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5.19 pm
Mr. James Arbuthnot (North-East Hampshire): I declare my interest, happily, as a barrister and, rather less happily, as a policy holder of Equitable Life, among other pension companies.
I have already found this debate extremely interesting, particularly the exchange between the hon. Members for Croydon, Central (Geraint Davies) and for Northavon (Mr. Webb) about the virtues of the Australian pension scheme. The virtues of compulsion in Australia were funded in the first year by the trade unions agreeing to at least partially forego any pay rise for that year. That is something that this country ought to examine with interest.
This is a vital debate, and I shall be extremely complimentary, if I may, about my Front Bench for choosing to spend the entire day on this important subject. This issue is central to the whole world: how do we cope with the fact that we are all living longer? If one puts it as simply as that, it looks as though there ought to be a pretty simple answer. Unless we want to live in increasingly abject poverty, we must either work longer or save more money—or, preferably, a mixture of both. It would be preferable for the individual to be able to choose the extent to which he or she worked longer, or saved more, but I believe that there must be an element of one or the other, or both.
It will be up to the Government to decide whether to achieve this by encouragement, compulsion, or, perhaps, a mixture of both. What we should not do is retire earlier, save less, or—still worse—both. Unfortunately, however, that seems, in many cases, to be precisely what is happening now. I would be happy to see an increase in the element of compulsion. I personally prefer the idea of encouragement, but if that is not going to work, we have no alternative but to go down the route of compulsion.
I am disappointed that the Government continue to give the impression that the structure of pensions is basically right. After the important announcement by the Secretary of State yesterday about the difficulties that his Department is having with his figures, it may be that he will wish to revisit the question of whether the structure
of pensions is basically right. I hope that he does. There is a massive problem in this country, and in the west, but I hope that he will also treat this as a massive opportunity.In relation to the fact that we need to work longer, my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) grasped that nettle when he raised the working age of women to 65 in the Pensions Act 1995—when I was a junior Minister in his Department. That was obviously right; women live longer than men, and for them to be retiring earlier than men was daft. With that one action, my right hon. Friend saved more money for the country than any other Minister or Government in history. Looking back, however, I think that we can ask whether we went far enough. We are still living longer. Every decade, we seem to live another year longer. We are not, however, gradually raising the retirement age on an automatic basis to take account of that. That is something that we ought to consider.
I did not get the impression from the Secretary of State's speech that he was focusing on that need. He said at one point that the increase in life expectancy means that pension funds have to go further than ever before. I am not sure that that is the right way of looking at it. We need to increase pension funds, and make sure that they do not have to go further than ever before, because we are working longer.
Kali Mountford: The right hon. Gentleman makes an interesting point about people living longer. Is not that a good reason why people should not draw down on annuities early?
Mr. Arbuthnot: That may be a good reason why people should not draw down on annuities early, but I am making a different point, which is that the Government should focus far more on the future. This is a question of sentiment. We should encourage people to look forward to their old age, which they naturally do not like doing. People put off thinking about it, because they do not want to envisage growing older. They prefer not to think about their retirement age. If they have a pot of money, they may be tempted to spend it now. We should encourage them to leave money for their old age and to save as much as possible.
The trouble is that we do not seem to be saving more money: we seem to be saving less under this Government. Opinion polls suggest that most people think that there will not be a state pension by the time they retire. At a time when we are living longer, we are saving less and retiring early. It seems as though the world is going mad.
We think that we are superior to other European countries because we are saving more in funded pensions, but the position is not much better in this country. We have an extremely serious problem. When I was in the Department of Social Security, as it was then, I said that we always had more money in funded pensions than the whole of the rest of Europe put together. How complacent that was. Although that remains true, we have a major problem. I did not envisage the coming into office of a Government who do not appreciate the need to encourage people to put money into pensions.
The reason I say that is because one of the first and most important steps that the Government took was to withdraw ACT relief. When they came to power, they could have taken up the idea of my right hon. Friend the
Member for Hitchin and Harpenden of basic pension plus. They could still take up that idea and adapt it in a sophisticated way to the state second pension, as my right hon. Friend has suggested. I think that they should do so, because that would provide every young person with a fund, guaranteed by the Government, as they come into the work force.
James Purnell: Will the hon. Gentleman give way?
Mr. Arbuthnot: I am afraid that I do not have much time left, so I cannot give way.
Such a scheme would build up a fund for young people to give them dignity and choice in their old age. That would be enormously beneficial to the economy of this country.
