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20 Jan 2003 : Column 77—continued
6.41 pm
Andrew Selous (South-West Bedfordshire): If we had any doubts about the seriousness of the issue we are discussing, they have surely been dispelled by the realisation that 25 million of our fellow citizens are members of occupational pension schemes. That includes all the members of public-sector schemes. Over the past five years or so, some 30,000 schemes have had to be wound up. This is indeed a real, live, serious issue, which will sadly continue to affect many of our constituents.
The Government acknowledged the seriousness of the problem when they tried, with legislation introduced in April 2002, to do something about the delay in winding up schemes that many Members have mentioned today. I understand, however, that fewer than 10 per cent. of those running schemes who were required to report the winding up of their schemes to the Occupational Pensions Regulatory Authority by June 2002—some 4,000—had done so by that date, and considerably fewer schemes had been wound up. More effort must be made to ensure that schemes are wound up speedily.
Members have rightly expressed concern about the costs of winding up schemes. Last October, the BBC's "Money Box" programme estimated that in the past few years about £800 million had been taken unnecessarily from schemes owing to the inefficient use of lawyers and actuaries. It said that trustees should have a duty to shop around and secure the best possible value for scheme members, to prevent the haemorrhage of funds from schemes that are already underfunded.
It is particularly worrying that so many of our fellow citizens do not understand their lack of pension rights. A recent poll showed that 55 per cent. of people assumed that their pensions would be safe, and that their entitlements would be paid in full if their schemes were wound up. It is very worrying that so many of our fellow citizens believe they will be safeguarded when that is not the case. The Government's role is to educate them, so that they can take their own precautions should they choose to do so.
It has been suggested that solvent employers whose schemes need to be wound up should be allowed to pay the accrued benefits owed to scheme members over the remaining working lifetime of those employees. I hope the Government will view that proposal sympathetically. Most of the problems that we have heard about today, however, involve employers who become insolvent when schemes are wound up. That does indeed lead to the worst situations. As many Members have said, it is particularly sickening when directors or senior executives who are privy to information use retirement schemes to secure their own future benefits at what turns out to be the expense of their employees. Their pensions are safeguarded, while employees with deferred pensions suffer as a result of what has been taken from the pot. That is especially unacceptable: we can fairly describe it as another example of the unacceptable face of capitalism. I hope that the Green Paper's proposals to deal with it will be implemented.
It is also vital for us to protect those with long service. People with 30 or 35 years' service face a triple jeopardy: the loss of their jobs, the possible loss of their homes, and the loss of their pension assets. Part of the solution is to remedy some of the unfairness involved in dividing an admittedly inadequate sum, but that is not enough. It could be described as rearranging the deckchairs on the Titanic. Given the great unfairness favouring those who enter a scheme just before it is wound up, there must clearly be a readjustment of priorities to favour those with long service. No one has mentioned the other half of the solution, however. I suggest a mutual insurance scheme for occupational pension funds.
The United States has a pension benefit guarantee corporation, which takes a small levy from all occupational pension schemes. The concept of
insurance is the prudence of the many coming to the aid of the misfortune of the few. It may not always be the perfect solution, but it would go a long way towards remedying the problem here. I speak as, probably, one of the few chartered insurers in the House. I urge the Government to look seriously at the American example. Although the premiums have risen lately, evidence suggests that the arrangement greatly helps those whose schemes have been wound up. We should think about both making current arrangements fairer and adopting an insurance scheme such as the one I have described.Insurance could be particularly useful in a context that has emerged in my constituency, where General Motors withdrew some £167 million from the AWD pension scheme. That affected many employees in my area. The action was legal at the time and the scheme was apparently solvent when the money was withdrawn, but surprise, surprise: it transpired that the scheme was not adequately funded. The pensioners did not receive their entitlement. The Government should seriously consider giving employers a duty to buy commercial rather than mutual insurance in such instances. Employers who had withdrawn a sum would have to pay it back to scheme members if the sum was later found to be inadequate.
I urge the Government to look at the insurance markets. The London insurance market is one of the most sophisticated in the world, and I think that it can be part of the answer to the problem with which we are grappling.
6.49 pm
Kevin Brennan (Cardiff, West): I welcome the debate. It is a pity that we do not have more time, but I understand that an important debate on herbal products will follow. That shows the Opposition's priorities.
I do not agree with the motion, which is too narrowly drawn. The Opposition think that they have a good story to tell, but no one really believes that. After all, the Opposition introduced Flash Harry into pensions in the first place in the 1980s with the mis-selling scandal. While I accept the Minister's word that he seeks consensus and that the Opposition seek it too, it crossed my mind that the words "Conservative" and "consensus" have one thing in common: they both contain the word "con".
Andrew Selous: That was a cheap jibe.
