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6.45 pm
The Minister for Pensions (Malcolm Wicks): This has been an interesting and often thoughtful debate, dominated numerically and in other respects by Labour contributions.
Before I say anything else, I should like to acknowledge the contributions of many hon. Members on all sides of the House: my right hon. Friend the Member for Birkenhead (Mr. Field); my hon. Friend the
Member for Cardiff, West (Kevin Brennan); the hon. Member for Bury St. Edmunds (Mr. Ruffley); my right hon. Friend the Member for Newport, East (Alan Howarth); the right hon. Member for Hitchin and Harpenden (Mr. Lilley); my hon. Friend the Member for Ayr (Sandra Osborne); the hon. Member for Bournemouth, West (Sir John Butterfill); the hon. Member for East Carmarthen and Dinefwr (Adam Price); my hon. Friend the Member for Birmingham, Northfield (Richard Burden); the hon. Member for Chesterfield (Paul Holmes); my hon. Friend the Member for Aberdeen, South (Miss Begg); my hon. Friend the Member for Manchester, Central (Tony Lloyd); my hon. Friend the Member for Bolton, North-East (Mr. Crausby); my hon. Friend the Member for Central Fife (Mr. MacDougall); my hon. and learned Friend the Member for Redcar (Vera Baird); my hon. Friend the Member for Glasgow, Anniesland (John Robertson); and my hon. Friend the Member for Hamilton, South (Mr. Tynan). There were also notable contributions from the Front Benches, some interesting in what they did not say and others in what they did say.Let me start in this way. Mr. Johnson is 58. He has been working for the same employer for 30 years and has been contributing to his occupational pension throughout this time. Last year his employer went bankrupt, but Mr. Johnson knew that his pension was safe. So far, so good, but Mr. Johnson is an American. The US Pension Benefit Guaranty Corporation meant that his pension savings had been protected, as had those of others like him, since the mid-1970s. We on this side of the House are saying, as I hope others in the House are, that what is good enough for American workers for over a quarter of a century is certainly good enough for British workers and British company pensions.
I have met people like Mr. Johnson in the United States, and I have seen the difference that this real security makes. The House should be proud today to be offering this protection to the people of Britain. When we vote this evening the House has an opportunity to take the first steps to make the Pension Protection Fund a reality, a major social policy innovation, a consistent piece of pensions architecture, to build confidence that a pension promise made will indeed be a pension promise honoured.
Malcolm Wicks: I shall give way, but I shall not do it too often, because I need to respond to the debate.
Mrs. Lait: I am most grateful to the hon. Gentleman for giving way. He talked about the American experience. He will have heard my hon. Friend the Member for Eastbourne (Mr. Waterson) say that the American pension fund is $11.5 billion in deficit. What proposals does the hon. Gentleman have, should the United Kingdom fund go in the same direction?
Malcolm Wicks: This matter has been a feature of the debate, which I think the hon. Lady has mainly missed. I shall come to that later.
When I was in the United States, no one I met on either side of the political spectrum, certainly not Republican politicians, saw the end of the Pension
Benefit Guaranty Corporation. They recognised it for the important institution that it is, as we will in the years to come.I shall return to the fund in a moment. I should first like to make a few remarks to explain the Bill in the wider context of this Government's overall strategy for meeting the demographic and economic challenges facing all pension systems today. This is touched on in the Opposition's amendment, and several hon. Members have touched on this context. Certainly, the subject of pensions is rising up the agendas that count, in this House, among citizens, among trade unions, which are playing a major role, and among employers.
Our approach is to be fair to the poorest, fair to those who have saved, and fair as between generations, not least by not imposing big tax rises on future generations.
Thanks to the reforms of this Government, from April we shall be spending around £9 billion more in real terms compared with the 1997 system. This includes around an extra £4 billion on the poorest and most hard-pressed pensioners.
My hon. and learned Friend the Member for Redcar talked importantly about the position of women. Pension credit, which now benefits 2.4 million people—and the number is increasing every week—will mainly benefit women, who constitute two out of three pension credit beneficiaries. The state second pension is also particularly important to women. About 20 million people have gained from its introduction in April 2002, including 5 million carers and people with long-term disabilities.
