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27 Jun 2006 : Column 201

In the statement a couple of weeks ago, and again today, the Secretary of State made a great deal of the financial assistance scheme and the extra money that is being put into it. I do not decry that extra money, but those of us who represent workers affected by the scandal of pension schemes—they will not go away, because they have a just case that has to be answered—know that the financial assistance scheme does not adequately address the injustice that has been inflicted on them. For instance, the payments under the scheme are not inflation-linked, even though the pensions would have been. The scheme starts only at age 65, but the expected pension would have started from the scheme pension age, which is often below 65. The FAS payments are made in full only when the wind-up of the company has been completed, but expected pensions would have been paid as soon as pension age is reached. The scheme payments are capped at £12,000, so they decline in value over the years. FAS payments have no tax-free element. The scheme also pays only 50 per cent. of the benefit to a surviving spouse, but they would normally receive at least 50 per cent. of the full expected pension. FAS payments halve immediately if a member dies soon after retirement, whereas ongoing schemes usually continue paying full pension to surviving spouses for a few years. If members die young, the FAS pays nothing, and survivors are left without any insurance, whereas expected pension benefits include life assurance cover. The FAS pays no ill-health benefits, but most schemes offer ill-health cover. Those are just some of the criticisms that workers in those dire straits have put to me.

Dr. William McCrea (South Antrim) (DUP): What representation have the Government made to the Government of the Irish Republic to ensure that the injustice that the workers in Belfast have endured is put right? Natural justice demands that they should be treated fairly.

Mr. Dodds: I know that some of those workers live in my hon. Friend’s constituency and that of my hon. Friend the Member for East Antrim (Sammy Wilson), who is also in his place. In the particular circumstances, the Irish Government have an enormous responsibility to do right by those workers. They worked for a company that was 51 per cent. owned by a sovereign Government of the European Union, but they have been treated despicably and deplorably. I would take the same line if the company had been part owned by the British Government, and I am not attempting to bash the Irish Government, but it is worth making the point that people are entitled to fair play, especially when a sovereign Government are involved in the management of the company.

I recognise the contribution made by the financial assistance scheme, but it is vital that those workers, who are in a difficult situation through no fault of their own—they took the best advice, but their pension fund has an enormous shortfall—are properly compensated by the Government as speedily as possible. None of the workers is getting any younger and some have suffered ill-health as a result of their terrible situation, and I urge the Government to act as quickly as possible.

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7.56 pm

Mr. Adrian Bailey (West Bromwich, West) (Lab/Co-op): I welcome the White Paper. Of all the White Papers that I have ever read, it is probably the most lucid exposition of a complex subject. The exploration of the social, demographic and behavioural context of pension policy is illuminating and has informed our debate today. I congratulate Ministers on tabling this motion so that we may have a full debate before legislation, so that we can tease out the different issues and address the points made by all the parties. I hope that we will achieve consensus on the subsequent legislation as a result.

This is a hugely important debate. I congratulate the Government on what they have done to lift pensioners out of poverty—several Members have recognised the positive effect on pensioner poverty of pension credit and other Government provision—but the model that has been successful in the past few years in raising the poorest pensioners out of poverty is not necessarily adequate to meet the demographic changes of the future and the behavioural issues that we need to address to ensure that we have decent pension provision in the next few decades.

In the past, as the hon. Member for Weston-super-Mare (John Penrose) said, legislation in this area has been piecemeal and complex. If we are to establish a consensus, it has to start here and then be recognised by the public. The White Paper provides a basis for achieving that. Any new provision has to be so obviously fair and command such wide public support that future Governments are not tempted to tinker with or remove its basic elements. Above all, the scheme must also be affordable, so that future state pension provision is insulated from the vicissitudes of economic ups and downs that might otherwise tempt a Government to change it. There will be less reason to change a scheme that is affordable.

I recognise that the measures that this Government have taken to lift pensioners out of poverty mean that there is no immediate crisis, but profound problems remain that must be tackled if these proposals are to be successful. A combination of social attitudes to saving, what the White Paper terms “behavioural economics”, the complexity of pension provision and a lack of faith in the savings industry is making it very difficult to establish in people the commitment to pension saving that is going to be needed if we are to resolve the difficulties in the future.