Kevin Brennan: I will leave that cheap jibe, as the hon. Gentleman calls it, and move on to the issues in question.
The Green Paper is a sensible kick-off point for the debate and the discussion. I thank Ministers, in particular my right hon. Friend the Minister for Pensions, for the meetings held with me, my hon. Friend the Member for Sittingbourne and Sheppey (Mr. Wyatt) and workers from Allied Steel and Wire during the past few months to discuss ways through the crisis. My right hon. Friend the Member for Birkenhead (Mr. Field) is right when he says that the firm went under because it was so easy for the banks to pull the
plug. The firm had a full order book, so potentially it could have been solvent—but pulling the plug was an easy option for the banks because they knew that their money was guaranteed.Let us remind ourselves of the injustice—that is what it is—that the workers of Allied Steel and Wire have faced. One of them telephoned me just last week. He had worked for the company and its predecessors for 38 years and entered the pension scheme as a condition of his employment. At the time, it was a nationalised industry: workers were employed by the Government when they started their scheme. Let us remember that.
Neither the man who telephoned me nor the workers to whom I have spoken ever dreamed for one minute that their pensions were not safe. They never had a big health warning strapped across them saying, "You are putting your money into a vehicle that, a year or two before you are due to retire, could be worth next to nothing." No one ever gave them that health warning, whatever the complexion of the Government in power.
The issue of independent trustees has been raised. I read with interest recently an article in which Eddie Thomas, director of the independent trustee Law Debenture, said that my right hon. Friend the Member for Birkenhead appeared to assume that the smaller the pension scheme, the cheaper the wind-up. My right hon. Friend had pointed out that it had cost £800,000 to wind up a scheme that was worth just £5 million. Eddie Thomas said:
- "Small funds can involve a lot of work that is disproportionate to their size. I don't think it is generally appreciated how much work there is in winding-up a scheme. We have to recognise that in a winding-up case all the chickens come home to roost."
There are some sensible suggestions in the Green Paper about giving greater priority to those workers nearer retirement. We have debated that this evening. There are suggestions that we should reorder the payment of creditors to get rid of the perverse incentives for banks to withdraw, make pensioners preferential creditors, or perhaps give them some new status that would put them higher up the pecking order when pension schemes are wound up.
There have been suggestions, which I strongly support, that we should look again—it does not matter how many times it has been looked at—at setting up a mutual insurance scheme, such as exists in Sweden, or the central discontinuance fund model in the United States of America. I have been told by some people—I have done a bit of economics in my time—that moral hazard is a worry, as I am sure the hon. Member for South-West Bedfordshire (Andrew Selous) knows. The worry is that pension fund trustees will not seek to get the best out of the pension fund for members because they know that they can be bailed out; it will change their behaviour. Technical and academic debates about moral hazard mean nothing to workers who face the immoral hazard of losing their pension when they are nearing retirement if a company is going bust. I thank my right hon. Friend the Minister for Pensions for listening at all those meetings we had. It is good that those issues have become a central plank in the Green Paper and that the Government are taking them forward seriously.
What the Green Paper does not do, perhaps what it cannot do, is what we are trying to do in the Bill that my right hon. Friend the Member for Birkenhead has introduced and that I support: it does not attempt to assist those who are currently affected by wind-ups in insolvency. We have a moral duty to seek every avenue that we can to try to help those workers.
In many cases, the workers we are talking about are the best of British. They have worked through to close to retirement. Often, they have been asked to carry on working and not to take early retirement. They have been loyal, flexible and productive.
At Allied Steel and Wire, workers have had to accept many changes in working practices. They do not have a guaranteed pension fund after 30 years' service, as one would in the fire service. They had to accept radical changes in working practices to keep their jobs. Then they lost their jobs. Fortunately, some of them may get them back, but they have still lost their pensions. They were still conned. They were told by successive Governments to save for retirement and to join their company pension scheme. To them, it is all a swindle. To be frank, if I were in their shoes I would feel the same way, and so would hon. Members. Therefore, we have a moral duty to look at every way to help them and to call on the Government to find a way.
No stone should be left unturned, as the Minister for Pensions said in a previous debate in the House, in looking for solutions. My right hon. Friend the Member for Birkenhead has come up with an ingenious Bill that we should look at carefully. About 40,000 individuals may be affected because of the liquidation of their pension schemes in wind-up. To make good the losses, the Bill proposes a distribution of a small amount of the orphan asset funds that are held by insurance companies prior to setting up a permanent system based on the suggestions in the Green Paper.
Pensions are supposed to be about security, not risk. Why should the workers bear the risk when it is the banks and shareholders who are supposed to bear the risks when companies go bust? The Government's objective is dignity and security in retirement for today's and tomorrow's pensioners, to use the Government's own words, so let us look carefully at those proposals and see whether we can help the people who feel that they have been conned.
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