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Mr. Webb: It would not be in the spirit of today's debate to carp at this juncture, but on the one hand the hon. Gentleman asks why everyone cannot have 100 per cent. compensation and 5 per cent. indexation, while on the other hand he has tabled amendments designed to cap the levy so that there is no burden on business. Surely the flip side of what he is demanding is an even greater burden on business about which, presumably, the Conservatives will be worried tomorrow. What is his position?
Mr. Waterson: Unlike the Liberal Democrats, we are concerned both about pensioners and about business and industry. We think that there is a balance to be struck. I said in Committee, and will repeat on Third Reading, that the Government approached the whole business the wrong way round. One reason why the Bill has been overshadowed by our earlier debate about the 60,000 people whom it would not compensate, many of whom may still not be compensated—we must await the small print—is that the Government were desperate to get the legislation on the statute book so that they could say that they had set up the PPF. What they should have done was take a more measured approach to the legislation, which presumably will be there for a long time, and initially tackle the problem of the people who have already lost out. The American scheme, which was a model for this scheme, did not pay out any moneys for several years, as I understand it, because it was building up its resources. I think that we will end up with a very rickety PPF in the early stages, potentially with claims waiting to fall upon it and insufficient resources to meet them.
That brings me neatly to the most important of this group of amendments, amendment No. 31, which relates to the Government's power, tucked away in paragraph 29 of schedule 7, to reduce payments. The Minister says, accurately if not fairly, that there is also the power to increase compensation. However, we are really talking about an overweening power of the Government to reduce payments. On the one hand, the Government say that they will provide a complete safety net, a guarantee for people in these pension schemes, so that if the unpleasant things that have happened to people in the past, particularly the recent past, happen again, people will be fully protected. However, on the other hand, they say in the small print that there are going to be caps, that there is a 90 per cent. figure for people who have not actually retired, that they are going to fiddle with the indexation, and that they will take the power to reduce the compensation and benefits paid under the legislation.
It is no good the Minister saying, as he did, that the Government will use that power only in extreme circumstances. As I tried to point out in an intervention, I presume that the only circumstances in which that will happen will be where there are not enough resources in the fund. I cannot think of any other circumstances in which that will happen. That might be an extreme circumstance, but it is the only one that could, I imagine, prompt the operation of paragraph 29 of schedule 7. If the Government are really persisting with the notion
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that the PPF is a stand-alone fund with no Treasury backing and no Treasury guarantee, and that it will have to stand on its own feet, those are the circumstances that will prompt a reduction in benefits.
It is no good Ministers saying that they are providing a full guarantee and safety net. We visited the BBC website the other day, which said bluntly that people will get 90 per cent. if they are not retired and 100 per cent. if they are, with no qualification. We have had to write it a letter pointing out that that "ain't necessarily so". Ministers should be more up front. They were more up front in Committee, because they had no alternative, but we need to get the message across to people out there in the real world that this is not a full guarantee. To use the Minister's phrase again, there is an element of "rough justice". That is the point behind our probing amendments, and I commend them to the House.
Mr. Webb: This is an important group of amendments, despite the stage in the process of assessing the Bill that we have reached. As the Minister says, the Government amendments are largely technical. We have no problem with them.
I want to address two of the amendments of the hon. Member for Eastbourne (Mr. Waterson): amendments Nos. 27, on the issue of 90 per cent. and 100 per cent., and 31. I am sure that the hon. Gentleman's notes said this, but he forgot to say that amendment No. 31 was a Liberal Democrat amendment in Committee. I take it that, imitation being the sincerest form of flattery, he has brought back our amendment as a Conservative one on Report. I have certainly not changed my view that amendment No. 31 is very necessary and goes to the heart of the Bill, because it essentially relates to the fact that the Government will not act as lender of last resort to the PPF, which will have to go elsewhere. I shall come to amendment No. 31 in a moment.
I deal first with amendment No. 27, which is on the issue of 90 per cent. and 100 per cent. One can see a certain amount of logic in saying that people who have already retired cannot do anything about their predicament. So if their employer becomes insolvent, the scheme does not have enough money and the pension protection fund takes over the scheme's liabilities, it is reasonable for retired members to expect to get their full pension because, essentially, there is nothing else they can do.
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It is important to remember that even that statement needs qualifying. The question is—the Minister will doubtless intervene if I am wrong—100 per cent. of what? Even 100 per cent. will not necessarily constitute the entire pension that a person was expecting to get, and for two reasons. First, they will get 100 per cent. of the pension that they were expecting to get, excluding indexation for pre-1997 rights. In other words, even if the scheme of which they were a member offered them indexation on pre-1997 rights, the PPF will not. So there will be a set of people going into the PPF who will get a lower pension over time than they would have received had their existing scheme continued.
