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Mr. Edward Garnier (Harborough) (Con): Are there not two other related omissions from the Pensions Bill: first, a date set for the publication of the Penrose report; and secondly, a commitment from the Government to do away with the compulsory annuities rule? Both of those are extremely worrying matters for future and existing pensioners.
Mr. Willetts: My hon. and learned Friend is correct. It is a great pity that the House has not yet had an opportunity to see the Penrose report, although we know that it has arrived in the Treasury. With regard to annuities, we continue to fight for the abolition of the pernicious rule that people are obliged to purchase an annuity at the age of 75. We hope that there may be a private Member's Bill before the House through which we can once more address that issue.
Kevin Brennan (Cardiff, West) (Lab): Does the hon. Gentleman accept that the Penrose report is nothing to
do with this motion and this debate? It muddies the water because the difference between the Equitable Life issue and this issue is that in this case people were often compelled to join occupational pension schemes and were given no health warning whatever that the schemes could go bust, particularly when the Pensions Act 1995 was passed.
Mr. Willetts: Both Penrose and pension wind-ups involve serious financial distress for people, and I hope that Members on both sides of the House can cover both cases with sensitivity, recognising that we have constituents facing significant financial problems in both cases.
Mrs. Gillian Shephard (South-West Norfolk) (Con): I listened with care to the intervention of the hon. Member for Cardiff, West (Kevin Brennan), and of course there is a distinction, academically, between the appearance of the Penrose report and other sorts of distress for pensioners. The fact is that for a pensioner who is affected not only by the wind-up of a pension scheme but by the delay in the Penrose report, that distinction is indeed academic. We should be looking at the distress caused to the individual.
Mr. Willetts: My right hon. Friend is absolutely right. The reason why we have called this debate, and why our hon. Friends are pressing vigorously on Penrose, is that in both cases there is serious financial distress under this Government and people are facing financial insecurity of a sort for which they did not bargain.
Sir John Butterfill (Bournemouth, West) (Con): With regard to the point made by the hon. Member for Cardiff, West (Kevin Brennan), is not it correct that in 1986 the then Government abolished the compulsion for people to join pension schemes and that anybody who had been compelled previously to enter into a company scheme was free then to leave that scheme?
Mr. Willetts : My hon. Friend is right. The provision was changed in 1986.
Mr. Oliver Heald (North-East Hertfordshire) (Con): Does my hon. Friend recall that the Allied Steel and Wire workers suffered a double blow, because the additional voluntary contribution scheme was with Equitable Life? Is there not a link between the two in respect of the hon. Gentleman's constituents?
Mr. Willetts: At least one person whom I have met had the misfortune both to lose his final salary pension as a result of the winding up of a pension scheme and to have put extra pension savings into an AVC scheme with Equitable Life. He suffered a double whammy—an appalling blow.
Members on both sides of the House share the concern about pension wind-ups. It is reflected in two early-day motions, our motion 66 and motion 200, tabled by the hon. Member for Cardiff, West (Kevin Brennan). Between them, the two motions have been supported by almost half the total number of Members, which also reflects the extent of the concern that is felt. Motion 200 goes further than motion 66, which was
signed by me and by many of my hon. Friends. It implies that the Government should offer full compensation to victims of wind-ups.
Mr. Douglas Hogg (Sleaford and North Hykeham) (Con): Does my hon. Friend understand the reservations of people like me who strongly support the proposition that compensation should be given for loss if that loss was caused by the negligence, misconduct or other culpable fault of Government or Government agencies, but would find it difficult to support compensation in respect of loss that was not the fault of Government or those for whom Government are vicariously liable?
Mr. Willetts: That is an important point, on which I intend to press the Minister later. We need much clearer information than we have had from Ministers so far about what they think their legal liabilities might be. We hear a variety of reports on the Government's legal position.
Rob Marris (Wolverhampton, South-West) (Lab): The Opposition motion refers to 60,000 people. Can the hon. Gentleman give us an idea of the cost of compensation? If possible, will he break his answer into two parts and tell us how much it would be when there has been culpable error and when there has been no such error?
Mr. Willetts: These interventions have raised interesting points with which I hope to deal later.
Mr. Jim Cunningham (Coventry, South) (Lab): Will the hon. Gentleman give way?
Mr. Willetts: I should like to make some progress now.
I want to explain to the hon. Member for Cardiff, West that we did not feel that, as a responsible Opposition, we could support an early-day motion that involved unqualified and uncosted obligations to pay compensation to all victims of the pension wind-up crisis. However, the fact that we did not feel able to go as far as he did does not mean that we agree with the Government that nothing can be done. Motion 200 calls for everything to be done; the Secretary of State and other Ministers are doing nothing. Conservative Members believe that something can and should be done, and I intend to set out what I consider to be a genuine and constructive approach to the problem affecting so many victims of the crisis.
Unless the problem is tackled, the Government will not achieve their stated objective of restoring trust and confidence in our pension arrangements. It is impossible to envisage a world in which people once more have confidence in funded pensions when there are so many distressing stories of individuals facing financial disaster because they had funded occupational pension schemes. Conservative Members, who are strongly committed to the strength and vigour of funded occupational pensions, believe that the problem must be tackled.
First, I want to provide a little of the history, because it is important to all this.
Mr. Cunningham: On the question of the history, the hon. Gentleman will doubtless remember that under the previous Conservative Government, and particularly during the 1980s, companies such as Rolls-Royce encouraged people to opt out of the state earnings-related pension scheme; in fact, they spent thousands of pounds doing so. If he wants to have an honest debate on this issue, will he not accept that the origins of the problem lie in the 1980s, under the Thatcher Government?
Mr. Willetts: No. I regret that intervention because it is not accurate. I shall take the hon. Gentleman through the history, which will show why.
The Pensions Act 1995, which is sometimes blamed for this problem, actually improved the degree of security available to members of occupational pension schemes through the introduction of the minimum funding requirement. It set out to strengthen the protection available to members of such schemes, and the formula on which the MFR was based was full protection for pensioners, and protection for at least the transfer values that would be available for workers who had yet to reach pension age.
For a time, the MFR worked. When we lost office in 1997, the position was as follows. Actuaries advise me that the MFR would have provided 78 per cent. of the value of the pension that a 40-year-old man working for a company with an occupational pension scheme would have hoped to receive. Of course, back then company pension schemes were healthy and many companies had funds available that were in excess of that figure. Then along comes the current Chancellor, with his notorious £5 billion a year tax on pension funds that significantly weakened the finances of many company pensions. What was the Government's response to that weakening? They cut the value of the MFR to reflect the fact that companies were now distributing smaller dividends.
I shall quote how Mercers, a senior and respected firm of actuaries, described the Government's 10 per cent. reduction in the MFR at that time:
- "The change is a consequence of pension schemes losing the benefit of advance corporation tax (ACT) tax credits in the July 1997 Budget, following which the gross dividend yield was no longer appropriate for pension funds."
Mr. Steve Webb (Northavon) (LD): The hon. Gentleman has brought some new information to the House. In 1997, three quarters of a worker's pension would have been protected had the scheme been funded according to the MFR, but can he clarify what would happen when such a scheme winds up? Let us say that half the members are retired and half are still workers. Would the retired members get 100 per cent. and the workers 50 per cent., because the average is 75 per cent., and does he consider 50 per cent. protection to be adequate? Is that what the hon. Gentleman meant?
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