The first matter that I want to deal with is the live now, pay later culture that several hon. Members have mentioned already. Yesterday, I saw a news item celebrating the 40th anniversary of the introduction of the credit card. I confess that I was alive and around in that era and can remember that buying things on hire purchase was not really respectable. People did it, but it was frowned on, especially in tight working-class communities.

What a revolution there has been. People in our consumerist society are bombarded with expectations of a certain quality of life, irrespective of their incomes. That, combined with the accessibility of easy credit, has changed everything, and our well-documented spending culture does not sit well with the level of pension provision that we want for the future.

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The Government can change the culture by changing the way that state provision is made, and the child trust fund is a good example of that. I spoke today to the chief executive of one the fund providers, who told me that there is considerable evidence already that people are adding to the funds—even those allocated by the Treasury—and using them for saving purposes. The jury is still out on the child trust fund. It is still in its early days, and people might say that I was bound to support it, but the initial signs are encouraging. The fund is an example of how the state, through the way that it implements support, can change cultural habits and encourage people to save rather than spend.

The same is true for pensions. The national pensions saving scheme has automatic enrolment, which means that it can harness people’s inertia about pensions. I do not want to sound contradictory, as that inertia has been a bugbear in the past and a reason why people did not get around to sorting out their pensions. However, the automatic enrolment in the pension savings scheme means that that inertia can be used to assist saving, rather than the opposite.

That is crucial to the scheme’s success, but I echo what my hon. Friend the Member for Bradford, North (Mr. Rooney) said earlier. He is not in his place just now, but he was right to say that it is possible for unscrupulous small employers operating on tight margins to undermine the scheme by urging their employees to opt out. I am the last person to advocate a heavy regulatory regime to enforce the scheme, but I hope that Ministers will raise this very important matter in the discussions that I know they are having with the small business community.

The history of the savings industry has damaged how people perceive that industry, as well as their incentive to save. Pensions mis-selling, problems with endowment mortgages and the collapse of so many defined-benefit company schemes have led many people to believe that saving is just not worthwhile, as they will not get value for money. In common with many other hon. Members, I have a company in my constituency where decent, honest, working blokes who saved in a scheme for many years have lost all the benefits that should have accrued to them. They qualify under the financial assistance scheme, but no pay-outs have yet been made. I know that the Department is looking at ways to speed up the administration of the scheme and the payments made under it, but changing people’s perception of the value of saving requires us to bear in mind that every failed scheme is a personal tragedy for those involved. It is also a huge public relations disaster and a massive disincentive to future pensions saving. All that must be sorted out if we are to re-establish confidence in saving for pensions.

Finally, I come to the question of the retirement age. I believe that a large proportion of the public wants to work later in life. People may not want to do the same job that they have done for most of their lives, or even to work full-time, but a huge number feel that they can still contribute to the economy and the community when they reach retirement age. They want to enjoy the sense of self-respect and well-being that goes with working. If the retirement age is to be increased, part and parcel of that must be the provision of support for people in their 50s and 60s—and older than that—so that they can find the sort of jobs that they need.

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In my area of West Bromwich, West the history is one of heavy industry, with demanding jobs, poor health and a life expectancy much below average. The Government must look at the provision for people like those in my constituency, who will not enjoy the same post-retirement lifespan as others. I welcome the White Paper’s commitment to examine whether the guarantee credit and the pensions credit could remain available at age 65, and I welcome, too, the Government’s determination to undertake proper monitoring of what is going on so that people such as I have described do not lose out.

In conclusion, I believe that the Turner report carried real weight. It was robust and received wide support from all groups. The White Paper builds on and refines its recommendations. It is robust and constructed in such a way that we cannot remove certain proposals and go ahead with the rest, as they are all interconnected.

The complex combination of funding and payments and the construction of different schemes is such that if one element is removed the whole is weakened. I urge Members to recognise, whatever their feelings, that the package is good. It is fair and robust and can command consensus not just in this place, but in the country as a whole. It will be a huge improvement on what has happened previously, so we should all work to give future generations something that past generations never enjoyed.

