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House of Commons

Monday 21 October 2002

The House met at half-past Two o'clock


[Mr. Speaker in the Chair]


Committee of Selection

Order read for resuming adjourned debate on Question [16 October],

Hon. Members: Object.

Debate to be resumed tomorrow.

Oral Answers to Questions


The Secretary of State was asked—


1. Mr. George Osborne (Tatton): If he will make a statement on the number of final salary pension schemes that have closed in the last year. [73059]

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3. Mr. Mark Hoban (Fareham): If he will make a statement on the Government's response to the Pickering report. [73061]

5. Mr. Lindsay Hoyle (Chorley): If he will make a statement on the powers of employers to reduce employees' final salary pension scheme. [73063]

The Secretary of State for Work and Pensions (Mr. Andrew Smith): Final salary schemes remain the most widespread form of pension provision. Where there is a shift to money purchase, the key thing is the level of contributions rather than the nature of the scheme as such. It is clearly crucial that we have proper partnership between employers, employees, the financial services industry and Government, with each meeting their responsibilities.

A simpler regulatory framework, as both Sandler and Pickering emphasised, would make it easier for companies and workers to save through good schemes. As the Green Paper will be consultative, hon. Members and the public will have every opportunity to influence policy before decisions are taken.

Mr. Osborne : I note that the Secretary of State did not answer my question at all. May I ask him this supplementary question? Confidence in personal and occupational schemes will have been severely damaged this weekend by news that the Government are considering abolishing higher-rate tax relief on pension contributions—[Hon. Members: XHear, hear."] I hear some cheering on the Labour Benches. The Government have tried to distance themselves from the story by saying that the adviser to Downing street is independent. To my mind, that reinforces the story. Will the Secretary of State give a simple yes or no answer: are the Government considering, at official or ministerial level, plans to abolish higher-rate tax relief on pension contributions? Yes or no?

Mr. Smith: On the first part of the hon. Gentleman's question, as hon. Members know, the review of statistics

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from the Office for National Statistics recently made a number of recommendations as to how the collection of statistics might be improved. If the recommendation that more information should be collected through the employers and families surveys can be taken forward as we would like, it would give us better data.

On the question about tax relief, as the hon. Gentleman and the House know, questions concerning taxation are matters for Budgets. We have no such plans; if we had such plans we would come to the House of Commons and say so. As hon. Members will understand, ahead of an important document such as the pensions Green Paper, Ministers receive all sorts of representations. I can tell the hon. Gentleman that Ministers have taken no decisions of the sort suggested—it is all fevered speculation. It would be best to wait and see what is in the pre-Budget report and the Green Paper itself.

Mr. Hoban: Does the Secretary of State recognise that the abolition of higher-rate tax relief on pensions contributions would make it less and not more likely that people would save towards their retirement? Will that not lead to a deepening of the crisis in funded pension provision?

Mr. Smith: I am not sure whether the hon. Gentleman was listening to the reply that I have just given. He will not tempt me to engage in hypothetical speculation on this important matter.

Mr. Hoyle: Does my right hon. Friend share my concerns, following the actions of Scottish Widows and British Airways—to name but two—on final salary pension schemes? Will he consider a change in the law to ensure that employers hold full consultations so that those practices do not continue at the expense of people who work for such companies?

Mr. Smith: As I said in my opening response, it is very important that all parties in pension provision—employers included—meet their responsibilities. I have discussed the issues with the CBI and we are encouraging the partnership discussions that are under way between the CBI and the TUC. It should be stressed that good pension arrangements are crucial to business in recruiting and retaining a good work force. We shall address those issues further in the Green Paper.

Mr. James Plaskitt (Warwick and Leamington): But is my right hon. Friend aware that management and ownership changes in companies can sometimes create problems? For example, management buy-outs sometimes give new managements the opportunity to tear up existing schemes. Does my right hon. Friend think that some additional measures to safeguard existing schemes should be provided in future to deal with such circumstances?

Mr. Smith: Among the provisions that would address my hon. Friend's concern—which has been drawn to our attention—are the 401k arrangements that operate in the United States. As with other aspects of this matter, we shall be considering those as part of the Green Paper. As I pointed out earlier, hon. Members

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and the general public, including trade unions and employers, will have full opportunity to make comments on the proposals in the Green Paper.

Mr. Steve Webb (Northavon): In my usual generous way, I fully accept that the Secretary of State inherited a complete mess in relation to pensions, for which he is not personally responsible, but does he accept that the situation now is urgent and that each day we have more bad news on final salary schemes and private sector pensions? Is he not concerned that, if we have a Green Paper in response to consultation papers, then consult on it, then legislate, it may be several years before workable legislation is in place, and that by then there may not be much of a pensions sector left? Does he not think that more urgent action is needed?

Mr. Smith: This is an extremely important policy area to address, and to address properly. As the hon. Gentleman and the House will understand, pensions policy is, by definition, for the long term, and I believe that we will get the best policy on the basis of calm reflection. Yes, of course these are matters of urgency but with calm and proper consideration and consultation we can put something in place that is durable, and rebuild confidence in the pension promise. We would not do that through knee-jerk reaction to fevered press speculation.

