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8.28 pm
Mr. John Butterfill (Bournemouth, West): I frequently follow the right hon. Member for Birkenhead (Mr. Field) in debates on this subject. He is being a little less than charitable to most of my right hon. and hon. Friends. When we last debated these issues, I and many of my right hon. and hon. Friends agreed that the Government had probably acted from the best of motives in introducing stakeholder schemes and pension credit. We said, however, that the probable outcome would not be what they intended. Perhaps the right hon. Gentleman's speech illustrates better than the contributions of my right hon. and hon. Friends in the previous debate the difficulties that attach to what the Government are proposing. Indeed, I have long been an advocate of compulsory—
Mr. Frank Field: That was not my objection; I was arguing that the motion showed a lack of generosity of spirit.
Mr. Butterfill: Perhaps that is the way that politics is today.
An element of compulsion is inevitable if we are to achieve the objectives that we would all like to achieve, although, as I shall demonstrate, as long as we retain the existing annuity regime, compulsion is not a viable alternative because people will rebel against it.
Our great difficulty at the moment is that occupational schemes, which historically have been the mainstay of savings for retirement, are declining at an alarming and accelerating rate.
Mr. Heald: Does my hon. Friend agree that the more the Government send out the message that such schemes are the responsibility of Government, the less likely it is that employers will continue their historic role in occupational schemes, based on the belief that a decent occupational pension scheme is part of the pay that they give their workers and the conditions that they provide in an enlightened work place?
Mr. Butterfill: That is certainly a danger. The Government have been sending out adverse signals on occupational pensions schemes, and some of their actions have been more serious. I recommend to the House the excellent document produced by the Association of Consulting Actuaries, "Pensions in Smaller Firms Survey 2001". Such firms employ 250 people or fewer, and their work force constitutes 55 per cent. of the total in this country. The document is sub-headed "Occupational
Pensions: the End of an Era?" The ACA is seriously worried that occupational pensions, as we have come to know them, are in terminal decline.
Mr. Bill Tynan (Hamilton, South): Will the hon. Gentleman give way?
Mr. Butterfill: I would like to make more progress, as I have taken rather a lot of interventions and been unable to develop my argument coherently. I trust that the hon. Gentleman will allow me to continue a little longer.
We have received representations, including a briefing from the National Association of Pension Funds dated 1 February, which states:
- "46 companies had closed their final salary scheme to new members"
- "13 schemes had switched from final salary to money purchase",
Some reasons for the trend have already been alluded to by previous speakers, but are worth repeating and emphasising. The NAPF and the ACA believe that the biggest single problem is bureaucracy and red tape, particularly additional burdens incurred as a result of Government action in the past five years. To be fair, the Pensions Act 1995—it was passed, with the best of intentions, by my own party to deal with perceived problems, particularly following Maxwell, and to impose safeguards for those who were the beneficiaries of such schemes—in many ways compounded the problem. At the time, I argued that the cost of regulation would be unnecessarily high. I also argued that the cost of policing the system and ensuring compliance should not fall on firms providing the pensions; I said that the Government should accept that responsibility, thereby reducing the cost for employers. Otherwise, we would drive employers away from making such provision which, I am afraid, has proved to be the case.
I very much welcome the announcement by the Secretary of State of the appointment last autumn of Alan Pickering. An urgent review of the burden of regulation, and the possibility that the Government may still take over some costs, especially regulation costs, may yet prevent firms leaving the scheme altogether. FRS17 has already been referred to; the problem is not the Government's fault, as accounting standards are nothing to do with them, although they have an input in the measure, which brings us into line with US accounting standards. However, its short-term impact is extremely negative.
The real difficulties have arisen by various routes. The changes in advance corporation tax were profoundly damaging. I am not sure that Labour Members appreciate the scale of the damage that was done by them. Tesco's scheme, for example, had to increase total contributions by 15 per cent. to compensate for the cost of the ACT changes. That is one firm alone, which has now come out
of a final salary scheme and gone into a defined contributions scheme. The lower investment returns have not helped, nor has increased life expectancy, earlier retirement or gaps in working careers. All those factors make the situation of occupational pensions much more difficult. The Government must act to make pension provision easier and more attractive for employers. Everything that the Government have done over the years that they have been in power has had the reverse effect on employers.The other possible route to help with pension provision is private provision. If we do not make it compulsory, we must encourage individuals to save for their retirement, but again we run into all sorts of circumstances arising from the existing legislation which make that profoundly unattractive. The least attractive of all is the annuities regime. The requirement to put all one's savings into an annuity at the end of the day, regardless of what one's life expectancy may be at the time, and regardless of the fact that one may wish to leave money to dependent relatives, is a profound disincentive.
In correspondence with me, Ministers have suggested that the problem of annuities affects only the very rich. That is not true, although it is true that only those with above-average earnings tend to take out private provision. That could be altered in all sorts of ways, which we could discuss later. These people are not the very rich; they are the modestly off, for the most part. Only a tiny minority are the very rich about whom the Treasury is concerned.
I know that the Association of British Insurers recently produced a report supporting the Government in their position on annuities. However, the members of the ABI are the principal providers of annuities—in fact, the only providers—and it might be thought that they could conceivably have a vested interest in maintaining a product from which they make considerable profit.
The Government statistics hide the fact that millions are deterred by the annuity requirements from taking out pension policies at all. It is significant that many, many young people, who write to me because I am known to take an interest in these matters, tell me that they will not take out a policy because of those restrictions, and that they will instead turn to buy-to-let, for example.
One reason why so many young people with surplus earnings are buying properties on the buy-to-let scheme—there has been an enormous and unhealthy growth in that; it has gone much too far—is that they see it as a more realistic way of saving than going through pensions. They are doing so without tax relief. They say, "Blow the tax relief. It is not worth having the tax relief, if those are the restrictions." That is a sad reflection on the present situation, which we must change.
The chairman of the ACA states in the conclusion of his report:
- "We are also growing very concerned that the drift away from 'good' occupational arrangements is accelerating towards a trot, if not quite a gallop."
Unfortunately, as we have all seen, the take-up of stakeholder pensions to date has been extremely disappointing. We all hope that it may get better. In my view, it has had only one good effect—driving down charges.
Mr. Frank Field: It is a very big one.
Mr. Butterfill: Indeed, it is a very big improvement and it has been extremely valuable, but it was a side effect rather than the main reason for introducing the stakeholder pension.
I am concerned that the thrust of Government policy is to take us further and further down the dependency route. It is now estimated that by 2050, the combination of minimum income guarantee and pension credit will mean that 65 per cent. of all pensioners will be on some sort of means-tested benefit. I do not believe that that is the Government's intention, but that is where they will be headed unless they do something about it—and soon.
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