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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.
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.
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
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 thousands of pounds in.
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?
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.
On the back of
lower stock market performance, companies redirected investment
decisions for pension funds towards Government bonds. That trend has
been accelerated by the fact that the Pension Protection Fund has
charged risk-rated premiums, which in turn has encouraged a move into
low-risk assets such as bonds. Over the past few years, that has
depressed yields and reduced the ability of pension funds to recover
from their deficit position. I acknowledge the tension that exists
between ensuring that high-return,
high-risk investments do not jeopardise the long-term financial
situation of schemes, and allowing recovery to take place quickly.
However, I would be grateful if the Minister could say in his
winding-up speech whether his Department will look again at whether the
PPF could change that rule in relation to risk-related
premiums.
Underpinning those developments have been the strong forces of globalisation and demographic change. The opening up of international markets and the rise of the electronic economy mean that companies have become ever-more powerful and are able to transfer operations anywhere on earth in order to secure a more effective rate of return. The culmination of those forces has meant that companies providing occupational pension schemes have sought to transfer the risk of providing pensions away from themselves and towards their employees and Government. Given the growing power of companies, they have been able to achieve that with some success and in recent years there has been a reduction in the number of defined benefit schemes on offer.
That trend has been accelerated by a wholly inappropriate accounting scheme. FRS 17 could almost be seen as the last nail in the coffin for decent occupational pension schemes. I should point out that I am a member of the Institute of Chartered Accountants in England and Wales. FRS 17 has good intentions in that it tries to push forward the correct principle that a pension fund and its assets and liabilities should be an integral part of a company’s financial position. However, the fact that surpluses or deficits in the pension scheme are recognised in full on a firm’s balance sheet has meant significantly greater volatility, with adverse effects on pension schemes.
All those factors have meant that companies have had an appropriate environment in which to try to transfer the risk of planning for the retirement of their work force away from themselves and towards employees and Government. Perhaps more than any thing else, that is a vivid example of companies in the modern era becoming possibly more powerful than Governments.
Sir John Butterfill: I hope that the hon. Gentleman does not overlook the role of the Inland Revenue. One of the reasons why a lot of companies took contributions holidays was that the Revenue rules said that the schemes were overfunded—115 per cent. was the maximum. That was fine when the stock market was strong and technically there was overfunding, but it did not allow companies to build up adequate reserves to allow for the fact that the stock market was going to crash one day. I am afraid that the Revenue is as much a culprit as anyone else.
Mr. Wright: I understand what the hon. Gentleman is saying. Hindsight is a wonderful thing. I remember a report at the time that said that the stock market would go on rising and that there was no need to worry. That proved to be plainly wrong. We should be a lot wiser in this day and age.
It
is important to recognise that, in the context of big, global forces,
the lives of ordinary men and women are being affected. My hon. Friend
the Member for Cardiff, North (Julie Morgan), who is not in her place,
secured an Adjournment debate in Westminster Hall earlier this month
about the financial assistance scheme, and made
vivid points about workers in her constituency. My hon. Friend the
Member for Ayr, Carrick and Cumnock (Sandra Osborne) has also made such
points, as has the hon. Member for Hemel Hempstead. I am not as
eloquent as those hon. Members, but I echo their points on this issue.
Far too many of my constituents have been caught up in these large
forces as the risk of providing for retirement is being moved away from
employers towards employees. Those men—in my constituency, they
are predominantly men—did everything that was expected of them.
They are decent, ordinary, hard-working, working-class men. They wanted
to provide a secure and enjoyable retirement for themselves and their
wives and families. They did not want to be a burden on the state. They
paid into a pension scheme, often for decades, because they had an
implicit understanding with their company that a definite level of
payment would be provided for them when they retired. Now, because
companies are trying to shift the risk, as I keep mentioning, those
people are being left with nothing—often months before retiring.
That is surely not
fair.
I have a number of constituents who are part of the Roxby pension scheme. The scheme is in the process of being wound up, but because that is taking some time and it is still classed as operational—it started to be wound up in 2003—the Roxby pensioners are not eligible for Pension Protection Fund money. I understand that they may be entitled to financial assistance scheme money, but have not heard anything yet. This issue is taking some time to resolve, causing stress, anxiety and uncertainty to my constituents and their families. Like my hon. Friend the Member for West Bromwich, West (Mr. Bailey), I urge the Government to consider streamlining the processes to provide a swift judgment for those pensioners and others.
