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Lynne Jones: I entirely concur with the hon. Gentleman's desire to reduce means-testing, but would not the Conservative proposal, while restoring the link between the state pension and earnings, do away with that link in relation to the means-tested benefit? In other words, the Conservatives intend to hold down the means-tested benefit so that the state benefit can catch up. That would affect many poor pensioners, especially women.
Mr. Ruffley: The hon. Lady has obviously not read our proposal for the eventual abolition of the pension credit. I suggest that she look at it.
Vera Baird (Redcar) (Lab) rose—
Mr. Ruffley: I shall give way in a minute, but I wish to make progress.
The constructive proposals for tackling the losses of those who lost everything—
Mr. Nigel Waterson (Eastbourne) (Con) rose—
Mr. Ruffley: I shall give way to my hon. Friend.
Mr. Waterson: My hon. Friend should not feel at all abashed in the face of the last intervention because, as he will be aware, the Government have gone out of their way to decline to answer the question of whether, if by some mischance they were re-elected to Government, they would link the pension credit to earnings or prices. My hon. Friend should expect a helpful intervention from the ministerial Front Bench if he were asked to deal with that issue.
Mr. Ruffley: My hon. Friend the Member for Havant asked a question on that. Will that link be restored after
the next election, according to the commitment first announced, I think, by the Chancellor? We do not know. Most people think it highly unlikely, given that he is trying to save money in his next comprehensive spending review.What is to be done about the individuals who have lost everything? Before moving on to that, and to the proposals of the right hon. Member for Birkenhead (Mr. Field), I want to mention the Bill's most important proposal, which is not entirely without merit: the pension protection fund. I have some sympathy with the Government over their task of setting the right level of protection. If that is set too low, future pensioners will not get the cover that they need, but if it is set too high, the premiums will be too crippling and prohibitive for companies.
At first blush, it might seem that the Government have gone for a practical compromise in the Bill, essentially saying that existing pensioners will get 100 per cent. cover and future pensioners will get 90 per cent. of their benefits. Current pensioners will have a reduced indexation of 2.5 per cent. for post-1997 benefits, with no indexation before 1997. So far, so good—one might think. However, the question that has not been answered is how reliable is the Government's estimate of the total cost of the levy. They have put that at about £300 million, but under FRS17, Watson Wyatt has calculated that the whole of British industry's current deficit could be £60 billion. In that context, £300 million does not look terribly realistic.
That does not bode well for a successful pension protection fund. Moreover, the Government do not have any estimate of the number of pension funds that are cheerily waiting for the creation of the pension protection fund so that they can make a claim. Add to that the fact that in the first year the fund will be collecting only the fixed-rate levy, and one can well envisage how the fund might be in deficit at the start of its life.
Clearly, a flat-rate levy on its own will bring moral hazard, because cross-subsidisation from the healthier to the weaker funds will provide a powerful disincentive to giving greater contributions to the weaker funds. That is why the Government have introduced a risk-based element to the levy. Again, that seems reasonable, until one starts to ask how it will be assessed. It seems that the assessment will take into account the surplus and discount of the pension fund, the company's solvency and the fund's mix of assets and liabilities. However, I thought that the Government were arguing for abolishing the minimum funding requirement provisions precisely so that funds could return to higher-performing equities with higher returns when they wished to. That is not likely to happen if there is a risk-based element, because that is likely to lead, on average, to a higher levy.
Another devilishly difficult problem for the Government, to which the Bill contains no answer, is that the risk test will require actuaries to make various judgments. Current opinion in the actuarial profession, depending on to whom one speaks, is not entirely sure whether bonds are the best means of matching pension liabilities these days. The consensus among professionals is that the risk element in the levy will be difficult to assess reliably and consistently. Perhaps the most obvious problem with the risk-based element is
that the weakest funds will pay the most. The weaker they get, the higher the levy. That could well exacerbate problems for a weaker fund, even given the transitional arrangements that seek to obviate the need to tackle that problem.The fund is no panacea. The model that the Government have borrowed—the US Pension Benefit Guaranty Corporation—is running at a deficit of more than $11 billion. The only logical outcome for the model that the Government have come up with is for the pension protection fund to reduce benefits to below the proposed level of 90 per cent. for current or 100 per cent. for existing pensioners. It is a matter of logic that the Government will have to cut those benefits because they have capped the levy. Had they not done so, any deficit in the fund could be closed or reduced by raising the levy, but they have expressly ruled out that policy option. The Government seem to have boxed themselves in.