Mr. Clive Betts (Sheffield, Attercliffe): Will the Secretary of State consider the position of workers such as those at United Engineering Forgings in Sheffield, which has gone into administration, putting their pension scheme at risk, and those whose employers decide to terminate a scheme against their wishes? In both cases, because the schemes are not fully funded and because of the prior claims of existing pensioners, additional voluntary contributions and so on, such workers find their expected future pensions cut in half or worse overnight. That is bad enough for any worker, but it is devastating for workers in their 40s and 50s, who have no chance of making up the loss. Will the Secretary of State take action to right what is a very obvious wrong in those cases?

Mr. Smith: I share my hon. Friend's concern about the understandable anxiety—and in many cases anger—that workers feel having been put in that position. I have seen the reports of the comments of the independent Occupational Pension Advisory Service on the situation at Maersk, which is precisely such an instance. I have already asked that that sort of situation and the appropriate action that we can take be covered in the Green Paper.

Mr. John Butterfill (Bournemouth, West): Is the right hon. Gentleman aware that many homeowners rely on a tax-free lump sum to help to pay off their mortgages and that, if that were to be abolished, it would compound the difficulty that exists with endowment policies at the moment? Does he agree that the position is anomalous because, although many people would be better off putting all their lump sum into their pension rather than taking the tax-free amount, there is no parallel incentive for them to do so? Would they not be

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better getting a proportion of tax relief by putting that sum into an annuity, as happens in other European countries?

Mr. Smith: I am of course fully aware of the importance of the tax-free lump sum. As I made very clear in my statement to the House on 11 July, the effectiveness of incentives and how well they are understood must be one of the criteria against which we judge the Green Paper. As the hon. Gentleman will know, we have already said that we will say more about annuities when we produce the Green Paper.

Ian Lucas (Wrexham): As pensions involve long-term financial arrangements, does the Secretary of State agree that any employer who is considering ending a final salary scheme should not only consult their work force but ensure that they consider the very substantial savings they have made when not contributing to pensions during a pension holiday in the past?

Mr. Smith: Yes, indeed, and we have urged all employers who are contemplating changes to their schemes to consult the workers effectively.

Mr. David Willetts (Havant): I am sure that the Secretary of State would not want to leave millions of savers in any doubt about his intentions with regard to their pension contributions, so to ensure that there is absolutely no wriggle room—no room for evasion and no room for ambiguity—may I ask him to make it absolutely clear to the House that he agrees with the National Association of Pension Funds that abolishing tax reliefs

Does the right hon. Gentleman agree with that?

Mr. Smith: I have already made it abundantly clear—I cannot make this clearer—that we have no such plans. Before accusing us of wanting to increase taxes, the Opposition spokesman ought to explain why his own shadow Chief Secretary has his name on the pension reform pamphlet that urges us to put up national insurance contributions by 2 per cent. He might also do well to remember that the last party to come before the House proposing the abolition of tax relief on pensions contributions was not us but the Conservatives, in the form of the then Secretary of State for Social Security, on 11 March 1997.

Mr. Speaker: Order. The Secretary of State should remember that it is his policies that we want to hear about.

Mr. Willetts: I am afraid that we know how skilful the Government are at inventing new stealth taxes. That is why we want to read the Secretary of State's lips. All he has to say is, XWe will not remove the tax reliefs currently enjoyed by people saving for their pensions."

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That is what we want him to say; that is what millions of people saving for their pensions want him say; that is what we want to hear him say now.

Mr. Smith: We will take every action that is necessary to safeguard the future of security in retirement in this country. The hon. Gentleman tempts me to make commitments that must be brought forward in the proper way through the pre-Budget report and the Green Paper. He is not going to get me to engage in hypothetical speculation on an issue on which I have made it clear that the Government have no plans.

Mr. Willetts: I know that we are not allowed the full Jeremy Paxman 14 questions, but let me try just one more time. I am not trying to tempt the Secretary of State. I am trying on behalf of millions of people saving for their pensions to request him to give them an assurance—plain and simple, with no delay, prevarication or weeks of uncertainty—that he will not remove the tax incentives that people currently have to save for their pensions. That is the assurance that we are asking the right hon. Gentleman to give the House. Why will he not do so?

Mr. Smith: Because—I could not have been clearer—we have no plans, and these are properly matters for the pre-Budget report and the Budget.

David Winnick (Walsall, North): Should not the whole emphasis be on protecting the future pension plans of those on modest incomes? There is tremendous disappointment that so many people now find that the best provision—the final salary scheme—will not be awarded to them. Is it not interesting that a number of companies that have discontinued such schemes have made sure that their chief executives, chairmen and so on get the most generous pension schemes possible, involving #50,000, #100,000 and #150,000 or more in pension, while their employers are denied a decent pension when they retire?

Mr. Smith: Yes, indeed. My hon. Friend makes a very good point. It is crucial that the conclusions that we reach on pensions policy are guided by equity, consultation and fairness to the workers concerned. As I said in response to my hon. Friend the Member for Warwick and Leamington (Mr. Plaskitt), we are looking at the 401k proposals in the United States, which seek to establish that sort of equivalence.

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