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Mr. Smith: I shall give way one last time.
Mr. Field: If we are to try to support Ministers in introducing some sort of scheme, it is very important that they do not think that, when we achieve that, if we do, we shall then pile in with the next one. Therefore, I was trying to say that if Equitable Life has a case it will be because of the report that is to be delivered. It should not be because the Government have met what I regard as the legitimate grievance of people who were made to join pension schemes and have now lost all or most of their pensions. I was trying to say that we shall ring-fence it in that way and not use as a battering ram any advance the Government make here to try to get every other old claim through as well.
Mr. Smith: My right hon. Friend makes very succinctly the point about the importance of a firebreak
and avoiding a more general read-across or some sort of domino effect. Again, the whole House will understand why the Government have to examine that very carefully.
Mr. Quentin Davies (Grantham and Stamford) (Con): Will the right hon. Gentleman give way?
Mr. Smith: No. I wish to make more progress.
The hon. Member for Havant raised the legal position. Again, the House will understand that, with the Government before the courts, there is a limit to how much I can say about this matter. He asked what made us so confident of the legal position. I can say only that it is on the basis of the advice that we have received. The claim being made against us is that we failed to implement the solvency directive. I am advised not only that we complied with it, but that the European Commissioner said that we had complied with it. That is the position in essence. The case has not progressed fully, and there may well be other dimensions of the claim yet to be made, as well as other legal aspects that the House will understand we must examine very carefully.
The hon. Gentleman asked about the full buy-out regulations applying to firms that started to wind up after 11 June. I do not think that I ever raised any expectations that it would have been appropriate or even possible to make them apply before 11 June. That would have been getting us into the area of retrospection, which I do not think we can enter.
The hon. Gentleman also raised the question of the priority order. I can confirm that we shall move forward in the very near future to rebalance the order so that the basic benefits of those in the run-up to retirement and other deferred members take precedence over the indexation of pensions in payment. That will achieve a substantial rebalancing. Many members may gain 20 per cent. of their pension, so it is a worthwhile interim change before the pension protection fund comes into effect.
I was of course aware of, and indeed shared, the enthusiasm of my right hon. Friend the Member for Birkenhead, echoed by the hon. Members for Havant and Northavon (Mr. Webb), for looking at a secondary rebalancing of the priority order among deferred members, to upgrade the rights of those deferred members with longer scheme memberships against those with shorter tenures. Those proposals had attractions, but we consult on regulations, and one of the things the consultation revealed was that that approach was impracticable, as many schemes do not keep the data needed to impose it. They do not hold the information on how long people have been members; they cannot tell the difference between someone who has been a member for a short time with a high rate of contributions and someone who has been a member for a longer time with a lower rate of contributions.
It is worth reminding the House that all that the proposals to rebalance the priority order can ever achieve is some redistribution of losses, lessening them for some scheme members, but increasing pain for others. The real aim must be to cut, not redistribute, losses for members of schemes in wind-up. That is what the PPF is all about. Conservative Members need to decide whether they are in favour of the fund or against it.
The final point made by the hon. Member for Havant was about unclaimed assets. The fact that assets are unclaimed does not mean that they do not belong to somebody. With electronic methods, it is becoming easier to trace assets and more people are doing so. Even if appropriating assets for public, Government or even charitable purposes, as happens in Ireland, were deemed appropriate, what gives that particular group of people who have been hard done by a prior claim to those assets compared with all the others who, I am sure, also want to make a claim? Again, it is a seductive idea, but I doubt whether it is right or practicable.
Mr. Heald : I am grateful to the right hon. Gentleman for giving way, particularly as I attended the House every week that the Pensions (Winding-up) Bill introduced by the right hon. Member for Birkenhead (Mr. Field) was blocked. On the question of unclaimed assets, is it not right that there could be no higher public interest than to protect the public's confidence in pension saving? Surely, that is so important to the future of our country that using the unclaimed assets for such a purpose could not be said by anybody to be anything other than a sensible ordering of priorities.
Mr. Smith: The hon. Gentleman makes a persuasive argument. As the Secretary of State for Work and Pensions, I cannot say that I would not be tempted by such an argument to get more resources to help with an intractable problem in pensions. However, I do not believe that he is so naive as to imagine that if suddenly there were a fund containing millions or tens of millions of pounds there would not be a long queue of deserving causes knocking at the door. Indeed, to develop his point about the importance of confidence in pensions, there is another argument that would add to the weight of evidence—if the matter is so important, is there not a proper claim on public funds anyway? In other words, the case for using unclaimed assets could apply equally powerfully to the use of public funds, if that were feasible and if and when we had explored all the issues.
The hon. Member for Havant also spoke in detail about the minimum funding requirement. As he said, the MFR was set out in the Pensions Act 1995, and the secondary legislation that subsequently took effect in April 1997 requires MFR valuations to be carried out in accordance with a guidance note issued by the Faculty and Institute of Actuaries. Revisions to the actuaries' guidance note reflected professional judgments on a range of relevant variables that change over time, including some mentioned by the hon. Gentleman such as interest rates, annuity prices and demographic trends.
Mr. Willetts: Was the Chancellor's change in the tax treatment of pensions one of those factors?
Mr. Smith: To be honest, I do not know, but I shall go away and check. If the change had the impact claimed by the hon. Gentleman on any of the factors that I have listed, clearly that would be reflected. However, I do not subscribe to his argument, which treats the tax change in isolation. Whenever the Opposition raise that change, they fail to take account of the fact that it was part of a more comprehensive restructuring of corporate taxation, which cut the rate of corporation tax from 33
per cent. to 30 per cent., with great benefit for businesses large and small. We would have to factor in the effect on pension funds as well.When the MFR revisions were carried out in June 1998 and March 2002, I do not recall any Conservative Members lobbying the Government or making representations to override the professional advice that we were given at the time. It is easy for the hon. Member for Havant to say now that different decisions should have been taken. Ministers took those decisions on the basis of professional advice and in line with the secondary legislation specified by the Pensions Act 1995, which was passed by the Conservative Government.
Sir John Butterfill: I suggest that if the right hon. Gentleman looks back over a series of debates taking place at that time, he will see not only that I was an original critic of MFR, but that I consistently said that its composition needed to be reviewed because it was not working in the best interests of scheme members.
Mr. Smith: I acknowledge the hon. Gentleman's remarks about his contribution to those debates, but I cannot recall the Opposition in general arguing that what was being done was wrong.
I have dealt as thoroughly as I can with the points made by the hon. Member for Havant, by his colleagues and by my hon. Friends.
Mr. David Watts (St. Helens, North) (Lab): All Labour Members welcome my right hon. Friend's suggestion that he will carry out a full assessment of the cost of any compensation package. Will he net off any savings that might be derived from benefits? When the figures are published, we should like to be able to see the cost to the Exchequer, and we need to know what the likely savings would be in benefit terms.
Mr. Smith: It always makes sense to take as rounded and comprehensive a view as possible of the relevant factors in cost-benefit analysis, but I would not want to set off another complicated exchange with Conservative Members about the assumptions that we are making about pension credit in 20 years' time.
Mr. Willetts: The Secretary of State is doing a brilliant job of not raising any false hopes. As he has been speaking for half an hour and is coming to an end, may I invite him to say something constructive about what the Government will do about this problem?
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