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Mr. Willetts: No, that is not what I meant. I meant that pensioners got 100 per cent. and people of working
age got 78 per cent. The basis on which the MFR operated was explained very clearly by my right hon. Friend the Member for Richmond, Yorks (Mr. Hague) in a debate on this subject. He said:
- "In broad terms, the aim of the MFR test is to ensure a scheme has sufficient funds to keep paying benefits for members whose benefits are in payment, and to pay minimum transfer values for other members."—[Official Report, Standing Committee A, 25 May 1995; c. 1.]
Since 1997, there have been two reductions in the value of the MFR. There was the 10 per cent. reduction in June 1998 to which I referred, and a subsequent 8 per cent. reduction. The effect of that has been to lower the value of the protection that members of company pension schemes now enjoy. Indeed, the actuaries to whom I have referred advise me that a 40-year-old who works for a company that is compliant with the MFR will now find that the funds that so comply would secure him only 20 per cent. of the pension that he would otherwise hope to receive. So there has been a decline from 78 per cent. to 20 per cent. since 1997.
Kevin Brennan: Does the hon. Gentleman acknowledge that, even if he were right about the reduction being the result of Government policy, the minimum funding requirement set out in the Pensions Act 1995 was wholly inadequate because the workers would still have received only a tiny proportion of their expected pension as a result of the MFR? Is that not correct?
Mr. Willetts: I am not saying that the minimum funding requirement was perfect. A proper balance always has to be struck, but it seems to me that the significant changes that have exposed so many of our constituents to the risks and concerns arising from the wind-up of pension schemes have occurred since 1997. That is the period in which the finances of company pension schemes deteriorated and in which Ministers twice deliberately cut the value of the protection provided by the MFR.
As a result of a well-intentioned proposal to introduce insurance, I believe that we now face a further risk. Ministers intend to introduce insurance initially—we do not know how long the initial period will be—at a flat rate. Hitherto, many good employers tried to do better than the MFR. The danger of the current proposals is that they pose the question why any employer should now attempt to do better than the MFR. Why should an employer put more money into pension schemes than the minimum necessary? He might improve the position of his own employees, but with an insurance scheme in place with the same insurance premium for everyone, an employer could cut contributions to the bare minimum necessary to meet the MFR and still access the Government's insurance scheme. A new risk is therefore being introduced as employers will in future see no need to bother paying more than the statutory minimum because of the flat-rate insurance scheme. It makes no provision whatever for employers who are doing better than the MFR.
We are told that at some point in the future we will move to a variable rate that reflects the quality of the funding of the company, but we have no information
about when or how that will be achieved. For a time, therefore, we will be in an extremely dangerous position in which companies do the bare minimum and rely on the insurance scheme to fall back on in the event of difficulties.The evidence is clear that in the past few years the world has become less secure for many members of company pension schemes, and hon. Members on both sides of the House are well aware of the consequences. We are aware that many of our constituents have been affected by a roll call of companies that have wound up their pension schemes. There is the example of ASW, of course, but also Blyth & Blyth in Edinburgh, Bradstock's, Dexion, Kalamazoo, Ravenhead Glass, Richards, United Engineering Forgings and many other companies have wound up without being able to offer anything like the full pension to their employees.
One of my constituents who visited my surgery recently had been employed by Ballast UK. He will be 61 in April and had worked for his firm for 27 years. He had been hoping for a company pension of approximately £17,000 per annum, but was told that he was likely to receive perhaps 17 per cent. We are all aware of such cases and no hon. Member on either side of the House can look such a constituent in the eye and say, "Tough luck, but there is nothing we can do." We all have an obligation to think constructively about what can be done to help people in those appalling circumstances.
Mr. Garnier: My hon. Friend mentioned a constituent who visited his surgery, and I, too, have had constituents visiting me for the same reason. One of my constituents, aged 60, used to work for British United Shoe Machinery and is now wholly dependent on what the state can provide. Throughout his 40-year working life he saved through the pension scheme but is now left effectively destitute—or, if not destitute, has to live a vastly reduced standard of life. Other British United Shoe Machinery employees will face the same, if not identical, difficulties.
Mr. Willetts: My hon. and learned Friend is correct, and all hon. Members know of such examples. That is why it is reasonable for us to ask Ministers what they propose to do about the problem, as our early-day motion and early-day motion 200 both state.
What do Ministers reply when they are pressed on this matter? The Secretary of State said:
- "I am sure that my hon. Friend will accept that it would be wrong for me to raise false hopes."—[Official Report, 11 June 2003; Vol. 406, c. 694.]
- "it would be quite wrong for us to raise false hopes that those people can get extra help unless and until we know that that is the position."—[Official Report, 20 October 2003; Vol. 371, c. 411.]
- "the Government are carefully considering the plight of those affected while taking care not to raise false hope."—[Official Report, 12 January 2004; Vol. 416, c. 511.]
- "have been examining whether anything might be done, without wanting to raise false hope, and as soon as I am able to report further to the House, I will do so."—[Official Report, 9 February 2004; Vol. 417, c. 1104.]
I assure the Secretary of State that he has not been raising any false hopes. In fact, he has not raised any hopes at all among the many people affected by the crisis.
