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Pensions and Benefits

Madam Deputy Speaker (Sylvia Heal): Mr. Speaker has selected the amendment in the name of the Prime Minister.

7.14 pm

Mr. David Willetts (Havant): I beg to move,

That this House welcomes the Government's stated aim of increasing from 40 per cent. to 60 per cent. the proportion of pensioners' incomes which comes from the private sector, but notes with concern that the trend is in the opposite direction; deplores the regulatory burdens now placed on pension providers; condemns the Government for its failure to reform annuities; regrets the low level of saving and the decline of funded pensions; recognises that this poses a significant threat to the incomes of pensioners in the future; and further regrets that the Government's response is to increase the number of pensioners dependent on means-tested benefits.

The motion begins by endorsing an objective set by the Government. I had hoped that that would provide a starting point on which we could all agree. That point was the aim of moving from a system in which pensioners receive 40 per cent. of income from private savings and 60 per cent. from benefits to one in which the figures are the other way around. I regret that Ministers have, in the Government's slash-and-burn amendment to our motion, removed even our welcome for their stated aim. I hope that the Secretary of State can assure us that no matter what problems he may have with what we now call delivery, he remains committed to the aim of increasing from 40 per cent. to 60 per cent. the proportion of pensioners' incomes that comes from the private sector. I hope that that is shared ground and a goal in which we all believe.

The reason for the debate is our concern that we are moving in the opposite direction. We worry that the decline of funded pensions that has gathered pace is spinning out of control. The proportion of employees with an occupational personal pension is declining. We know from parliamentary answers that the number of occupational pension schemes closed to new members is rising. We know from the latest survey by the National Association of Pension Funds that the percentage of members in schemes closed to new members has risen from 8 per cent. to 20 per cent. in the past year. There has even been a slight decline in the number of pensioners receiving an income from an occupational pension scheme.

The picture before us is one of declining funded pension savings. That is borne out vividly by the statistics for the assets of our pension funds that have been released over the past few weeks. We thought that the picture was clear. The Office for National Statistics produced statistics on insurance companies' pension funds and trust investments. I am sure that those figures were closely read by many hon. Members; certainly, they should have been read by Ministers. They showed that in 1998 the total assets of our occupational pension schemes were £706 billion. That figure had risen by 1999 to £783 billion.

With no comment or explanation, a new set of statistics was released more recently. Those figures show a very different picture. For precisely the same period covered by the previous statistics, they show that in 1999 our pension funds contained not £783 billion but £679 billion. Call me old fashioned, but £100 billion is still quite a lot of money to lose. We are entitled to hear Ministers

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explain those statistics rather than smuggle them out. Why was the value of our pension schemes suddenly reduced by £104 billion?

Mr. John Butterfill (Bournemouth, West): Might the answer lie, at least in part, in the fact that the Government have raided pension funds through advance corporation tax changes to the tune of £5 billion a year for the past few years?

Mr. Willetts: My hon. Friend is quite correct, but we have two problems. First, on the snapshot date in 1999, the ONS estimate of the value of our pension funds had fallen by more than £100 billion. Secondly, there are questions about the trend in the value of our pension funds, which my hon. Friend rightly raises and to which I shall turn shortly.

The ONS produced the revised figures for the value of pension fund assets with no apology or explanation of what had happened. If we are confronting what seems to be the biggest revision of economic statistics in the history of British economic management, we are surely entitled to some explanation of why £100 billion has gone from our pension funds. In the past hour, the ONS has stated:

"Preliminary investigations suggest there is an error in the revision to 1999 and to the figures for 2000, particularly in the estimates of holdings of quoted shares. Further investigation is needed to clarify the position. In the interim, the figures are being withdrawn."

So just before the debate, the Government withdrew their figures for the value of the assets of the pension funds of this country. In the press release that has just been rushed out, the Government are saying that they do not have the faintest idea how much there is in our pension funds.

I hope that, at the very least, the Secretary of State for Work and Pensions will give us an explanation of what has gone wrong. Perhaps someone's finger slipped on the calculator—it is easy to lose £100 billion in the roundings—but I hope that at least we shall have an explanation as to what has gone wrong and a promise that, next time £100 billion goes astray from our pension funds, the Government will offer us—on time—a proper explanation and account instead of trying to smuggle out a statement with no explanation.

Bob Spink (Castle Point): My hon. Friend may have noticed that some Labour Members have been laughing. Does he agree that this is no laughing matter but one about which our pensioners should be deeply concerned?

Mr. Willetts: My hon. Friend is right. We are talking not only about a massive statistical error—serious though that is—but about a new picture of what is happening to our pension funds. The old model, on the old statistics, was that there was £706 billion in 1998 and £783 billion in 1999, and that we would be moving onwards and upwards into the sunny uplands with more and more funded pension savings.

I realise that nowadays there is complete uncertainty as to what is reliable, but the new statistics instead gave a figure of £706 billion in 1998, with the 1999 figure revised down to £679 billion, while the new figure for 2000 was even lower—£658 billion: a clear downward

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trend. If the glory days of all that money in our pension fund assets have passed, those statistics and that new trend establish for the House the scale of the problem that we face in ensuring that our pensioners enjoy prosperity when they retire.