The Secretary of State has said that the withdrawal of ACT relief was to get rid of a major distortion relating to investment by companies. That may have been a stated reason, but we know that he wanted the money. The effects of the withdrawal of that relief were huge.
Mr. Levitt: Will the hon. Gentleman give way?
Mr. Arbuthnot: I am afraid that I cannot give way, because we have a limit on the time we can speak.
Tesco announced in March 2000 that there would be a 15 per cent. increase in employee contributions to final salary schemes. I agree that there should be increases in contributions to final salary schemes, but that increase was eaten up immediately by the Government's withdrawal of ACT relief.
People are reluctant to think about their pensions. They need to be cajoled into thinking that the Government believe that it is a good thing to invest in funded pensions. When someone like Robert Maxwell comes along, it takes years for the country to recover in pensions terms. When something like mis-selling comes along, it takes years for the country to recover. My right hon. Friend the Member for Hitchin and Harpenden sorted out the problem of Robert Maxwell, and he began to sort out the problem of mis-selling. But when a Government remove £5 billion every year from pension funds, it will take years to recover from it. Unfortunately, the Government have no intention of allowing the country to recover, because they do not intend to change the situation.
We do not have to look into a crystal ball—we can see the effect of the Government's withdrawal of ACT relief in the fall in the savings ratio from 9.5 per cent. of earnings to 3.75 per cent. of earnings. I applaud the Government for saying that funded pensions should move from 40 per cent. to 60 per cent. of pension provision, but we have come to learn that it is necessary to look not at what they say, but at what they do. When we say to the Government, "Stand and deliver", we mean, "Stand and deliver on your promises." Their commitment to move from 40 per cent. to 60 per cent. is excellent, but they should deliver on it. Unfortunately, I suspect that they take it to be an invitation to act as a highwayman and to get rid of the benefits of the strong pensions structure that we had under the Conservative Government.
5.31 pm
Kali Mountford (Colne Valley): Today, we have been offered a rare treat—an opportunity to debate policy with Conservative Members. I congratulate them on that. It is rare because, in many such debates, the Opposition's interest is not in public policy, social policy or anything to do with what interests people outside this House. According to my recollection, this must be my eighth Opposition day speech on pensions.
The debate has drawn us once again into our old comfort zones. We have returned to the old class struggle that we are so used to, and Conservative Members have fallen back on their faithful comfort zone of the markets. In talking about what they would do with funded pension schemes, no Conservative Front Bencher mentioned poverty, people in middle-income brackets, people who have no income because they are carers, people who are living in dire straits because of a failed previous scheme, people who lost all their savings under Conservative Governments, or the need for better regulation. Although Conservative Members seem to have no memory of their 18 years in power, they have a clear memory of the past five years—but not of what has changed in that time. They have forgotten about the complete change to the way in which we deliver support to elderly people in our society. That forgetfulness is the result of the narrow scope of their thinking, which comes down to one change in tax regulation.
Conservative Members do not have a wider vision of how the markets affect funded pension schemes overall, so what sort of vision are they offering us? Advance corporation tax schemes, which were so beloved of them, benefited the shareholders of pension schemes. They were made an offer: "If you take your dividend you'll get a 20 per cent. rebate off the taxpayer." That did nothing to help people to get a better pension when they retire.
Conservative Members made much of the £5 billion a year that is being lost—that is arguable, because it should be offset by the 3 per cent. cut in corporation tax—but they should have looked at the measures as a whole. We are trying to introduce some sense into the market by saying, "If you are going to use our money, which we have invested in your fund, at least put it into long-term investment and do not waste it on shareholder dividends, because that is the wrong thing to do." We cannot ignore markets and their actions—or, sometimes, inactions. Stock markets will have periods of volatility. It is sheer folly to consider a pension period such as this in isolation, because it is narrow in the context of the whole history of funded pension schemes. There has been market volatility before, and there will be again.
The current market volatility is not surprising. Let us look at the markets. What happened with Equitable Life? There was a complete ignorance, or an "ignore-ance", of its duty. [Interruption.] I wonder how Hansard will deal with my pronunciation—it has a problem. There was an "ignore-ance" of its reinsurance duties. From as long ago as 1983, the company ignored its clear and obvious duty to behave properly; the problems did not occur magically in 1997.
Enron cannot have escaped our notice. We now have WorldCom, and there will be others. When the Treasury Select Committee took evidence on the various problems in marketplaces, we found, again and again, that there was over-optimism, a complete failure to ensure duties and a
failure by accountants to ensure that people's investments were being taken care of properly. Is it any wonder that there is now no faith in markets?
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