do not want anybody to interpret my remarks as criticism of the strategy that the Government are adopting in this aspect of pensions policy.
No great Department is a free agent in any Government. Under this Government, we know that the imperial power of the Treasury has an extensive interest throughout Whitehall, and especially in Work and Pensions, so we should congratulate my right hon. Friend the Secretary of State on what he has been able to bring forward today within the limits set on him.
I hope that we will have changed the Bill in some important respects before it passes into law, but I doubt whether we will be able to deal with the subject of my first caution. Although we cannot expect those on the Treasury Bench to acknowledge this fact publicly at present, we know that we do not have a satisfactory long-term policy on savings and pension provision. One of the reasons for that—it is a paradox—is because the Chancellor, in his proper enthusiasm to help the poorest pensioners, has concentrated help in the form of the minimum income guarantee and pension credit. If help continues to be concentrated in the form of a means test that stands alone with no other measures, it will undermine the long-term confidence of perhaps 40 per cent. of the population in providing for themselves. I do not believe that any free society can operate in the longer run if most working people know that it is not in their interest to save. At some stage, the House will have to return to the consideration of our long-term strategy on pension savings.
The Government expect to receive a report from their Pensions Commission. I appreciate that there might be some logic in believing that when the commission reports in July, although perhaps that will be delayed until the autumn, the Government will ask it to deliver a report on its proposals and suggestions for long-term reform a year hence—after a general election. My caution for those on the Treasury Bench is that the results of the first period of operation of the Pensions Commission, which is exclusively concerned with collecting a coherent set of data on long-term savings for the first time, might be so shocking to us and our constituents that the voters will not give the Government another year in which the commission may think of what fine schemes it would like to commend.
Let us consider what is happening in all our constituencies. The turnout of people below pensionable age at elections has fallen dramatically. Turnout is falling most gently among people who are approaching retirement age or beyond it, so the next election will probably be the first ever in this country in which the majority of people who vote will be pensioners. There will certainly be a majority of voters who are five years from retirement or retired. Although pensions do not play in the Gallup polls that are useful guide to all of us, long-term savings and security in retirement might be concerns below the surface that will have a joker-type effect when the ballot boxes are opened after the next general election. I make a plea to those on the Treasury Bench to think about long-term reforms. We need to back up the success of the Government's short-term policies of helping the poorest pensioners now.
My other three cautions relate to the Bill, and my first refers to the risk factor and its weighting when working out the levy. I make a plea to those on the Treasury Bench to take a totally different approach to working out the levy. The people who are most interested in seeing the scheme up and running are not employers, but our constituents who are members of pension schemes. I happen to believe the trade union line that pension savings are deferred wages. The logic of that position means that those who will benefit from a pension should pay the levy, which should be related to the number of years for which they contribute and the size of the pension that is being insured.
It would not be wise to try to put a risk-based levy on employers, especially given what the Secretary of State said about that possibly taking a firm's credit rating into account. If we go down that avenue, the markets will eagerly wait for the Government to approve the publication of the risk-based levy, after which they will start to punish firms with a low credit rating on the Government's list. The need for an insurance scheme thus might become that much greater because more companies could be driven over the edge as a result of the publication of the information than would otherwise have been the case. I know that such a change to the Bill would be large, but I ask the Government to determine whether there is an alternative way of raising the required funds—we all agree that they are necessary—for an insurance-based scheme before we reach Committee.
My next caution relates to the loss of pensions, which many of our constituents have already suffered and that many more may suffer before the Government's scheme comes into operation. I agree with all those, especially Labour Members, who have said that if the Secretary of State fights his corner in government and comes forward with a scheme to compensate people who have already lost their pensions—I hope that he will be able to do that—all hon. Members will have a duty to ensure that none of us use that scheme to try to ensure that our favoured group is covered.
I was disappointed by Opposition Members the last time we discussed the matter because they immediately jumped up and said, "What about Equitable Life?" I declare an interest because I saved with Equitable Life. That was a foolish decision, in retrospect, but no one made me save with Equitable Life. We are talking about our constituents who, as a condition of employment, were made to join their pension schemes. Even after that requirement was dropped, most people in pension schemes did not know that the Government had changed the law.
If my hon. Friend had received answers to the questions that he tabled for answer today, I could probably have given him a more definite answer. Most of the cases about which we know are fairly recent and as we look further back, the number of cases is smaller. I would not want to draw an arbitrary line at this stage without seeing the figures. However, I make a plea that we do not try to entice the Secretary of State into introducing a compensation scheme for a group of workers that somehow passes its cost on to future generations. If we are not prepared to meet the cost by asking the Chancellor to levy taxes, or, as I would prefer, by introducing a levy on unclaimed assets, we do not have the right to suggest that future generations, some of whom are not yet born, should meet a bill that we are not prepared to pay.
The Secretary of State has given two outings to his view that just because assets are unclaimed, that does not mean that they do not belong to people, so perhaps we should not touch them. Most people in this country know what their income is, and the Chancellor thinks that it is totally proper to tax us. If we agree to that, surely we can start to consider unclaimed assets that go back more than 100 years. I know that several Scottish Members are slightly jumpy at the thought of placing a levy on unclaimed assets in case they mistakenly own some, but given that some go back 150 or 200 years, we can start at the end of the queue and work forward. I make a plea: let us not try to impress any proposals on the Secretary of State unless we are prepared to suggest where the money would come from.
My last plea is about parking pension liabilities, which have already been touched on. However, before I move on to that point, may I say that I am sure that the my right hon. Friend the Secretary of State picked up the mood of the House when hon. Members discussed meting out justice to our constituents who were forced to save yet now face the horrendous prospect of a retirement with little or no pension? I want to strengthen my right hon. Friend's hand in the negotiations in which he will be involved. If the Government are unable to introduce suitable measures on Report, I hope that my right hon. Friend has picked up the feeling that at that stage, while the rest of the Bill may be secure, the Government might find difficulty in holding to their line when the vote takes place. Even if we do not manage to persuade the Government in this place, there is the revising Chamber. I do not say that in a threatening way. However, my right hon. Friend faces some tough negotiations and we all want him to be in as strong a position as possible when he takes on the powers that we are discussing.
The last issue and caution is whether, on Report, we can put into the Bill some measures that prevent unscrupulous employers from trying to park their pension liabilities in companies that then sink. I say that because last week I was debating the impact of the actions of a firm in Birkenhead. Although that firm paid all its insurance to Chesterstreet Holdings to cover its workers on asbestosis claims, Chesterstreet Holdings decided that it would leave all its liabilities for asbestosis cover in its main company. It took away all the said firm's profitable business and placed it in another company. That company still trades. Many constituents suffered considerable shock and alarm when the insurance cover for asbestosis went down with what was then nearly a cardboard firm.
I hope that the Government will be open to comments and suggestions about reform from us all when we come to consideration on Report, to ensure that those employers who want to rid themselves of their pension liabilities and then continue trading in another guise cannot do so. We must somehow link the responsibilities that are built up to the company that collected contributions and invested them on behalf of employers.
This is an important day for the Secretary of State and his team. I thank them for the huge amount of work that they have done to get the Bill in its present form. However, I remind my right hon. Friend of my four cautions. I hope that before the general election we shall set out to the electors a choice about long-term pensions reform. A risk-based levy on employers might bring down some companies, and in that event people will point the finger at the Secretary of State. Could we devise some way of preventing people from walking away from past pension liabilities, as Chesterstreet Holdings did with its insurance claims?
Lastly, before the Bill receives Royal Assent, I hope that the Government will give us the opportunity to ensure that those of our constituents who did everything that was required of them to save for their old age and who have been wickedly robbed of that inheritance will be given some justice.
I am grateful for the chance to make a Front-Bench contribution and to follow Mr. Field, who, as has been said, has often been the person to come up with innovative ideas, proposals and suggestions for tackling pension problems. With no disrespect to those on the Government Front Bench, it is a shame that he has to do so from the Back Benches.
We owe it to those who have lost their pensions and to those who are currently saving for pensions to be clear where each of us in the House stands on this issue. I wish to make it clear that I and my colleagues reject the Conservative reasoned amendment. I shall be asking my colleagues to support the Bill on Second Reading.
In my view, the Conservatives have behaved in a slippery and evasive manner. To read the press, one would think that they were tremendously sympathetic to the problems and had an entirely positive agenda. Yet, this evening, they will be trying to block a Bill that will provide protection for future workers' occupational rights. Mr. Willetts says that he supports the principle of a central insurance system, but he did not say anything about future workers, future pension rights and the sort of insurance-based scheme that he want to see, let alone mention provision for those who have already lost out. The reasoned amendment says that we should not give the Bill a Second Reading because of what it does not contain. I accept that it does not contain a great deal, and there is plenty in it that is flawed, but there is good enough in it. It provides for a proactive regulator—a long overdue provision. It provides for a scheme, albeit flawed, but it represents the basis for such a scheme, to protect future pension rights. That is why I shall be encouraging my colleagues to support the Bill on Second Reading.
As I said, the reasoned amendment gives a long list of concerns about things that are not in the Bill, but surely the Opposition cannot say that they do not support the proactive regulator. They cannot say that they do not support central insurance. So what is it in the Bill to which they object? I do not understand.
Reflecting further on the approach that the Conservatives have taken, I refer the hon. Member for Havant to his quotation from The Independent on Sunday. He is also reported in the press as saying that the Conservative plan is to table an amendment to enable the pension protection levy to provide retrospective compensation. Apart from having said that that is not an accurate reflection of his position, I do not understand how one can table an amendment to a Bill after it has been defeated on Second Reading. I am rather puzzled. Obviously the hon. Gentleman has no confidence that his reasoned amendment will be agreed to this evening. After all, if it were agreed to, he would not be able to amend the Bill. I know that I have not been in the House for as long as the hon. Gentleman, but I cannot work out his position.
The central proposal before us is the pension protection fund, and I shall concentrate my remarks on it. There is a paradox. The Secretary of State uses the analogy of holiday insurance and car insurance, and says that this is pension scheme insurance. He says that essentially we are talking about an insurance scheme, but the Bill contains a raft of measures and provisions that obviously do not make it an insurance scheme.
The first factor is the risk-related premium. To use the analogy of the boy- racer, in the first year of operation he will be paying exactly the same premium as the staid middle-aged driver who never has an accident. There will be no distinction between those who are extremely likely to make a claim on the fund and those who are unlikely ever to do so. We have been told that after a year there will start to be a risk-related element. I understand that that will be phased in over a period of years. We have the bizarre situation where a company that does well out of the risk-related premium—for example, BT, a big, solvent company that works hard fully to fund its liabilities—can opt for the RRP, and presumably not pay very much, while a dodgy company that has not funded its scheme properly, and is probably teetering on the brink of insolvency, can defer moving over to the RRP for several years. That is a wacky sort of insurance scheme, where the bad risk as well as the good risk can pay low premiums. I have not worked out how the sums add up. It is an odd transitional process. This is not really an insurance scheme. Instead, it is a messy hybrid. Many of these issues need to be resolved as we examine the details in Committee.
There is a further reason why I am concerned that this quasi insurance scheme is not what it appears to be at first sight. There is the idea that it guarantees people's pension rights. We know, broadly speaking, that the plan for the PPF is that a person will get 100 per cent. of their rights if they are already drawing a pension and 90 per cent. if he or she is still a worker. However, that might not be the case. If the fund is in trouble, what is the first thing that happens? The fund may set a higher levy for the following year, but the Bill contains a provision for a cap. The levy can be increased only by a specified percentage. What happens if finances are seriously in trouble? For example, early on many companies that are limping along to
What if the scheme is still in a mess at that point? Buried in one of the schedules is the Secretary of State's right to cut the protection that is offered by the PPF below 100 per cent. and below 90 per cent. We have the bizarre situation where a so-called insurance scheme might not pay out.
Is the hon. Gentleman arguing that there would be a blank cheque when firms wind up their pension funds? If so, would that not encourage some firms to wind up their pension funds, as they would know that the Government would bail them out, no matter what?
Given the political difficulty for the Government if they do not honour the insurance, I suspect that that is precisely what will happen in practice. If the Government face the prospect of a big company going to the wall, a crisis in the fund, which did not contain enough money, a jacking-up of levies to the ceiling, the scrapping of indexation rights, and the need to get an affirmative resolution through the House to cut the protection offered by the pension protection fund, they may well opt for a bail-out. We should plan rationally, not so that the public sector puts money in that it never sees again, but so that it is a lender of last resort. Although the pension protection fund has borrowing rights, they are limited. The Government are trying to claim that the insurance scheme will protect people's pensions and is operated at arm's length, but the Secretary of State has his mucky paws all over it—he can tweak it, cap the levy and change the benefit rights. It is essentially a public sector or Government scheme.
It would be preferable to avoid a panic when the pension protection fund suddenly runs out of cash and things are desperate by planning rationally. How would any Government lending of last resort work, how long would it last, and on what terms would it be repaid? We must plan now, instead of panicking when companies go to the wall. The public are in danger of being misled, as they may think that the pension protection fund protects their pensions at 100 per cent. or 90 per cent. In fact, if the scheme gets into trouble, the Secretary of State may come to the House and cut those rates. If someone insured their car and it crashed, they would not want Direct Line to say, "We haven't got much money this month, so we will only pay for half the repair." However, that is what the Secretary of State is proposing in the Bill, which surely is not right.
In view of the uncertain nature of the scheme at the outset, the Association of Consulting Actuaries has suggested that the benefits from the insurance fund should be set at a lower level—100 per cent. for pensions up to £10,000 a year, and 80 per cent. for pensions between £10,000 and £20,000. The poorest pensioners in the scheme are therefore protected when the scheme starts, but benefits can be increased later. Would the hon. Gentleman comment on that proposal?
I have some sympathy with the notion of a capping mechanism, although I am not sure about those levels. However, our priority is to make sure that, first, people are not left destitute and, secondly, have a reasonable return on their savings. Trying to define that in statute is extraordinarily difficult, but our first priority is to make sure that people are not left destitute. After that, if money is left in the fund, we could look at the allocation of the balance. However, it is certainly well worth considering a cap when there is pressure on funds. There are capping components in the proposals, but they would operate at quite a high level.
The Government say that they are saving occupational pension schemes money by reducing their obligation to index pensions in payment post-retirement. However, they may have greatly overestimated the amount that pension funds will save as a result. Although pension funds may have a 5 per cent. requirement post-retirement, the evidence is that many of them are not providing for 5 per cent. because they do not expect inflation to be anything like that. The amount that they may save by not being required to meet that 5 per cent. rate may therefore be less than the Government think. Some schemes, in any case, have an obligation that is greater than 2.5 per cent., which they will continue to meet, even if the statutory requirement goes down to 2.5 per cent. because the terms of the trust may require them to index by more than 2.5 per cent. They, too, will not save any money as a result of the change.
The money that the Government claim that they are saving company pensions may be less than they expect, and the premiums that they will require of schemes may be substantially higher than the £300 million that they estimate. It is important that we are given such information. We would not reject the entire Bill because we do not know such things yet, but we should receive reliable information. I hope that the Secretary of State will place in the Library a copy of the projections on which his figure of £300 million is based, as well as the alternative scenarios with different outcomes. He suggested that even £300 million was a pretty gloomy scenario, so perhaps he can assure us that he will place in the Library both the basis of the figure and the alternative scenarios that the Government have looked at.
The issue that, quite properly, has attracted the most attention is the position of people who have already lost out or will lose out before 2005 and will not be in the system established by the Bill. A number of them are visiting Westminster today, and I want to put on record the appreciation that I share with a number of hon. Members on both sides of the House for the work of Ros Altmann and others for the pensions action group. Members who represent constituents with ASW pensions, along with other hon. Members, appreciate the fact that that group has maintained a high profile for the issue and, in addition to campaigning, has submitted evidence, arguments and positive ideas to the debate, which it needs. The Bill, I hope, will provide a chance for us to put something on the statute book to deal with the problem.
I have reservations about muddying the issue by linking it to the pension protection fund—in my view, tackling it is a separate exercise. If we try to bring those individuals within the scope of the pension protection fund, the straw man of retrospection will be brandished, and people will say that insurance cannot be available retrospectively, so the whole argument for the Bill is weakened. We will not help our case by saying that money should be made available from the pension protection fund. A separate system of compensation is required. I do not mind if we talk about providing assistance, as long as the people who have worked and saved hard, listened to Government and official advice, and did what was expected of them get justice. That should be our priority.
The Secretary of State was a little light-hearted about the suggestion that £100 million was affordable and not a substantial sum of money. It clearly is a substantial sum, and demonstrates that many people have lost a lot of money. We would not be talking about payment of £100 million a year if many of our constituents had not lost out badly. To say that £100 million is such a large sum that that one could not undertake action is not acceptable. If many people have lost a lot of money, doing something about it will result in a big bill. We may be able to find the money in the assets of people who died 200 years ago, and we are all attracted by the notion of a free lunch. If free lunches were available, even if they were 200 years old, I would join the queue. I maintain an open mind about the early-day motion tabled by the right hon. Member for Birkenhead. If there is credible evidence that that proposal would cover the substantial costs of action, my colleagues and I would be willing to look at it.
I fear that that proposal would not operate on the scale required, although I am open to persuasion. If it does not, we must look at the Department's existing spending plans. When it draws up those plans, it identifies what it spends on pensions, benefits and so on. However, there is also a line headed "unallocated", which is money that it has not decided how to spend, and which is £150 million, £200 million or £250 million over the planning horizon. That is usual practice for Government Departments, especially Departments that spend £100,000 million. They tend to allow 0.1 or 0.2 per cent. for unplanned expenditure. The Secretary of State might argue that if there were a fight over unclaimed assets, every Government Department and good cause would queue up for a share. However, people who have lost company pensions must be close to the front of the queue for money that his Department has not allocated. There is a profound case for providing justice for them, and when the Department allocates unallocated expenditure, it should put them at the top of the list.
The hon. Gentleman said that a lot of money has been lost, but does he acknowledge that although that is the case, the sums for the individuals concerned are relatively modest? For the average active pensioner, the sum is probably about £8,000, for the average deferred pensioner, it is only £3,000 a year, and for people with pensions in payment it is about £6,000 a year. We are therefore not talking about fat cats.
I am sure that the hon. Gentleman knows that I was not implying that they were fat cats. If the cost is £100 million a year over a generation or so, that suggests that a lot of people are affected—the estimate is 60,000. For the individuals concerned, the money represents most or all of their pension. There is a danger that we will be caught up in the fine print, and will lose our anger at the injustice. The Secretary of State is a decent man, and wants such losses to be prevented in future. I hope that in examining the minutiae of the Bill he and other hon. Members will not lose sight of the fact that it is not right to allow people to work and save hard, reach the brink of retirement, only to have everything taken away from them and be told, "Sorry, although we sympathise, there is nothing that can be done."
That cannot be an acceptable outcome. I hope the Secretary of State would agree with that basic principle while he tries to work out exactly what he intends to do, and I am not sure that he does. He says that he does not want to raise false hopes, but does he accept the principle that the one outcome that is not possible and should not be possible is that nothing is done? I am happy to give way if he wants to give us the assurance that that is his starting point—that it is unacceptable that nothing be done in response to the injustice. I am slightly disturbed that he does not want to take that opportunity.
The pension protection fund is central to the proposals, but there are various difficult issues about how the fund relates to the rest of the pensions architecture that the Secretary of State is setting up. Schemes will have to follow a scheme-specific funding requirement. That makes a lot of sense. For a scheme with a large number of people who have already retired, the investment strategy and the funding rules will be very different from a scheme with most of its workers still active in the labour market. But there is another funding requirement knocking around—the pension protection fund funding requirement. The PPF will not just sit there: it will be active, keeping an eye on what companies are doing and how much money they are putting in. Presumably the PPF will be interested not only in whether they meet the scheme-specific funding requirement, but in whether they meet the level at which, if the company became insolvent, it would not make a claim on the PPF.
Is there a danger that two funding requirements are being operated in tandem? There is a scheme-specific one, but then the PPF comes along and says, "Well, you may satisfy the scheme-specific one, but you don't satisfy ours, because if you went bankrupt, you would make a claim on us, so we want you to put money in to satisfy that funding requirement as well." Is there a danger that there will be annual actuarial valuations for the risk-based premium and two different funding requirements, making the whole thing extremely complicated? Has the Secretary of State thought through the open question whether we need a scheme-specific funding requirement if there is a PPF funding requirement? How do the two interrelate? Is there a danger of duplication?
There is a raft of other measures in the Bill which I will not go through in detail, but I shall pick up on two other issues. The first concerns the trustees of the schemes. Like other hon. Members, I meet regularly with retired members of occupational pension schemes. They feel that they are excluded from the running of the occupational pensions on which they depend. One of the things that they value enormously is trustee rights—retired members drawing pensions being entitled to serve as trustees.