There are of course many reasons for that decline. My hon. Friend the Member for Bournemouth, West (Mr. Butterfill) has already referred to the increase in the tax burden and the regulatory burden that has fallen on many pensioners. However, no matter which of the many explanations one offers, the picture of decline in funded pensions is difficult to gainsay.

Ministers may try to gainsay that fact, however. Let me suggest some of the arguments that we may hear. We may be told, "Ah, but of course markets go down as well as up." There will be a Financial Services Authority health warning on shares in pension funds. That is not what the Government used to say. It is certainly not what the Prime Minister said when he was challenged on the effect of his massive tax hit on our funded pensions. Then, he said that

"as a result of pension funds rising 70 per cent. because of rises in the stock market since the election, those sums"—

the sums for the tax—

"are entirely illusory."—[Official Report, 1 November 2000; Vol. 355, c. 704.]

In fact, the Prime Minister's statistics were illusory. The reality is that people have less money in their pension funds because of the tax hit that he has imposed.

I am sure that we shall also be told, "Don't worry, the funds are still pouring in." We have heard those statistics many times from Ministers and they are hinted at in the Government's amendment. However, I warn the Secretary of State that those figures for the flow of incomes into funded pensions come from the same source as the figures for the value of the assets in pension funds that he has withdrawn in the past hour. We shall not rely on those figures for the total income going into pension funds. If the right hon. Gentleman tries to develop that argument, I warn him that he is straying into dangerous quicksand. We know how those figures went wrong, and I shall be happy to enlighten him if he tries to deploy them.

The Government will also argue—as the motion suggests—that there is no need to worry because they have introduced the marvellous stakeholder pensions. The Opposition want stakeholder pensions to be a success, but we know the problems that they face. I shall not go over the ground that we debated in this place just before Christmas regarding the take-up of stakeholder pensions. The Government have a target group—

The Minister for Pensions (Mr. Ian McCartney): The hon. Gentleman is wrong.

Mr. Willetts: The latest figures—out today—confirm that, exactly as we warned in that debate, there are 5 million people in the target group with earnings of between £10,000 and £20,000 a year. Approximately 600,000 stakeholder pensions have been sold, and by the time one removes the people who have transferred to stakeholder pensions from other schemes, people who have been advised that their non-working wives should have a stakeholder pension, or people who have bought stakeholders for their grandchildren, the total number of people in the Government's target group will—as I suggested in that previous debate—be rather smaller than

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the number of life peers that the Prime Minister has created since 1997. It may do the Government an injustice, but the figure is still many millions short of their target.

I had intended not to repeat that point but to raise another one. What we are trying to focus on in this debate is the value of the funds in our pensions. I hope that the Secretary of State will also enlighten us on what are called in the trade "empty stakeholders". Those are stakeholder pensions that are perfectly formed, legally compliant and designated, as required by the legislation passed by the Government. Employees have been informed—just as they should have been. Such pensions are included regularly in the totals issued by Ministers of the number of stakeholder pensions that have been set up—but there is one minor technical problem: there is no money in them. They have no funds whatever.

I shall quote from an employer's account. She said that she had a group personal pension, but

"last month my independent financial adviser kindly advised me to set up a 'dummy' stakeholder scheme in order to be certain not to risk a £50,000 fine. This was duly done and announced, to gales of ironic laughter from staff. No one will ever contribute to it, but I've got my certificate."

That anecdote is borne out by assessments made by independent financial advisers, one of whom calculated that nearly 80 per cent. of group stakeholder schemes that have been sold are designation only. That means that currently no contributions are going into them.

The empty stakeholder is the apotheosis of Labour's pension policy. The legislation was passed; the brand name was launched; the employers comply with the new regulation; the employees are informed. Ministers boast about the number of schemes, but there ain't no money—no money whatever. They make no contribution at all to tackling the problem of pensioner poverty. Stakeholders will not do so either.

Ministers do have one answer to the decline in funded pensions, however. It was revealed in a document published at almost the same time as the statistics that showed the decline and was entitled "The Pension Credit: Long-term Projections". The document shows what will really happen if we all retire with a modest amount in our funded pensions—which is now a dangerous risk: we shall be dependent on means-tested benefits.

The projections in the document show that in 2040, assuming that the cost of the pension credit grows in line with earnings and that the revised level of funded pensions saving is a real prospect—scenario one—the pension credit will cost not £2 billion, as it is supposed to do in 2004, but £20 billion. In 2050, the cost will be £26 billion. It is forecast to take more than 1 per cent. of our entire national income.

If we put together the statistics on the decline of funded pensions and the projected cost of the pension credit, we can see that there is a strategy behind what the Government are doing. We can see exactly in which direction our country is headed: to a situation where our funded pensions shrink in value, where we retire with lower pension incomes than we had hoped and, as a result, where we are dependent on means-tested benefits. That is the direction in which the Government are taking us. We are already moving in it; the number of pensioners dependent on means-tested benefits has risen from 41 per cent. in 1997 to 57 per cent. in 2003, as the Library says in a letter to me, but that trend could go still further.

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Our vision is one of a society where people build up more funded pensions for their retirement. That involves a pensions regime that is straightforward, comprehensible and encourages people to save, so that their incomes are not dependent on means-tested benefits. We have called this debate because it is clear that the Government are taking us in exactly the opposite direction.

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