8.10 pm

Mike Penning (Hemel Hempstead) (Con): I have been listening to the debate for the past four and a half hours and have thoroughly enjoyed the cross-party discussions on this important issue.

We have heard a lot about consensus. No matter what consensus we may reach in this place, among the major political parties or out there in the country, I fear that, unless there is trust in our pension schemes, all that hard work may go to waste. The White Paper will not be worth the paper it is written on if the public do not believe in the pension schemes that result. Indeed, they have every reason not to believe or trust in pension schemes, given what has gone on over recent years.

About four years ago, when I was a parliamentary candidate, the former Dexion workers in my constituency asked for my support in their campaign for natural justice in respect of the pensions that had been stolen from them. I sat with them for three days and went through the detailed documentation they had provided through their trustees about actions in which they felt the Government had been involved. Long before the ombudsman’s report, I came to the conclusion that they had been treated very badly.

The number of people who have lost their pension has gone up dramatically since then. The early figure was between 70,000 and 80,000; now the number is 125,000 plus—I am sure that the Minister will take me to task if I am wrong. Seven hundred of those people are my constituents, but the loss of their pension does not affect only them; it hits their extended families and their loved ones, especially their widows who, in some cases, have suffered so much. In addition, the situation has massively affected people’s confidence about investing in a pension scheme.

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We are asking the public to trust Governments and pension companies with their future—with their retirement income. So much of what has been said today shows that they will not have that faith in the future. I freely admit that there was a problem with pension mis-selling, which had to be addressed. Things went wrong and that had a major effect on people’s confidence, but there has been an even bigger effect over the last few months when an independent parliamentary ombudsman, appointed by the House, came up with a damning report on the Government’s involvement in the collapse of pension schemes. That has had a massive knock-on effect.

Ordinary decent people who changed their standard of living so that they could put something away for their pension have lost so much. It is difficult to see how we can involve the public in this great consensus debate about trusting the Government—no matter who is in power—if we do not address the problems faced by those thousands of decent, honest people who put something away for a rainy day and for their retirement.

I stood on a manifesto that said that those people should receive the minimum funding requirement— 80 per cent. of their pension—from unclaimed assets. Halfway through the run-up to the election, the Government came up not with a clear compensation scheme but with the financial assistance scheme. It comes from taxpayers—from public funds—which is good and it can be added to the estimated £15 billion that is sitting around in unclaimed assets. The Chancellor wants to use some of that money for worthy causes and I cannot think of a worthier cause than repairing the damage to people’s pensions and restoring their faith.

The knock-on effects will also be felt if something similar happens in the future. In the 13 months that I have had the honour to be a Member, I have been asked several times whether I would take up with the parliamentary ombudsman something that my constituents felt was fundamentally wrong. In some cases my answer would be yes and in others no, but even if I did pursue a case, the Government might simply ignore the ombudsman’s ruling. My constituents’ faith in Parliament has been massively affected by the pensions problem. The future role of the ombudsman is at risk, if when that person comes up with a report, whether it is for or against the Government or impartial, it is completely ignored.

The ombudsman’s report was damning. My constituents, like those of other Members who have spoken today, felt rightly that their pensions had been stolen from them. Some Members have said that we should look more closely at individual cases, and the Minister should consider that proposal seriously. Instead of wrapping everything up in one bundle and saying that all the blame lies with the Government or with the companies, we should look at individual cases. If the Government’s approach to an individual scheme was fundamentally flawed, they would have to say so. The ombudsman found in general terms that there was maladministration in the way that Government had dealt with pension schemes.

Sammy Wilson (East Antrim) (DUP): Does the hon. Gentleman agree that by splitting things up and looking at individual schemes, we might get to the bottom of the question whether the full cost of compensation will
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be £15 billion, £3 billion or whatever it really is, rather than the figure that has been put out to try to stop people from pursuing the findings of the ombudsman’s report?

Mike Penning: The hon. Gentleman makes a valid point. The Prime Minister seemed to make up the figure of £15 billion on the hoof at Question Time. Many estimates are that the amount could be as low as £3 billion or £4 billion over a 50-year period—not £15 billion to be taken immediately from the taxpayers’, or the Chancellor’s, budget.

