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Mr. Gareth Thomas (Clwyd, West) rose--
Mr. Lilley: I shall give way to the hon. Gentleman if he intends to defend the Financial Secretary.
Mr. Thomas: On the question of tax burdens on pension funds--
Mr. Lilley: The hon. Gentleman refuses to defend the Financial Secretary--and I can understand why. I shall give way to him later. It is only fair that the Financial Secretary should receive some defence from the Government Benches.
Mr. Geraint Davies (Croydon, Central) rose--
Mr. Lilley: Will the hon. Gentleman defend the Financial Secretary's statement that the reforms will benefit pension funds? I shall give way if he will do so.
Mr. Davies: Does the right hon. Gentleman accept that the actuarial practices to which he referred that evaluate pension funds on the basis of dividend flows alone are quaint and eccentric? Growth prospects are employed in the evaluation of pension funds and minimum funding requirements, in terms of future values and so on, in other countries and for other financial products, such as unit trusts. The wider Budget package offers more investment in Britain and in British industry which, in the medium term, will be good for pensions, good for pension values and good for pensioners. So the right hon. Gentleman's claims are false.
Mr. Lilley: That effort should win the Mandelson prize for loyalty beyond the call of duty. The hon. Gentleman claims that actuaries base their practices on old-fashioned systems--such as the laws of arithmetic. If we subtract £5 billion from a fund, there is £5 billion less: that is old-fashioned arithmetic. I agree that it is out of date and does not accord with new Labour thinking, but that is how it has been done until now.
When we study Hansard, perhaps we shall realise that the hon. Gentleman's remarks contained kernels of wisdom and that somehow the pension funds will not suffer because, according to new actuarial analysis, everything will be all right. Therefore, I invite him to address another question that the Financial Secretary could not answer. If pension funds will not be hurt by the measure, why is it necessary to protect charities and personal equity plans from its damaging effects?
Mr. Davies:
It is very kind of the right hon. Gentleman to ask me these questions--I did not realise that I was giving the speech. As I have knowledge in this area, I shall respond. My point is that there is no congruence between money not given in dividend flow and the eventual impact on pension value, because we have not taken into account the impact on equity growth due to the wider economic environment that the Budget creates. The Government have excluded charities not in order to neutralise the effects, but in order to give them the extra benefit that they deserve so much.
Mr. Lilley:
Roughly interpreted, that means that funds will grow faster if we take away £5 billion--so imagine how fast they will grow if we take away £10 billion.
Mr. John Greenway (Ryedale):
Is not the real point rather different? The measure will drive pension fund
Mr. Lilley:
I am sure that my hon. Friend, who is an expert in such matters, is correct. It is part of the law that I adumbrated in response to the Budget: the further removed the tax charge is from the taxpayer, the more damage it does as it works its way through the economy. My hon. Friend has given an example of that damage.
As well as simply denying that taking money out of pension funds has any adverse effect, the Government's second defence is that many of the funds are in surplus. The simple fact is that no personal pension funds or money purchase funds are in surplus. By definition, there is no such thing as a surplus for those schemes. The impact of higher taxes will feed straight through to them. The changes will affect some £170 billion of such funds and 6 million people, particularly the self-employed who have been building up such a fund over a long period, all of whom will have to pay in higher contributions in future or receive smaller pensions.
Before the end of the debate, I should like to hear from the Government whether they agree with the Association of Consulting Actuaries that, for a 30-year-old paying in £100 a week, 12 per cent. extra is required to achieve the same pension that he had anticipated. Has the Treasury come up with any of the answers to the questions that I asked last Thursday? The Chief Secretary is present. I do not know whether he is here to listen. Perhaps I may briefly interrupt his conversation. Will he pay attention for a moment? Last Thursday, I asked him a series of questions during the Budget debate. He failed to answer them. We have given him extra time from our own. May we have an answer to those questions today?
I remind the Chief Secretary what the questions were. By how much will the contracting-out rebate have to be raised to prevent people being best advised to contract into SERPS again? How much will that increase cost the Exchequer? Was that cost included in the calculations in the Red Book and netted off against the £5.4 billion revenues, which will, allegedly, be raised by the tax? If there is to be no increase in the rebate, how many people who contribute to personal pensions will be best advised to opt back into SERPS, and how much will that cost in the long term? Will the Government advise those 6 million people of the impact that their tax changes are having on pensions that they have already taken out? Will not the Government be guilty of misselling if they fail to do so?
I now deal with the point about private firms misselling pensions, an act that I utterly deplore. I entirely support and endorse the measures that were taken by the former Economic Secretary, Angela Knight, and her successor, who was here until a moment ago, in trying to speed up the resolution of the problem. Past misselling by private individuals cannot justify future misselling by the state. The measure that the Government are introducing will have the effect of slowing down the resolution of the misselling. Both the Association of British Insurers and the National Association of Pension Funds have agreed that it will add further months of delay to the process of
calculating and sorting out past misselling, because all the calculations will have to be redone, to take into account the impact that the measure will have on the costs of reimbursing people.
If the Government believe what they say, they believe that there is no impact, so there is no change in the calculations, so they can order the companies to go ahead and give compensation at the lower level that they had intended and not at the higher level that they now believe is necessary as a result of the tax changes.
Ms Sally Keeble (Northampton, North)
rose--
Mr. Lilley:
I give way to the hon. Lady. We shall see whether she wants a higher or a lower level of compensation.
Ms Keeble:
The right hon. Gentleman made a point about the advice that the Government might provide to pensioners, but could it could be any worse than the advice that the previous Government provided? In the advertisements, they said:
Mr. Lilley:
If the hon. Lady is merely making a debating point, we can move on. If she is making a serious--[Interruption.] Well, a petty-minded debating point. If, as I judge, however, she is making a serious point, she will deplore any future misselling as she deplored any that occurred 10 years ago. Surely two wrongs do not make a right. If she thinks that what occurred 10 years ago was wrong, how does she think that it is correct for the Government to make changes without acknowledging their impact on the 6 million who already have personal pensions? That is, unless she is a Labour Member who thinks that her party can do no wrong.
"Is the pension you're going to get the one you'd choose?"
and
"The right pension for you is now yours by right".
Or how about this one?
"The old pension rules made moving around a wee bit tricky".
Rather a lot of people who took out private pensions will find that that advice was not very good. The right hon. Gentleman also mentioned that many pensioners did not vote Labour, but one place where they did was in Enfield, Southgate, which was the constituency of his former colleague who was responsible for those advertisements, Michael Portillo.
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