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John Robertson (Glasgow, Anniesland) (Lab): Is the hon. Gentleman arguing that there would be a blank cheque when firms wind up their pension funds? If so, would that not encourage some firms to wind up their pension funds, as they would know that the Government would bail them out, no matter what?
Mr. Webb: Given the political difficulty for the Government if they do not honour the insurance, I suspect that that is precisely what will happen in practice. If the Government face the prospect of a big company going to the wall, a crisis in the fund, which did not contain enough money, a jacking-up of levies to the ceiling, the scrapping of indexation rights, and the need to get an affirmative resolution through the House to cut the protection offered by the pension protection fund, they may well opt for a bail-out. We should plan rationally, not so that the public sector puts money in that it never sees again, but so that it is a lender of last resort. Although the pension protection fund has borrowing rights, they are limited. The Government are trying to claim that the insurance scheme will protect people's pensions and is operated at arm's length, but the Secretary of State has his mucky paws all over it—he can tweak it, cap the levy and change the benefit rights. It is essentially a public sector or Government scheme.
It would be preferable to avoid a panic when the pension protection fund suddenly runs out of cash and things are desperate by planning rationally. How would any Government lending of last resort work, how long would it last, and on what terms would it be repaid? We must plan now, instead of panicking when companies go to the wall. The public are in danger of being misled, as
they may think that the pension protection fund protects their pensions at 100 per cent. or 90 per cent. In fact, if the scheme gets into trouble, the Secretary of State may come to the House and cut those rates. If someone insured their car and it crashed, they would not want Direct Line to say, "We haven't got much money this month, so we will only pay for half the repair." However, that is what the Secretary of State is proposing in the Bill, which surely is not right.
Lynne Jones (Birmingham, Selly Oak) (Lab): In view of the uncertain nature of the scheme at the outset, the Association of Consulting Actuaries has suggested that the benefits from the insurance fund should be set at a lower level—100 per cent. for pensions up to £10,000 a year, and 80 per cent. for pensions between £10,000 and £20,000. The poorest pensioners in the scheme are therefore protected when the scheme starts, but benefits can be increased later. Would the hon. Gentleman comment on that proposal?
Mr. Webb: I have some sympathy with the notion of a capping mechanism, although I am not sure about those levels. However, our priority is to make sure that, first, people are not left destitute and, secondly, have a reasonable return on their savings. Trying to define that in statute is extraordinarily difficult, but our first priority is to make sure that people are not left destitute. After that, if money is left in the fund, we could look at the allocation of the balance. However, it is certainly well worth considering a cap when there is pressure on funds. There are capping components in the proposals, but they would operate at quite a high level.
The Government say that they are saving occupational pension schemes money by reducing their obligation to index pensions in payment post-retirement. However, they may have greatly overestimated the amount that pension funds will save as a result. Although pension funds may have a 5 per cent. requirement post-retirement, the evidence is that many of them are not providing for 5 per cent. because they do not expect inflation to be anything like that. The amount that they may save by not being required to meet that 5 per cent. rate may therefore be less than the Government think. Some schemes, in any case, have an obligation that is greater than 2.5 per cent., which they will continue to meet, even if the statutory requirement goes down to 2.5 per cent. because the terms of the trust may require them to index by more than 2.5 per cent. They, too, will not save any money as a result of the change.
The money that the Government claim that they are saving company pensions may be less than they expect, and the premiums that they will require of schemes may be substantially higher than the £300 million that they estimate. It is important that we are given such information. We would not reject the entire Bill because we do not know such things yet, but we should receive reliable information. I hope that the Secretary of State will place in the Library a copy of the projections on which his figure of £300 million is based, as well as the alternative scenarios with different outcomes. He suggested that even £300 million was a pretty gloomy scenario, so perhaps he can assure us that he will place in the Library both the basis of the figure and the alternative scenarios that the Government have looked at.