The Government considered two options for choosing trustees of occupational pension schemes. They rejected the option known as "fair and open". It is strange that the Government rejected the fair and open selection of trustees for occupational pension schemes. That makes me rather nervous. Retired members say that they want to have a say about the scheme that is as much theirs as anybody else's. They have no mechanism for contacting the electorate—the members of the scheme—and there ought at least to be a fair and open method of selecting trustees. The Government have rejected that for fear it would be bureaucratic and for fear of "vexatious scheme members complaining". Scheme members get vexed if they think they are not being listened to. I hope the Secretary of State will review that decision. It is important that workers, deferred members and retired members are properly represented in a fair and open way. I am not convinced that that is the case.
Finally, I shall touch on the part of the Bill that deals with the state pension. In general, we must be in favour of measures that give people new choices about retirement and new flexibility. Anything that allows them to take their pension later and get an enhanced accrual rate or a lump sum would seem to be attractive, but as was pointed out when we discussed the matter last week, the choice is complicated. When pressed, the Secretary of State seemed a little hazy about how lump sums would be treated. I looked on the Department's website, where there is a fact sheet—a sort of idiot's guide, which I found helpful and I hope the right hon. Gentleman will as well.
Under the heading "Pension Credit", the fact sheet states:
"We also want to make sure that the lump sum is ignored when most people claim Pension Credit".
One's heart sinks at that sentence. It creates yet more complexity. People defer their pension, get a lump sum, which is taxed at their marginal rate at the time, and for most people it will not count on their pension credit, but presumably for some it will. Who are they? How are we supposed to assess that? Nobody seems to know how it will work. How will someone aged 65 judge whether at 70 they will be one of the people who have the lump sum taken into account or not?
Part of the Bill is about information on the internet, combined pension forecasts and so on—telling people more—and another part creates a new, complicated choice that makes it extremely difficult for people to know what is the right thing to do. Once people have drawn their lump sum, does the Department say, "We'll always ignore £30,000 of your capital", or does the Department say, a year on, "Well, it is legitimate for you to have used £1,000, so we'll only ignore £29,000"? If people have other capital, does the Department distinguish between that and the lump sum capital? One begins to see how complicated matters become.
Yes, the Bill is a missed opportunity to simplify matters. It has been calculated that somebody who retires from a money purchase scheme after April next year and who has been a scheme member since before April 1997
"may need to buy six different types of annuity with what is effectively one pot of money", because of all the different rules about when it was saved and how much it has to be indexed by. The Bill was a chance to simplify matters, but it has made them far more complicated. However, I return to my opening point. We need a regulator who is proactive in looking out for problems. We need protection for future workers. That is why we will support the Bill tonight, but I echo the comments of the right hon. Member for Birkenhead that we will not be satisfied until the Bill also provides for the people who have suffered the greatest injustice of all in that respect.
I, too, welcome the Bill and join in the praise that has been heaped upon the Secretary of State for introducing it. It is a brave, timely and necessary measure. At the same time as praising the Government for introducing the Bill, it is important to praise the workers from Allied Steel and Wire and other companies, many of whom travelled to Westminster today and whose triumph is that they have campaigned, made the case for, used persuasion in a responsible manner—often with great assistance from their trade unions and constituency Members—and persuaded a Government prepared to listen that something must be done about the problem of pension protection. The Government should be praised for changing their mind, having listened to the evidence.
Does my hon. Friend agree that for those who have been active in the campaign for the introduction of the pension protection fund, it would be rather silly not to support the Second Reading of a Bill that would achieve that for the future, no matter how concerned we are about those who have already lost out?
My hon. Friend makes an important case. I was surprised when I heard last night that the Conservative Opposition intended to oppose Second Reading. By doing that—it is becoming more common under their new leadership—they reveal that they have forgotten the distinction between responsible opposition and irresponsible opportunism. That is what we see in their opposition to the Bill on Second Reading. They are opposing it only because they are grandstanding on the issue. I regret that, because we need some measure of cross-party discussion of the matter and some measure of agreement across the House about how we fix the problem, which affects so many of our constituents.
The intervention king has taken two interventions in not many more minutes. I found the speech from the Opposition spokesman interesting because it contained so little that was positive about what the Opposition were proposing, and so little that was negative about what the Government were proposing, that it was hard to understand why they intend to vote against the Bill. My hon. Friend made an important point. We need some cross-party agreement on the future, particularly if there is to be a rescue scheme for the pensioners who have lost out. It must be guaranteed not only by the Government who announce it, but by all successive Governments. May I, through my hon. Friend, press the Opposition spokesman who is to reply to the debate to make it clear that they will be members of that all-party grouping, so that we can give those outside the confidence that their pensions will be guaranteed?
My hon. Friend makes an important point. I hope that the Opposition's position will be clarified during the wind-ups, although I suspect that Labour Members are not holding their breath.
My interest in this matter was triggered particularly by the case of Allied Steel and Wire, which affects many of my constituents. Speaking from personal experience, as the son of a steelworker who worked at Llanwern steelworks in the constituency of my right hon. Friend Alan Howarth, I would have been outraged had my father been subject to what has happened to many of our constituents—if, after working for 20 years in those steelworks, he had left only to be told that his pension was worthless. We would all be outraged if that happened to a member of our family, and we are similarly outraged when it happens to others, whether they are our constituents or those of other hon. Members.
The Bill is an excellent step forward. I particularly welcome the establishment of a pensions regulator with teeth, which is a part of the Bill that we do not talk about enough, but which is very important in making the pension protection fund work properly. We need to rid occupational pensions of their dodgy reputation and give them a reputation for being safe, sound places where people can put their savings for retirement.
There are three basic reasons for giving some sort of assistance to workers who have lost out as a result of their company becoming insolvent: the moral case, which hon. Members have outlined; the legal case, which we cannot talk much about in this place—I sometimes think that we have too many lawyers here when I read amendments that are framed in dry legalese instead of addressing real human concerns—and the public interest argument, which is ultimately unbeatable.
On the moral case, we have here, in effect, a case of breach of promise. One has to ask what steps any reasonable, rational human being would take if they were saving for a pension in their retirement, and what is the minimum protection that they would have the right to expect from the state in that regard. A worker from Allied Steel and Wire in Cardiff who joined its scheme 25 years ago would have been compelled to do so as a condition of employment. As the state permitted that compulsion, it bears some responsibility for the consequences. If the worker was of a sceptical nature, he might think, "Hang on a minute; I don't like buying a pig in a poke", and take a deeper look at what they were getting themselves into. A reasonable, rational human being might think that he should do a bit of research to see what, for example, the National Association of Pension Funds says about the subject. One of its recent leaflets says that defined benefit schemes make
"a promise of a guaranteed pension based on the number of years you are a member of the scheme".
If the person read on, they would be told:
"The promised pension is not affected by the level of investment returns or interest rates as all these risks are borne by your employer."
I think that that would be enough to satisfy me, but if I was a doubting Thomas I might want to see more evidence about these so-called guaranteed pensions and go on to read a leaflet from the Financial Services Authority called, "FSA Guide to Pensions: Reasons for joining an occupational pension scheme if you can". It states:
"In a final salary scheme, you know broadly how much pension you'll get (as a proportion of your earnings before retirement). This makes it easier to plan for retirement."
That further reassurance might have satisfied me, but I might have gone on to look at what the Department for Work and Pensions had to say. I am not sure what it said in the distant past, when many people would have taken the trouble to find out, but it said recently:
"Should I join my employer's occupational pension scheme?
Occupational pensions are usually a very good deal".
That might have satisfied me, because although I would not necessarily want a very good deal for my pension, a good deal or a reasonable deal might be sufficient. But that information nowhere states: "You should be very wary, because if you join a final salary occupational pension scheme you are betting your retirement on one share—namely, the share of your employer." That is what the current situation permits. People who were originally compelled to join a scheme could have read all that advice, but never have been given a health warning that they were effectively being asked to bet their retirement on one share.
If the worker was still sceptical, he might read his own company's documentation. The leaflet from Allied Steel and Wire in Sheerness, which is in the constituency of my hon. Friend Mr. Wyatt, says:
"What benefits does the Fund offer?
The benefits of the ASW Sheerness Steel Group Pension Fund are comprehensive:
A guaranteed pension on retirement, which increases each year to help protect it from inflation".
I defy anyone reading that body of evidence to point to the health warning. It represents a promise, implicit if not explicit—I think that it was explicit—from Government, from quangos, from the Financial Services Authority and from employers. Any reasonable, rational human being who looked at that evidence would anticipate that their pension benefits were guaranteed.
Leaving aside the moral question for a moment, I turn to the legal question. Workers' pensions are supposed to be protected under the European insolvency directive. I shall not go into detail on that because the case may well end up in the courts. I merely ask my hon. Friends this: why should we line the pockets of lawyers in taking this case on, whatever the legal advice turns out to be; pay double the financial penalty in having to do so; and ultimately face a political penalty for not having assisted when we had the opportunity?
The third reason for giving assistance is that it is in the public interest. I recognise the danger that this issue may drown out the good news about the measures in my right hon. Friend's Bill and undermine public confidence in occupational pensions at a time when he is trying hard to strengthen it. I do not want to do that. However, public confidence will not be restored if, after the passage of this Bill, 50,000 or 60,000 workers say to their colleagues of the pension protection fund: "Don't believe the promise that you will get a guaranteed pension if things go wrong—look what happened to me." That is what they will say if there is not some form of assistance and some acceptance of responsibility.
Is the hon. Gentleman aware of the double injustice meted out to the former employees of Irish Fertiliser Industries? Workers in the Northern Ireland plants will receive only about 20 per cent. of their entitlement while those who were based in the plants in the Irish Republic will get their full entitlement. Should not the Government press the Irish Government to ensure equity?
I doubt whether the hon. Lady is making an argument for a united Ireland, but I take her point and sympathise with the workers whose cases she eloquently highlighted in her intervention.
I believe that the Government accept, and have great sympathy for, many of the arguments. They have given tremendous attention to cases, met many affected workers and been genuinely moved by their stories. They have shown a willingness to help if possible. However, I understand the concerns that they have raised. Worries about cost and how one draws a line are not to be baulked.
Although it is easy to make the sums appear and sound large—huge amounts of money are involved—let us be clear: the state provides tax incentives to private pensions. We cannot pretend that the state has nothing to do with private pensions. It provides them with tax incentives of up to £14 billion a year. Half of that goes to the top 10 per cent. of taxpayers and a quarter to the top 2.5 per cent. We could reduce the costs if we stopped buying annuities—Dr. Ros Altmann made that point well—and allow the pension funds to fulfil their current commitments, until the point when they need more funds. Some pension funds might recover in that period if, as expected, the stock market recovers. During that lull, the Treasury could set aside funds for an occupational pensions assistance board of some sort. I do not mind whether it is associated with the pension protection fund, as Mr. Willetts mentioned, or whether it should be insulated from that so as not to confuse matters.
Whatever the method, it should be possible to provide some sort of assistance board, for which we would not have to pay out for many years. I appreciate that the costs may, according to one estimate, eventually be about £100 million a year. Another estimate from a TUC pension adviser is that it is likely to be closer to £50 million a year. Although that is a large sum, it is a small proportion when compared with Government involvement in subsidising private pensions. We must bear it in mind that many workers will claim the pension credit if they do not receive some form of assistance. They do not want to do that when they believe that they have made all the necessary provision for their retirement and that they should be paid accordingly.
Let us consider the point about drawing a line. It would be helpful if we all acknowledged—I make a special plea to Conservative Members to do so—that we are not considering Equitable Life but a completely different issue. It is neither Equitable Life nor Maxwell. There are two main reasons for that: compulsion was involved for many of our constituents and there was a lack of a proper health warning. The problem has largely developed since the Pensions Act 1995, and all those who have been affected by a specific date should be permitted to apply to an occupational pensions prior claims assistance board.
We are not considering fat cats. A medal should be struck for Dr. Ros Altmann for all her work on the matter. She estimated that for the average worker—the active pensioner—we are talking about a pension of a maximum of only £8,500. We would not let that happen to our parents or to us, and Ministers would not let it happen to them. We should not let it happen to our constituents.
What on earth have the Government been doing for the past six and a half years? The pensions industry is in a mess, pensioners are worried and Ministers appear to believe that serial consultation, with no results, is an adequate substitute for the serious radical reform that we need of our private and public pension provision.
In December 2002, the Government set out, in response to a question, the list of Government consultations that had taken place since August 2001. Yet, unbelievably, Ministers were unable to provide details of their consultations between May 1997 and August 2001. They gave the following reason for not providing the information:
"A detailed list of consultations before this date"— before 2001—
"is not readily available and could only be provided at disproportionate cost."—[Hansard, 9 December 2002; Vol. 396, c. 140W.]
Pensions are a difficult and thorny subject, but such an answer is straight out of Alice in Wonderland. Ministers have displayed a stupendous lack of grip on the matter since 1997. Meanwhile, British pensions are in crisis, which is intensifying.
"Sixty per cent. to 70 per cent. of private sector defined benefit schemes—weighted by number of employees—have closed to new members".
More than 55,000 occupational pension schemes were wound up between 1997 and 2003. Since 2001, nearly 4,500 schemes have begun the process of winding up, but have not yet completed it. The parlous state of occupational pension schemes contributes to the general collapse of public confidence in long-term saving.
In our naivety, we might have supposed that a new measure called "Pensions Bill 2004" would, after all this time, include some radical and effective provisions. It is any Government's duty to supply them in circumstances in which pensioners cry out for effective action. Such reform was not to be. The Bill fails on several counts. It contains no serious proposals to reform and improve the basic state pension provision, especially in a way that will rein in the pernicious effects of means-testing, about which my hon. Friend Mr. Willetts has often spoken so eloquently.
The reform of the basic pension is a prerequisite for encouraging employees to make more private provision through personal or occupational pensions. One needs a solid platform of basic state provision from which to float pensioners off means-testing and give them the confidence to invest over and above state provision without the risk of the means test kicking in and making their extra and responsible private savings throughout their lives of nugatory value.
I did not say that we would devise a scheme in the first term of a new Conservative Government—[Interruption.] Labour Members should listen. I never said that we could devise a scheme to float all pensioners off the means test in the first term of office. Change would be incremental. My hon. Friend the Member for Havant has described relinking the basic state pension with earnings in the first four years of any Conservative Administration. That would deliver approximately £8 to £10 a week for the average pensioner. That is a start, which would get rid of the bottom end of the means test. The election of successive Conservative Administrations would mean that we could make even more progress on whittling away the disgraceful means test.
The hon. Gentleman has mentioned a figure of £8 to £10. Where would that leave the 3,000 beneficiaries of pension credit in Havant, who receive more than £40 extra a week?
The hon. Gentleman should refer to the excellent pamphlet, "A Fair Deal for Everyone on Pensions", which is on the Conservative central office website. I do not have time to go into that now, but he will there discover the answer to his question. We will also find savings from the administration of the means test, and there are many other ways in which we can ensure that no pensioner who is currently at or just above the level of the old minimum income guarantee, or the guaranteed pension level, will be a loser in any shape or form.
The elegant insight into cutting into the means test that my hon. Friend the Member for Havant supplied shows an imaginative and simple solution. That elegant solution is to boost the basic state pension in ways that would provide more incentives to save, and fewer disincentives to do so. Although John Robertson mentioned the pension credit, I stress to him that there would be no losers under my hon. Friend's proposal. The hon. Gentleman should have faith in the brilliance of my hon. Friend who, unlike Labour Members, knows what he is doing. My hon. Friend has displayed imagination in coming up with his idea. Labour Members might find counterintuitive the idea that the Conservatives want to restore the earnings link, but the proposal works and the numbers stack up—in the first instance, for the limited period of the first four years.
The other problem with the Bill, apart from the lack of imagination to which I have referred, is that it makes no constructive proposals for reforming occupational pensions in a way that would prevent future losses of the kind that we saw in Allied Steel and Wire and other depressing cases.
I entirely concur with the hon. Gentleman's desire to reduce means-testing, but would not the Conservative proposal, while restoring the link between the state pension and earnings, do away with that link in relation to the means-tested benefit? In other words, the Conservatives intend to hold down the means-tested benefit so that the state benefit can catch up. That would affect many poor pensioners, especially women.
My hon. Friend should not feel at all abashed in the face of the last intervention because, as he will be aware, the Government have gone out of their way to decline to answer the question of whether, if by some mischance they were re-elected to Government, they would link the pension credit to earnings or prices. My hon. Friend should expect a helpful intervention from the ministerial Front Bench if he were asked to deal with that issue.
My hon. Friend the Member for Havant asked a question on that. Will that link be restored after the next election, according to the commitment first announced, I think, by the Chancellor? We do not know. Most people think it highly unlikely, given that he is trying to save money in his next comprehensive spending review.
What is to be done about the individuals who have lost everything? Before moving on to that, and to the proposals of Mr. Field, I want to mention the Bill's most important proposal, which is not entirely without merit: the pension protection fund. I have some sympathy with the Government over their task of setting the right level of protection. If that is set too low, future pensioners will not get the cover that they need, but if it is set too high, the premiums will be too crippling and prohibitive for companies.
At first blush, it might seem that the Government have gone for a practical compromise in the Bill, essentially saying that existing pensioners will get 100 per cent. cover and future pensioners will get 90 per cent. of their benefits. Current pensioners will have a reduced indexation of 2.5 per cent. for post-1997 benefits, with no indexation before 1997. So far, so good—one might think. However, the question that has not been answered is how reliable is the Government's estimate of the total cost of the levy. They have put that at about £300 million, but under FRS17, Watson Wyatt has calculated that the whole of British industry's current deficit could be £60 billion. In that context, £300 million does not look terribly realistic.
That does not bode well for a successful pension protection fund. Moreover, the Government do not have any estimate of the number of pension funds that are cheerily waiting for the creation of the pension protection fund so that they can make a claim. Add to that the fact that in the first year the fund will be collecting only the fixed-rate levy, and one can well envisage how the fund might be in deficit at the start of its life.
Clearly, a flat-rate levy on its own will bring moral hazard, because cross-subsidisation from the healthier to the weaker funds will provide a powerful disincentive to giving greater contributions to the weaker funds. That is why the Government have introduced a risk-based element to the levy. Again, that seems reasonable, until one starts to ask how it will be assessed. It seems that the assessment will take into account the surplus and discount of the pension fund, the company's solvency and the fund's mix of assets and liabilities. However, I thought that the Government were arguing for abolishing the minimum funding requirement provisions precisely so that funds could return to higher-performing equities with higher returns when they wished to. That is not likely to happen if there is a risk-based element, because that is likely to lead, on average, to a higher levy.
Another devilishly difficult problem for the Government, to which the Bill contains no answer, is that the risk test will require actuaries to make various judgments. Current opinion in the actuarial profession, depending on to whom one speaks, is not entirely sure whether bonds are the best means of matching pension liabilities these days. The consensus among professionals is that the risk element in the levy will be difficult to assess reliably and consistently. Perhaps the most obvious problem with the risk-based element is that the weakest funds will pay the most. The weaker they get, the higher the levy. That could well exacerbate problems for a weaker fund, even given the transitional arrangements that seek to obviate the need to tackle that problem.
The fund is no panacea. The model that the Government have borrowed—the US Pension Benefit Guaranty Corporation—is running at a deficit of more than $11 billion. The only logical outcome for the model that the Government have come up with is for the pension protection fund to reduce benefits to below the proposed level of 90 per cent. for current or 100 per cent. for existing pensioners. It is a matter of logic that the Government will have to cut those benefits because they have capped the levy. Had they not done so, any deficit in the fund could be closed or reduced by raising the levy, but they have expressly ruled out that policy option. The Government seem to have boxed themselves in.
The fund should come with a large health warning for future occupational pension holders. Presumably, that will come with the further information to be sent out as a result of part 4 of the Bill. The fact is that this is not a guaranteed scheme, and the Government would be duping future occupational pension holders if they were to pretend that it were.
I would like to touch on the points raised by the right hon. Member for Birkenhead. I seek a point of clarification from the Minister as to what legal advice he has received—perhaps he would care to publish it—on the status of the unclaimed assets that would form the basis of the scheme proposed by the right hon. Member for Birkenhead. That would involve an endowment quite separate from the fund in the Bill, and it would be hugely useful to get a definitive ruling on that status.
The right hon. Gentleman has anticipated the gag that I was about to make. I know that legal advice is a sensitive subject for Labour Members, and I also know that they have different views on the matter. Perhaps the Minister could clarify whether there is anything in the right hon. Gentleman's proposal that is worth looking at—the Secretary of State was very unclear on that—or whether the Government can give a definitive ruling that it is not a runner, and that it is a free lunch that will, frankly, not be available. Clarification of that issue would assist all of us in our deliberations on the Bill.
The Bill as a whole does too little, too late. As a result, current and future pensioners are being let down, and the Bill needs to be voted against.