The plight of those people is exemplified by Mr. Robson, a constituent of mine. After paying into the Roxby scheme for decades, he would have been entitled to about £14,000 a year at the normal retirement age. We are not talking about footballers’ salaries. Now, he is forecast to get nothing, and, given his age, he is not really in a position to do anything about it. Although the financial assistance scheme is a good idea, it fails to take account of length of service and concentrates instead on the length of time before retirement. If the likes of Mr. Robson have paid into a pension scheme for some 30 years, surely there is a moral, if not legal, obligation for commitments to be honoured by firms.
Mr. Hughes came to see me in my constituency surgery only last Friday. He has worked at Carpets International for many years, but the firm is now being wound up. He was told in 2002 that his fund was worth £67,000 and that he would be entitled to a pension of about £8,000 a year. Now, some four years later, that fund is worth £18,000, which has to last him a full retirement. He has an estimated 10 years of his working life in which to sort that out. I know that the financial assistance scheme will, I hope, help people such asMr. Hughes, but there is a strong case for providing even more help for people such as Mr. Robson andMr. Hughes, who have done everything right, yet find on the eve of their retirement that all their plans have been destroyed.
I just want
to mention one final pension scheme. Expanded Metals, or Expamet, is a
staple firm—I hope that hon. Members will forgive the
pun—of my
constituency. However, the pension scheme is in the process of being
wound up because the firm cannot meet its liabilities. Expamet is still
trading, so the workers and former workers who are affected fall
between two stools. I understand that the financial assistance scheme
applies only when a firm has gone bust, while the Pension Protection
Fund covers future victims. Will the Minister explain what can be done
for people such as Paul Whitton, who has worked for Expamet for some 30
years, yet will now receive only40 per cent. of his planned
pension, and Mr. andMrs. Edwards, who, together, were members
of the scheme for 53 years, but are now contemplating a pension of
£12,000 a year, rather than close to £30,000 a year, as
was originally
planned?
I stress again that these people—my constituents—did everything right, but are being penalised for a combination of global factors that were outside their control. I understand that those forces are pushing firms to move risk away from themselves and towards individuals. I do not want to tip firms such as Expamet into liquidation, which would lead to the loss of valued jobs in my constituency. However, I urge Ministers and, indeed, the whole House to reach a consensus that people who have planned for their retirement in the correct manner, using occupational pension schemes, should have such commitments honoured as much as possible.
As the White Paper rightly identifies, pension provision will become more problematic as the general population gets older and there is a greater squeeze on the working population. I have tried to acknowledge in my contribution that these forces are great and cannot be reversed with any great ease. However, I still think that both firms and the Government, to some extent, have a moral, if not legal, duty to people who did what they should and planned for retirement properly.
8.32 pm
Mr. Philip Dunne (Ludlow) (Con): I remind the House of my entry in the Register of Members’ Interests. I have a personal pension, and I am also the director of an investment management fund that manages several small pension funds.
I shall talk about specific aspects of the proposals in the White Paper for most of my contribution, but I would first like to touch on an issue that has resonated around the Chamber from many hon. Members’ speeches: trust and consensus, and the need to rebuild confidence through the Bill that emerges from the White Paper. The issue was put forward most succinctly by my hon. Friend the Member for Weston-super-Mare (John Penrose), and I pay tribute to him for his persuasive and forceful contribution. It is important that there is a broad political consensus on whatever emerges from the proposals.
When I
first arrived in the House a year ago, I took the view that the
question of pensions was one of the two or three biggest issues that
parliamentarians needed to address in this Parliament, not least
because pensions had been left woefully adrift for the previous 10
years or so. We cannot allow that situation to continue, for all the
reasons that have been cited in the debate. The demographic changes are
so important that we cannot continue to ignore the pension system
that we set up for future generations. I congratulate the hon. Member
for Hartlepool (Mr. Wright) on his positive contribution. He made
useful remarks about the need for
consensus.