Considering schemes individually could alleviate some of the public’s concerns about whether the figure of £15 billion is correct. Another aspect of natural justice that the Minister could look at relates to the Pension Protection Fund that has been set up for future pensioners who suffer. The cap is £26,000.49, yet under the financial assistance scheme—should people be lucky enough to qualify—it is £12,000. Why are those people being treated as second-class citizens? Why are they being told that they will qualify only when they have less than half the funds required under the PPF criterion? It does not seem fair that those whose pensions have already been stolen are subject to a much lower cap, especially given that, as we heard earlier, because its value is not index-linked, it is falling day by day.

Another aspect is desperately important—I cannot emphasise how important it is. Many people paid large amounts of their income into a pension not only to secure their future, but that of their loved ones. There are some extremely sad cases. Many people have been unable to accept that they would not be able to provide for their loved ones in the future, as they had promised to do. There have been cases—although not in my constituency—of people who took their life due to depression because they were so worried about their family’s future and about letting them down.

A delegation from my constituency visited me today. It included a wonderful lady, Marlene Cheshire, whose husband, Dave, had paid into a scheme for nearly 30 years. Soon after the scheme collapsed, he was diagnosed with terminal cancer. Just before he died Marlene told him that everything was sorted and that money from the financial assistance scheme was coming through. I am sure that she will not mind me telling the House that she misled Dave; the money had not come through. Only five of the 700 people in my constituency qualified. Marlene has got some money now: she has £20 a week. Her husband paid in thousands of pounds.

If we want to move forward—I desperately want us to, because I accept all the arguments about the fact that we have an ageing population, that the funding is not there and that we have only four people working for every one person getting a pension—we need the confidence and the trust of the public. To gain that trust, we have to address the problems of the pensioners who have had their pensions stolen from them. I have met the Secretary of State. Will the Minister look at the way in which the scheme is being used and compensate those pensioners for the pensions that have been stolen from them?

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8.20 pm

Mr. Iain Wright (Hartlepool) (Lab): It is a genuine pleasure to follow the hon. Member for Hemel Hempstead (Mike Penning). We speak fairly regularly and I know that he is an extremely hard-working constituency Member. Regardless of party affiliation, I support him in that. His constituents are lucky to have him. I want to follow on from the points that he raised. I want to make two points. The first is about the big macro-economic and financial pressures on pensions and pensions policy—and particularly on occupational pension schemes in the UK and also throughout the developed world. The second point, which was raised by the hon. Gentleman and other hon. Members, is the very real effect that those pressures are having on a number of my constituents and, as the debate has shown, a number of other hon. Members’ constituents, in terms of compromising and sometimes ending completely the planning that they have undertaken for their retirement.

In the post-1945 period, companies provided an element of security for workers with regard to provision in retirement. Defined benefit pension schemes helped to inject both motivation and loyalty into the work force. In the relatively stable environment of the post-war period, that was entirely feasible. Risks associated with planning for retirement through a defined benefit scheme were borne almost solely by the employer. If a defined benefit scheme fell short, the employer topped it up. That warm and cosy scenario for occupational pensions has been put under severe strain over the past two decades or so for a number of reasons. First, the growing stock market and rising pension fund surpluses in the 1980s enabled the Conservative Governments of the time to impose greater costs on pension schemes—for example, by taxing pension fund surpluses under the misapprehension that pension fund surpluses were a cash cow that could be milked for ever. Secondly, the 1980s saw a break with the link between pensions and earnings, because the Conservative Government of the time made a political judgment—incorrectly as it turned out—that those in work had generously funded company pensions and would not have to rely on state provision. Thirdly, the unemployment policies of the Tory years resulted in high levels of redundancies and factory closures, which, paradoxically, had a positive effect on pension fund surpluses. That was partly because there was a receipt from the sale of capital assets and partly because the number of early leavers from schemes meant a sharp reduction in scheme liabilities. Fourthly, during a period of a historically strong stock market performance, many companies took pension fund contribution holidays. That trend had extremely adverse effects when the markets corrected themselves after 2000.

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