Mr. Andrew Mitchell (Sutton Coldfield): It is a great pleasure to follow the hon. Member for Stalybridge and Hyde (James Purnell), with whom I sit on the Select Committee on Work and Pensions. He mentioned that I shook my head at his comment that falling markets would lead people to rush to the doors of No. 10 demanding to get back into a state scheme. Markets are more sophisticated than he describes, and he knows very well that an examination of long-term stock market trends around the world is encouraging. He should not take a snapshot view of such matters. Furthermore, although I do not know much about the pension investment industry, I do know that as people near their retirement years, the level of risk that their advisers will allow them to undertake becomes much lower. That is why I was shaking my head.
I draw the House's attention to my interests, which are clearly registered. This is an extremely important debate and the Opposition deserve considerable credit for spending a day of their time on it. The Government should have held the debate in their time. My hon. Friend the Member for Havant (Mr. Willetts) made an excellent opening speech, taking time off from correcting the Government's figures, as was made necessary yesterday. The debate takes place against a background of crisis in the pensions industry. For millions of our fellow citizens this debate is extremely important, and crisis is not too strong a word.
It is a pity that the bipartisan approach that often characterises the House's discussion of very long-term issues has broken down to some extent on pensions. I remember proceedings on the Pensions Act 1995, when I was the Government Whip and my right hon. Friends the Members for North-East Hampshire (Mr. Arbuthnot) and for Richmond, Yorks (Mr. Hague) were the Ministers responsible for taking through that complicated legislation; we were faced by Donald Dewar, sadly now deceased. Those were the days. There was a high degree of bipartisanship then, and I am sorry that I shall not be able to do full justice to that spirit during the first part of my speech.
I start by absolving the Government of responsibility for the demographic factors that several of my right hon. and hon. Friends have highlighted. In every other respect, however, the Government have failed to notice the great difficulties. There was an elegant exchange between the hon. Member for Stalybridge and Hyde and my hon. Friend the Member for SouthWest Bedfordshire (Andrew Selous). Surely the Government must have noticed that between 1997 and 2001 the number of people retiring with a funded pension fell from 67 per cent. to 59 per cent. of the total. The Government must have noticed the tremendous disadvantages arising from the closure of defined benefit schemes. Not only did defined benefit schemes give UK citizens the largest funded pension provision of anywhere in Europe, but the great advantage of such schemes is that they have allowed the country to restructure much of British industry in recent years.
The Government were warned extensively by the industry and the Opposition about FRS17, but they remained blithely indifferent, only taking action extremely late in the day. The £5 billion per annum raid has been mentioned. The full effects of that were concealed while markets were rising, but they are now revealed in ghastly technicolour. My right hon. Friend the Member for Wokingham (Mr. Redwood) discussed what that £5 billion a year really means. The net present value of £5 billion a year is more than £105 billiona very large amount of money.
The Government are guilty of woeful negligence in their inattention to the way in which the degree of complexity in the system has increased. It is now so great that almost no one can understand the system. It is the result of the hopeless over-regulating of the selling of pension productsa reaction to the mis-selling scandals and to Robert Maxwell. In the face of such complexity, the industry is grinding to a halt. The Government have been warned, but have done nothing about it. They are doubly to blame bearing in mind the very cushy pensions that we in this House, including Ministers, enjoy.
Mr. Gardiner: The hon. Gentleman criticises the effect that he believes FRS17 might have when it is introduced. In the present climate, following Enron and WorldCom, does he seriously mean to maintain that it is not right that companies should show in their books the full extent of liabilities to which they and their shareholders are subject?
Mr. Mitchell: The hon. Gentleman misunderstands my point. The right answer to FRS17 has now been arrived at, but the Government were much too late to support the move given that the original announcement did such damage.
The Government's policy is inadequate, complacent and excessively complicated. It started well enough with the pledge to swap the 60:40 role, which we have discussed, but the state second pension will not work. The highly respected Andrew Dilnot said of it:
The stakeholder policy has been a complete flop. The reason is that there is no compulsion. People can say, "It's not my problem; it's the Government's." Therefore, take-up among the target group has been derisory. Under the law, an employer must have a stakeholder pension scheme, but as there is no compulsion, that is merely a box-ticking exercise. The stakeholder pension scheme has been revealed as a great tax break, but it is certainly not a contribution to a comprehensive pensions policy.
There has been a massive increase in means-testing, to which reference has been made. The 1998 Green Paper rightly inveighed against it, but as a result of the Government's policy, nearly 70 per cent. of pensioners are subject to means-testing.
I want to be reasonably constructive and take up the injunction of the right hon. Member for Birkenhead (Mr. Field). My advice to the Government is to recognise those problems and to do something about them. Let us consider the effect of defined benefit schemes closing down. The unions responded long before the Government. As my hon. Friend the Member for Gosport (Mr. Viggers) said, employees' contributions to either defined benefit or defined contribution schemes are estimated to be around 5 per cent., but employers' contributions are expected to reduce from 20 per cent. to 8 per cent. The long-term effects of that for tomorrow's pensioners are absolutely awful, and the Government would do well to listen to the advice of the Association of British Insurers and the TUC about ways of encouraging defined benefit schemes to continue and, if anything, to be enhanced.
My right hon. Friend the Member for North-East Hampshire said that he was a fan of the pension-plus scheme, which the outgoing Conservative Government launched in 1997. I too am a fan, having been a Minister in the Department responsible at that time. I want more funded pensions. If I were starting out in the labour market today, I would not want to place my trust in the words of feckless politicians when it came to my security in old age. I would want to put my trust in a tangible pot of money, which I owned and could see grow throughout my lifetime.
I hope that the Government will introduce a defined benefit scheme for all, which, effectively, they will guarantee. I shall describe a proposed scheme that has seven parts to it. It would be a simple national system, under which we all had ownership of our own fund. Everyone under the age of 25 would join it. On retirement, it would pay out, say, 50 per cent. of the national average wage. A schedule would be published each year by the Government Actuary to determine how much and at what age each individual should contribute. A national insurance rebate would be paid into the funds. There would be 40 per cent. tax relief for everyone involved in the scheme. It could be an annuity. There would be no selling fees. Funds would be approved and registered, and have trustees. Those over the age of 25 could transfer into the scheme and the Government would enhance such funds with an uplift of, say, 10 per cent. as an incentive.
Such a scheme is designed to help those who are currently doing nothing for the sake of their retirement funding. It seeks to answer the question of how we get the mass of our fellow citizens into a defined benefit scheme. It would be a personal fund and could therefore possibly be used for life events such as unemployment or care in old age.
I do not suggest for a moment that what I have described is a perfect schememuch cleverer brains than mine could work on itbut it meets our concern that our fellow citizens should across the board be able to enjoy some of the advantages that we as MPs enjoy. It is critical that we address the issue. The Government will pay a very heavy price for their neglect of this important area of policy. As the difficulties have mounted over recent weeks, I have been staggered at the Government's