We need to remind ourselves that the Government are not immune from responsibility for several factors behind the difficult situation in which many pensioners find themselves. Hon. Members on both sides of the House have talked about problems that are beyond the Government’s control, but at least some responsibility for the significant erosion of confidence in our pension system and the savings culture lies at the Government’s door. Although I want to maintain the spirit of consensus, I cannot resist reminding hon. Members of some of the problems. They are relevant because it is important that we overcome the drawbacks as we look forward.
My hon. Friend the Member for Poole (Mr. Syms) referred to the Chancellor’s tax grab on savings. The abolition of dividend tax credits played a significant part in undermining defined benefit pension schemes in particular, and occupational schemes in general.
The 2001 initiative of introducing stakeholders was announced with a fanfare as the great white hope for introducing people on lower and middle incomes to the savings culture, but it would be fair to say that it has not been a great success. Take-up has been poor. The latest available figures show that there are about 1.5 million stakeholder pensions in operation, and the number has been broadly flat for the past three years. The schemes have suffered from high lapse rates, for reasons that are well documented.
The Government must take responsibility for the consequences of introducing so much means-testing. I, like hon. Members on both sides of the House, acknowledge that means-testing has led to a benefit in the form of reducing pensioner poverty, but it is also perhaps the matter for which the Government are accountable that is most responsible for the collapse of savings over the past nine years. Until a couple of years ago, when the Government introduced some changes to the rules and the system became less regressive, many people had no incentive whatever to save, because each pound that they saved would lead to their losing pension benefits. We need to reverse a situation in which it is in individuals’ financial interests not tosave, as the hon. Member for Dumfries and Galloway (Mr. Brown) said.
Several hon. Members have referred to the survey that was published today by Scottish Widows. It shows graphically that the percentage of people saving adequately for retirement has fallen from 55 per cent. last year to 46 per cent. this year. There has thus been a significant reduction in just one year. The problem is especially acute among those who rely on defined benefit schemes for their pension savings. This morning, I spoke to Ian Naismith, the head of pensions market development at Scottish Widows. He said today:
“4 in every 5 people who aren’t relying on a final-salary pension are failing to save adequately for their retirement, and ...2 in5 are saving nothing at all.”
That, in part, comes down to means-testing.
The final issue that needs to be borne in mind is the consequences of the delay until 2012—and potentially longer, as we heard earlier—of the introduction of the earnings link. As the hon. Member for Bradford, North (Mr. Rooney)—the Chairman of the Work and Pensions Committee, which I am proud to serve on—said earlier, a six-year delay is very significant for existing pensioners, or people who are about to become pensioners. Such a long period before implementing the proposals does not help to build confidence. Of course the proposals have got to be got right; I would not deny that for a moment. But steps could be taken earlier that would have a much more immediate impact—for example, introducing the earnings link. I know that that has been the subject of great debate between the Prime Minister and the Chancellor, but Ministers need to look at that issue when they turn the White Paper into a Bill.
Having got that off my chest, I endorse the view that we need to achieve a consensus through this proposal in order to rebuild trust among the population at large in the idea that saving is worth while. I am not absolutely convinced that the Secretary of State’s claim that for every hour that we sit in this Chamber we add an extra quarter of an hour to our own longevity helps to build confidence in the system—although I am sure that he will be able to produce the evidence that supports that claim. I again endorse what the Select Committee Chairman said: this is a fine example of how pre-legislative scrutiny could be undertaken to ensure as broad a consensus as possible in all parts of the Chamber on the resulting Act. I urge the Minister to address that issue in his wind-up. Is he prepared to consider a draft Bill for when we return in the autumn?
I turn to a few specific points. When the Select Committee took evidence, one issue that arose—it has not been raised so far this evening—was that employers might regard auto-enrolment as a tax on jobs. Much has been made, particularly by Labour Members, of rogue employers seeking to force people to opt out of auto-enrolment. But the valid point that was made to us, and which needs to be borne in mind, is that once we are through the phasing in period, the contributions by employers of 3 per cent.—and by employees of5 per cent., when tax relief is included—will add a total of 8 per cent. to the employee wage bill of employers who do not provide an existing occupational scheme. That is a significant addition to the cost base of some employers, and we cannot just dismiss them as rogues because they encourage people to opt out.
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