To some extent, this has been a theme of the day. Even now, to talk of guarantees and 100 per cent. is somewhat dangerous and potentially misleading. The literature
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that the Government send out to members of schemes who, in effect, will become members of PPF schemes will need to be explicit in pointing out that they will not get 100 per cent; otherwise, we could have a repetition of what happened with inherited SERPS—the state earnings-related pension scheme—whereby everybody in this place knew what had changed, but nobody else did. The official literature sent to SERPS members did not explain what had happened, and in the end the Government had to point out that people had been misinformed, and had to spend billions of pounds on putting matters right. Our discussions have given rise to one or two, albeit charitably intended, warnings. The Government need to look very carefully at the way in which they communicate with PPF scheme members. They need to realise that they will not necessarily get 100 per cent., if they were entitled to anything other than post-1997 indexation.
Moreover, such people will not get 100 per cent. anyway if, for example, their scheme includes particular provisions relating to survivor's benefits or to unmarried spouses. We touched on this issue in Committee, and I suggested then to the Minister that the PPF, which presumably will roll forward over decades, should be a forward-looking scheme that reflects best practice in the private sector, rather than a 1940s view of society. The 100 per cent. provision ought to match best practice in the occupational sector. For example, if a scheme provides for a surviving unmarried partner, the PPF should do the same.
Malcolm Wicks: It might help our deliberations on Report if the hon. Members for Northavon (Mr. Webb) and for Eastbourne (Mr. Waterson) cared to cost their proposals and to tell the House where the money would come from. I am advised that 100 per cent. compensation for all and indexation capped at 5 per cent. would add £200 million a year. Would the hon. Gentlemen raise the levy to raise that money, or would they make an Exchequer contribution? The House should know whether the Opposition do occasionally cost their proposals.
Mr. Webb: The Minister's intervention may well have been inspired, but it does not relate to anything that I have said so far. My point is that the terms "100 per cent." and "90 per cent." create a particular mental picture; indeed, that is what amendment No. 27 is all about. Those who listen to our deliberations—poor souls!—will get the impression that the PPF will provide full compensation. I have tried to illustrate through two particular cases that "100 per cent." does not mean 100 per cent., and it is very important that people should not get the impression that it does. Even raising the rate from 90 per cent. to 100 per cent. would not mean full compensation, because of the exceptions that I have mentioned.
Even if we were to raise the rate to 100 per cent., as amendment No. 26 would do, we would still not be providing full cover. But the key question, which amendment No. 27 addresses, is: who gets 90 per cent. and who gets 100 per cent.? We are agreed that people who have already retired will get 100 per cent., even though 100 per cent. is a rather limited concept. I am not uncomfortable about people who have not retired—they are still working— getting 90 per cent., but the nub
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of the amendment is about the people in between; that means people below the normal pension age of the scheme who might be drawing a pension. If the Bill is not altered as the amendment suggests, they will receive only 90 per cent. of their pension. The question is whether that is fair.
The Minister's response was that it was a moral hazard point—something that the Government appear to have been fond of during the Bill's passage. Sometimes it happens that a company director, perhaps in his early 60s and seeing that things are going wrong with the company, decides to retire, even though he has not reached the normal pension age of the scheme. He applies to the scheme for retirement benefits and then, mysteriously, the company winds up the next day. Lo and behold, he is in the 100 per cent. rather than the 90 per cent. camp. That would certainly apply under existing rules about wind-up. Before the PPF is introduced, such a person falls into the favoured rather than the unfavoured category. The Government appear to be saying that, to avoid that happening, they will treat anyone under the normal pension age—whether retired or not—as being in the 90 per cent. category.
The point that I put to the Minister in my intervention—I have to say that I was not convinced by his response—was that the provision amounted to a sledgehammer. I am not sure whether sledgehammers can catch rotten apples, but this one appears to be trying to catch the odd rotten apple, while at the same time hitting many deserving people. Leaving aside ill health—it is dealt with in a separate part of the Bill—it might affect people who, for perfectly good and proper reasons, have taken early retirement at an actuarially reduced level. They then find that that level of pension, already below the norm, is reduced by a further 10 per cent. As I understand it, that is what the Government's proposals will do. The people affected are living on pensions that are already fairly modest, perhaps because they have been drawn early on account of family circumstances.
Let me provide an example to explain why such people are important. Someone could take an early retirement pension to look after a spouse and become a carer. They need money to live on and they cannot wait until they are 65. They have to stop working so they draw an early retirement pension at, say, 62. If the firm goes to the wall, they may believe that the PPF into which their employer had paid PPF levies will provide them with insurance, effectively replacing the pension. However, the PPF may come along, under which they can be paid only 90 per cent., not 100 per cent. The critical point is that that will not apply just for one year, but for ever—an issue that has not emerged from our debate so far.
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