The first responsibility of any Government is to ensure the provision of a universal state pension. At the moment, the state is not doing so, as the House of Lords Select Committee on Economic Affairs notes in its excellent report, "Aspects of the Economics of an Ageing Population". Because eligibility for the state retirement pension rests on the contributory principle, large numbers of those who are currently retired do not qualify for a full basic state pension in their own right. Conspicuous casualties, both now and prospectively, are women on earnings below the level for national insurance contributions, and carers in households not in receipt of invalid carers allowance.
The system has been stretched and patched to support varieties of people whose national insurance contributions fall short but who are considered deserving. I think that the Government are now proposing accrual of pension rights for people on paternity leave. The House of Lords Select Committee says trenchantly:
"We see little purpose in this contribution system, which appears to be a now largely dysfunctional legacy of the post-war Beveridge welfare plan."
It concludes, quite rightly in my view, that
"the basic state pension should be paid on the basis of citizenship rather than contribution record."
The Green Paper discussed the basic state pension at length but did not embrace that idea. Given the plethora of credits already available to older people on low incomes, it would not be unaffordable to provide fairly and squarely that every citizen should be entitled to a basic pension, and I would have hoped that such a provision would be in the Bill.
After establishing the platform of a decent basic pension, the Government have a responsibility to encourage and assist everyone of working age to build on that platform.
For all too many people, defined benefit schemes have turned out to be a snare and a delusion. The Government can levy taxes and are therefore in a position to honour their commitment, expensive though it is. When private sector employers felt that they should emulate the public sector, a fuse was lit.
Representing a constituency in south Wales, I am intensely aware of the grievous plight of the ASW pension scheme members. Naturally, I would like to see the Government help them, perhaps in the same sort of way in which they helped the Maxwell pensioners by readmitting them to SERPS and forgoing for the time being the NI contributions otherwise owed. However, the Government cannot confine themselves to helping selectively in the highly publicised cases. The Government would need to offer equivalent relief to members of all occupational schemes, including defined contribution schemes—to some of which employees were required to belong—that have suffered a ruinous collapse in the value of their pensions. Pace my right hon. Friend Mr. Field and my hon. Friend Kevin Brennan, I ask how could they not then, in justice, help savers in Equitable Life and other personal pension schemes that have experienced catastrophe? I do not know whether my right hon. Friend has established a definition of "catastrophe", the period of time that should be taken into consideration, the numbers of savers whose pensions have been ruined and the cost of rescuing them on the same basis as the Maxwell casualties.
Among the lessons of these calamities must be that it would be a mistake to commit further to defined benefit schemes. Employers have already understood that.
I am listening very carefully to what the right hon. Gentleman says, but I think that he might be in danger of over-egging his pudding. Is he aware that some 4.6 million British workers are still in defined benefit schemes, and that we are talking about 60,000 people who are affected by the calamity of ASW and other such cases? It is therefore necessary to keep this matter in proportion.
I shall come to some of my concerns about the commitment of British industry to defined benefit schemes a little later in my speech.
The Government's main administrative and legislative effort at this stage, as we see in the Bill, is to create a pension protection fund. I understand, of course, why they want to do so, but the proposal bristles with difficulty, morally and practically. Even if the badly run schemes have in due course to pay a bigger levy, why should the well run schemes be required to contribute to a fund to bail them out? In any case, might not the fund indeed offer false hope? The so-called Pension Benefit Guaranty Corporation in America has gone sharply into deficit, with all concerned crossing their fingers and hoping that a rising stock market will float them off the rocks. The scale of payments that will need to be levied from UK pension funds to provide the guarantee that the Government proclaim may be such as to drive more employers into abandoning the very model—the defined benefit scheme—that the Government want to prop up. The bureaucracy involved in a scheme of differential levies—as in the supervision of scheme-specific funding—will surely be onerous.
It seems to me that my right hon. Friend the Secretary of State and my hon. Friend the pensions Minister may be expending their powder and shot in fighting the last war. Instead, we should be welcoming the shift to defined contribution schemes and concentrating on devising an appropriate regime for them.
There will be no reversing the trend away from defined benefit—DB—schemes. With the altering age balance in the workforce, the maturing of schemes, the disappearance of surpluses and greater longevity, more and more companies will be unwilling to shoulder the cost and risk of final salary schemes.
Policy by successive Governments—the taxation of surpluses; regulations far more burdensome than in the USA; FRS 17, which means that volatility in the value of pension funds affects balance sheets; and European Union discrimination legislation—has been driving employers away from DB schemes. Nor need we lament that. It is not in employees' interests to be in unsustainable DB schemes or for their firms to be rendered uncompetitive by the cost of a DB commitment. Final salary schemes make less sense with the need for many people to work for more years and to retire gradually. Defined contribution—DC—schemes make more sense in a flexible labour market and for individuals who expect to change jobs relatively frequently, or who are low earners, or who depend on overtime or other payments which are not consolidated into pensionable pay. For all these reasons, the change to DC is happening.
I can think of few professions in which people would expect to change jobs more frequently than this one. Would the right hon. Gentleman support a motion in the House to move our pension scheme from defined benefit to defined contribution?
The hon. Gentleman tempts me down an interesting avenue, but I shall resist the temptation.
For all the reasons that I have just outlined, the change to DC is happening, and I would have hoped that the Bill would be focusing on the urgent need to provide a framework and standards for DC schemes so that they can perform as they could do and need to do. There is an obvious agenda here. We need to ensure that sufficient contributions are made by employers and savers, that appropriate investment options are available, that information, financial education and financial planning advice are available, that the regulation of DC schemes is simplified to replace the four distinct regulatory regimes that we have at the moment, that there is ease of transferability, and that people are helped to buy the right annuity at the right rate. It is vital to raise the standards of DC schemes if we are to avert widespread poverty in retirement and huge rises in public expenditure.
The Association of British Insurers calculates that, on present trends, 80 per cent. of the population will rely on means-tested benefits by 2050. If that is correct, this is the impending pensions crisis. Twenty per cent. of workers are not saving at all, and many more are not saving enough, either because they lack the money to do so, or because they are baffled by the complexities of pensions, or because they do not realise how important it is for them to save.
The DC regime that I want the Government to bring in will be strongly paternalist. I welcome the provisions in the Bill for a new regulator, but I want the regulator to do more than the Government may wish.
To build up a pension large enough to prevent a painful fall in disposable income during retirement, people need, at any rate from their early 30s, to put in not less than 15 per cent. of gross earnings annually. The responsibility should be split fairly between saver, employer and Government. The ABI has found that when an employer contributes at least 5 per cent., the proportion of people saving for pensions rises from 13 per cent. to 69 per cent. Employers should be compelled to contribute a minimum percentage of pay, and incentivised by Government, through a tax credit or relief of national insurance contributions, to contribute more. Employers' contributions have of course been falling in the transition from DB to DC: the average employer's contribution to contributory DB schemes is 10.1 per cent., but to DC schemes it is 5.8 per cent. The Government should also contribute, but by way of grant rather than tax relief. As Sandler, Altmann and others have noted, tax relief is highly regressive. In 2002, of £14 billion worth of tax relief, as my hon. Friend the Member for Cardiff, West noted in his superb speech, half went to the richest 10 per cent. and a quarter to the richest 2.5 per cent. It is neither just nor efficient to provide the biggest tax relief to those who are most able and most disposed to save. Grants would enable the Government to provide extra incentives to save for people on lower earnings and would have a flexibility which tax relief does not have.
If the Department for Work and Pensions thinks that that would be sensible, I wish it well in its negotiations across Whitehall. The Department of Trade and Industry no doubt thinks that compulsory employers' contributions would be an unacceptable burden on business. To be sure, we should not impose social costs on the scale of Germany and France, where they destroy jobs. After all, near-continuous employment is the precondition of building any decent pension. But we should say plainly to employers in the UK that they should make a certain level of contribution to pensions as part of our social contract. Good employers already do that. Why should they be undercut in the labour market by bad employers who do not?
We also need a more extensive, energetic and urgent programme of action from the Treasury. I look forward to the Finance Bill. The Treasury needs to intervene far more decisively in asset allocation. Pension funds, as experience has miserably shown, have been excessively exposed to equities and the risks inherent in equity investment. I am dismayed to read—I hope that it is not correct—that Ministers now propose to change the solvency rules to allow fund managers to invest more in equities. Can it be right for the Government to encourage pension scheme trustees, so many of whom lost their fiduciary gamble in recent years, to stake yet more of other people's money in the equity casino? Compounding untaxed interest and capital gains on fixed interest investments in a low-inflation environment will provide a considerable return, and a safe return, on savings over a working lifetime. The Government should be explaining that and steering savers towards sensible asset allocation.
The Government should ensure that regulations comparable to the American "safe harbour" regulations for DC schemes are put in place and that best practice guidelines are issued. Prudential supervision needs to be exercised to ensure that a sufficient variety of investment products is available to individual savers to match the variety of their personal needs. Trustees, as has been noted, need training. Savers need financial planning advice—Sandler is dangerously wrong to suggest that the creation of simple and "low risk" products, not all of which are so low risk in reality, obviates the need for advice. The Sandler products may not be suitable at all for people who would do better to pay off debt or buy an ISA. People will need advice both on whether they would be wise to buy any Sandler product and, if so, which. As Dr. Ros Altmann has put it, there is a danger of a new "misbuying" scandal. Besides, such is the lack of confidence in pension products because of their complexity, past scandals and the highly publicised collapse of schemes, that people will need to be encouraged to invest in any of these new products. The Government must ensure that everyone receives financial education, information in intelligible terms about their pension options, and competent independent advice. I am glad that the Government recognise the importance of "informed choice". They must not underestimate the scale of the exercise required to achieve this. The cost will have to be met. Are the Government willing to provide a tax credit for employers who make suitable education, information and advice available in the workplace? At present, not only can employers not get tax relief on the cost to them of providing pensions advice, but such advice may be treated as a taxable benefit for employees.
While DC occupational schemes are preferable to DB, there is a case to be made against occupational schemes altogether—whether DB or DC, they inhibit the labour market. We need people to be able to move as flexibly as possible between employers and sectors. Occupational schemes are predicated on an obsolete model of lifetime employment in one particular occupation.
It would be better if everyone built up their own personal and portable pension. Chile and Singapore have adopted such a policy. The 401k schemes in the USA, which the Bush Administration have encouraged and which are increasingly popular, offer another model, which is likely to be more applicable here. I believe that we need a fully fledged system of personal and portable pensions as the centrepiece of provision. This would require strong incentivisation and intrusive regulation in the approval of funds, in ensuring a suitable diversity of funds and to enable risk to be spread, in safeguarding savers' interests against imprudent investment by fund managers and trustees, and in ensuring competition between funds. It would require full transparency of commissions, charges, transactions, valuations and projections. An inescapable obligation would have to be placed on employers to pay at least 5 per cent. of pay into each worker's individual fund. Similarly, the Government must oblige the self-employed, 28 per cent. of whom are making no personal pension provision, to save.
Among the virtues of the PPPs that I advocate is that, having their individualised pension pots and taking such responsibility for themselves, people would take a closer interest in their pension and would be better able to make their own judgments as to the sufficiency of their accumulated pension, and whether they needed to carry on working, at any rate part time, for longer. There will be the more need for people to extend their working lives now that they will have to repay university fees in the earlier years. Of course, if the Barker review of supply and demand for housing leads to policies that will reduce the British incubus of mortgage costs, that will make it easier for people to build better pensions. Meanwhile, since such a large proportion of personal wealth in Britain is tied up in bricks and mortar, we need properly designed and regulated home income schemes.
The Government should stop discouraging saving for personal pensions by relaxing their rule requiring commutation of personal pension funds for annuities by age 75. There is no such requirement in the US, I understand, on DC schemes. It is fair enough to require provision of an annuity sufficient to ensure independence of publicly funded benefits. Beyond that, people should be free to keep their personal pension funds until death, and indeed to bequeath them to their heirs provided that tax relief and inheritance tax are paid to the Exchequer from their estate.
Meanwhile, there are many useful things in the Bill—the introduction of the regulator, the extension of the transfer of undertakings principle in the private sector, the drive towards early transferability, those areas in which the Government are taking the axe to red tape, the encouragement to the provision of better information, and, as I anticipate, the change to the priority order in wind-ups. But we do face a savings crisis and an urgent need for pension reform in a variety of respects not encompassed in this particular Bill. We need to look beyond the thickets of immediate pressures, decaying orthodoxies and vested interests. The Government have set up the Turner review, and no doubt Ministers are waiting for that report. I look forward to the Government unveiling their wider vision of a new pensions landscape and showing us how to arrive there.
It is a great pleasure to follow my right hon. and repositioned Friend, as I suppose that I should refer to him in the light of his remarks about my party's change in position. I was not sure whether he disagreed with that in principle or was bemoaning the fact that it made his move unnecessary. Anyway, his speech was extremely interesting and will well merit rereading.
I want to concentrate on one problem that is addressed by the Bill and one problem that is ignored by it. The problem addressed by it is that on which most Members have commented: the problem of providing compensation when pension funds fail and the company is bankrupt.
I understand the conflicting pressures on Ministers, since I experienced similar pressures when I became Secretary of State for Social Security and immediately faced the problems bequeathed to us by Robert Maxwell, when he was found dead in the Atlantic and his funds were found to be short of several hundred million pounds. I refer to these issues solely because I believe that we may be able to draw lessons from that experience in coping with the similar—though, I accept, different—problems that we now face from a number of failed funds. The House will recall that several hundred million pounds were missing from all the Maxwell pension funds, that some 30,000 pensioners were as a result left at risk of losing all or part of their pensions, and that some faced immediate destitution, as their funds would be unable to continue paying their pension at all.
I therefore faced two conflicting pressures very similar to those that Ministers now face. The first was a desire to help those facing destitution and the loss of the expectation of a pension that they had confidently looked forward to receiving. The second was a reluctance to accept an open-ended responsibility for events that were not the fault directly of Government.
I decided that humanity had to override rigidity of the financial rules, and that we had to cope with the problem of people losing their pensions. We had to be imaginative about it, so we invented something called a non-reimbursable loan, which was immediately made available to continue the payout of pensions of those who would otherwise have lost them. A small sum, just £5 million, was created by that rather unusual financial instrument, but it bought us time, during which we were able to do a number of other things, including deferring the state earnings-related pension scheme contributions and thereby effectively making more money available from public funds to meet the problem. We also appointed my noble Friend Lord Cuckney, who, with the backing of the Select Committee and in particular Mr. Field, and indeed of all parties, helped regain the money and plug the gap so that pensions were secured for all those 30,000 pensioners.
Subsequently we set in place a number of protections against a repeat of such a fraud, and, as a last resort and long stop, powers to impose a levy to compensate pensioners in the event of a fraud being perpetrated on a pension fund. What we did not do, rightly or wrongly, was to set up an insurance fund against failure resulting not from fraud, but from insufficient funds being put into the pension scheme and from the eventual failure of a company.
We did not do so for three reasons. The first was that such a coincidence of events, both a shortfall in the fund and the insolvency of the employer, was exceedingly rare; it scarcely ever happened on a major scale. Secondly, we had reduced the likelihood of its happening in future by introducing the minimum funding requirement. Thirdly, we wanted to avoid any possibility of moral hazard that such an insurance scheme, like all insurance schemes, can create.
What we certainly did not foresee at the time was that the Government would twice relax that minimum funding requirement and would impose a £5 billion a year tax on pension funds, siphoning that money off from them. On the day it was introduced I described it as the Robert Maxwell memorial tax, because it had such echoes of the very problem that brought about the crisis in the Maxwell funds. The tax has contributed to, though it is by no means the sole reason for, the crisis in pension funds generally now.
The right hon. Gentleman is informing many of us in the House about the details of the Maxwell incident. Before he leaves that, will he acknowledge that the major reason for the shortfall in funds that we are discussing today is the performance of the stock market, rather than the other issues he has raised?
The hon. Gentleman must remember that the performance of the stock market is not unaffected by the siphoning off of £5 billion a year from pension funds, which are major holders of equities.
I should like to draw the positive lessons from the Maxwell experience. First, a Government cannot ignore the current victims of a crisis that has provoked them into taking action to help future victims of similar crises. They cannot do so on grounds of avoiding being retroactive, especially as the fund that the Government propose to create will itself be partly retroactive in its effect; it will compensate people for problems that have built up in recent years, when the fund did not exist, if those problems are crystallised in the years immediately ahead.
The second lesson is that the Government must be imaginative. We invented the non-reimbursable loan and the postponement of SERPS contributions. The right hon. Member for Birkenhead suggested using a portion of unclaimed assets. We have had no imaginative thought from the Government as to how assistance can be provided for those who are affected by the collapse of their employer and their pension fund simultaneously.
The third lesson is that it is surely better, probably cheaper and certainly fairer to keep pensions in payment rather than to make an upfront purchase of annuities for future pensions, which may cost a great deal. By keeping the pensions in payment out of an ongoing fund, one buys time, spreads the cost over time and may reduce the ultimate cost if, as the right hon. Member for Newport, East said, the market recovers in the meantime.
I accept the Government's point that taxpayers cannot be relied on to provide support for everybody in an ongoing scheme; when many taxpayers are not themselves beneficiaries of defined benefit pension funds, that would be unfair on them. The fourth lesson, therefore, is that ideally the cost of insurance premiums for any protection should fall on the beneficiaries, the members of those pension funds, rather than the shareholders of the companies concerned, and this provision should be extended to the members of pension schemes underwritten by the state: members in public sector defined benefit schemes whose benefits are guaranteed by the taxpayer. They include Members of this House. It is very odd that we should be narrowing the burden of the cost of support to private sector members and employees belonging to defined benefit pension funds, saying that those in the state sector, including Members of this House, should make no contribution towards that insurance scheme.
Fifthly, I accept that there is moral hazard and that therefore we may need to have an only partial—less than 100 per cent.—insurance provision for the collapse of a company and its pension scheme, and conceivably even less than the 90 per cent. for ongoing schemes that the Government propose. It is, however, important to provide at least some protection. There is a precedent in the form of the financial services compensation scheme, which covers deposits, investments and a number of other things. In most cases, although the arrangement for investments is slightly different, it will provide 90 per cent. payments up to a certain level of deposit or investment. So the issue has been dealt with elsewhere, and the Government are right to consider trying to tackle it in the Bill.
If all the costs of the premium payable to the fund were borne by employees, would there not be a much greater danger of moral hazard? Surely employers would be tempted to behave badly, because they would not be bearing any of the costs.
I do not think that the impact on employers would be hugely different if the premium were compulsory, because they cannot avoid it in any event. There is of course a distinct possibility that employers will refuse to contribute a penny more than the minimum funding requirement or whatever replaces it, because they will know that if they do they will be protecting themselves unnecessarily—that if the company goes bankrupt and the fund is temporarily insolvent, the state will deal with the situation. I do not think that the risk—which does exist, and must be coped with—would be increased by making the beneficiaries, namely the members of the pension fund, pay the costs of the scheme.
The Bill does not deal with one problem. It does nothing to rebuild the pensions system from the rubble into which it has been cast. Those are not my words; it was the right hon. Member for Birkenhead who said that the Government had inherited the strongest pensions system in Europe, and had reduced it to rubble. We accept that other factors besides Government actions have contributed to that, and I am not here to blame the Government particularly for creating the problem; rather, I am here to blame them for doing nothing to solve it. The culture of saving has been undermined by the problems affecting pension funds, but above all by the pernicious effect of means testing. We must restore that propensity to save.
As I said the other day when presenting a ten-minute Bill, I believe that three actions are needed. First, we must require people to save enough during their working lives to provide a pension that will avoid their being dependent on means-tested benefits when they retire. Secondly, we must enable them to do that by providing rebates from their national insurance contributions, incorporating large flat-rate rebates which, along with their basic pensions, will be sufficient to lift them above any dependence on means-tested benefits. Thirdly, the Government should guarantee the fund up to that basic level for each individual, while not including any extra savings that he or she might be encouraged to make, and should establish appropriate rules to prevent the exploitation of that guarantee by those investing on their behalf.
I think that if we introduced those three rules—compulsory saving by everyone, the provision of rebates to enable the basic level to be met, and a guarantee of that basic level—we would secure a system that would encourage people to save, enable them to save more than the basic minimum, and allow them to choose when to retire, once they had enough in their funds, so that they would no longer depend on means-tested benefits. At the same time, ownership should again be spread throughout the people of this country. That has not happened since the extension of home ownership.
I congratulate Mr. Lilley on his very interesting speech, and I agree with what he said about compulsion. He used his own experience to set out some of the reasons why the present problems exist, and the lessons that hon. Members of all parties should learn. No party has a monopoly of wisdom on this matter.
I congratulate the Government on the measures that have been taken on behalf of pensioners, and on the pension credit in particular. I recognise that a balance has to be struck between meeting the needs of today's pensioners and encouraging people to save in the future, but more than 4,000 pensioners in my constituency have benefited from the pension credit, with an average payment of £40.74 a week. People who are ultra-critical of the pension credit should try to explain to those pensioners why it is not a good idea. I should be interested in accompanying them as they did so. I have had 22 meetings in my constituency about the pension credit and spoken to more than 500 pensioners. I can tell the House that they are absolutely delighted with it.