The issue that, quite properly, has attracted the most attention is the position of people who have already lost out or will lose out before 2005 and will not be in the system established by the Bill. A number of them are visiting Westminster today, and I want to put on record the appreciation that I share with a number of hon. Members on both sides of the House for the work of Ros Altmann and others for the pensions action group. Members who represent constituents with ASW pensions, along with other hon. Members, appreciate the fact that that group has maintained a high profile for the issue and, in addition to campaigning, has submitted evidence, arguments and positive ideas to the debate, which it needs. The Bill, I hope, will provide a chance for us to put something on the statute book to deal with the problem.
I have reservations about muddying the issue by linking it to the pension protection fund—in my view, tackling it is a separate exercise. If we try to bring those individuals within the scope of the pension protection fund, the straw man of retrospection will be brandished, and people will say that insurance cannot be available retrospectively, so the whole argument for the Bill is weakened. We will not help our case by saying that money should be made available from the pension protection fund. A separate system of compensation is required. I do not mind if we talk about providing assistance, as long as the people who have worked and saved hard, listened to Government and official advice, and did what was expected of them get justice. That should be our priority.
The Secretary of State was a little light-hearted about the suggestion that £100 million was affordable and not a substantial sum of money. It clearly is a substantial sum, and demonstrates that many people have lost a lot of money. We would not be talking about payment of £100 million a year if many of our constituents had not lost out badly. To say that £100 million is such a large sum that that one could not undertake action is not acceptable. If many people have lost a lot of money, doing something about it will result in a big bill. We may be able to find the money in the assets of people who died 200 years ago, and we are all attracted by the notion of a free lunch. If free lunches were available, even if they were 200 years old, I would join the queue. I maintain an open mind about the early-day motion tabled by the right hon. Member for Birkenhead. If there is credible evidence that that proposal would cover the substantial costs of action, my colleagues and I would be willing to look at it.
I fear that that proposal would not operate on the scale required, although I am open to persuasion. If it does not, we must look at the Department's existing spending plans. When it draws up those plans, it identifies what it spends on pensions, benefits and so on. However, there is also a line headed "unallocated", which is money that it has not decided how to spend, and which is £150 million, £200 million or £250 million over the planning horizon. That is usual practice for Government Departments, especially Departments that spend £100,000 million. They tend to allow 0.1 or 0.2 per cent. for unplanned expenditure. The Secretary of State might argue that if there were a fight over unclaimed assets, every Government Department and good cause would queue up for a share. However, people who have lost company pensions must be close to the front of the
queue for money that his Department has not allocated. There is a profound case for providing justice for them, and when the Department allocates unallocated expenditure, it should put them at the top of the list.
Kevin Brennan: The hon. Gentleman said that a lot of money has been lost, but does he acknowledge that although that is the case, the sums for the individuals concerned are relatively modest? For the average active pensioner, the sum is probably about £8,000, for the average deferred pensioner, it is only £3,000 a year, and for people with pensions in payment it is about £6,000 a year. We are therefore not talking about fat cats.
Mr. Webb: I am sure that the hon. Gentleman knows that I was not implying that they were fat cats. If the cost is £100 million a year over a generation or so, that suggests that a lot of people are affected—the estimate is 60,000. For the individuals concerned, the money represents most or all of their pension. There is a danger that we will be caught up in the fine print, and will lose our anger at the injustice. The Secretary of State is a decent man, and wants such losses to be prevented in future. I hope that in examining the minutiae of the Bill he and other hon. Members will not lose sight of the fact that it is not right to allow people to work and save hard, reach the brink of retirement, only to have everything taken away from them and be told, "Sorry, although we sympathise, there is nothing that can be done."
That cannot be an acceptable outcome. I hope the Secretary of State would agree with that basic principle while he tries to work out exactly what he intends to do, and I am not sure that he does. He says that he does not want to raise false hopes, but does he accept the principle that the one outcome that is not possible and should not be possible is that nothing is done? I am happy to give way if he wants to give us the assurance that that is his starting point—that it is unacceptable that nothing be done in response to the injustice. I am slightly disturbed that he does not want to take that opportunity.
