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Andrew Selous (South-West Bedfordshire): Many Opposition Members fully support the Government in their intention to try to shift the balance of pension provision so that 60 per cent. of pensions are provided by the private sector and 40 per cent. by the public sector. We give that support not because there is any magic in a particular ratio, as the hon. Member for Northavon (Mr. Webb) pointed out, but because we want as many pensioners as possible to benefit from the independence and security that they have built up through their own provision. We also want sufficient money to be left over to allow Governments of years to come to concentrate on the genuine fight against pensioner poverty and to fund all our other public services.
There is much support on the Opposition Benches for the general direction in which the Government have set out, but we must recognise the startling situation in our country today. Most social conditions have improved for the people of this country over the years: their pay has gone up and their working conditions and other entitlements have improved. The next generation of pensioners who retire with the benefit of occupational schemes will be in a very much worse position than the generation that is retiring now.
I do not feel that the Government have fully grasped that situation. Indeed, I am afraid to say that there is an element of complacency on their partthey have given us a 70 per cent. overstatement of the funds going into occupational schemes. One would have thought that someone had conducted a reasonableness test, but it appears that the conclusion drawn was that everything in the garden was rosy. We have also heard from the Government the assertion that the stock market is massively up on 1997 levels, but, again, we know that that is not the case. The Opposition are genuinely concerned that the scale and depth of the problem have not fully been appreciated.
In particular, I point to the demise of defined benefit schemes. Many hon. Members have said that it is outrageous that we, as Members of this House, are privileged enough to be members of an extremely generous and excellent scheme, while others face serious difficulties. We should want the benefits of similar schemes to be as widely available as possible to our constituents.
I take issue with an assertion made by my hon. Friend the Member for Gosport (Mr. Viggers), who suggested that we may not need to be too concerned about the demise of defined benefit schemes because the world of work is changing, people have a portfolio of careers and so on. Indeed, the Government have sometimes given a similar impression in recent years. According to research from the Economic and Social Research Council, however, the average job tenure is increasing, and did so by almost 20 per cent. in the 1990s. The evidence, which is quoted in the current issue of Pensions World, suggests that people are not necessarily moving from job to job,
It would be churlish not to accept that two of the major factors in the pensions crisis are wholly outside the Government's control. We all know that people are living longerit is a worldwide phenomenon for which we are all gratefuland that the effect on pension funds is severe. We also know that we are currently in a period of extreme market volatility; I do not think that there has been a similar example of the stock market falling for two and a half years, as it has done for the past 30 months or so. Market volatility and increased life expectancy cannot be blamed on the Government.
There are other factors, however, for which the Government must take some responsibility: the complexity faced by the pensions industry today, the tax situation and the failure to get to grips with encouraging people to save. Labour Members have criticised the Opposition on the basis that they have not heard us give any positive policy proposals, but I intend to devote the rest of my speech to what I think should be done about the pensions crisis. I should like to raise four different areas in which I think that we can make strides to deal with the problem.
First, we should help employers whose costs have risen because of extra tax on pension funds and extra national insurance contributions. The cost to employers of employing people and providing pension schemes has gone up, so, like the hon. Member for Northavon, I think that there is great merit in the scheme proposed by the Association of British Insurers, which has suggested the introduction of a pension contribution tax credit. The ABI also proposes certain requirements in that regard. It suggests that employers should make a contribution of at least 5 per cent.I hope that Labour Members will welcome thatand that the schemes should have a membership of at least two thirds of all eligible employees.
To recognise the cost to employers of providing pensions in a competitive market by introducing a form of tax credit would be a step in the right direction, and the expression on Ministers' faces suggests that they are not wholly ruling out that idea. I hope that it will be given serious consideration as a way of recognising the difficulties that employers face. As we are a responsible Opposition who realise that a tax credit will have a corresponding reduction in expenditure, my proposals for recouping that cost are an increase in VAT and perhaps a reduction in parts of the DTI budget. We heard no suggestions from the Liberal Democrats about where the money should come from. As the Government in waiting, the Conservatives always cost their proposals carefully, and will continue to do so.
David Taylor: I am reluctant to interrupt such a thoughtful and non-partisan speech, but perhaps I can help the hon. Gentleman by describing the faces of his two Front-Bench colleagues, the hon. Members for Daventry (Mr. Boswell) and for Hertsmere (Mr. Clappison). "Stony" would imply too much warmth.
Andrew Selous: One of the advantages of not being a Front Bencher is that Back Benchers have slightly more freedom to expand thoughts that may or may not be taken up by the Front Bench. I will of course abide by my party's decisions as and when they are made, but I hope to contribute to debate on them.