The fund should come with a large health warning for future occupational pension holders. Presumably, that will come with the further information to be sent out as a result of part 4 of the Bill. The fact is that this is not a guaranteed scheme, and the Government would be duping future occupational pension holders if they were to pretend that it were.
I would like to touch on the points raised by the right hon. Member for Birkenhead. I seek a point of clarification from the Minister as to what legal advice he has received—perhaps he would care to publish it—on the status of the unclaimed assets that would form the basis of the scheme proposed by the right hon. Member for Birkenhead. That would involve an endowment quite separate from the fund in the Bill, and it would be hugely useful to get a definitive ruling on that status.
Mr. Frank Field: Would it be a good idea to ask the Attorney-General?
Mr. Ruffley: The right hon. Gentleman has anticipated the gag that I was about to make. I know that legal advice is a sensitive subject for Labour Members, and I also know that they have different views on the matter. Perhaps the Minister could clarify whether there is anything in the right hon. Gentleman's proposal that is worth looking at—the Secretary of State was very unclear on that—or whether the Government can give a definitive ruling that it is not a runner, and that it is a free lunch that will, frankly, not be available. Clarification of that issue would assist all of us in our deliberations on the Bill.
The Bill as a whole does too little, too late. As a result, current and future pensioners are being let down, and the Bill needs to be voted against.
3.21 pm
Alan Howarth (Newport, East) (Lab): The first responsibility of any Government is to ensure the provision of a universal state pension. At the moment, the state is not doing so, as the House of Lords Select Committee on Economic Affairs notes in its excellent report, "Aspects of the Economics of an Ageing Population". Because eligibility for the state retirement pension rests on the contributory principle, large numbers of those who are currently retired do not
qualify for a full basic state pension in their own right. Conspicuous casualties, both now and prospectively, are women on earnings below the level for national insurance contributions, and carers in households not in receipt of invalid carers allowance.The system has been stretched and patched to support varieties of people whose national insurance contributions fall short but who are considered deserving. I think that the Government are now proposing accrual of pension rights for people on paternity leave. The House of Lords Select Committee says trenchantly:
- "We see little purpose in this contribution system, which appears to be a now largely dysfunctional legacy of the post-war Beveridge welfare plan."
- "the basic state pension should be paid on the basis of citizenship rather than contribution record."
After establishing the platform of a decent basic pension, the Government have a responsibility to encourage and assist everyone of working age to build on that platform.
For all too many people, defined benefit schemes have turned out to be a snare and a delusion. The Government can levy taxes and are therefore in a position to honour their commitment, expensive though it is. When private sector employers felt that they should emulate the public sector, a fuse was lit.
Representing a constituency in south Wales, I am intensely aware of the grievous plight of the ASW pension scheme members. Naturally, I would like to see the Government help them, perhaps in the same sort of way in which they helped the Maxwell pensioners by readmitting them to SERPS and forgoing for the time being the NI contributions otherwise owed. However, the Government cannot confine themselves to helping selectively in the highly publicised cases. The Government would need to offer equivalent relief to members of all occupational schemes, including defined contribution schemes—to some of which employees were required to belong—that have suffered a ruinous collapse in the value of their pensions. Pace my right hon. Friend the Member for Birkenhead (Mr. Field) and my hon. Friend the Member for Cardiff, West (Kevin Brennan), I ask how could they not then, in justice, help savers in Equitable Life and other personal pension schemes that have experienced catastrophe? I do not know whether my right hon. Friend has established a definition of "catastrophe", the period of time that should be taken into consideration, the numbers of savers whose pensions have been ruined and the cost of rescuing them on the same basis as the Maxwell casualties.
Among the lessons of these calamities must be that it would be a mistake to commit further to defined benefit schemes. Employers have already understood that.
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