That is certainly a consideration that I hope that the Government will take into account in their deliberations, but I know that those of my constituents who have lost out with their pensions do not want to have to depend on the pension credit, or on any other means-tested benefit. They saved in what they thought was the sure and certain knowledge that they would have a pension to live on.
I want to talk about the question of a flexible retirement age. There is, of course, no retirement age for hon. Members—unless the electorate decide otherwise. I have worked since I was 16, and have also raised a family and had access to education. I have no intention of working until I am 70, even if the electorate were to allow me to do so.
Out of necessity, many people work in jobs that are neither easy nor especially enjoyable. Some jobs are physically exhausting, with long or antisocial hours. People look forward to the day when they can get off the treadmill, relax a bit and enjoy family life. Of course, some people want to work on, perhaps on a part-time basis, and they may welcome the prospect of receiving a lump sum.
I do not know whether other hon. Members have come across this problem, but some people seem to be under the unfortunate impression that the Government intend, at some stage, to make it compulsory for people to work beyond the present retirement age. I am raising this matter today because constituents have approached me about it. It needs to be emphasised again that people have a choice when it comes to working beyond retirement age, and I hope that Ministers will make it clear that the Government intend that that will remain the case.
The trade union movement fought long and hard to secure terms and conditions that would give people a fair deal, both at work and in retirement. The aim was to ensure that people had decent incomes so that they could make the most of that time of life. In the past few decades, there has been a tremendous rise in the number of people with occupational pensions. That must rank as one of the most progressive achievements since the welfare state was established.
The number of people who have occupational pensions is nothing like the number who ideally should have them. In fact, I did not have a pension until I entered the House. As was pointed out earlier, for people who did as they were bid by successive Governments and deferred part of their wages until retirement—and we must make no mistake about it, that was what they did—the outcome has in general been very good.
Those people took advantage of a tremendous opportunity. They were able to enjoy security in their old age, knowing, in this uncertain world, that they did not have to depend on family or state benefits to survive. They might even have been able to help out family members now and again as they faced changing circumstances.
I warmly congratulate the Government on introducing the pension protection fund. Never again will workers be left with their dreams of a secure retirement shattered. That happened despite the guarantees that people were given, and even though they followed Government advice to the letter and their trade unions argued for a good pension entitlement in every year's wage settlement negotiations.
As I said in earlier interventions, I will support Second Reading and the principles of the Bill, because it would be plain daft not to, as I have been campaigning for some time for just such a provision as a pension protection fund, and now the Labour Government are introducing one. However, I am bitterly disappointed that that provision is being made only for the future, and not for those who need it most, and who need it now.
By introducing the Bill, the Government have conceded that there is an injustice now. I disagree with Mr. Webb, who, speaking from the Liberal Democrat Front Bench, doubted the Secretary of State's commitment to trying to find a solution to the problem. I have had many discussions both with my right hon. Friend and with his Ministers, as have some of my constituents who have found themselves in such a predicament. My right hon. Friend has been very open to suggestions, and—putting him under no undue pressure, of course—I am perfectly confident that, if there is anything that can be done, he is the very man to do it.
By introducing the Bill, the Government are saying that it is unfair that people can lose their deferred wages—that is, their pensions—just because their employer goes bust. The Government are conceding that that is the issue, and that is precisely what has happened to the former employees of United Engineering Forgings—UEF—in my constituency, and to 1,300 others throughout the UK.
When a Member speaks in emotional terms in the House, it is sometimes said that they are wearing their heart on their sleeve. I accept that none of us has a monopoly of concern on this or any other issue, but I admit wholeheartedly that, when I speak on this subject, I am wearing my heart firmly on my sleeve. I make no apologies for giving the House examples of the consequences that that terrible situation has brought about for UEF workers, and for 60,000 others in the UK.
An important factor in the demise of the UEF pension fund was the abuse of early retirement benefits as a carrot to entice people into voluntary redundancy. Many employees aged over 55 received their fully accrued pension entitlement when they accepted redundancy. It is often said that there are added pressures on pension funds because of increased life expectancy, but if more people receive pensions at an earlier age even when ill health is not a factor, the assets of the fund cannot withstand the pressure. That is what happened with UEF.
The employers were allowed to operate that policy without due regard to the fund's ability to sustain such a rapid drain on its resources. In this and in other ways, the UEF workers suffered from bad governance and maladministration, but apparently that was not illegal, so the Occupational Pensions Regulatory Authority took no action. Those people had no protection. I sincerely hope that the new pensions regulator will have powers to intervene much earlier, and communicate far better with the members of such schemes. I support what several other hon. Members have said on that subject. If such arrangements had been in place before, perhaps we would not have to spend time today pleading for those who have lost out, and we could concentrate more wholeheartedly on the positive aspects of the Bill.
With the trade unions, I organised a pensions summit in Glasgow to highlight the plight of those affected in Scotland. Unfortunately, the Scottish print media paid scant attention to that meeting, as they have done throughout the whole sorry tale. The meeting was attended by people affected from UEF, Motherwell Bridge, Dexion, Richards, and Melville Dundas; I know that many of my Scottish colleagues hope to catch your eye later, Madam Deputy Speaker, to talk about their constituents. I sincerely thank all the Scottish Members who attended that meeting, and also those affected, some of whom travelled a considerable distance to tell us their stories.
As those people recounted their experiences, only someone with a heart of stone could have failed to be moved. In the west of Scotland, it is not the norm for men to cry in public, but on that day, we saw a grown man cry. His tears were tears of anger, but also of frustration and sheer disbelief that such a thing could not only happen, but was not illegal. To pay into an occupational pension scheme for 37 years in the belief that it was entirely safe and would lead to a lump sum of £50,000 and an annual pension of £18,000, only to be told that he would be lucky to receive even a quarter of that, is likely to traumatise anyone. The effects of such life changes coming out of the blue include having to sell a home, depending on state benefits and having to work much longer than previously anticipated—perhaps on any job that can be had, whether he was fit enough to do it or not. Those are just some of the examples that we heard at the meeting, and I know that many hon. Members' constituents have recounted similar tales at surgeries. I agree with those who say that this matter cannot be ignored. There is a fundamental issue of justice here that must be addressed.
We should not forget that many people did not top up their occupational pensions with other savings or investments, simply because the Government continually told them that they were safe. There are many reasons why the problem came about, but it is widely accepted that legislation had some part to play. The Pensions Act 1995 was flawed legislation that contributed to the problem, so I believe that the Government should now right the injustice.
At the same meeting, we heard Dr. Ros Altmann explain her proposal for retrieving those pensioners' rights at a relatively low cost to the taxpayer. We have already heard that, of the £14 billion tax relief provided on UK pensions each year, 50 per cent. goes to the top 10 per cent. of earners. I am not saying that £100 million is not a lot of money, but it pales into insignificance in comparison with that.
I heard what the Secretary of State said about Dr. Altmann's proposals, and I will be blunt with the House. We have heard many measured speeches about where the money could come from—whether it could be found through unclaimed assets, whether taxpayers should provide it and so forth. I will be perfectly honest. I do not care where it comes from, but I want the Government to do something about it. My constituents expect that from a Labour Government. I want the Government to tell us how they propose to solve the problem. I am open to suggestions and discussions, but that is the bottom line. Those people are looking to the Government to save them from an horrendous situation, and I certainly hope that something can be done for them.
As Dr. Altmann spoke that day, I saw hope rekindle, where previously there had been only despair. I am not talking about false hope, to which my right hon. Friend frequently refers—I know that he does that for good reasons—because a coherent and possible solution is available here. If he does not believe that it is appropriate, let us talk urgently about what else can be done.
When the Prime Minister was in Scotland last week, he said that, in our world of uncertainty and rapid change, we could achieve more by working together than we could alone. As far as I am concerned, that is, always has been, and always will be the value base of the labour movement. The Prime Minister rightly said that individuals expect Governments to help them and offer support when they have to deal with unexpected events that are no fault of their own. There can be no more glaring example of such people than those whose pensions disappear overnight when their employer goes bust.
If the Bill is not amended or some other way found to deal with people whose time of need is right now, every time the pension protection fund kicks in to help future victims, instead of being a reminder of something to be proud of, it will simply add to the pain of those who have lost their pensions and need help now. I am aware that there is an issue of precedents, but there are plenty of precedents, and I shall mention one that my constituents continually mention. I refer to the compensation—to the tune of millions of pounds—received by farmers after the foot and mouth crisis. My constituents simply cannot understand why such compensation is perfectly all right for farmers, but not for others who are left destitute. We must have an answer to that.
The Government are acting to stop the problem happening in future, but I hope that they will amend the Bill to give collective support to those who must not be punished now for the actions of others. We should remember that Governments encouraged workers to join schemes and allowed them to be compelled to join them as a condition of employment. They even used the word "guaranteed". By any definition, that can mean only one thing: not just for future but for present workers, a pension promised should be a pension paid.
It is a great pleasure to follow Sandra Osborne. Few right hon. and hon. Members could fail to be moved by her clear sincerity and her concern for her constituents. However, in examining the Bill, we must consider whether the Government are doing enough and whether it is appropriate to deal with the problems that confront pensioners.
I am one of those who think that the Bill is capable of improvement, and that, if sufficiently amended and seriously scrutinised in Committee, it can provide the basis for a valuable move forward. The Government could have consulted better, and could have produced a much superior Bill. That is shown by the level of criticism from trade unions, the trade bodies associated with pensions, the professional institutions and others.
I should like to summarise what I think the Bill does do—although it does not always do it clearly—and what it does not do. It is an enabling Bill with far too much left to regulation. I would be much happier if the regulations were more transparent. Unfortunately, we live in a parliamentary world in which we are all too often asked to rubber-stamp legislation without knowing the details that will come later. We certainly do not know what the detail of the regulations will be. Even more importantly, we do not know the detail of the Finance Bill that will be with us all too soon, although not soon enough to make it clear what will happen on certain important issues that the Bill should address. The Secretary of State touched on the changes that will need to be made pursuant to what happens in the Finance Bill. I think that that is regrettable.
There are a number of issues concerning the regulator, some of which are minor and some major. A minor issue relates to clause 2, which contains provisions to appoint the chairman and other members of the board of the regulator. It does not make it clear whether the chairman is executive or non-executive. Under clause 8, the chairman will chair the non-executive committee, which implies that the chairman will be non-executive, but that should have been made patent in clause 2.
Much more important are the functions of the Bill, which gives wide powers that will make the regulator extremely powerful. Clause 62 deals with disclosure of information by the Inland Revenue. I am worried about whether that function will comply with the Data Protection Act 1998. Subsection (2) removes the secrecy that is usually inherent in Inland Revenue information under section 182 of the Finance Act 1989. It leaves it to the opinion of the regulator as to whether such information should be appropriately revealed. I find that worrying. Lots of things in the Bill are left to the opinion of the regulator. Most of us want to safeguard the population in respect of the transmission of secret data. The Inland Revenue has walls that prevent one side, such as the valuation division, from obtaining money from the other side, the tax collection department. Presumably, the Bill will destroy those important safeguards. The Minister should reflect on that.
The opinion of the regulator does not apply only to that provision—I supplied that as an example. In many areas of these extraordinarily wide powers, the opinion of the regulator is the defining issue. The House should consider that.
The compliance required with schemes under the Bill is onerous and costly. For example, clause 118 requires annual actuarial valuations—the current requirement is triennial. I accept that the Bill goes on to say that the requirement for annual actuarial valuations can be overcome if written actuarial reports are produced every year. However, the cost of obtaining such reports and of the scheme actuary conducting annual valuations is enormous and will be another unnecessary burden on employers that still provide such schemes.
There should be clarity about what is contained in those reports. The Occupational Pensioners Alliance says that there should be transparency and that their contents should be available to scheme members and their trade unions, and I sympathise with that view. I do not sympathise with the need for what amounts to continuous re-evaluation. We are concerned by the current situation because the stock market has recently crashed, and we forget that pensions are a long-term business extending over many years. We should not therefore be motivated to legislate on the basis of a snapshot.
Clause 200 has already been mentioned. It contains the requirement for trustees to have "knowledge and understanding" of all the issues, which include not only legal matters and pensions legislation but valuation and investment. Leading firms of lawyers say that that is not sustainable, because no individual trustee could be so qualified. That would inevitably lead to the appointment of professional trustees at great expense to schemes, which is not necessary.
The regulator will have powers under clause 64 to define that point more clearly, and should use a light touch. Trustees should, of course, be informed, and anybody who takes on the job of a trustee should be required to acquire a level of knowledge. The regulator will need to specify the sort of knowledge required; I would prefer it if the Minister specified the required knowledge in the Bill. Perhaps the certificate of essential pensions knowledge issued by the Pensions Management Institute would be an appropriate benchmark, but there may be others. I hope that the Minister will move in that direction, otherwise trustees will either be deterred from serving or huge additional costs will be imposed on schemes.
The minimum funding requirement has been mentioned many times today, and its specification in previous legislation is fundamentally flawed. There is a huge emphasis on bonds and bond yields. The hon. Member for Ayr mentioned Ros Altmann's views on that point. Ros Altmann is right: one can do many things apart from buying annuities, which are propped up by bonds that are in short supply and that have historically provided grotesquely low yields.
Hon. Members may be interested to know that, if investments were made in, for example, commercial property instead of bonds, the situation would be transformed. A few weeks ago, I attended a seminar run by PricewaterhouseCoopers, which showed the yields in commercial property over the past 12 months, the past five years and the past 30 years. Over those periods, commercial property was much more stable and much less prone to fluctuation than bonds. The average yield on all commercial property over the past 12 months is 10.7 per cent.; over the past 5 years it is 10.6 per cent.; and over the past 30 years it is 12.1 per cent. That is double the yield from bonds and annuities. If the Allied Steel and Wire pensioners' funds were invested in property, there would probably be no need to wind up the scheme because they could be paid out of the income from property.
Those figures refer to the overall yield rather than the net income yield. Even after allowing for inflation, the real income yield is still 7 per cent., which gives one some idea of the need to re-examine the components of the minimum funding requirement. That also shows the need for the Government to pursue the establishment of real estate investment trusts—I am pleased that they say that they will do so—that contain unitised property, which gets over the problem of illiquidity that has always bedevilled property investment in the past.
What will the Bill not do? It will not get rid of complexity, as the National Association of Pension Funds and the Association of Consulting Actuaries have said. As other hon. Members have pointed out, it fails to deliver on Pickering. It will not sweep away all the old legislation, as we were promised and which was why I welcomed the Bill when it was first mooted. It will not reform section 67 of the Pensions Act 1995, in relation to the simplification of existing schemes. It still leaves us with retained benefits, annual limits, contracting out, guaranteed minimum pensions and all the other old rubbish that could have been swept away by the Bill. That would save a huge amount of effort and worry for the civil servants who have to administer them and for the scheme trustees. It will not reform tax policy or establish the new priority orders that were discussed earlier. I am pleased to hear that it will abolish the compulsory additional voluntary contribution provisions, which were a bad investment for those who took them up, especially given that alternative investments existed that were less risky, did not involve annuity purchase and would have produced better returns.
The Bill does not make it clear whether the PPF will have any indexation, which is another issue raised by the Occupational Pensioners Alliance. Most importantly, it will not provide an incentive for employers. It is ludicrous to expect employers to do things but provide no incentive for them to do so. The Association of British Insurers has suggested a pensions contribution tax credit for employers, which is the least that the Government could do to encourage employers to provide that facility for their workers. If that does not happen, more and more employers will opt out of defined benefit schemes altogether. If that happens—if schemes are closed to new employees and employers do not continue schemes—it will reduce the pool of money from which the PPF can draw. It will be left only with the income from schemes that are in trouble, and that will mean the inevitable doom of the fund. It is in the Government's interest to encourage employers to provide such schemes.
The Bill does not clarify the situation of the PPF. Pensions World says that the Bill may be "too steep". Its costs have clearly been underestimated. For example, Watson Wyatt estimates that the present cost of administration of schemes is £90 a member, but Professor Blake says that the PPF will add another £80 per member. I think that that is a conservative estimate. The Government must consider the totality of the cost and then allocate it. Mr. Field and my right hon. Friend Mr. Lilley said that the contributions should be made by the members—I have some sympathy with that view—but they should not pay the whole amount. That way lies a moral hazard. We need both the members and the employers to make a contribution, so that the employers can see that they will risk increased premiums unless they behave properly.
How will the regulator assess the schemes? That is not clear in the Bill. Who will make the assessment? It would not be appropriate for the scheme actuary to do so. Will some other external actuary make the assessment? Will civil servants make it? It is vital that we know how the assessment of funding is to be made and on what criteria it will be based. If it is based on the present minimum funding requirement, it will be a total disaster. We need a rethink of the whole basis of the assessment of schemes and their future liability. If Allied Steel and Wire had invested in property, it would have done well and it would not need to go down the pan in the way that is suggested.
The whole basis of assessment is key to the way in which we will view the Bill in the future. At the moment, we have insufficient detail to make an accurate assessment and there are many lost opportunities in the Bill. I hope that that will be corrected in its later stages.
It is a pleasure to follow Sir John Butterfill, who has a deep knowledge of this subject. I shall read his speech, as well as those of other Members, with interest tomorrow.
Nearly two years ago, I had trouble with occupational pensions. Indeed, I could barely spell the words, let alone understand what on earth they meant. However, the events at ASW Sheerness raised my knowledge of occupational pensions from about two to six on a scale of 10, although every time that my right hon. Friend Mr. Field speaks, my score goes back to three. He has an uncanny knack of unnerving me by presenting yet another scheme or another set of ideas, but he has profound knowledge.
I am sorry that the Conservatives will not be joining us in the Division Lobby this evening, as we all share the problems of pensions. The above-the-line issues of current concern to my constituents are planning regulations, council tax and asylum. Pensions are below the line at the moment, but at some stage this year they will go above the line; they are a huge issue in our community. There may not be much press recognition of that, but that is not to say that people do not talk about the problems when we knock at their door.
I make no excuse for talking about ASW Sheerness. I want to reflect on what is happening there in relation to the proposals in the Bill. First, however, I express huge thanks to past and present Secretaries of State and Ministers with responsibilities for pensions. People sometimes say that their door is open, when in fact it is closed, but pensions Ministers always have an open door; they meet my constituents at every possible opportunity and never turn them down. They are a beacon in Whitehall. If Secretaries of State in other Departments took such an interest and treated people with such care and sensitivity, this place would be better.
I also thank Dr. Ros Altmann, who has been mentioned previously. I am slightly wary of describing her as a national treasure in case she is nationalised, privatised or PPP'd, but she has freely given us an amazing amount of her time. She has never sent us an invoice. She has made an unbelievable number of journeys and attended many conferences and we are grateful to her for giving us that time. She has also educated us, which has been important—especially for me.
I represent good people. They work hard, have a trusting nature and are committed to their community. They also read Government advice pamphlets with great care. Although everyone expects constituencies in the south-east to be flush with money, there is a necklace of poverty along the south-east coast that stretches from Woolwich to Southampton. Part of my patch includes the Isle of Sheppey and the port of Sheerness, so we have lived with poverty for most of the 20th century. As Members will know, financial poverty can be compounded by poverty of ideas and of leadership—we have had a fair smack of that, too.
In earlier times, the work force in Sheerness depended entirely on the docks—their university of life. But the docks were closed in 1960. There were no redundancy payments, no retraining grants and no pension—there was nothing. One day, people were working, the next day they were out of work. In 1960, after 200 years of industrialisation, the good people of Sheppey were thrown on the scrap heap of unemployment in what we laughingly described as a civilised society.
To alleviate that large-scale unemployment, eventually—unbelievably—a steel mill was built on port land at the edge of the town. It has had several names and several owners. When I arrived in the area in 1997, it was known as Co-Steel and owned by a Canadian company based in Toronto. In 1999, it was sold to Allied Steel and Wire and became ASW Sheerness. At its height, it employed more than 500 people.
I was a regular visitor to Co-Steel, as I supported the Iron and Steel Trades Confederation in its desire for recognition at the plant. During my visits, I took time out to remind the workers that their pension fund was special because it was so generously endowed. That was because, as other Members have pointed out, it was a condition of employment that workers had to take out an occupational pension. We refer to such a scheme as "deferred wages". When my hon. Friend the Minister for Pensions sums up the debate, will he tell us whether, at the very minimum, those deferred wages could be repaid? It seems to be a crime above all crimes that deferred wages that were given to someone else to invest were stolen, in a sense. There is a case for us looking again at whether we could, at the very least, help on deferred wages.
Hon. Members will know that in early July 2002, ASW Sheerness and ASW Cardiff were placed into receivership with their pension schemes placed into administration—that was what we called a double whammy. Neither my hon. Friend Kevin Brennan nor I knew that a pension scheme could be put into administration so quickly, but that happened.