The Opposition invite the Secretary of State today to look forward and to do better than tell us that he will not raise false hopes. Instead, he should make some constructive proposals. It may not be possible to do everything, but it ought to be possible to do something. I shall suggest, to the right hon. Gentleman and the House, what those proposals might be.
First, as an absolute minimum, we need reliable estimates of the numbers of people affected by the crisis. It is shocking to discover how feeble and inadequate are the answers given to parliamentary questions or other inquires about how many people are affected. Ros Altmann, for whom many hon. Members have the greatest respect, is an expert in this field. She has produced estimates, as have other people. The figure of 60,000 people affected by the problem is in circulation, but we do not know whether it is correct.
Ministers have all the resources of government at their disposal, and they should know the true figure. As a matter of urgency, they should compile reliable data. At the moment, the best list of companies affected by the crisis has been provided by The Mail on Sunday. I pay tribute to that newspaper for the work that it has done, but Ministers should be able to provide reliable information and answer a series of questions. How many schemes have been wound up, or are in the process of being wound up, that have not been able to offer full pensions to their employees? How many people are affected? How many pensioners worked for companies that have gone through the winding-up process? How many people who have not yet retired face the prospect of losing some or all of their pension? What scale of financial loss will they face?
One reason why the Opposition did not feel able to support early-day motion 200 was that we did not know the amount of compensation that would be involved. I have heard estimates that the total cost will be £1 billion, or £5 billion, and I have even heard a claim that it could be as much as £50 billion. Ministers must come to the House and give hon. Members of all parties that essential information; otherwise, we will all be trying to make policy in the dark. Therefore, my first request echoes the request that has come from hon. Members on all sides of the House—that Ministers give out reliable information as a matter of urgency.
Secondly, Ministers must give us their authoritative understanding of the legal position that we face. Many of us are being told that the ASW workers who are taking their case to Brussels have high hopes, on the basis of legal advice, of securing a victory and of defeating the Government. They are basing their hopes on the solvency directive, on the provisions of the Human Rights Act 1998, on contract law, and on the fact that they were compelled, at some point in the past, to join the scheme.
The Government are being taken to court on the matter. Ministers say that they are confident of winning the case, but why are they so confident? Would not it be better to take an initiative to tackle the problem now, rather than risk a humiliating legal defeat in the future? The Government have never offered the House any reliable information as to why they are so confident that they will face down the legal challenges ranged against them.
Thirdly, after years of endless consultations on various aspects of pensions security, Ministers should act. I tabled a written question asking Ministers how many consultation exercises they have conducted on pensions. The reply came that that as there had been so many such exercises that a full answer
- "could be provided only at disproportionate cost",
The Government have been consulting also on their proposals for the full fund on wind-up. When the original proposals were produced in June 2003, the Government said that they aimed at laying those regulations during the summer so that they would come into force as soon as practicable. Miraculously, a few days ago—after we announced the subject of this debate—and with snow falling, the Government finally produced their regulations on pension wind-ups. They nearly did something about the problem, announcing at one point that trustees may utilise the regulations so that they applied to schemes that wind up on, or start to wind up after, the date on which the draft regulations were issued.
If the regulations had applied to schemes that were winding up last June, they would have had a significant impact. In practice, the Government rushed out a corrigendum stating that the provision was a printing error and that the regulations did not apply to schemes that were currently winding up, but only to those that started to wind up after the date on which the draft regulations were issued. The Government announced a policy, then withdrew it on the basis that it was a printing error for which they could not take responsibility. The terrible thing is, that was probably true—but if the Secretary of State is to be believed when he announces that Government policy has been abandoned on the basis of a printing error, no wonder the right hon. Gentleman's credibility on his pensions policy is so poor.
We have also been promised amendments to the priority order facing members of pension schemes. I accept that the order in the Pensions Act 1995 needs changing. I wrote to the Secretary of State in January 2003 assuring him of our support, as a responsible Opposition, for proposals to change the priority order to dispense with the cliff edge whereby there was almost 100 per cent. protection for pensioners and little for current employees. The Secretary of State could have changed the regulations in an afternoon. That does not require primary legislation and would be simple to do. Fourteen months later, we are still waiting for the Secretary of State to do anything. The Government
promised to lay the regulations to tackle the priority order by early 2004. Perhaps the right hon. Gentleman can say when the regulations will be tabled. Practical steps could be taken that have not been taken by Ministers, despite our offer of constructive support.Beyond that, I urge the Secretary of State to be bolder and to debate with the House—perhaps we might call it a big conversation, as that is a phrase on which the Government are rather keen—radical proposals for tackling the priority order problem. The right hon. Member for Birkenhead (Mr. Field) is occasionally a friend of Members on this side of the House because of his constructive suggestions on pensions. He has proposed using unclaimed assets as the basis for establishing a fund that could be used to tackle pension grievances. When the right hon. Gentleman submitted that imaginative idea in the form of a private Member's Bill last year, we supported its Second Reading. Practical points need addressing, but in principle that idea is worth investigating. The Government opposed that proposal when we supported it.
There was a proposal also from Ros Altmann that because of the tough terms on which companies that wind up their pension schemes must purchase an annuity, they should be offered some prospect of delaying its purchase while the problem is investigated to ascertain whether a policy can be put in place to tackle it. Have Ministers considered that approach, and if so, what is wrong with it?
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