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Mr. Philip Hammond (Runnymede and Weybridge) (Con): This debate was always at risk of being an anti-climax after events earlier in the evening, but it is none the less about a big issue, which is important for all of usthose of us already drawing a pension, those of us approaching retirement and even those of us at the beginning of our working life.
We are faced with some truly long-term decisions, which our adversarial party political system with its four or five-year cycle may not be ideally designed to address. We caught a little of that in the Secretary of State's tone of voice. He tells us that he wants to build consensus, and the Opposition have certainly come to the debate with that intention. The British people will expect us to lift the debate out of the party political arena and genuinely attempt to build a consensus that gives them the security to plan for the long term, knowing that the settlement we eventually reach will not be unravelled by a spin of the wheel of political fortune.
This is the first opportunity that we have had to discuss pensions since the publication of the Turner report and at this stage an Adjournment debate is a good forum in which to conduct our discussions. Such is the magnitude of the issue, however, that we shall need further debates, and I am pleased that the Secretary of State acknowledged that that would be possible. I want to consider some of the preliminary issues that we feel need to be addressed to allow us to hold a serious and open debate in the attempt to reach consensus about the long-term future of our pension system. My main focus will be Turner.
Turner said that there is no immediate crisis. Although there may be no immediate crisis in relation to the state pension or the public sector's ever-mounting liability in respect of its pensions, many people coming up to retirement, who are stakeholders in private pension schemes, are experiencing something that feels remarkably like a crisis. I want to deal with that issue, as I am sure that many Members will want to raise it.
There are several reasons for the real, current crisis in the private pension sectorsignificantly lower investment returns and rising life expectancy, which is good news for everybody except actuaries. Nobody, not even in our most rabid moments, could hold the Government responsible for those issues. There are other things for which the Government must take responsibility, such as the Chancellor's £5 billion-a-year raid on pension funds, which has wiped about £125 million off the value of pension funds.
I hope that the Minister will refer to one issue in particular that is outside the scope of the big, long-term debate, although the Government could address it in the
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shorter term. It is the extent to which the regulatory regime under the Pensions Act 2004, which is supposed to encourage and protect private pensions, is encouraging a retreat from higher risk, higher return assets in favour of liability-driven investment in gilts, with a series of self-reinforcing and rather negative outcomes that we are seeing at the moment. That has driven up demand for long-dated gilts, thus driving down yields. Pension fund liabilities are calculated by reference to the yield on the long-dated gilt, which in turn has increased the deficits of those pensions and fuelled the next round of liability-driven gilt buying. Meanwhile, the funds have missed out on a recovery in the equity markets and perhaps an opportunity to repair the damage that previous stock market downturns have done to their balance sheets.
I certainly subscribe to the view that politicians, especially Opposition politicians, should not lecture the Debt Management Office on how it manages the public sector debt, so I shall not offer the Minister any recommendation about how the Government should fund their debt, and I urge my colleagues to follow that lead. However, the Minister could look at the demand side of the problem. He could consider the regulatory environment that is driving the flight from risk to gilts. He could also consider the extent to which the regulatory regime and the risk-based pension protection fund levy, which is now anticipated, are reinforcing patterns of investment behaviour that are making it more and more difficult for companies to plug the holes in their pension funds. I should be grateful if the Minister said something about that very immediate problem tonight.
While the Minister is responding, he might just take a quick look at the financial assistance scheme, which was set up with a great fanfare nearly two years ago to provide a solution for the estimated 85,000 people who have been left high and dry by the collapse of pension funds. The financial assistance scheme has so far paid out to just 15 people, and that figure represents an advance. The latest published Government figure shows that 13 people have benefited, but we are grateful to the Minister for yesterday updating that figure to 15 people. If we could deal with those short-term, immediate issues, that would be great.
Let us go back to the long-term reform agenda. The Turner report represents a serious analysis of the twin challenges that the Secretary of State for Work and Pensions has spelled out, namely, of dealing with the demographic changes in Britain's population while maintaining Britain's world competitiveness, which is essential to the prosperity of all of us. Pensioners, those in work and those unable to work all depend on that international competitiveness for our future prosperity.
Whether or not the Opposition or, indeed, any other hon. Member adopts Lord Turner's recommendations in the end, we should treat his report with respect and use it as the basis of an attempt to build the great consensus that the Secretary of State spoke abouta consensus between political parties in the House, between generations in the country, between the sexes and between different groups in our society. The Opposition are formulating our response to Turner's proposals on the basis of the principles of fairness, sustainability, security and affordability. The settlement must be fair by embracing all types of pensionstate,
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public and private sectorand it must recognise the differences in people's life expectancy and the need for flexibility to accommodate them. It must address the discrimination against women that is built into the present state system.
On security, people must be given a clear understanding of what the state will and will not do. That security must be based on a consensus that gives people the confidence to plan ahead and make their own arrangements, with an understanding that the settlement that is reached will endure for many years. On sustainability, the settlement must be durable in the long term. It must provide a solution for today's pensioners, as well as people in work and those who are not yet of working age. Of course, the settlement must be affordable, both now and in the future, against an objective baseline of the likely future cost of the present system, if it remains unaltered.
As we analyse and consult on the Turner proposals, which the Government are also doing, the big questions are becoming clear. Is the trade-off of a higher state pension age for higher state pensions the right one? Is it affordable and can it be made sufficiently flexible to be fair to those whose life expectancy will be different from the rising average? What degree of compulsion should be employed when encouraging people to save for a second pension? Should employers be required to contribute and, if so, how much? Should there be special arrangementseither subsidies or exemptionsfor small and medium-sized enterprises? How should such a second savings scheme be managed and how will it impact on the existing pensions industry? As the Secretary of State said, the Government are actively pursuing answers to those questions and a lively debate has already begun. Is the balance between public and private provision that Turner proposes the right one for Britain in the 21st century?
The process is not competitive because we are not trying to get better answers than the Secretary of State. I genuinely hope that by separately pursuing the answers to those questions, we will find not that we get precisely the same answersthat would be too much to expectbut that our answers are sufficiently close to make it possible to build a genuine consensus across the political divide. If we are to have a genuine debate and a real consensus is to be formed, the Government must come to the debate with an open mind. They must be ready to engage in some give and take, because without that we cannot build a consensus.
The political reality is that if all bar one member of the population reaches a consensus and the one is the Chancellor of the Exchequer, we will not have a way forward. It was thus disappointing to those of us who want a consensus that the Chancellor tried to shut down the debate before it got started. He positioned himself from the outset as the road block to pension reform. If we are to have a proper debate, we need transparency, flexibility and impartiality. Nothing must be ruled out and nothing must be off limits in advance of the debate. I have to say that the Government's track record on that is not good, although that is no reflection on the Secretary of State or the Minister for Pensions Reform,
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because the culprits in this case are the Secretary of State's predecessor but one and the Chancellor of the Exchequer.
Although private sector pension stakeholders are facing tough choices and often negotiating against the constraint of the viability of their employers in the face of burgeoning pension deficits, public sector unions face no such constraints. Whether funded or unfunded, any gap in public sector pension provision must be met by the taxpayer. The Secretary of State's party fatally undermined any claim it could make to be addressing the matter impartially when it caved in to the public sector unions on retirement at 60 before the general election, and caved in again in October last year. If we are to have a serious debate and face up to the tough decisions that must be made, the burden of adjustment must be shared equitably. There can be no exclusions or favours for specific groups. We must all be in this together.
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