Hon. Members who did history A-level will remember catch-all essays titles such as, "Compare and contrast this and compare and contrast that." Compare and contrast, then, the treatment of the workers in Sheerness docks in 1960 with that of the steelworkers of 2002—what is the difference? On the compare register, as one would expect under a Labour Government, we have offered the workers redundancy pay and retraining, and the ISTC has been exemplary in its support for its members. On the contrast register, however, what has changed? Nothing; people are still on the scrap heap without their pensions. How has civilisation changed over 44 years? How have we treated our people better or worse over that period? The answer is a huge disappointment, and although what happened was not the Government's fault, the situation is their responsibility.
A group of workers got together and came to see me about the problem. We did not know what we were going to do, and although we never thought that we would launch a national campaign, we have done that. I pay tribute to Keith Plowman, Andrew Parr, Phil Healey, Pat Wiggins and Tom Butler, some of whom are listening to the debate, for what they have done to create an organisation to make the case nationally and internationally. I also thank the Secretary of State because at least the circumstances surrounding administration will change.
We have no idea where our wretched pension is at the moment—we cannot get access to it because the administrator has his own rules. It is somewhere in the cyber world of insurance administration. It is untouched, or more likely out of touch. It is out of touch for who knows how many more years. Only 20 months have passed, but it is anticipated that it could be three, four or five years until we get even a minimum payment back from the pension. I am pleased that aspects of the Bill will change that situation. The regulator has been out of touch, and the pension has been out of touch of its members. Administrators belong to a private club that makes its own rules.
We have done our best to redress the issue. We marched up Whitehall twice, stripped off our clothes at the Labour party conference in Bournemouth and held a pensions summit. More recently, we have been holding up traffic in London. In the House, my right hon. Friend the Member for Birkenhead, my hon. Friend the Member for Cardiff, West and I have secured Adjournment debates and tabled early-day motions that have been signed by more than 50 per cent. of hon. Members. We have tried to win time for private Members' Bills. We have asked questions at Prime Minister's Question Time, and appeared across the media, especially in those Labour heartland newspapers The Mail on Sunday and The Daily Telegraph. Without the help of the journalists on those newspapers, the issue would not have risen up the political indices, so I compliment the papers' money pages on their help and encouragement.
In the end, has that effort been to any avail? Will the Minister tell us how often the ASW case has been raised in Cabinet? Has it been raised in Cabinet? If ASW has not been raised, have the other 200 cases been raised? I think that we should be told. It is important that our people feel that the case has not been blocked in one Department and that No. 10 understands its importance.
We seek election to this great place because, irrespective of party, we want to make the world better. I still believe that to be true, so it is time that we did that. A Government without the wherewithal to find a solution to the occupational pension problems facing ASW Sheerness and the other 200-odd schemes are morally bankrupt. I find the situation especially difficult given that a Government formed by the Labour party of which I am a member have not come forward with a single suggestion in 20 months on how to resolve the retrospective element of the occupational pensions funding crisis.
Miraculously, we could find £2.6 billion for foot and mouth and another £3 billion for an unnecessary war in Iraq. We overspend on every major computer contract in Whitehall, but we simply cannot find £100 million a year over perhaps 25 years for our workers who have given their lives for the wealth of the nation. It is difficult to believe. After all, £100 million is less than one day's GDP. It is small change.
Even at this late hour, and before amendments are moved on Report or in the other place, I ask my right hon. Friend the Secretary of State to make a statement that he is minded to hold an inquiry, as I asked of my right hon. Friend the Prime Minister last week, to examine both the extent of the problem and the solutions. I am aware that the Bill is a milestone because it will provide an insurance policy for future occupational pensions. We should be grateful for that. However, until the issue of retrospective compensation is resolved, a shadow will hang over the Bill.
It is an honour to follow Mr. Wyatt, who with characteristic modesty has downplayed his role in the campaign to get justice for former workers at ASW Sheerness. He has played an important role in deftly co-ordinating some of the parliamentary co-operation that has gone on so far—some more choreography may yet be needed in the weeks and months ahead. I am grateful to him for the role that he has played.
I say on behalf of Plaid Cymru and the Scottish National party that we welcome the Government's change of heart on the issue of pensions insurance. There may or may not have been a change of heart on the part of those on the Opposition Front Bench as well, but the Government's position is greatly to be welcomed. It is a major step forward for the Government, and for any Government, to accept such an important principle, however belated that acceptance may be. It is clear that the Bill is the only game in town for anyone who wants to achieve justice for 60,000 workers. On that basis I shall be proud to vote for the Bill on Second Reading so that it can be amended in Committee.
It is important that we approach the debate with a touch of humility. The reason that we are debating the Bill and the reason why we have been lobbied today by 60,000 families whose lives have been devastated is that the House, the Government and previous Governments got pensions policy so badly wrong on so many previous occasions.
The Government refuse to accept complete responsibility, as Governments often do, for the genesis of the crisis. It is said that no one could reasonably have foreseen or forestalled the current crisis. I am not sure that that claim bears scrutiny of the facts. The Government knew that there was a problem as early as June 1998, when they considered the minimum funding requirement. They instituted what was effectively a quick fix in terms of the reduction in MFR liabilities, but they knew that there was a problem. Over the next few years, as we have heard, there has been a rash of Green Papers, reviews and consultations, ending up where we are now, with the Bill.
Four times in four years the Government examined specifically the idea of some form of mutual insurance or discontinuance fund.
I am following the hon. Gentleman intently. To be far more realistic, on two separate occasions it was not the components of the MFR that were reviewed; given the decline in bond yields, the requirements for MFR were progressively reduced on two occasions. That was entirely the wrong thing to do. The right approach would have been to maintain value while changing the components. That is what the Government significantly failed to do on two occasions.
I certainly could not compete with the hon. Gentleman given his expertise on these matters.
A rash of mistakes have been made over a fairly short period, and, specifically on insolvency insurance, the Government explicitly rejected their current approach as an option in what were, effectively, four separate policy pronouncements over four years. It is remarkable, therefore, that such insurance should now be embraced as a core principle of Government policy.
Does the hon. Gentleman agree that the European Insolvency Directive 1980 has saved some companies, and certainly saved some pensions? To say that everything has happened in a short space of time is not strictly true.
I was coming on to the previous Administration's responsibilities, but the hon. Gentleman is quite right. I have not seen counsel's advice to Amicus and the ISTC, and we do not want to tread on that territory too much. There is a case to answer, as article 8 of the directive makes plain. In other European jurisdictions—there may be a question mark over the Netherlands and the safety net in situ there—there is a pensions safety net, which is why, in the case of Irish Fertiliser Industries, there is such a discrepancy between the experience of employees in Belfast and employees in the Republic of Ireland, which has transposed article 8. I have met the official in the European Commission responsible for the directive, and he said that if the Government's legal argument relies on the fact that in 1995 the Commission gave the UK a clean bill of health, that would be a weak defence. The Commission has written to the UK Government asking for clarification of the way in which the directive has been transposed in UK law, so it obviously has doubts about the matter.
Those difficulties could have been avoided if the directive had been transposed in 1983. Clearly, there were serious problems with Conservative policy, as we have heard, including the Pensions Act 1995, particularly section 73, which does not take account of the age or length of service of a member when determining the priority of his pension rights. A pensioner with three years' service could be paid in full, whereas an active pensioner with 30 years' service could receive little or nothing. That is not right or proper, nor is it fair to treat people aged 64 with pension benefits worth many thousands of pounds, in the same way as people aged 26 with pension benefits worth only a few hundred pounds.
The legislation was therefore seriously flawed. The Secretary of State referred to the Goode committee. I am not sure how good it was, but two proposals for a central discontinuance fund were subsequently presented, including one from the Government Actuary, to the pension law review committee. Unfortunately, the Government did not see fit to act. We should remember that when the Labour party were in opposition they tabled an amendment to the 1995 Act to create a central discontinuance fund. Unfortunately, however, they have not instituted such action until now.
As for non-feasance by the present and previous Governments, we need to consider the issue of retrospection, which has been used as an argument against intervention. When it suits Governments, they act retrospectively. For example, the House had a free vote in 1996 on its own pension fund arrangements. It overturned the recommendation of the Senior Salaries Review Body and backdated a 26 per cent. pay rise for pension purposes to MPs who left the House before the pay rise came into effect. There may have been good and honourable reason why that was done in respect of Members who would retire at the subsequent election, but it was a clear example of retrospection and backdating, and seven current Cabinet Ministers voted in favour of it.If retrospection can apply to our pension fund, surely we should not argue that the principle of non-retrospection prevents us from providing justice for workers at ASW and other companies. It is vital for the reputation of the House and our democracy that we are seen to be scrupulously applying the same standards.
There are other examples. On
"This regulation shall apply in the case of a scheme which begins to wind up on or after the 11th June 2003".
That is an example of legislation in this very area that has nine months' retrospective effect and places a burden retrospectively on employers. I do not disagree with the Government on that, because there is substantial public interest in seeking to ensure that there is no stampede of closures before the regulation takes effect. My point is that the Government accept the need for retroactive measures when they perceive there to be an overriding public interest. In a parliamentary answer on the subject of retrospective legislation, the Solicitor-General stated that the Government's policy was
"to consider whether the general public interest in the law not being changed retrospectively may be outweighed by any competing public interest."—[Hansard, 6 March 2002; Vol. 381, c. 410W.]
Clearly, where there is a general public interest, the Government are prepared to act retrospectively. We can all name examples, such as the windfall tax and the infamous bank tax of 1980, I believe. We have heard eloquent speeches from hon. Members in all parts of the House pointing out that there is a general public interest, quite apart from the injustice suffered by 60,000 families. There is the issue of confidence in savings, in pensions provision and even in the guarantee provided by the pension protection fund, as Kevin Brennan argued.
The Government have been forced by the sheer strength of the public outcry over the pension crisis finally to act, but if the Secretary of State will forgive me—I do not think it is his fault—there may be an accusation that they are trying to do so on the cheap. They need to appear to be doing something, but they are doing nothing to right past wrongs, and they may not be doing enough to prevent recurrence of the problems in the future. As we have heard, the model for the pension protection fund is the Pension Benefit Guaranty Corporation in the United States, which to all intents and purposes is a Government-sponsored enterprise, in the same way as is Fannie Mae—the Federal National Mortgage Association. It is essentially a Government agency. We realise that there are significant problems with the PBGC. In the last financial year, single employer insurance programmes went from a surplus of $7.7 billion to a deficit of $13.6 billion. In 2002, they received more claims than the total amount in their previous 28 years of existence. That is why both Houses of Congress passed a Pension Relief Bill to stave off what is seen as the inevitable bankruptcy of the guarantee corporation. People are asking whether this is going to be another Savings and Loan.
It is interesting to note that although the figures that the hon. Gentleman gives are correct for single employer schemes, the part of the fund that is reserved for multiple employer, or collective, schemes, whereby employers group together, remains substantially in surplus. Does that send a message to us and to the regulator that in future we should have collective schemes instead of single employer schemes?
I was not aware of that point—it is certainly interesting to consider pooling funds within the overall umbrella of support.
If the guarantee corporation is to be the model, there are clearly lessons to be learned from its current position. The situation in the United States is not dissimilar to that here. We have experienced what is called in the US a perfect storm—a fall in interest rates at the same time as a fall in equity markets and, on top of that, an economic downturn in certain mature sectors: in our case, manufacturing; in its case, airlines and steel. The doomsday scenario that is being mooted in the US is highly relevant to the pension protection fund. There is a danger that a run on major defaults will put pressure on the fund, which means that levies have to be raised. That in turn creates further pressure that is analogous to a run on a bank. I have been reliably informed that at least one major company with thousands of employees has a £1 billion deficit in its pension fund and is trying to hold off until April 2005 in order to fall within the terms of the provision.
If true, that is worrying. It raises the question whether there should be some form of support for the pension protection fund. Government-backed annuities would be an option, but there are problems with the annuity market, which has only two providers, one of whom is withdrawing from the market. Bond rates are currently unsustainable. Perhaps we should consider employing special Government-backed bonds at a rate of around 9 per cent. to create a sustainable future for the PPF; otherwise, we might find ourselves having the same debate some years down the line following the collapse of the PPF and similar suffering by many people.
Like other Labour Members, I give a broad and warm welcome to the Bill, which will make important improvements in providing security in retirement. It is fair to say that most Opposition Members—certainly, most non-Conservative Opposition Members—have reservations about the Bill, but despite that recognise that it at least goes in the right direction. The nature of the debate has been generally constructive.
I approach my remarks with a degree of trepidation that I, too, will be intervened on by Sir John Butterfill, who has an encyclopaedic knowledge of pensions. I wonder what question he will put to me: whatever it is, I am sure that the answer is yes. Fortunately, my right hon. Friend Mr. Field is not in his place, so he will not be able to do the same.
Most of my remarks will be about the pension protection fund and the pensions regulator, but first I should like comment on the broader picture and pay tribute to what the Government have already done. We should not lose sight of the fact that we pay £9 billion more than the previous Government to pensioners every year. I do not emphasise that only to pay tribute to a Government whom I support. I want to remind Conservative Members that although there may be a legitimate debate about the relationship between the basic state pension and earnings—if I were making a party political point, I could say that we are spending £5.7 billion more than if the link were established—let us conduct it in a way that does not mislead or confuse pensioners.
A couple of months ago, a pensioners' lobby of Parliament took place, during which I talked to a group of pensioners from my constituency and those nearby. We discussed the pension credit and the group said that it did not like the idea and that people wanted the earnings link. One woman said that the pension credit was only for those who would otherwise be on income support. She said that she could not gain from it because it was means-tested and that she had heard about the means test, which she did not like. I asked why she said that, pointing out that I knew nothing about her circumstances. She replied that she had a small occupational pension and that the pension credit was therefore hopeless for her because it was a disincentive. I told her that although the pension credit provided help at the bottom end—what used to be called the minimum income guarantee—the other end was introduced precisely to benefit people in her position.
There are cut-offs, upper limits and so on and I could not therefore say whether the woman would benefit, but I stressed that she should check. I gave her the Pension Service telephone number and, a couple of weeks later, I received a letter from her thanking me for giving her the information. She had checked and was receiving extra money through the pension credit. She said that she had not understood what it was all about and that she had been told simply that the pension credit equalled means-testing, which equalled something that she did not like.
Although there are legitimate arguments about whether the pension credit is a good or bad idea, let us remember that pensioners hear our debates. If they are conducted in the wrong way, it can mean that pensioners do not receive their entitlement because they have got the wrong end of the stick.
Will the hon. Gentleman comment on the Government's working assumption or target that 1.4 million pensioners will not get around to claiming the pension credit, to which they would otherwise be entitled? Does not that underline his point that the complexity and intrusive nature of means-testing may put people off?
It underlines the need to be careful about the way in which we discuss such matters.
The hon. Gentleman's comments lead me to my next point, which is a tribute to the Pension Service for its imaginative methods of trying to demystify pensions and what is available. It conducts more home visits and transactions and gives information over the telephone. That is genuinely important. We must acknowledge the way in which the Bill takes the process of providing information a stage further. It is good that 2.5 million pension forecasts and more than 1 million combined pension forecasts have already been made. We should not bemoan but welcome the Bill's ambitions to create a position whereby future pensioners can have an online retirement planner to ascertain their position and what is available.
I do not deny that we all face big questions about the shape of our future pensions policies. We cannot ignore the failures of several private pensions to perform in the way in which perhaps all parties expected or the problems that have taken up much of the discussion today, such as what has happened to several defined benefit schemes and final salary schemes.
Would my hon. Friend care to comment on the serious collapse of the UPF GKN Thompson Chassis pension plan in my constituency? Hundreds of workers there are likely to receive only a small percentage of their pension and thrift entitlement, even though the former directors, as trustees, granted themselves enhanced pensions purported to be worth £1,000 a week. Surely that company's pensioners are entitled to some retrospection.
My hon. Friend makes a valid and powerful point. I shall come in a moment to the pension protection fund and the need to address the issues surrounding employees who have already lost out, but I know that he is a powerful advocate of the employees involved in that particular scheme.
Looking at the bigger picture for the future, we need to take seriously some of the comments that my right hon. Friend the Member for Birkenhead made. We will have to re-examine fundamental questions on the balance between public and private provision, and issues of compulsion. I welcome the Government's willingness to look at that, and the setting up of the Pensions Commission is a valuable initiative in that regard. However, it is important to heed my right hon. Friend's point that once the commission has reported, the information that it provides will be one thing, but the inevitable demand for answers to the questions that it poses will be another. There will be an obligation on all parties to consider and provide those answers with some dispatch.
Issues of pension protection have rightly, and not surprisingly, occupied much time in the debate so far. The pension protection fund, the centrepiece of the Bill, addresses the important issue that it is wrong for an employee who has done everything that we have asked—saved for retirement and entered a scheme regarded as safe and secure—to be left high and dry at the end of the day, through absolutely no fault of his or her own. That has been brought to our attention not because we have worked out that, theoretically, it could happen at some time in the future but, sadly, because it has happened to real people in our constituencies. My hon. Friends the Members for Sittingbourne and Sheppey (Mr. Wyatt) and for Cardiff, West (Kevin Brennan) have referred to Allied Steel and Wire. I pay tribute to them for the way in which they have forged and led the campaign to bring that issue to the fore. My right hon. Friend the Member for Birkenhead has added his voice to that, and my hon. Friend Sandra Osborne spoke powerfully about the situation in Scotland among her constituents and those of many of our hon. Friends.
The problem will not go away, and we must address it. I should like to put on the record an example of a firm in my constituency, Kalamazoo. It is an interesting company, which was highly successful for a while, offering computer and print-based products to industry and commerce. It was in existence for more than 100 years and the irony, given what happened to it, was that it used to be regarded as a model employer and company. Its roots were in the Quaker tradition, and its employees enjoyed excellent facilities and working conditions. There was a profit-sharing scheme and, yes, a final salary pension scheme. In the 1990s, the company suffered a downturn in its fortunes for various reasons, some of them its fault and others not. The end result was that it had to sell quite a lot of its assets, including land and buildings. In 1997, its profitable printing business, Kalamazoo Security Print, was sold to a group based in Ireland, the Adare group.
The trustees of the final salary scheme met the employees who had gone to Kalamazoo Security Print to assure them that although they had left Kalamazoo Computer Group and were now deferred pensioners, their pensions were safe and secure. They were told that the company would not touch their money, and that their pensions would not be affected if the company went bust. Well, Kalamazoo Computer Group continued to lose money, and in August 2001 the company gave notice of its intention to cease payments of service contributions to the pension scheme. The trustees were therefore duty bound to put the company into wind-up.
The company owed the pension scheme more than £7 million against its minimum funding requirement, and the trustees were able to recover only about £5 million. The company went into voluntary liquidation towards the end of 2001, and its assets were sold off to an American company, UCS, in January the following year. The pension trustees continue with the winding-up of the scheme, but the predictions are that the employees who remained at Kalamazoo Computer Group and those who went to Kalamazoo Security Print will be left with a major shortfall in the money due to them. Unless we address the issue of the employees who have already suffered and lost out, the Bill will not achieve what it needs to achieve.
The employees at Kalamazoo, and many of the others that we are talking about, had no option but to join those pension schemes. In many cases, it was a condition of their employment. The schemes were created and operated without any health warnings. No one said to the people involved, "Remember, the value of these schemes can go down as well as up." They were meant to be safe and secure. I recognise that there are problems regarding retrospection, and that if we were able to do something about these cases, the limits would have to be carefully drawn. There cannot be an open-ended commitment. However, we have to do something. My hon. Friend Mr. Miller talked about the importance of getting accurate estimates of those involved, and that is certainly true, but when we have made those estimates something must be done. Some kind of fund must be put into effect; some kind of protection must be put in place. This must happen for two reasons. First, the credibility of the Bill—and there is a lot of credibility to it—will be undermined in the public eye unless we do something. The standing of the Bill will be affected if we do nothing. Secondly, and more importantly, it is the right thing to do.
I would like to say a few words about the pensions regulator. In the majority of schemes that we have talked about in relation to the pension protection fund and the losses incurred so far, there has been no suggestion of bad governance, as in the Maxwell pension scheme, or of sharp practice. Of course, there are and have been schemes about which there are real questions to be asked about governance, about the way in which they were administered, and about how that led to a shortfall in the pension funds. In my constituency in the early 1990s, there was the case of the Teampace pension scheme. Then there were the Warwick group, the Debenholt and the Cheney pension schemes. Legal proceedings are still going on in the Cheney case, so I shall not go into any detail about it.
I hope that the creation in the Bill of a proactive pensions regulator will not only build on the good work that the Occupational Pensions Regulatory Authority has done, but allow the regulator to do some of the things that OPRA was unable to do. That will be very important in the future. I would ask my hon. Friend the Minister to tell me three things in this regard. First, will he provide updates on what is happening to the Teampace, Cheney, Debenholt and Warwick pension schemes? Those issues are still there, and information on them is in short supply at the moment.
