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Mr. Swire indicated dissent.

Mr. Gardiner: The hon. Gentleman shakes his head, but those are not my words; they are the words of Nicholas Timmins in yesterday's Financial Times.

The present growth in pensioner incomes, partly from the Government, has come on the back of a beast of burden that is rapidly becoming extinct. I refer to the occupational pension schemes that give defined benefits in relation to final salary. We have heard that those schemes are closing and the hon. Member for Havant (Mr. Willetts) has provided two clear reasons why he considers that to be so; one for each of his brains, perhaps.

First, the hon. Gentleman blames the reforms to advance corporation tax by this Government and the £5 billion a year taken in tax. This, he says, has inevitably damaged the value of defined-benefit funded schemes. The Secretary of State has already explained that the advance corporation tax reform levelled the playing field

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to encourage better investment decisions by removing the distortions of the asymmetry of the tax burden between retained profits and dividends paid. The point is that money previously paid as dividend is now being reinvested in the company to increase productivity. Previously, the tax concession distorted that decision.

Mr. Tim Boswell (Daventry): Will the hon. Gentleman give way?

Mr. Gardiner: Not at the moment.

The current policy, by putting reinvestment on a level with shareholder dividend, actually enhances shareholder value in the long run and serves to eliminate distorting red tape, as the Opposition motion demands. A shareholder can always realise any future dividend stream in a capitalist market simply by selling their shares.

It may surprise the House to know that a company such as Microsoft has not issued a dividend in 15 years. Indeed, its official policy is:

"Microsoft does not currently issue dividends on common stock or have a direct stock purchase plan, choosing instead to reinvest profits into operations. Although our Board of Directors periodically reviews this policy, Microsoft has announced no plans to change the policy."

Yet no fund would think on that basis that it was unwise to hold Microsoft stock. Indeed, most fund managers would say that they cannot afford not to hold Microsoft.

Conservative Members like to use ACT as a stick to beat the Government. The fact is that they fail to understand the workings of the market and how shareholder value is measured in more ways than dividend income.

The real test that the hon. Member for Havant needs to apply to ACT is the integrity test; would he abolish it? He would not, and he will not. As such, his two brains may blame it for the demise in occupational schemes, but his two faces want to retain it for the revenue that it brings to the Exchequer. That is a fundamentally dishonest position to adopt before this House.

The second accusation that the hon. Gentleman made is that the savings ratio is too low. I agree with that. What he did not do was explain what he saw as the causal link between Government action and that low savings ratio. He did not do so because he could not. The report by Oliver Wyman and Co., entitled "Targeting the Savings Gap", has identified a £27 billion gap in the savings provision that we as a nation require to fund a comfortable retirement.

The hon. Gentleman was gracious enough to accept that the provision by Nigel Lawson in the Finance Act 1986 to cap occupational schemes at 105 per cent. of value was a disastrous measure that led to employers taking superannuation holidays that the hon. Gentleman calculated at £1.4 billion per year. Over the intervening period, that is £21 billion that employers have taken from their employees. He will, I am sure, accept that that is £21 billion at 1984 values. The compound effect on occupational schemes has been simply enormous.

There are real problems facing our pensions system. Demographic shift is real, with males living on average eight years longer than they did 20 years ago. That brings increased liabilities for pension funds and tends to lower annuity rates. The demography is a critical problem,

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but real incomes have far outstripped the rate of growth in life expectancy, so it is not that the money is not there, simply that it is being spent on different priorities and, I might conjecture, different savings vehicles that members of the public are now choosing to use rather than putting their money into pension schemes.

The hon. Member for Sutton Coldfield (Mr. Mitchell) was good enough to absolve the Government of responsibility for the demographic shift. I would have said that if there is one thing that it is possible to lay at the Government's door it is the fact that people now live longer, given the improvements in public health, employment and social conditions. However, I wonder whether he will join me in blaming those employers who are using the ending of final salary schemes to reduce their contributions to their workers' new money purchase schemes. The House will be appalled to find that, typically, workers now see only between 6 and 11 per cent. of their pay going into their defined contribution scheme, where previously it was 15 to 20 per cent. going into a defined benefit scheme.

Much is made of the savings ratio, but I am surprised that more hon. Members have not spoken about the savings distribution across the population. Within limits, I would far rather that we had a lower savings ratio that comprised a much wider distribution across the population, showing more people saving for a comfortable and adequate retirement rather than fewer people saving for a wealthy and luxurious retirement.

The savings ratio is of course important, and statistics show that in this country we put about 5.5 per cent. into our pensions savings, while in other countries in Europe the figure is up to 16.5 per cent. Even if we made up the full £27 billion, we would not catch those countries up, so much more needs to be done on the savings ratio, but equally we must see the effect of the distribution pattern.

The savings ratio is important, but the savings distribution is what addresses the real evil faced by our constituents: poverty in old age. I welcome the steps that the Government have taken to tackle poverty in old age: the reduction of VAT on fuel; the £200 winter payment; the minimum income guarantee; the stakeholder pension; and the introduction, when it comes, of the pensioner credit. Those are real and valuable changes that target £6 billion of resources on the many who are not well off, rather than the few who are.

I want to look forward to the future changes for which the Pickering and Sandler reports may call. Flexibility is a requirement of any pension system that is to meet a labour market that now expects to have mobility to a new employer at least every decade of one's working life. Flexibility and portability must be built into pension products.

I warmly welcome the courageous and thoughtful speech of the hon. Member for South-West Bedfordshire (Andrew Selous). I am happy to agree with him that incentives to employers would capture positive externalities for the Government by encouraging more people to save for retirement. I urge him to be more radical, however, and to embrace compulsion. I urge Ministers to consider making tax concessions available only to those employers who contribute double their employees' contributions, up to a combined maximum of

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15 per cent., so rewarding employers who encourage their workers to save up to 5 per cent. of their wages by topping that up with 10 per cent. employers' contribution.

Clarity and transparency are vital, and are sadly lacking throughout the financial services industry. That is nowhere more so than in pensions, where the financial benefits are so long deferred and mature only at a time when, by definition, other earned income has largely ceased. If people's pensions fail, they are vulnerable in a way that they are not at any other time of their life. That is why the disaster that is Equitable Life has had such a dramatic effect on public confidence in the industry.

In today's Financial Times, we read of yet another increase in Equitable's market value adjustment—the penalty that members must pay to take their own money elsewhere. The article says:

"Equitable has no fat at all. It is now cutting into the flesh and will eventually get to the bone. They are looking down the back of the sofa for 50p bits to put in the meter to keep the lights on."

The problems at Equitable were complex, but at heart they relate to actuarial failure properly to represent the company's liabilities. In such an environment, I find it disturbing and distasteful that some Opposition Members have criticised measures such as FRS17 that will force companies to record properly in their accounts the full liabilities that they face. I welcome the better regulation that is being brought to the financial services industry and look forward to reading both the Pickering and Sandler reports.

One of the most important recommendations in the Oliver Wyman report about the savings gap is that provision of personalised financial advice is absolutely essential if we are to encourage people to save. I commend to Ministers the suggestion that a nationwide system of financial advice bureaux should be inaugurated, along the lines of citizens advice bureaux throughout the country, to ensure that people have access to advice as recommended by the Financial Services Authority's consumer panel.

My time is up, but I am grateful for the opportunity to speak to the House on a most important issue.

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