My second proposal is for a reduction in complexity. When the National Association of Pension Funds asked its members what single factor would most help the industry, they said "Simplicity". Friends of mine who work in the industry say that they would go into meetings a few years ago with a slim A4 ring binder; now they must take several lever-arch files full of regulations and so forth. Those of us who are not involved in the industry probably cannot fully appreciate the demands that MPs have made on it. Of course we want regulationgood regulation, to ensure that employees are not ripped offbut we must consider all its consequences. It must be effective, but it must not reduce supply and make employees worse off.
My third proposal is to help those near retirement to bridge the gap between the world of work and the world of retirement. There is no reason, for example, why such people should not be able to take part of their pension in advance while continuing to work part-time.
It is also ridiculous that someone who has worked for Tesco all his or her life cannot push trolleys there in retirement. The same does not apply at Sainsburys. Why is there a rule preventing pensioners from working for their former employers? The Minister for Pensions nods; perhaps progress will now be made.
My fourth proposal is intended to encourage saving, which is vital. I support the statutory money purchase illustration that will be produced from next year, but why should it not apply to all types of saving? Let us look seriously at inheritability. Young people in particular should have a real sense of ownership of their pension savings.
We should ensure that it always pays to save. Elements of pension credit, unfortunately, prevent that from being the case. Steve Bee, Scottish Life's pension chief, said recently on Radio 4 that about 1 million people might not be better off because of means-tested benefits.
Improvements could be made in stakeholder pension regulation. We should also ensure that those looking for pensions receive the best possible advice. Independent financial advisers are having a tough time at present because of polarisation in their industry, and there is a desperate need for good advice for employees. This is a complicated area. Employees need much more impartial advice that they can trust, and I hope the Government will take account of that.
John Robertson (Glasgow, Anniesland): I am pleased to have an opportunity to contribute to this excellent debate. Let me first congratulate the Governmentsurprisinglyon the measures they have introduced to help pensioners. As my constituency contains a higher percentage of over-60s than any other part of Europe, pensions have a special meaning for me. I congratulate the Government on the minimum income guarantee, the pension credit and free eye tests, to name but three of many useful measures.
The hon. Member for Gosport (Mr. Viggers), who is unfortunately not here now, said that he wanted to be part of a reforming party. Perhaps he should cross the Floor, for he will certainly not achieve that on the Conservative Benches.
What concerns me, however, is ensuring that the pensioners of the future do not fall into poverty. For the benefit of those who have heard part of this speech before, I shall concentrate on final salary pension schemes, and discuss ways in which the Government can try to protect employees as more and more companiessadlyend such schemes.
A final salary pension scheme is a defined benefit scheme guaranteed to pay a person who retires a pension based on that person's final salary. It allows people to plan for the future: they know exactly how much money they will have, where it will come from and, if it is index-linked, by how much it will increase. Membership of such schemes has declined in recent years, but final salary pensions are still the dominant type of occupational pension. The problem is that the schemes have become more expensive for employers, for a number of reasons. As has been said, there are demographic factors such as the increase in life expectancy. Other factors are policy changes, such as the introduction of the minimum funding requirement and FRS 17, and economic events such as the fall in stock market returns.
Those economic conditions and policy changes have had an enormous impact on employers who used to offer final salary schemes. We need to consider how the Government can instigate policy changes to remove some of the pressure. I fear that if we do not remedy the problem now, the full impact will not be felt for 20 or 30 years.
The alternative being adopted by companies is a defined contribution or money purchase scheme that transfers any investment risk to the individual and away from the company. If the stock market underperforms, the employee's pension is likely to be smaller than it would have been under a final salary scheme. Pensioners in my constituency, and those approaching pension age, will
The TUC has conducted some interesting research whose compelling results illustrate the difference in employer contribution rates between the two types of scheme. For example, in the case of someone earning the average wage, the difference accrued in one year is more than £2,000or £40 a week. Nearly half the companies running defined contribution pension schemes put in 5 per cent. or less of employees' salaries. In a typical final salary scheme, companies contribute 10 per cent. or more. According to the National Association of Pension Funds, the long-term average employer contribution to a final salary scheme is 15 per cent., while the average employer contribution in a defined contribution scheme is a mere 6 per cent. Without final salary pension schemes, retired workers could be 30 per cent. worse off.
A vast number of companies have closed their final salary schemes to new employees, citing the aforementioned factors individually or collectively. BT closed its pension schemeas a member of that scheme, I declare an interestto new employees on 1 April. I do not know whether the fact that it was April Fool's day was a coincidence. Many others, such as HSBC, Marks and Spencer, Abbey National and Barclaysall reputable companieshave also closed their schemes. Some companies, notably Iceland, the Caparo Group, and Ernst & Young, have even closed their schemes to existing employees, and I fear that that may become commonplace. I will say more about Ernst and Young later.