Secondly, will my right hon. and hon. Friends consider the fact that when we look at such schemes, what strikes us time after time is that a shortfall in a pension scheme gets compounded and recompounded by the fees that are charged by independent trustees and several of the other firms dealing with that scheme? I know that there is no easy answer to that, and that some of the provisions in the Bill will help in that, but I ask them to think a bit more about how we deal with the issue of fees, as it means that workers who are already losing end up losing even more.
Thirdly, will my right hon. and hon. Friends consider the fact that although the Teampace, Cheney, Warwick and Debenholt schemes are not in the same situation as Kalamazoo or ASW—and as my right hon. Friend the Member for Birkenhead rightly says, we need to draw lines in relation to what is appropriate for which kind of loss—they have still faced losses? We need to ensure that the protections that I hope will be available, for instance, under the pension protection fund, operate effectively. In those and other schemes, real people also stand to lose very large amounts of money that they can ill afford. It is up to our Government to stand by them.
I want to concentrate most of my comments on the need to restore confidence in the pensions system, which was referred to earlier by for example, Kevin Brennan. In large part, this Bill is trying to restore that shattered confidence by plugging loopholes and rectifying mistakes that stem from the Pensions Act 1995, which in turn was trying to deal with the shattered confidence after the Maxwell scandal.
The position for pensions is predicated on an insufficient state pension, which for some is topped up by the complex means-testing of the pension credit. For a growing number, however, the Government hope that it will be supplemented by private pensions. The Government make a virtue of the fact that the state pension is insufficient—the Chancellor recently eulogised abut the fact that pensions will take about 5 per cent. of our gross national product in future compared with 15 per cent. in some western European countries. Having such a low state pension means that people must save for private pensions. If they are to do so, they must have confidence in the system—confidence that a lifetime's savings and investment in a pension fund will not be wiped out at the drop of a hat.
With the pension protection fund, the Bill proposes some measures to try to restore that confidence. Issues have been mentioned, which will be pored over in detail in Committee, such as the relationship between a flat-rate levy and the introduction of a risk-related levy, and whether that will be underwritten by the Government. In the USA, a similar scheme has run well for nearly 30 years. It was introduced initially in the mid-1970s to restore confidence after a major company in the American economy—Studebaker, I believe—went bust. Recently, after nearly 30 years of successful running, it has hit a crisis owing to the state of the stock market. As one hon. Member suggested, it may well have to be or already has been underwritten by the Government. Inevitably, that issue will need to be considered for the UK system. If the pension protection fund, either in its first year or 30 years down the line, hits similar problems to the American one, why crisis-manage at that stage rather than plan for it in the Bill in Committee?
The other area in which confidence must be restored is with regard to those who in good faith accepted the Government's urgings and promises over the years and saved for an occupational pension, but have found that they have lost most or all that money. That was first brought home to me just a few weeks after I was elected in 2001, because United Engineering Forgings put its six companies across the country into administration. Chesterfield Cylinders, in my constituency, was one of those companies. It is now trading profitably and successfully under new ownership, with the same excellent work force and local management, but without its pension.
As a result of meeting Chesterfield Cylinders pensioners in Chesterfield, and another company that shortly afterwards arrived at the same process—Dema Glass in Chesterfield—I first wrote on this issue to the Minister for Pensions on
Following Dema Glass and Chesterfield Cylinders, the issues continued to develop around the country. Most recently, late last year Coalite, a very large company just outside Chesterfield employing many people in my constituency, went the same way. The workers in those three companies form just part of the estimated 60,000 pensioners across the country who have lost all or most of their pensions in that way. About 90 per cent. of the companies affected, including those in my constituency, have been in manufacturing—in the ex-coal industry, the steel industry and the glass manufacturing industry—but that is a side issue, a debate for another time.
My hon. Friend Mr. Webb rightly said that we should not become too lost in the statistics, however we look at them. Whether 60,000 people have lost their pensions or whether the £100 million a year it might cost to compensate them is a huge sum that the Government cannot possibly meet or, as Mr. Wyatt described it, is small change, should not dominate too much. We should remember the individuals involved and their anger. Sandra Osborne gave eloquent examples of constituents who have gone through the process.
I should like to add examples from my constituents, real individuals from Chesterfield, who illustrate the points that have already been made about broken promises and the need to restore confidence in the system. The first, whom I met in 2001, was a Labour councillor in Chesterfield—this is a cross-party issue, not a partisan issue. He still works for Chesterfield Cylinders. He told me that he had worked in the steel industry for his entire working life. When he began work, membership of the works pension scheme was compulsory, as we have heard from a number of hon. Members relating to firms in their constituencies. Over the years, Governments of various political complexions promised that such schemes were safe, especially after the Pensions Act 1995 and the Maxwell scandal. However, my constituent found in 2001 that he had lost between 60 per cent. and 80 per cent. of the money he had saved for 40 years. Approaching the end of his working life, he was too old and it was too late even to contemplate starting to save any worthwhile sum to replace the money of which he rightly felt he had been legally robbed. He had done all the right things, he had made all the provision that had been asked of him, and he feels bitter and angry that he has lost his private pension.
Later that year I visited a constituent on her 60th birthday. When her children were very young, she had become a single parent, but she had not sat back and said, "The state will look after me and my children." She had done all the things that various Governments over the years had urged her to do. She had gone out to full-time work, for Dema Glass, and successfully raised two teenage daughters single-handedly. She had saved and managed to pay off her mortgage. In the last 10 years of her working life, she had even saved towards an occupational pension, only to receive two days before her 60th birthday a letter explaining that all or most of her pension had disappeared and she would not receive the money for which she had worked so hard.
Those are two examples of people who lost their money. I have an interesting third example: the daughter of the lady I have just mentioned. She was aged 26 at the time in question. She works for a well-known large national and international retail company, which is nearly 100 years old. It seems an absolutely rock solid, safe bet. She was about to start paying into the works pension scheme, but then she witnessed what had happened to her mother and heard what had happened at Chesterfield Cylinders. She asked me, "Why bother? What is the point at my age, in my 20s, starting to save for a lifetime for a private pension, even with a firm that seems absolutely rock solid?" As I have said, 30 years earlier, when her mother started working for her pension, Dema Glass had seemed rock solid too. It was one of the major employers in Chesterfield—a really safe company that dominated the market. "Who knows?" she said. "Twenty or 30 years down the line, this might happen to me."
We must provide justice for those who have lost their pensions in that way, and we must restore confidence to the younger generation. Were these people acting in good faith when they felt that they had been promised—guaranteed—that their pensions would be safe? The pensions action groups, which have received many tributes, have proved very good at unearthing documents to illustrate the way in which people feel they were misled.
One action group member sent some quotations. The modern version of the document produced for trustees of pension schemes by the Occupational Pensions Regulatory Authority states on page 39:
"The purpose of the minimum funding requirement is to try and make sure there are enough funds in the scheme at any one time" to meet various obligations, which it lists. It continues:
"However", it is not designed to guarantee that the trustees could secure or buy out all benefits . . . if the scheme discontinued."
Let us go back a few years, though, to the version published after the 1995 Act. The introduction says:
"OPRA has been entrusted by Parliament with enforcing some very detailed provision introduced by the Pensions Act 1995 and associated regulations. These provisions are designed to help members have justified confidence in their scheme."
Page 28 says:
"The minimum funding requirement refers to the minimum amount of funds that should be in the scheme at any one time, in order to meet the scheme's liabilities if it were to be discontinued."
Trustees felt that the old version provided a pretty firm assurance that the money was there, and that the 1995 Act would ensure that it was protected. The modern document rather hedges its bets.
Other documents and speeches make interesting comparisons. Someone from the Dexion group, for instance, sent a quotation from a company document which stated:
"All benefits which have been earned in the Dexion Group Pension and Insurance Scheme are protected by the law and by the Trust Deed and Rules."
"We aim to create a framework for occupations pensions that is secure, stable and fair, and to encourage people to make provision for their retirement . . . It is a remarkable thing that individuals in this country, through their pension schemes, have such an immense ownership of wealth. It is good for them and the economy, and we want to make sure that that wealth is not only safe but is recognised as part of the rights that people have as a result of their savings during their working lives . . . we must not trade off security to achieve lower burdens on business."—[Hansard, 3 November 1993; Vol. 231, c. 358–64.]
"will mean that members can be confident that the value of their accrued rights is secure, especially in the event of the scheme or the employer company winding up."
That would apply to Chesterfield Cylinders, Dema Glass, Coalite, ASW or any of the other examples of which we have heard. Lord Mackay continued:
"It is only right that the members' investment, and their accrued pension rights, should be properly protected. Our proposals are designed to provide that protection."—[Hansard, House of Lords, 13 March 1995; Vol. 562, c. 684.]
We have statements from Ministers in both Houses at the time of the 1995 Act saying "This will protect and guarantee your funds." We have documents from the Dexion group and from OPRA that seem to imply to people that by saving with such schemes they will be guaranteed safety, and that the financial sacrifice they are making to invest in their future will not be wasted.
In conclusion, I repeat that the Bill needs to do two things. First, it must provide justice for the estimated 60,000 people who have lost out in the past few years. Those people believed that they had a guaranteed and protected pension, for which many of them had saved for 30 or 40 years. Secondly, the Bill must restore the confidence of the younger generation. To ensure a good retirement with an inadequate state pension, young people must save and invest more than any previous generation, but they are telling politicians and parents that the problems of recent years mean that they see no point in doing so.
I welcome this important Bill, which has been long awaited. I am disappointed, but not surprised, by some of the churlish comments from Conservative Members this afternoon.
Since I came to the House, debate in this Chamber on pensions legislation has predominantly concerned people who are pensioners today. The Government's track record in respect of them is very good, not least with the minimum income guarantee and the pension credit. As my hon. Friend Sandra Osborne said, the people in all our constituencies who have benefited from the pension credit are delighted with it. They do not want it to be put under threat.
I listened with interest to the proposals made by Conservative Members. They seem to have forgotten that the old age pension is not a universal benefit. About 1.5 million pensioners, mainly women, either have no state pension or only a partial one. They are the ones most threatened by any changes to the pension credit proposed by Conservative Members, and it is they who would have to pay for any spending promises made by the Opposition.
The debate, however, has rightly moved on to the pensioners of tomorrow. We need to address the question of what will happen to them. Pensions should be an issue not for the elderly, but for the young. I agree with Paul Holmes that we must restore the confidence of young people in the value of providing for their old age. The young people who do not do so will inevitably place an extra burden on those who are working when they get older. We must ensure that the pension system is secure, and that people can be guaranteed that the pension that they invest in throughout their working lives is safe.
I serve on the Select Committee on Work and Pensions, which published a report last year on the future of UK pensions. We concluded that there was not a crisis in the pension industry as a whole, but that there certainly was a crisis of confidence. If left to fester, that could be equally damaging. I welcome the Bill because it goes some way towards providing the security needed to make pensions safe in the future. The PPF is getting a lot of attention today, and I believe that it will make things better in the future. I shall return to that matter later in my remarks but, before I do, I want to highlight some of the Bill's other provisions.
I am glad that the Government have adopted some of the Select Committee's recommendations. Some of their solutions are not quite as we proposed, but at least they have paid attention to the matters that needed considering. The Bill has had to reflect the fact that the country's work force is changing. People need to plan for retirement, as the Bill makes clear, but the Government must be able to reconcile people's different desires for their old age.
In the past few months, I was contacted by one of my former teaching colleagues. He is afraid that the Government's proposals mean that he will not be able to retire, and so take advantage of his Scottish teacher's pension, at the age of 60—a possibility that he regarded with some horror. I do not know whether he wants to get out of the classroom because of what the children do to him, or because he feels that he has taught for long enough and deserves to retire at that age. By contrast, when I told the stewardess on the British Airways flight to London earlier this week that I was hoping to speak in this debate, she asked whether the Bill meant that she did not have to retire at 55. How are the Government to reconcile the wishes of someone who desperately wants to retire by 60 with those of someone who does not want to retire at 55, and ensure that the opportunities that their employers present to them, and the occupational pension schemes in which both employees have invested, are flexible enough to allow them to do whatever they choose? That is quite a difficult balancing act for the Government, and I hope that the Bill will address it.
There are different working patterns nowadays, and I was pleased to hear the Secretary of State say in his opening speech that the Government would table an amendment to rationalise accrued rights. That is a problem for people who have moved from job to job, sometimes through short-term contracts, and who have often been forced to invest in occupational schemes that they will not be in for very long. It is important to make such arrangements simple and understandable for people.
The Bill will change the arrangements under the Transfer of Undertakings (Protection of Employment) Regulations 1981. It is important to enable people to transfer their pensions, especially in the private sector, and I know that the trade unions welcome that idea. Another of the Select Committee's recommendations was that the regulator should be more proactive, and that is crucial. The minimum funding requirement is to undergo radical change, and that can only be for the good.
It is the pension protection fund that has captured most people's imagination, and that is what most Members have spoken about today. Like many other people, I would have liked such a fund to be introduced sooner. However, it is wrong of the Opposition to say that they will vote against the Bill just because the fund did not appear sooner, and did not protect people in the past.
I cannot understand that rationale. It seems peculiarly perverse to cry out for help for those who have already suffered because their pension schemes have gone into liquidation, but at the same time to vote against the measure that will protect people against such threats in the future. The logic escapes me—but logic is often absent from the Opposition's arguments. I listened hard to their speeches because I hoped to hear some admission that they created much of the mess that we see now in private pension provision. Indeed, Dr. Ros Altmann attributes the genesis of many of the problems that we are having to address in the Bill to the Pensions Act 1995, so I would like to hear a bit more honesty from the Opposition, and an admission that those problems originated with them.
I accept the Secretary of State's arguments that the pension protection fund cannot be made retrospective, as it is an insurance scheme. I accept that it is difficult to make legislation retrospective. However, that does not mean that there is not something that we should be doing. When Mr. Willetts was asked to pin down what the Opposition would do, he did not come up with anything; he just said, "We must do something." He has two brains and that is all he can think of; I only have one brain, so my plea to the Government is simply to do something, whether they adopt the suggestion made by my right hon. Friend Mr. Field, or what has been suggested by Ros Altmann, or a combination of the two, whereby, rather than the Government having to pay the £100 million a year, the money would come out of the unclaimed funds that my right hon. Friend has identified—or even something else altogether. Like my hon. Friend the Member for Ayr, I do not really care which option the Government choose, but it is important that workers who have lost out as a result of a company going into liquidation should be helped in some way.
I have several constituents in this position. In an intervention on the Secretary of State, my hon. Friend Mr. Doran mentioned Richards, which is in his constituency. A number of the people affected by the collapse of the Richards pension fund are my constituents, and nothing concentrates the mind more than individual constituents coming to tell one about injustice and unfairness. That puts everything in perspective: the situation is unfair, and those people have done everything that the Government wanted them to do, so it behoves the Government to do something about it.
The Bill does the right thing; and the Government are doing the right thing for those who may be affected in the future. My appeal today is for the Government to do the right thing for those who in recent years have suffered from what has happened in the past. It is a good Bill, and we should all support it. I hope that it will be amended in Committee to help those who have suffered in the past as well as protect people in the future.
The Minister for Pensions should be delighted that there has not been a serious speech made in opposition to the Bill today. Conservative Front Benchers have not made such a speech, and Conservative Back Benchers have not even tried to pretend that they are opposed to the Bill. Mr. Willetts came up with no sensible or coherent reason for opposition. That might be an expression of a fact that the House should take more seriously—that the impact of pensions on all our lives is so long term that we must build consensus around where we are going with pensions issues.
I certainly hope that Opposition Front Benchers have taken note of the comments of my hon. Friend Kevin Brennan. If any package can be made available to rescue the 60,000 people whose various schemes have been abandoned, we need all political parties to make it clear that they would support movements in that direction. It would be irresponsible to make party politics out of something that is based so centrally around individual human tragedies. I would like to hear something about that when Conservative Members make their wind-up speeches.
In common with many of my hon. Friends, I should like to step back from the immediacies of the Bill to say that the Government have gone a long way towards helping people who are already pensioners. Pension credit actually works: it is not a means test, but it needs identification, which is a very different process. Labour Members are proud of the fact that we are now helping many millions of pensioners. There are many pensioners in my constituency, and pension credit makes a material difference to their lives. I trust that we shall intensify our efforts to find imaginative ways of helping people with particular needs.
I want to tell the Minister that we nevertheless need to examine the basic pension in our society. It is not high enough, even though the Government have made some increases. If we look at the projections for gross domestic product spending on state pensions, we find that they are at a fairly low level—about 5 per cent.—by western European standards. The projections for the next 50 years are worrying. My hon. Friend Miss Begg made the point that many people, particularly women, do not benefit from the state pension. About six out of 10 women do not have occupational pensions, and about one in six do not have full access to the state pension. We need to examine access to the state pension more fully: with the continuation of differential incomes in our society, the state pension will remain an important part of many people's basic income in retirement. I therefore hope that we can look into the whole basis of funding the state, as opposed to the occupational, pension in the round.
Like many of my hon. Friends, I hope that one of the consequences of the present review of the pension system will be a commitment to compulsion in pensions. Without it, the 20-year-olds mentioned by Paul Holmes will take decisions based on short-term gain, when we need to persuade them that it is in their best interest to make contributions to the pensions system.
I want to join the call from hon. Members on both sides of the House for a proper rescue package. My hon. Friend the Member for Cardiff, West made a powerful moral, economic and legal case for providing it. The Government should consider seriously the fact that the law is likely to push them in a particular direction anyway, so it would be far better for them to get there first, long before the lawyers take a large slice.
We must address the question of trust in the private pension system. Hon. Members have talked about restoring trust in the system, but I do not think that there ever was much trust, as the odds have been stacked against employees in pension schemes for many years. Although the Labour Government have changed that balance, the Bill will finally begin to put some sanity into that equation. Even the professional advisers have let down pensioners. In the various schemes that have failed, it was not the professional advisers who made people aware that the situation was becoming dire. I do not want that to sound like an attack on all professional advisers, but those who represent the interests of long-term pensioners were not able to get access to information or to the trust structures that are important if we are properly to change the balance and restore confidence in pension schemes. I welcome the Government's commitment to proper employee consultation.
I hope that the Minister will make it clear in his winding-up speech or as the Bill progresses through the House that, with regard to nominated trustees, there will be a transparent and open process, so that employees are properly represented. I urge him to give proper recognition to the value of trade unions in this area. There should be no conflict between the political parties, as this is not a matter of trade unionists fighting for something that is against the interests of the employer. This is employees' money: deferred wages, as Labour Members have clearly stated. In that situation, the people who can give the best possible advice are from trade unions that have properly trained their trustees, can provide access to an adequate information base and have experience that is invaluable to people serving on boards of trustees.
The pensions regulator must be tough and competent, and will be well served if the regulatory process includes access to trade unions at the highest level to reflect the interests of working people through their representative organisations. This is not an ideological plea: just a commonsense recognition of the profound role that trade unions can play and have played across the pensions debate.
I should like to draw the Minister's attention to particular issues on which I hope we will have a change in the law, or at least a recognition in the Bill of the need for change. I urge him to consider the implications of the Bradstock judgment, which was a court judgment that ruled that when employers significantly change the terms of their debts to the pension fund, they can do so by negotiation with the trustees. I shall refer to two companies that did so, massively to the disadvantage of long-term pensioners.
The pension trustees at Merchant Ferries accepted a £400,000 payment in lieu of a debt of £8 million. The company argued that without agreement it would become insolvent. The trustees agreed—almost with a gun to their heads. Six months later, the company declared itself insolvent anyway, and the trustees lost all entitlement to the other £7.6 million. They were not even considered to be a creditor along with other unsecured creditors. That is not fair and it is not right. That situation could have been improved if the trustees had had to take the matter to the Occupational Pensions Regulatory Authority, as they no longer had to do under the Bradstock judgment.
I urge the Minister to provide that one of the duties of the regulator should be to examine the process of renegotiation by trustees, not because there are no circumstances in which the trustees should agree to such a change—perhaps they should, in the interests of the survival of the company—but because agreement should not be reached by the trustees if the work force whom they represent are in total ignorance of what is going on. I urge my hon. Friend the Minister to re-examine that matter.
Will my hon. Friend the Minister also closely examine the operation of the new TUPE arrangements? Although employee protection is welcome, where there is a transfer of undertakings the Bill will oblige employers to match employees' contributions up to the level of 6 per cent. That is a big improvement, but I urge him to re-examine whether contributions should be equivalent, because otherwise we will build in a financial incentive to companies to take over other companies, when we should simply be making sure that pension funds are economically neutral.
I wish my hon. Friend the Minister the best of luck with the Bill. As I have said, there have been no serious arguments against it, and it is important that the protections that it contains should be available to current and future pensioners.
There is much to welcome in the Bill, which will protect members of pension schemes. The Bill contains new rights for those who have been let down and suffered badly because of the insolvency of a scheme. To lose a pension after a lifetime of hard work is devastating, especially when it hits those who are close to retirement and who do not have either the energy or the opportunity to pull it back.
