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20 Jan 2003 : Column 53—continued
Mr. George Foulkes (Carrick, Cumnock and Doon Valley): There is a genuine problem; it is faced by my constituents who work for United Engineering Forgings. No one is more sympathetic to their plight than my right hon. Friend the Minister for Pensions. Would not the hon. Member for North-East Hertfordshire (Mr. Heald) better serve my constituents and all those affected if he made constructive proposals instead of party political capital?
Mr. Heald: On an Opposition day, the right hon. Gentleman must excuse me for replying to an intervention. After all, he often does so.
We are making constructive proposals—that is exactly what I am doing—but it is right to record why we are in such a mess. It is the Government's fault. They introduced a tax that takes £5 billion a year. They have weakened protection for workers by reducing the minimum funding requirement. Actuaries say that it was the decision to relax MFR by 8 per cent. in March 2002 that led to Maersk's decision to close its pension scheme, a point to which I shall return later.
Mr. Heald: I have given way several times and I want to continue with my speech.
There are other reasons why it is more expensive to buy the deferred annuities necessary to secure the liabilities on wind-up. Assumptions about how long people will live have increased and the cost of index-linked gilts has risen as yields have fallen, yet the Government have failed to explain any of that to the public. If interest rates fall, the cost of providing a pension rises. The failure to point out those consequences meant that few if any pension scheme members have been aware of the new-found fragility of their pensions. As a result, they have been unable to take action to deal with the situation. The effect is dramatic. In 1997, the MFR was adequate on wind-up to buy between 80 per cent. of the accrued pension for a 40-year-old still working for a company and as much as 95 per cent. for a 60-year-old. That has now been reduced to less than half.
Even some solvent companies are moving to wind up their pension funds. One deplores their decision. It is one thing if the choice is between the company's future existence or its pension scheme, but in some cases the choice is purely commercial—which the Government have encouraged by their negligence. It is wrong and short-sighted for a company to turn its back on long-standing employees when it is possible to continue its pension fund. Some people say that a pension is just deferred pay, but to many there is an obligation upon an employer to ensure that people who give their working lives to a company are not without the resources needed in their retirement.
Mr. David Watts (St. Helens, North): Does the hon. Gentleman agree that the main cause of problems in the pensions industry is the underperformance of the market and the economy? Does he further agree that one of the reasons for deficits is that many companies took long pension contribution holidays, from which they benefited at the time, but are now unwilling to put in the resources needed?
Mr. Heald: That will not do. The Government tell us time and time again how wonderfully the economy is performing, but when pensions are in such a mess as a direct result of the actions of the Chancellor and the Secretary of State for Work and Pensions, the Government blame the economy. Some of the reasons for pensions being in crisis are external to the Government, but the most significant factor, according to experts, is the Chancellor's decision to increase the tax by as much as he did.
Mr. Terry Rooney (Bradford, North) rose—
Mr. Heald: I will not give way immediately. I want to move on to another important aspect.
Two ASW directors were allegedly paid packages valued at £2 million from the pension fund in the year prior to wind-up. Whatever the individual circumstances at ASW, there is widespread concern that directors with detailed inside knowledge can choose their moment to retire, while workers who continue in employment—sometimes at the behest of those very directors—may be left with only a fraction of their expected future pensions.
The National Association of Pension Funds' proposals aim at providing better protection for scheme members nearing retirement when an employer goes into liquidation. They also tackle the problem of directors who retire just before wind-up, by treating all members who have retired in the past year in the same way as those nearing retirement. The proposals would give priority to pensioners in payment but only at up to 90 per cent. of the current level, then to those expected to retire in the next 10 years, who would receive a 75 per cent. pension, and then others. While pensioners in payment would receive a little less and those who continue to work in the company less still, such a scheme would be much better, much fairer and much more just.
It may be that the Government have other proposals, but that suggested change would not prejudice any of them as it would apply only to wind-ups after the proposals have been introduced. My hon. Friend the Member for Havant (Mr. Willetts) has written to the Secretary of State offering our full co-operation in ensuring the prompt passage of legislation to change the priority order. We would like to co-operate with the Government to achieve an early outcome.
The NAPF emphasises the urgency of such reform in its briefing for this debate which states:
- "The NAPF urges the Government to take early action to take the winding-up priorities through new regulations."
- "We consider that this issue is urgent because of the large number of schemes now moving to wind-up."
Mr. Frank Field: May I return to the point that I made earlier? I know that Oppositions have never done this in the past, but there is nothing in the Standing Orders of the House that would prevent the Opposition from using some of their Opposition time to introduce their own measures. If this is so important, why does not the hon. Gentleman introduce his proposals or back those that I am putting forward?
Mr. Heald: The right hon. Gentleman makes a fair enough point, but surely I ought to try to persuade the Minister first. The Government have most of the time available to the House, so they can act with dispatch. The trouble is that they will not. They sit around
twiddling their thumbs, producing for consultation measures that we have seen time and again before. There have been 26 consultation exercises, as the right hon. Gentleman says—he agrees with me about that. Surely we should get on to the Government and say, as I am doing, that we should act now.
Mr. Barry Gardiner (Brent, North): I have listened carefully to what the hon. Gentleman says about changing the priority order, but does he accept that raising the priority of pensioners subordinates the priority of the debt? Banks therefore run an increased risk and the cost of capital will go up, so those companies could be put under even greater pressure, forcing them into liquidation earlier. All that may cause even more problems that the hon. Gentleman seeks to solve.
Mr. Heald: The hon. Gentleman makes an important point, but it is not relevant to this proposal, under which the money available to a pension fund should be split up differently, so that working members of the scheme do not end up being so cruelly disadvantaged as they have been in incidents such as that involving ASW. The Government are consulting on another proposal, under which the debt owed by the employer to meet the pension fund liabilities should have a higher priority. That proposal deserves serious consideration, but it is slightly different and the Minister will have heard the points that the hon. Gentleman makes.
The crisis in pensions is wide-ranging. There is a lack of incentive to save, caused by Government action in extending means-tested benefits. At the same time, there is a crisis of increased costs for pension funds, caused by the Chancellor's tax increase on those funds. There is a lack of confidence, with the recent YouGov survey showing that just 4 per cent. of people in Britain trust the Government to keep their word on pensions. It is crisis of escalating closures, which have doubled in the past year according to the NAPF—it is warning of many new wind-ups—but this debate is about the crisis of fairness in wind-up arrangements. We may not be able to solve all the problems immediately, but the Government can act.
Lynne Jones (Birmingham, Selly Oak): The hon. Gentleman is pressing the Government to introduce proposals on the differing range of priorities for pension schemes on wind-up. I accept that such measures are urgent, but would it not sow more confusion to introduce some measures now, while waiting to make further changes until after the Government have consulted on their Green Paper? There is nothing inherently superior in the scheme proposed by the NAPF other than perhaps the priority on which the Government are consulting. Indeed, there would be grave concern about the idea of messing around with existing pensioners' benefits.
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