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11.45 pm
The answer to the problem will not be to allow limited and highly regulated investment in high-quality commercial bonds. The yield on those bonds will fall, and the contribution that they can make to investment requirements is of necessity limited. Such a move would have only a temporary palliative effect. The answer is to move away from mechanistic actuarial calculations based solely on income flow and towards a system that realistically and conservatively assesses total investment returns. That policy is now being adopted by the trustees of many institutions other than pension funds.
I serve on the council of management of the People's Dispensary for Sick Animals. As that charity has substantial on-going liabilities for the monthly payment of the salaries of veterinary and other staff, the investment policies that we dictated to our fund managers were, until recently, income constrained. We realised that it did not matter whether the money coming into the charity was income or from capital gains, so long as we got in enough money. We decided that, provided that our calculations were prudent and likely to produce sufficient funds, we could change the whole basis of our investments. So it should be with pension funds.
If the present trend continues, we could arrive at a situation in which funds have capital values that massively exceed any reasonable calculation of future liability, but their income is so poor as a result of declining gilt yields that they are constantly forced to add to their capital funds. We have surely created a regulatory madhouse, which the Government must reform without delay.
Mr. Andrew Miller (Ellesmere Port and Neston):
I never thought that the day would come when I would find myself agreeing with a significant part of what the hon. Member for Bournemouth, West (Mr. Butterfill) has said, especially in his earlier contribution. I profess a certain ignorance on the latter points that he made, but I am pleased that he is looking after our pension fund in the House.
The hon. Gentleman raises some important points. I shall refer to new clause 34 and the question of takeovers. It was interesting to hear the exchange last week and again today between the hon. Member for Solihull (Mr. Taylor) and the Secretary of State for Trade
and Industry on the position of Rover. The hon. Member for Bournemouth, West raised a particularly important point about smaller companies.
I sought to introduce a private Member's Bill on this point in the previous Parliament, but I was persuaded by the then Government that the issues that I was raising would be covered by the Pensions Act 1995. To be fair, a significant number of improvements were made at that time. Sadly, the collapse of H. H. Robertson's in my constituency early in 1997 shows that the 1995 Act may need strengthening further.
In commenting on that case, I should like to pay tribute to a number of colleagues. I mentioned the hon. Member for Solihull, who in his position in the previous Government referred this case to the Serious Fraud Office. His successors have also been extremely helpful. The noble Lord Harrison of Chester and the noble Lord Hunt of Wirral have made positive contributions in this area. My right hon. Friend the Member for Birkenhead (Mr. Field) is still working with me on this case, as are other local colleagues. Many of them, including the Under-Secretary, my hon. Friend the Member for Wallasey (Angela Eagle), have constituents who are affected by this terrible tragedy. The Minister of State, Cabinet Office and the Deputy Prime Minister have consistently taken an interest in this case.
This collapse came about after an asset-stripping operation by Mr. Ric Wharton, who bought the company for $1. He made a pretence of reviving the company, but in reality he made a lot of money at the expense of the company's creditors. Sadly, and perhaps wrongly, pension funds are unsecured creditors, so when the company was refinanced by a conventional bank loan, the fund fell further down the pecking order of creditors. The net effect was that, when the company collapsed, the pension fund had a shortfall of about £5 million. Now, pensioners are surviving on about 25 per cent. of their pension entitlement, while Mr. Wharton lives in the lap of luxury.
Many of the people who lost their jobs would have been far better off had they chosen to retire, rather than taking a pay cut--at Mr. Wharton's behest, and having had no real choice, and no knowledge of how to handle the situation. Had they done so, the state would, ironically, have saved money, because the amount now being paid in benefits is astronomical. At that point, the company's assets would have largely covered its debts, including those of the pension fund. The trouble is that those concerned were not entitled to the key information, and had to rely on the word of someone who has since proved to be less than straightforward. The new clause would put a little power back into the hands of pension funds in similar circumstances.
I realise that, in its present form, my proposal would have serious implications for company legislation, but I hope that the plight of my constituents will persuade the House to ensure that what I have described never happens again. I accept that the whistleblowing and other provisions of the 1995 Act help, but they do not entirely deal with the problem.
I know that the new clause does nothing to help my constituents, but all to whom I have spoken agree that no one else should suffer what they have suffered. I urge my right hon. Friend to do all that he can to protect funds at the point of takeover, by agreeing to look at the practical effects of this dreadful case on real people and legislating accordingly.
Mr. Field:
Like the hon. Member for Bournemouth, West (Mr. Butterfill), I will speak briefly.
I support the campaign spearheaded by my hon. Friend the Member for Ellesmere Port and Neston (Mr. Miller) on behalf of his constituents, and people in surrounding constituencies. Many worked hard for what was, they thought, a full working life, expecting to retire on a decent pension; they now find that their pensions are so reduced that they will not even be able to claim the minimum income guarantee, because they will be just above the qualifying level for income support. This is a very important issue, and I hope that those in the other place will be able to examine it again.
The hon. Member for Bournemouth, West, citing the Maxwell effect on pension funds, asked whether all the checks that we could put in place were there to protect pension funds. In the other place is the person who recovered most of the funds for the Maxwell pensioners. Perhaps when the Bill moves there, he will be the appropriate person to look at not only new clause 30, but new clauses 31 and 34.
Mr. Rooker:
I almost feel tempted to say, "Let's call it a day and send the Bill to the other place." I am sure that those in the other place will find a more civilised and conducive time for discussion. However, we plod on.
That is not a complaint, by the way. It is not a complaint about the new clauses and amendments that have been tabled, or about the debate--far from it. A vital part of life in this country is the protection of the interests of pensioners. However, I do not think we are in a position to do the subject justice here at five minutes to midnight. I have no problem with the idea that we may look at the matter again in the summer.
The hon. Member for Bournemouth, West (Mr. Butterfill) was good enough to warn me that he intended to table the new clauses. We have engaged in correspondence, but I may not have convinced him fully in that, and I think it useful to present the Government's views again.
As the hon. Gentleman knows, new clauses 30 and 31 are identical to those tabled in Committee in June 1995, during consideration of the Pensions Act 1995, by my right hon. Friend the Member for Glasgow, Anniesland (Mr. Dewar), who then represented Glasgow, Garscadden and who is now Scotland's First Minister.
The Government of the day rejected those new clauses--I hate to have to read this out, but it is true--for reasons that I find as persuasive today as they were in 1995. [Hon. Members: "Hear, hear."] I am being as honest and open as I possibly can. However, the fact is that when one is in opposition, one does not always have access to all the necessary information on the arguments. When one crosses over to the other side of the Chamber, one sometimes discovers that the arguments are not quite as one thought that they were.
Mr. Kevin Hughes (Doncaster, North):
That works both ways.
Mr. Rooker:
Yes, but I prefer crossing the Chamber in this direction.
The use of custodians in occupational pension schemes is as widespread today as it was in 1995--it is more or less universal. A very small minority of schemes do not
make use of custodians, but most schemes regard the use of custodians both as good practice and as a prerequisite for carrying on investment in certain overseas markets.
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