We should be doing everything that we can to persuade young people that it is important to make financial provision for their old age. As my hon. Friend Miss Begg and Paul Holmes said, there can be nothing more damaging to that case than young people who know a relative or friend who has suffered the fate of losing their pension.
It must be unacceptable in a fair-minded, 21st-century system for employees, through no fault of their own, to find themselves without a pension after a lifetime of hard work simply because their employer mismanaged or misunderstood their pension or went missing with the money. With that in mind, the new pension protection fund is extremely welcome, but it is long overdue. It will undoubtedly help to restore confidence and protect future generations from a miserable old age. As many hon. Members have said this afternoon, there are tens of thousands of despairing victims who should have been protected before now.
It was as clear as the nose on one's face that, as the stock market boomed and employer after employer took long, luxurious contributions holidays, there would be a day of reckoning. The day of reckoning has come for many, and the Government should have predicted it, because it is not those who encouraged the contributions holidays who will pay the price but long-suffering employees who continued to pay their contributions throughout those years.
Does my hon. Friend accept that many honourable companies took those holidays because they had reached the threshold of 105 per cent. of liabilities and were forced to take a pensions holiday? That is an important component of this debate.
I accept that that is an important point, but such companies had the opportunity to increase benefits.
We should remember that, until the early 1980s, many workers were forced to join pension schemes as a condition of their employment. With that in mind, the Government have a responsibility to backdate the protection that should have been afforded to those who have already suffered so traumatically. The 1980 European insolvency directive placed a clear responsibility on Government to protect workers, and we have both a moral and a legal responsibility to put things right for that relatively small group of people.
I apologise if I have intervened at a clumsy moment. The hon. Gentleman was rightly and persuasively discussing pensions holidays and the stock market's decline. Does he agree that the Chancellor's £5 billion tax on pensions helped neither pensions nor the stock market?
That is a matter of opinion. It is clear that there was some justice in the measure as employer after employer took the massive benefits of contributions holidays. The question of the effect on the stock market will always be debatable.
I urge Ministers to look to the future and to talk constructively to those groups of pensioners and their trade union representatives to establish the size of the problem, with a view to funding retrospective compensation.
Before I was elected, I was a pension trustee, appointed by my fellow employees in a medium-sized engineering company. I tried to persuade the management of the day that it should not take contributions holidays, but instead improve benefits to bring the funding below 105 per cent. Management defended the non-payment of contributions—reasonably, at the time—saying that, when more difficult days arrived for the equity markets, the company would be forced to carry the liability and top up the fund with higher contributions. The company is now insolvent, and the pension fund has no one to cover excess liabilities. Those who enjoyed the contributions holidays have long gone. Management had no need to take any notice of me, and they did not, because they always had a majority of tame trustees, appointed by the directors, who had little choice but to do as their American owners insisted. Those trustees understood that, if they did not toe the line, their masters would find someone who would. Change will need more than just education and support for trustees. Sometimes it takes courage and independence, and it is easier to say than do when people feel that their jobs depend on how they act.
The 1978 legislation on pensions was a tremendous piece of work. It was a great step forward, but perhaps it was a little naive, with too much concentration on management-appointed trustees. The Pensions Act 1995 took an important step in the right direction by providing a general requirement for members to have the right to nominate their own trustees. I understood—although I did not agree with it—why the previous Government introduced a constraint that only a third of trustees should be member-nominated. It would probably have been a little early—and possibly too risky—to rush into too much change in a hurry. However, almost a decade has passed now and I would have thought that it was time for members to take control of their own money with at least half the trustees being appointed by pension scheme members themselves. I am disappointed that the Bill does not provide for that.
The people best qualified to protect pension schemes are those who have the most interest in the prudent management of a fund. That group must be the pensioners and prospective pensioners themselves, not people who have no long-term personal interest. Far too many schemes that are now in trouble would have been much better protected out of the hands of unscrupulous employers and under the eye of pensioner-appointed trustees with control.
I welcome the legislation, which offers greater protection to existing scheme members, but I am deeply concerned about the lack of motivation for employers to continue to provide pension benefits. I worry that more Government legislation that introduces protection will mean that employers are less inclined to continue their provision, especially of final earnings schemes. We are forced to leave scheme members unprotected or to watch as the number of occupational pension schemes declines. The third option, which I very much favour, is to introduce a measure of compulsion on employers and employees to provide and join pension schemes. It would be much nicer if we could achieve that by persuasion and education, but it will always be difficult to persuade poorly paid young people that they should contribute to a pension from an early age. In a competitive market, employers will also come under pressure.
The Bill is a good one, but it fails to tackle some important questions, especially on compulsion. I am convinced that we shall have to return to those questions, and it will be a great shame if we leave it too late and act in panic when there are even fewer schemes and even fewer workers opting to save for their old age.
I, too, welcome and support the Bill and recognise the excellent work that the Government have done over the years to improve the quality of life for pensioners, not only in my constituency but throughout the country.
Like my hon. Friend Sandra Osborne, I welcome the pension credit. In my area, it has benefited pensioners by about £40 a week on average. Things do not end there, however. Mention has been made of the possibility of tying the basic state pension to earnings, but we should consider the broader initiatives introduced by the Government. For example, thanks to the winter fuel allowance, we no longer hear of elderly people dying of hypothermia to the same extent. Such initiatives add up to £9 billion of benefits for pensioners. Ironically, that is almost £6 billion more for pensioners than if we had merely linked the basic state pension to earnings—a point worth making.
I am aware of the time and conscious of the fact that other Members want to speak, so I shall be brief, especially as much of what I wanted to say has already been said. Like everyone else, I want to refer to the pension protection fund. In the light of recent events, it is important to take steps to help to protect vulnerable people. Various Members have told us of constituents who have experienced appalling circumstances owing to the lack of pension protection.
In their contributions to the debate, many Conservative Members suggested improvements, yet, sadly, if they were successful in the action that they plan to take this evening, they would not be able to make such improvements. That would mean that the 10 million people who would benefit from the Bill would be left with the status quo, completely unprotected. That is not good enough.
Even with its imperfections, which can be amended and improved during its progress through the House, the Bill will offer something that does not exist at present, and that will be an improvement. Half of something is better than the whole of nothing.
I have little to add to what has already been said, other than to congratulate my right hon. Friend the Secretary of State on his tremendous work and the brave way in which he has tackled a difficult situation. I am grateful, too, that the Liberal Democrats, although they have some concerns, will support the Bill and give it the opportunity to go into Committee, where I hope that it will be improved so that it can benefit people who have been left unprotected.
I fully support the Bill.
May I add my voice of welcome to the Bill, yet also add my voice to those of colleagues who asked the Government to consider options for compensating people who have suffered in recent years by losing out on pension after their firms had gone bust? I am a member of the Iron and Steel Trades Confederation and represent a constituency with a steelworks. My constituents are highly unlikely to find themselves in the position of the Allied Steel and Wire workers, but they and I stand in solidarity with those workers in requiring justice for them.
The Bill is good, but I am a tad disappointed that it does not do more, and especially that it will not tackle the poverty of those with incomplete contribution records and limited opportunities to save—they are usually called women. Women and pensions are a key political issue. Research from just before Christmas showed that three quarters of women aged between 55 and 64 said that they were unhappy with the Government's performance on pensions. The survey also showed that 91 per cent. of women believed that the Government should make a higher and better basic state provision a priority, and that 64 per cent. said that that should be their top priority.
It is not surprising that pensions represent an issue for women. Pensioners' incomes have increased by £7 billion a year since 1997 and, primarily through means-tested benefits, poverty among pensioners has been reduced by one fifth. However, one in four single women pensioners still live in poverty, and only 13 per cent. of women have a full state pension. In a moment I shall suggest a couple of matters that could easily be added to the Bill.
The future to which my hon. Friend Miss Begg referred will not be significantly better for women. The Government's approach on improving women's pensions—it is commendable—is to try to get women out into the labour market so that they may make their Beveridge contribution. They rightly point to better and cheaper child care provision, the reconfiguration and improvement of parental rights, increased maternity rights and significant support for one-parent families as having advanced women in the labour market. However, that is a slow way of proceeding toward getting good pension provision for women.
The Fawcett Society calculates that at the current rate of progress, it will take 80 years until women have equal pay. It is quite clear that it will take even longer until women who start their careers on equal pay 80 years hence—they will thus have the opportunity to contribute equally—will receive a pension provision equal to that of men. I must tell my daughter when she is about 20 that she will probably be poorer than her brother in retirement. She will have to tell my granddaughter the same thing, and my granddaughter will have to tell my great granddaughter that she, too, will probably be poorer in retirement than a man. It will be only my great, great granddaughter who will be able, in about 2084—that is not as cathartic or resonant as 1984—to tell my great, great, great granddaughter that she will have a chance of equal pay that would give her the opportunity to contribute to a pension that would be equal to that of men.
May I suggest a couple of small quick steps that could be taken through the Bill to accelerate the process ahead of 2084? The principal reason why women have poorer pensions than men is because they spend more time out of the labour market owing to their caring responsibilities. It is outrageous that there is no clear simple credit for national insurance contributions during that time. Two overlapping systems exist. Credit can be given weekly to people who are paid a carer's allowance for looking after a disabled person for more than 35 hours a week, but that does not apply to the care of children. However, many women with children work less and reduce their pay below the lower earnings level, so they cannot get a stamp, yet they do not get the 35-hour carer's allowance.
A second way of compensating women for being out of work is home responsibilities protection, but that is not a credit, so it does not give a stamp equivalent. It reduces the number of years that must be worked to qualify for a pension, and applies to parents of children aged up to 16 for the basic state pension and up to the age of six for the state second pension. However, it covers only a full tax year, so if a person goes back to work on
Could not the Bill easily allow more low-paid people to build up a state pension? The majority of people in low-paid, part-time work are women. Under the current system, anyone who earns less than the lower earnings limit—LEL—makes no national insurance contribution for that week and, therefore, does not build up any right to benefits. They are outside the system. Big changes have been made but 1.4 million women are still prevented from making national insurance contributions because they earn less than £77 a week. It is illogical that people can work an ordinary part-time week as half a normal working week and earn the national minimum wage but still not be within the lower earnings limit to be within the national insurance system.
If we lowered the LEL to £65 a week, 200,000 women and 60,000 men would be brought into the system. If we pulled it down to £60 a week, 570,000 more women and 178,000 more men would be allowed to contribute. There is a further complexity linked to that. Many women have several part-time jobs. For instance, a woman might be a dinner lady at her child's school, or a care assistant at that school, and then, when her partner comes home at night, go out to work in a pub or a late-night shop. If none of those jobs gets her into the LEL, they cannot be aggregated to enable a contribution to be made. Surely it would not be difficult to make a change.
The hon. and learned Lady is making an interesting speech. I wonder whether it would not be simpler to say that everybody should be entitled to a pension regardless of their working record. We could help to pay for the increased cost by making everybody receive the pension at 65 rather than at 60 or 65.
I have not considered the issue of age. I would be obliged to the hon. Gentleman if he did not steal my denouement from me.
Those two small steps would speed up the journey to 2084 for women. Even if equal pay occurs then, a woman's pattern of work will still make it extraordinarily difficult for her to accrue full state pension rights on the current contributory basis. Those small steps would be only the start. If the Bill were to try to tackle these issues, a series of more extensive and more sophisticated carer accounting provisions would be required—pseudo contributions of one flexible sort or another would be necessary to try to fit women into what surely is now a redundant contributory mould.
The problem is not confined solely to the 87 per cent. of women who do not pay sufficiently on the Beveridge basis to get a full pension. In fact, 50 per cent. of current pensioners do not have a full state pension because they do not have the necessary contribution record. Complex knock-on effects follow from even the little steps that I have suggested to try to tweak the edges to improve matters for women and the poor, let alone the knock-ons from trying to take a more systematic and sophisticated approach. In addition, as the House of Lords Select Committee on Economic Affairs says, in order to work the system it is necessary to operate a complex accounting system to track national insurance contributions and credits over each person's working life to enable them to qualify for a full or basic state pension, which in any event will be supplemented in retirement by means-tested benefits for between half and three quarters of all retirees.
The Government's success in operating an active labour market policy to extend employment opportunities to all groups and ages means that few people can now shirk their responsibility of contributing positively to the economic welfare of the country.
The House of Lords report adds:
"Virtually all citizens make positive contributions to the economy and society through their paid and unpaid work in the period between the end of their formal education and their retirement."
"We therefore recommend that the basic state pension should be paid on the basis of citizenship rather than contribution record."
I do not expect such a provision to be included in the Bill, but on behalf of all women, including my granddaughters, I agree.
In the 1950s, when Richard Titmuss analysed the post-war welfare state, he drew a distinction between state and occupational welfare—the benefits that people derived from the state in which they are citizens and those that accrue through their employment. The growth of private pensions in recent decades has established that as a false dichotomy. Our population is ageing, and by 2021, about 20 per cent. of the population will be over 65. In my constituency, the figure will be closer to 40 per cent. More private pensions alleviate some of the projected welfare costs of an ageing population, but they do not reduce the state's responsibility to ensure that all our citizens have the opportunity to have pensions sufficient to maintain their dignity in retirement.
That responsibility requires the state to act, not always as provider, but sometimes as regulator or guarantor. The Bill establishes a framework to meet those changed realities, and right hon. and hon. Members have spoken in considerable detail about the way in which that duty is exercised. Since 1997, the state has done much to tackle pensioner poverty by increasing the basic state pension, and providing winter fuel payments, free television licences and sight tests, and the pension credit. The Bill tackles the other side of the equation, and as Members have said, the pension protection fund is a welcome means of preventing further pension losses.
Mr. Willetts could not accept that in 1995 the Conservative party got it wrong. Once again, we have had not had an apology, and the amendment reveals the politically opportunistic party that the Conservatives have become. They have not provided any help in looking at the problem of pensions, and only wish to attack and cause as much mayhem as possible without trying to solve the nation's problems. They have shown that they care not one jot for poorer pensioners. The hon. Member for Havant cannot even look after his own pensioners. In his constituency, 3,382 pensioners receive pension credit, gaining an average of £40.29 a week extra over and above the minimum income guarantee. In my own constituency, 4,418 pensioners receive an average of £46.46 extra a week. The Conservative party would introduce a blanket increase of between £8 and £10 across the board, so that people most in need would lose £30 to £38 a week. That is what we call politics.
I am sorry to disappoint the hon. Gentleman, but I shall not give way, as my hon. Friend Mr. Tynan wishes to have 10 minutes to make a speech. I am sure that when Mr. Waterson sums up, he will manage to put the record straight.
Mr. Ruffley said that since 1997 there has been a lack of consultation by the Government. I asked myself what good things happened in the 18 years between 1979 and 1997, then I realised that there were none. The hon. Gentleman is a lawyer and as he knows, ignorance is no excuse. He was happy that his hon. Friend's constituents would lose between £30 and £38 a week. I ask members of his Front-Bench team to give the hon. Gentleman a better brief and a smaller shovel.
The pension protection fund is in many ways the antithesis of the laissez-faire Thatcherism newly reclaimed by Mr. Letwin which, as I witnessed at Defence questions yesterday, caused so much discomfort for Mr. Soames. The PPF shows the importance of judicious Government intervention to protect those who suffer through no fault of their own. The Government did not become insolvent, the Government did not employ the people concerned, yet the Government will step in to protect their pensions.
The House should deal with pensions as a cross-party issue, but today we have again seen Opposition parties indulge in opportunistic petty point-scoring. The saddest thing about the debate is the fact that the Opposition tabled an amendment. One of the problems discussed earlier by Front-Bench spokesmen was that cost seems to be a sticking point for the Government. Perhaps I could suggest a solution that I have not heard today to cover some of the costs. Why do we not take a windfall tax from the banks, which seem to think nothing of ripping off their customers? The billions of pounds that they have made in profits in the past year would, could and I say should be used to help the people of this country. In that way we would at last see the banks meeting their moral responsibilities, which they have sadly failed to do over a number of years.
There are a few points on which I would appreciate clarification from the Minister. Does the Bill cover measures to protect pensions when trustees compromise a pension fund's debt in an attempt to prevent insolvency? Will the Bill place members of a pension fund higher up the list of priority creditors at insolvency? The other substantive aspect of the Bill on which I would like clarification is the extension of the Transfer of Undertakings (Protection of Employment) Regulations 1981 to private sector transfers. The degree of protection on offer from the Government appears to have been reduced since the launch of the initial consultation document in 2001. What is the Minister's estimate of the sufficiency of the 6 per cent. requirement for a transferee matching an employee's contributions? After all, that could still allow considerable damage to be done to individuals' pension funds. Under such circumstances, my own pension fund with BT would be halved.
Can my hon. Friend clarify whether acquiring employers will have to provide the 6 per cent. maximum contribution, even if the tranferer's contribution was lower? I have said on many occasions that I would support compulsory contributions of about 9 per cent. from employers and of 6 per cent. from employees. Until this or any other Government introduce that, the future financial concerns of an ever-aging population will not be met.
The different ways in which people provide for their retirement and the number of people unable to make such provision require the Government to take a holistic approach to pensions. That has, I believe, been done. First, Labour began tackling pensioner poverty, then we assisted pensioners with modest savings. The Bill addresses many of the concerns of people who have a private pension but lack security. It is the product of considerable thought, it tackles problems of long-term importance and exemplifies the Government's commitment to our pensioners. It may stop short of what I personally would want, but it is a considerable step forward. I am glad the Liberal Democrats will support us in the Lobby tonight, although it is sad that there will be a Division. That says more about the Opposition than about the Government.
In conclusion, I congratulate my right hon. and hon. Friends on the Front Bench. They have done an excellent job. They must consider compulsory contributions and retrospective payments, as I am sure they are intelligent enough to recognise.
Security and confidence, protection, complexity and increased choice in place as quickly as possible—the Secretary of State for Work and Pensions has made it clear to pensioners that those are his objectives. I certainly support those ideals and ambitions and welcome much that is in the Bill.
This debate should not be a point-scoring exercise because it is too important. Having listened to hon. Members' contributions, I believe that the Bill can be springboard to encourage people to make provision for their retirement. Nevertheless, I hope that the Minister will acknowledge in his response the many fears and concerns that have been expressed.
The issues involved in pension provision are complex, as is the nature of pensions. The Bill is to do with the past, the present and the future. In the past, it is true that many of my constituents lost their pensions through the failure of a pension scheme and that that has created an enormous void in their current situation. It is important, however, to place on the record our congratulations to the workers who have kept this issue in the minds of the people, including trade union representatives and Members of this House. I pay tribute to the contributions made by my hon. Friends the Members for Sittingbourne and Sheppey (Mr. Wyatt), for Cardiff, West (Kevin Brennan) and for Ayr (Sandra Osborne) in ensuring that all. Members recognise the problem.
We need to encourage employees and employers to work together to create a pension for their retirement. The state pension was never designed to make up for an absence of savings when we retire or to be a substitute for what we earn in full-time employment. Various people who have been unable to save have been given the support of the pension credit. I remind hon. Members that the state second pension offers 20 million people—including 2.5 million carers, 2.5 million long-term disabled people and 13 million low and moderate earners—the prospect of building better pension entitlement than previously. That is important in terms of how we move on.
The Opposition decry the pension credit and the minimum income guarantee, but I believe that those initiatives have been invaluable in protecting pensioners. I hope that the Government will continue to increase pension credit in line with average earnings—that is an important factor that must be taken on board. The loudest voice among pensioner organisations calls for the restoration of the link with earnings. The Conservatives scrapped that, but now that it is popular they have decided to reintroduce it. My advice to pensioners would be to beware because those promises might never take effect—they should never trust a Tory.
Is it possible to restore the link and to maintain the pension credit, but to use the taxation system to recover funds from those pensioners who do not need the basic pension to ensure that their standard of living is maintained? Some company directors and MPs have a pension that is way beyond that which some pensioners could ever hope to receive. I ask the Minister seriously to consider that proposal. However, it should not be paid for by condemning young jobless people to a lifetime of unemployment through scrapping hugely successful schemes such as the new deal. If we are to convince young people to involve themselves in pension schemes, we have to create the opportunity for occupational schemes to be re-established and to grow.
There is currently a crisis of confidence in pension schemes. There are many reasons for that, including pensions mis-selling in the 1980s, the problems of Equitable Life and the squandering of pension scheme surpluses by companies. Many companies raided pension schemes in the halcyon days of stock market growth. Indeed, they were aided and abetted by the previous Government, who legislated for any surplus of more than 105 per cent., based on actuarial assessments, to be taxed at 40 per cent. That encouraged companies to become predators, remove surpluses and take contribution holidays irresponsibly, without caring or recognising that stock markets can go down as well as up.
I had practical experience of such matters when I worked at Hoover. When Chicago Pacific bought the company, the first thing it considered was the £200 million surplus in the pension scheme. It attacked that and tried to take it from the scheme. That sum was more than it had paid for the company.