The pension protection fund is central to the proposals, but there are various difficult issues about how the fund relates to the rest of the pensions architecture that the Secretary of State is setting up. Schemes will have to follow a scheme-specific funding requirement. That makes a lot of sense. For a scheme with a large number of people who have already retired, the investment strategy and the funding rules will be very different from a scheme with most of its workers still active in the labour market. But there is another funding requirement knocking around—the pension protection fund funding requirement. The PPF will not just sit there: it will be active, keeping an eye on what companies are doing and how much money they are putting in. Presumably the PPF will be interested not only in whether they meet the scheme-specific funding requirement, but in whether they meet the level at which, if the company became insolvent, it would not make a claim on the PPF.
Is there a danger that two funding requirements are being operated in tandem? There is a scheme-specific one, but then the PPF comes along and says, "Well, you may satisfy the scheme-specific one, but you don't
satisfy ours, because if you went bankrupt, you would make a claim on us, so we want you to put money in to satisfy that funding requirement as well." Is there a danger that there will be annual actuarial valuations for the risk-based premium and two different funding requirements, making the whole thing extremely complicated? Has the Secretary of State thought through the open question whether we need a scheme-specific funding requirement if there is a PPF funding requirement? How do the two interrelate? Is there a danger of duplication?There is a raft of other measures in the Bill which I will not go through in detail, but I shall pick up on two other issues. The first concerns the trustees of the schemes. Like other hon. Members, I meet regularly with retired members of occupational pension schemes. They feel that they are excluded from the running of the occupational pensions on which they depend. One of the things that they value enormously is trustee rights—retired members drawing pensions being entitled to serve as trustees.
The Government considered two options for choosing trustees of occupational pension schemes. They rejected the option known as "fair and open". It is strange that the Government rejected the fair and open selection of trustees for occupational pension schemes. That makes me rather nervous. Retired members say that they want to have a say about the scheme that is as much theirs as anybody else's. They have no mechanism for contacting the electorate—the members of the scheme—and there ought at least to be a fair and open method of selecting trustees. The Government have rejected that for fear it would be bureaucratic and for fear of "vexatious scheme members complaining". Scheme members get vexed if they think they are not being listened to. I hope the Secretary of State will review that decision. It is important that workers, deferred members and retired members are properly represented in a fair and open way. I am not convinced that that is the case.
Finally, I shall touch on the part of the Bill that deals with the state pension. In general, we must be in favour of measures that give people new choices about retirement and new flexibility. Anything that allows them to take their pension later and get an enhanced accrual rate or a lump sum would seem to be attractive, but as was pointed out when we discussed the matter last week, the choice is complicated. When pressed, the Secretary of State seemed a little hazy about how lump sums would be treated. I looked on the Department's website, where there is a fact sheet—a sort of idiot's guide, which I found helpful and I hope the right hon. Gentleman will as well.
Under the heading "Pension Credit", the fact sheet states:
- "We also want to make sure that the lump sum is ignored when most people claim Pension Credit".
Part of the Bill is about information on the internet, combined pension forecasts and so on—telling people more—and another part creates a new, complicated choice that makes it extremely difficult for people to know what is the right thing to do. Once people have drawn their lump sum, does the Department say, "We'll always ignore £30,000 of your capital", or does the Department say, a year on, "Well, it is legitimate for you to have used £1,000, so we'll only ignore £29,000"? If people have other capital, does the Department distinguish between that and the lump sum capital? One begins to see how complicated matters become.
Yes, the Bill is a missed opportunity to simplify matters. It has been calculated that somebody who retires from a money purchase scheme after April next year and who has been a scheme member since before April 1997
- "may need to buy six different types of annuity with what is effectively one pot of money",
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