Pension credit is rewarding those who have made a major contribution. It is already helping the attack on pensioner poverty. By 2001–02 absolute poverty was down 60 per cent. on the 1997 figure, with 1.6 million pensioners lifted above the poverty line. We have banished the past—the Tory days of 2.7 million pensioners in poverty, and pound-for-pound withdrawal undermining the whole system by showing that it sometimes paid not to have saved. Conservative Members talk about savings. We have not talked about them; we have acted.
We have more to do, however. Simplicity, security and choice underlie the Government's approach to moving from present to future. We have already taken significant steps. We are tackling complexity across the pensions agenda. Older people can now make a single telephone call to the pension credit hotline, rather than having to fill in a 40-page form. We have drawn up tax simplification proposals to sweep away the existing eight different tax regimes and replace them with a single lifetime allowance. We have bolstered security. Last week we presented full buy-out regulations enabling trustees to require a solvent employer who wants to wind up a pension scheme to buy out members' rights in full. Our Command Paper on informed choice set out the action we are taking to empower individuals to take more control of their retirement futures.
The Bill is the cornerstone of our whole approach. It is about bolstering security, strengthening member confidence, minimising burdens, cutting red tape and expanding choice. We have heard some notable speeches today. My hon. Friend the Member for North-
East Derbyshire (Mr. Barnes), for instance, asked about the implications for Northern Ireland. In general the Bill extends only to Great Britain, but there are exceptions, including the pensions regulator—most importantly—and the protection fund. Northern Ireland legislation will bring those provisions into effect in Northern Ireland.It is worth reminding the House of just what an opportunity the new fund offers. For the first time ever, individuals in defined benefit pension schemes, commonly known as final salary schemes, can rest assured that they will always receive a meaningful pension, even if their company goes bust and leaves the pension scheme underfunded. A risk-related levy will mean that those who pose the greatest risk to the fund pay the lion's share of the levy. There is a benefit cap of £25,000 a year, which will be simple to operate and which is a change in policy from a salary cap. That is a direct result of advice from key players in the pensions world, not least the employer taskforce established by the Secretary of State.
We have developed our policy in conjunction with expertise across industry, learning lessons from the United States and other countries in the process of building a pension protection fund that can bring security and peace of mind to those in defined benefit schemes. How many people like America's Mr. Johnson could benefit in this country? We know that there are about 10 million active and deferred members of private sector defined benefit pension schemes. In addition, about 5 million pensioners could benefit. That comes to 15 million. Inevitably, there is some double counting: an individual may be a member or beneficiary of several schemes. That is why we have always talked of at least 10 million individuals. Of course, not only individuals but their families stand to gain, so the number of people who could benefit from the security and peace of mind that the fund will bring is much greater than 10 million, and probably much greater than 15 million.
Mr. Waterson: Does the Minister agree with Mr. Adair Turner, the Government's pensions tsar, that in 20 years the number of workers in final salary schemes will have fallen from 10 million to 1.5 million, at most?
Malcolm Wicks: All we are trying to do is bring security to pension schemes of different kinds. I believe that the Bill will bring security to people in final salary schemes.
There has been much talk today about the levy, so I shall clarify what members will pay for pension security. The figures that I give are by way of illustration. In practice, they may vary to a small extent, but I hope that my examples will help the House.
We estimate that each member will pay about £10 for the first year, assuming that the £150 million estimated cost of the initial levy was spread evenly across all members. It is expected that each member will pay an average of only £20 per year thereafter, assuming that the £300 million estimated cost was spread evenly across all members. However, different schemes will pay different amounts because of the introduction of the risk-based levy from the second year.
Those costs pale into insignificance when compared with the typical cost of household insurance of about £350 per year, or even with the cost of holiday insurance
for a family of four for a two-week trip to Spain. I am advised that that insurance might cost double the £20 per year figure that I quoted.The amounts involved are relatively small, when compared with the degree of assurance that they will afford to members.
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