Many current deficits are the product of earlier over-eagerness by pension schemes. Previously, they adopted a balanced investment strategy, but in the 1980s and 1990s there was a dash towards equities. By the mid-1990s, pension schemes held the majority of UK shares—then the bubble burst. My right hon. Friend Alan Howarth made the point that we must have a balance between contributions and investment in pension schemes.
There is hope. A survey that Hewitt Bacon and Woodrow published on
"then leading companies on average may find that their pension deficits have gone".
It is important to take that on board when pension schemes are wound up in the next few years. We must recognise that if the FTSE 100 reaches the required level, the deficit will be wiped out.
The Minister must consider how best to implement good investment practice. Perhaps we will decide to ensure that pension schemes should hold a more balanced portfolio of bonds and shares, or at least that they should be more transparent in decision making. We must take account of that.
I welcome many of the Bill's proposals. The new regulator, which the Pickering review initially proposed, will focus on issues of greatest concern and have real teeth, which will be an important step forward. However, there are several matters about which I should like reassurance.
I have several concerns about the working of the pension protection fund. The Department for Work and Pensions stated that it expects the cost of the fund to be offset by savings in administration costs that will be brought about by the range of simplifications in the Bill. Discussions that I have had with representatives of pension schemes suggest that they believe that there will be few, if any, cost savings through the simplifications. I should like reassurances from the Minister that he is convinced that there will be cost savings.
Concerns have been raised that the cost of the fund will be prohibitive, with costs of up to £40 per scheme member a year. Given that Watson Wyatt estimates that the average cost of administering a large pension scheme is currently about £28 per member, I hope that the Minister can reassure us about that.
I also hope that the Minister can reassure me that the fund will protect an adequate level of benefit rather than simply an arbitrary percentage, that safeguards will be established to ensure that the fund is not allowed to slip deeper into the red and that the risk-based levy will not be the straw that breaks the camel's back for the pension schemes of companies that are already struggling to provide final salary schemes. It would be tragic if providing the fund destroyed some occupational pension schemes.
I hope that the Minister will confirm that he would not normally expect the powers to enforce a freeze period on a pension scheme to freeze pensions that were already being paid. Although I welcome the proposals on member-nominated trustees, I hope that the Minister will outline the way in which the Government will encourage ordinary employees to take on that role, educate them about fulfilling it and ensure that individual trustees are adequately protected, for example, through periods of grace, with regard to the requirement for knowledge.
I have one point to make in conclusion. I should like the Minister to instruct his civil servants to conduct a thorough audit of those affected by pension schemes that have wound up in deficit since 1995, the value of the pensions lost and the circumstances in which those schemes have been wound up. Although I understand his point that it would be wrong to give false hope, he must look at what can be done to solve the problem of the people who have lost their pension entitlement. Morally, that is the correct thing to do.
I shall close on that point, because I am sure that the Minister needs time to resolve the problems that we have raised.
I begin by declaring an interest, in that I have some private pension provision—[Interruption.] Well, I had the last time I checked, anyway.
We have heard some interesting debating points today on the wording of our reasoned amendment. The whole point, as the House well knows, is that although we will not vote against the Second Reading of the Bill, we have profound reservations about it. We welcome the new regulator—we hope that he will end up with teeth and that he will use them where appropriate. We also support the principle of the pension protection fund, as my hon. Friend Mr. Willetts said in his opening speech. However, we have many reservations about the Bill, not least based on the many crucial details that are absent from it. Fortunately, the Secretary of State agrees with me on that, because he said in his opening speech, in a slight flurry of embarrassment, that the Government propose to try to amend their own Bill on a whole raft of issues, perhaps even in Committee. We welcome his invitation to a meeting to try to work out how we will get the Government out of that mess.
That invitation seems to have been summarily withdrawn. However, we look forward to hearing at what point the Government amendments will be tabled and, even more importantly, whether the people who actually matter—those who will be affected—will be consulted on any of those amendments, let alone the myriad regulations that I hope we shall see in draft in Committee.
With our reasoned amendment we are saying to the Government, in a nutshell, that they have got six out of 10 and must try harder. It is not just we who have those reservations. In last week's debate, I said that the Bill had been greeted with a chorus of disapproval, and I shall quote just some of the comments made. The Daily Telegraph described the Bill as "Half-baked". The Observer said:
"In short, it is not facing up to the gravity of the situation and is not framing policy for the long term."
The National Consumer Council said:
"The Bill only tinkers at the edges of occupational pensions".
Mr. David Frost—[Interruption.] Hon. Members must have a little patience. Mr. David Frost—not "the" David Frost, but "a" David Frost, who is director general of the British Chambers of Commerce and a very eminent man in his field—said:
"Employers, burdened by ever-increasing costs, will choose either to close their schemes or reduce the size of their contributions."
The Consumers Association said that
"it will take a lot more than this Bill to encourage savers to put their money back into pensions."
Help the Aged said that the Bill
"will do little to stem the tide of pension scheme closures."
On employers' contributions, which the hon. Gentleman has mentioned, has he had the opportunity to study the GMB research? It shows the remarkable variation in employers' contributions, rising from 2 per cent. with Kingfisher Trust and Asda, to 8 per cent. with HSBC and John Laing, and to as much as 12 per cent. with CGNU. Does he have any observations on employers who make derisory contributions to their employees' pension funds?
If I may say so, the real concern that we all, including the right hon. Gentleman, should have is with the schemes that are closing to new members and the schemes that will not be opened as a result of the Bill.
Barnett Waddingham, the leading actuary, has said:
"It could take just one company with a large pension scheme to become insolvent for the PPF to become untenable."
The National Association of Pension Funds described the claims of 100 per cent. compensation under the Bill as "a bit of kidology", a point picked up by the Occupational Pensioners Alliance, which points out that because of the indexation proposals there will not be increases for pensioners who retired before
Let us remind ourselves of the scale of the problem. A new employee joining a company now will have a less than one in five chance of finding a final salary scheme still open for him to join. Mr. Adair Turner, the chairman of the Government's own Pensions Commission, reckons that 60 to 70 per cent. of private sector defined benefit schemes have closed to new members in the past five years. We have also heard, quite rightly, from a number of hon. Members about the 60,000 people who have lost all or some of their pension rights in the past few years.
We believe that the Bill raises issues of over-bureaucracy and over-regulation. We are to have a pension protection fund with a board, a quite separate fraud compensation fund, a regulator with a determinations panel, a pension protection fund ombudsman and a pensions regulator tribunal. That represents a great deal of new bureaucracy, which will need to be examined very closely in Committee.
We bid a cautious welcome to the proposals to defer state pension in certain circumstances, but we will be keen to examine the small print relating to tax and the interrelation with means-testing. We touched on those issues last week—[Interruption.] The Under-Secretary of State for Work and Pensions, Maria Eagle, really must contain herself. We wish to ensure that the Bill will contain a cast-iron guarantee that anyone thinking of participating in this particular deal should have all the relevant information made available to them by the Government before taking the plunge. The provision merely underlines the truth that, under this Government, we are all going to have to work longer to be able to afford a decent pension in retirement.
We have had a good debate today, and I apologise to those hon. Members whose comments I cannot deal with in detail. My hon. Friend Sir John Butterfill gave his usual magisterial performance, as befits a man who holds the future of our own pensions in his hands. My hon. Friend Mr. Ruffley also showed a good grasp of the subject, as befits a member of the Treasury Committee. My right hon. Friend Mr. Lilley, as a former Secretary of State, brought his great expertise and original thinking to the problems that we are facing. He also described in a very helpful way the background to the Maxwell saga and the 1995 legislation.
Alan Howarth made an extremely interesting speech, particularly on the importance of defined contribution rather than defined benefit schemes. He made the point, which I entirely endorse, that the Bill will not reverse the trend of the closure of defined benefit schemes. Mr. Wyatt, who has a distinguished record in pursuing these issues, particularly on behalf of his constituents who have lost out, talked about a Government being morally bankrupt if they did not tackle the problems of those who have lost their pensions.
I was delighted that Kevin Brennan did not content himself merely with making interventions on this occasion. He had a great deal to say on these issues, much of it very helpful. I am surprised, however, that he feels able to support the Bill in its present form, as it conspicuously fails to deal with the problems of the ASW workers and others. He put forward a convincing moral, legal and public interest case for compensation for that group of workers. I hope to say something of interest on that subject to him in just a minute. Of those three arguments, perhaps the most important for this purpose is the public interest case, relating to the 60,000 ghosts at the banquet who, as the hon. Member for Sittingbourne and Sheppey said, cast a shadow over the Bill. They will continue to do so until the Government grasp this particular nettle.
Typically, Mr. Field made an excellent contribution, in which he made it clear that the Government have no satisfactory long-term policy for pensions and savings. He again expressed the view—rightly, in my opinion—that means-testing undermines confidence in saving and pensions. We look forward to him being appointed to the Standing Committee.
The central provision of the Bill, of course, is to set up a fund on the model of the American Pension Benefit Guaranty Corporation. That model has been going for 30 years, and now seems to be getting into real trouble—at a time when it is getting into severe difficulties, with an $11.5 billion deficit, the Government are trying to follow a similar model. When I was in Washington recently, I met people such as Steve Kandarian, to discover some of the problems that they have faced and continue to face. Of course, the central theme of all those meetings was, "For goodness' sake, whatever you do make sure you have a totally risk-based levy, not a flat-rate levy." We now hear from the Secretary of State that not only will we have a flat-rate levy for at least the first year, but a period of possibly several years will follow of phasing in the risk-based elements of the levy.
The new fund will be extremely vulnerable, especially at the time of its birth and for some time thereafter: first, because of the question of its funding; and secondly, because of the potential for claims that have been stored up to be made against the fund. When the American model was set up, it waited for four or five years before it started paying out on particular claims. In fairness, the Secretary of State could not have been clearer when he said that there is no basis on which this Government will stand behind the fund. The fund therefore sinks or swims on its own.
We had the news only today that Marks and Spencer is starting a trend of issuing bonds to make up the shortfall in its pension fund. The experts tell us that such large companies, which find it easy and relatively cheap to borrow, will use that mechanism to make up any shortfall in funding. If that happens, it will merely accelerate the trend, when we move to a risk-based levy, of the larger companies being able to deal with their shortfall in that sort of way, leaving the somewhat dodgier companies—companies that are not in a position to have that kind of bond issue—struggling and paying a higher and higher levy into the fund. In other words, in the pensions Titanic under this Government, the first-class passengers, as in the real Titanic, will have lifeboats, but the steerage passengers—the less strong companies and schemes—will be trapped below decks as the vessel's inherent instability drags it inexorably under the water.
I have some news for Labour Members who have been chiding the official Opposition all afternoon about our proposals. I can tell them—[Interruption.] I knew that they have been waiting for this moment, especially the Under-Secretary, who can barely contain herself. At the end of the Divisions this evening, I will be tabling a series of amendments, to which I invite all right hon. and hon. Members who expressed concerns about the 60,000 and derided the official Opposition to append their names tomorrow. If they do not do so, their constituents should ask why. Basically, the proposals are to set up a separate interim pension protection fund, still administered by the pension protection fund, to be endowed with any remaining assets of the schemes in wind-up and drawing on those unclaimed assets that we have debated.
I commend our amendments to the House, and I acknowledge with thanks the partial inspiration of the right hon. Member for Birkenhead. Those amendments are not the last word by any means, however. If the Government accept the principles that underlie them, I will happily withdraw them so that the Government can redraft them. I trust that all those who have expressed sympathy for the cause of the ASW workers and so many others will add their names to those amendments tomorrow.
As I have said, there is much in the Bill that we welcome or on which we believe that we can improve in Committee. As it stands, however, does the Bill pass three acid tests? First, will its central provisions encourage employers to keep open existing schemes, let alone new ones? The answer is a resounding "No". Secondly, can the Bill achieve the Government's stated objective of altering the balance between private and state pension provision from 40/60 to 60/40? Again the answer is a resounding "No". Does the Bill set in place a simplified, clear and overarching pensions vision fit for the challenges of the 21st century? Against a background of a system that is complex, difficult to understand and often contradictory, with the savings culture being fatally undermined by an inadequate state pension and the inexorable growth of means-tested benefits, again the answer can only be "No".
I commend our reasoned amendment to the House.
This has been an interesting and often thoughtful debate, dominated numerically and in other respects by Labour contributions.
Before I say anything else, I should like to acknowledge the contributions of many hon. Members on all sides of the House: my right hon. Friend Mr. Field; my hon. Friend Kevin Brennan; Mr. Ruffley; my right hon. Friend Alan Howarth; Mr. Lilley; my hon. Friend Sandra Osborne; Sir John Butterfill; Adam Price; my hon. Friend Richard Burden; Paul Holmes; my hon. Friend Miss Begg; my hon. Friend Tony Lloyd; my hon. Friend Mr. Crausby; my hon. Friend Mr. MacDougall; my hon. and learned Friend Vera Baird; my hon. Friend John Robertson; and my hon. Friend Mr. Tynan. There were also notable contributions from the Front Benches, some interesting in what they did not say and others in what they did say.
Let me start in this way. Mr. Johnson is 58. He has been working for the same employer for 30 years and has been contributing to his occupational pension throughout this time. Last year his employer went bankrupt, but Mr. Johnson knew that his pension was safe. So far, so good, but Mr. Johnson is an American. The US Pension Benefit Guaranty Corporation meant that his pension savings had been protected, as had those of others like him, since the mid-1970s. We on this side of the House are saying, as I hope others in the House are, that what is good enough for American workers for over a quarter of a century is certainly good enough for British workers and British company pensions.
I have met people like Mr. Johnson in the United States, and I have seen the difference that this real security makes. The House should be proud today to be offering this protection to the people of Britain. When we vote this evening the House has an opportunity to take the first steps to make the Pension Protection Fund a reality, a major social policy innovation, a consistent piece of pensions architecture, to build confidence that a pension promise made will indeed be a pension promise honoured.
I am most grateful to the hon. Gentleman for giving way. He talked about the American experience. He will have heard my hon. Friend Mr. Waterson say that the American pension fund is $11.5 billion in deficit. What proposals does the hon. Gentleman have, should the United Kingdom fund go in the same direction?
This matter has been a feature of the debate, which I think the hon. Lady has mainly missed. I shall come to that later.
When I was in the United States, no one I met on either side of the political spectrum, certainly not Republican politicians, saw the end of the Pension Benefit Guaranty Corporation. They recognised it for the important institution that it is, as we will in the years to come.
I shall return to the fund in a moment. I should first like to make a few remarks to explain the Bill in the wider context of this Government's overall strategy for meeting the demographic and economic challenges facing all pension systems today. This is touched on in the Opposition's amendment, and several hon. Members have touched on this context. Certainly, the subject of pensions is rising up the agendas that count, in this House, among citizens, among trade unions, which are playing a major role, and among employers.
Our approach is to be fair to the poorest, fair to those who have saved, and fair as between generations, not least by not imposing big tax rises on future generations.
Thanks to the reforms of this Government, from April we shall be spending around £9 billion more in real terms compared with the 1997 system. This includes around an extra £4 billion on the poorest and most hard-pressed pensioners.
My hon. and learned Friend the Member for Redcar talked importantly about the position of women. Pension credit, which now benefits 2.4 million people—and the number is increasing every week—will mainly benefit women, who constitute two out of three pension credit beneficiaries. The state second pension is also particularly important to women. About 20 million people have gained from its introduction in April 2002, including 5 million carers and people with long-term disabilities.
Pension credit is rewarding those who have made a major contribution. It is already helping the attack on pensioner poverty. By 2001–02 absolute poverty was down 60 per cent. on the 1997 figure, with 1.6 million pensioners lifted above the poverty line. We have banished the past—the Tory days of 2.7 million pensioners in poverty, and pound-for-pound withdrawal undermining the whole system by showing that it sometimes paid not to have saved. Conservative Members talk about savings. We have not talked about them; we have acted.
We have more to do, however. Simplicity, security and choice underlie the Government's approach to moving from present to future. We have already taken significant steps. We are tackling complexity across the pensions agenda. Older people can now make a single telephone call to the pension credit hotline, rather than having to fill in a 40-page form. We have drawn up tax simplification proposals to sweep away the existing eight different tax regimes and replace them with a single lifetime allowance. We have bolstered security. Last week we presented full buy-out regulations enabling trustees to require a solvent employer who wants to wind up a pension scheme to buy out members' rights in full. Our Command Paper on informed choice set out the action we are taking to empower individuals to take more control of their retirement futures.
The Bill is the cornerstone of our whole approach. It is about bolstering security, strengthening member confidence, minimising burdens, cutting red tape and expanding choice. We have heard some notable speeches today. My hon. Friend Mr. Barnes, for instance, asked about the implications for Northern Ireland. In general the Bill extends only to Great Britain, but there are exceptions, including the pensions regulator—most importantly—and the protection fund. Northern Ireland legislation will bring those provisions into effect in Northern Ireland.
It is worth reminding the House of just what an opportunity the new fund offers. For the first time ever, individuals in defined benefit pension schemes, commonly known as final salary schemes, can rest assured that they will always receive a meaningful pension, even if their company goes bust and leaves the pension scheme underfunded. A risk-related levy will mean that those who pose the greatest risk to the fund pay the lion's share of the levy. There is a benefit cap of £25,000 a year, which will be simple to operate and which is a change in policy from a salary cap. That is a direct result of advice from key players in the pensions world, not least the employer taskforce established by the Secretary of State.
We have developed our policy in conjunction with expertise across industry, learning lessons from the United States and other countries in the process of building a pension protection fund that can bring security and peace of mind to those in defined benefit schemes. How many people like America's Mr. Johnson could benefit in this country? We know that there are about 10 million active and deferred members of private sector defined benefit pension schemes. In addition, about 5 million pensioners could benefit. That comes to 15 million. Inevitably, there is some double counting: an individual may be a member or beneficiary of several schemes. That is why we have always talked of at least 10 million individuals. Of course, not only individuals but their families stand to gain, so the number of people who could benefit from the security and peace of mind that the fund will bring is much greater than 10 million, and probably much greater than 15 million.
All we are trying to do is bring security to pension schemes of different kinds. I believe that the Bill will bring security to people in final salary schemes.
There has been much talk today about the levy, so I shall clarify what members will pay for pension security. The figures that I give are by way of illustration. In practice, they may vary to a small extent, but I hope that my examples will help the House.
We estimate that each member will pay about £10 for the first year, assuming that the £150 million estimated cost of the initial levy was spread evenly across all members. It is expected that each member will pay an average of only £20 per year thereafter, assuming that the £300 million estimated cost was spread evenly across all members. However, different schemes will pay different amounts because of the introduction of the risk-based levy from the second year.
Those costs pale into insignificance when compared with the typical cost of household insurance of about £350 per year, or even with the cost of holiday insurance for a family of four for a two-week trip to Spain. I am advised that that insurance might cost double the £20 per year figure that I quoted.
The amounts involved are relatively small, when compared with the degree of assurance that they will afford to members.
I am giving the House the Government's estimates, which I hoped would be helpful even though I acknowledged that they might be subject to some variation. The arithmetic on which they are based means that they carry a certain authority.
Understandably, much of the debate has centred on the circumstances of those workers who are in very great difficulties at present. Notable among the speeches on this subject were the ones made by my hon. Friends the Members for Cardiff, West and for Sittingbourne and Sheppey (Mr. Wyatt). Both contributions offered well informed and passionate arguments in favour of the Government's proposals. However, the House will understand that I am not in a position to add to what my right hon. Friend the Secretary of State said earlier about this very important matter.
In Standing Committee, we will need to talk about the pensions regulator, which in many respects will be as important as the PPF. The regulator will be flexible and proactive. It will have a light touch with schemes that are in good shape, but real teeth for schemes that are not. There will be simplification, and I look forward to talking about that, and our proposals on limited price indexation, in Committee.
I am pleased that Liberal Democrat Members support the Bill, and I am sure that their reasoned amendments will be discussed in Committee. However, I simply do not understand the position adopted by Her Majesty's loyal Opposition. In an extraordinary statement, they have just told the House that they will not vote against the Bill, even though they have tabled a so-called reasoned amendment that begins by stating that
"this House declines to give a Second Reading to the Pensions Bill".
The Opposition have brought to the House proposals that they have sketched on the back of an envelope. They pretend that they are working up a scheme to help today's workers, but decline to give a Second Reading to a Bill that will set up a pension protection fund that will help more than 10 million people in the future. We estimate that that total will include 15,000 to 16,000 people in the average parliamentary constituency.
That is simply not credible. Opposition Front-Bench Members tell their colleagues to vote for their reasoned amendment, which would decline to give the Bill a Second Reading, and the shadow Secretary of State—which is what he will remain—will lead his confused troops into the appropriate Lobby. However, Opposition Members will be told later to support the Bill.
The Government have the proposals for the future. Her Majesty's Opposition are in a total shambles. They are an example of opportunism at its very worst.
Question put, That the amendment be made:—
The House proceeded to a Division.