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“We recommend that, in addition to the MFR test, there should be a security measure which is clearly disclosed to members...Members would be informed that the MFR test differs from a true security test and does not give 100 per cent. security, as they currently believe.”
Much of the confusion that has emerged in debates is rooted in that belief.
People who argue that the Government are responsible have never claimed that they were responsible for the failures of the schemes. However, the Government failed to put in place an adequate rules base for the functioning of the schemes; they failed to disclose to members the rules that would give preference to existing pensioners, rather than non-pensioner contributors; and they failed to disclose that the guarantee was not 100 per cent., or that members would probably reclaim only 50 per cent. of their funds.
There is no point quibbling about people’s distrust of the Government, and people’s wish to check information elsewhere, because in the post-Maxwell climate, Government assurances had enormous importance. We failed the Ronseal test—the notion that the product does what it says on the tin—because we told people that their pension was secure when we knew, because the actuaries told us so, that that was not the case.
Mr. Bailey: I hope that I am not misrepresenting my hon. Friend’s argument, which is that the Government should pay compensation because they failed to implement an adequate regulatory framework to maintain the solvency of pension schemes. If one accepts that argument, there is a problem with the situation before 1995, when the regulatory framework was even weaker and a number of pension schemes went bust. Would the Government not have to consider compensating those people, if they were to accept that basis for paying compensation?
Alan Simpson: I do not accept that, because the Government said, “Your pensions are secure”, in the Pensions Act 1995. That may not have been true before 1995, and that legislation did not address the injustices of previous arrangements. From that point in time, the Government—and, through the Government, Parliament—were giving assurances to pension contributors that the Government knew to be untrue, because their own actuaries were telling them that they were. The actuaries have told us that successive Governments had a choice: they either needed to change the basis for the minimum funding requirement and make it do what it said on the tin, or they needed to tell contributors about the situation and give them the choice of making other provision. Successive Governments must take responsibility for the non-disclosure of those realities to contributors to pension schemes.
Mr. Flello: Will my hon. Friend clarify a couple of points? First, back in the mid-1990s, when legislation was introduced post-Maxwell, it was said that pensions would be safe from somebody doing something underhand to steal them, not that pensions would be safe if the underlying investments or the company supporting the pension scheme did not do very well. The second point—
Mr. Deputy Speaker: Order. In the circumstances—we are very short of time—one will do.
Alan Simpson: We cannot rewrite history in retrospect in order to make it convenient for the present, when it was never true for the past. I have yet to find anyone involved in setting up those schemes who believed that all they were getting was a 50 per cent. chance of getting their money back. If Governments had said that to people, the contributors would have asked for the right either to get into another scheme or to bet their money on the horses at such odds themselves. That was not the guarantee that people believed they were getting as part of the post-Maxwell protection.
I shall briefly move on to the question whether that means that the Government must pay compensation. As various hon. Members have said, the Government could use a number of mechanisms to try to make good the entirety of the provision, so they do not have to step in and take full responsibility. In order to understand why pensioners whose pensions have been stolen are so aggrieved about the nature of the current debate, we need to be clear that the financial assistance scheme does not remotely cover that provision, and that the numbers do not stack up against the losses.
Although the Government claim that a total of £2 billion is being put forward to help 40,000 people, in truth the figures are somewhat different. A little more than £540 million has been committed over 50 years, which is about £12 million a year. The briefing issued by the Department for Work and Pensions before this debate points out that £1.5 million has been paid out since 2005 to about 450 people. That is a long way short of being a measure that deals with the stolen pensions of 120,000 or 125,000 people.
Mr. Waterson: Is the hon. Gentleman aware that delivering that fairly meagre sum of £1.5 million has already incurred costs of more than £7 million, for setting up a completely separate organisation in York to administer the FAS?
Alan Simpson: I am not aware of that figure, but I am aware of the bureaucracy and the tediously, grindingly slow process of getting money out of the system at all. Having constructed a bureaucracy of that sort, it is helpful to follow the first law of holes: “When you’re in one, stop digging.” This mechanism is not remotely relevant to the scale of the problem that we have to address.
I want to outline the positive choices that I hope that Parliament will explore in providing a full package of redress. We must do this not only because we have a moral responsibility to those who have had their pensions stolen but because we have a selfish interest, in that we must restore the credibility of pensions provision if we are to have any chance of getting a future generation of pension schemes to be endorsed by the public, in the face of such cynicism.
Mr. Andy Reed:
Mr. Butler, a constituent of mine who has lost an £18,000-a-year pension, will not be a beneficiary of the FAS because he is too young. He is not the only one affected, because his friends, family
and others now have no confidence whatever in current pension provision or in saving for the future, notwithstanding the Pensions Bill. There are generations who now lack confidence in us.
Alan Simpson: Absolutely. It is vital that the House understands the degree of cynicism that our response to the collapse of these funds has generated. I have had countless discussions in which whole families have taken part and someone has said, “I’ll tell you what advice I’m giving to my son or my daughter: when the Government say to you, ‘Put your money into a pension scheme’, I’ll say to you, ‘Blow it! Open the window and throw it out there and go and have a good time. At least you’ll enjoy it rather than allowing it to be stolen behind Government guarantees.’” If we fail to understand that cynicism, we are deeply damaging our prospects of bringing in new arrangements for stronger pension provisions that equate to the longer lives that we hope and expect to live in retirement. People will not play in a game that steals their life savings. These are acts of theft from people who have done what we asked. They have not been profligate; they have not blown the money: they have put it into schemes to make proper provision for their retirement. Those are the people whose cynicism we are having to deal with.
Mr. Robert Goodwill (Scarborough and Whitby) (Con): I heard exactly those words from someone in my constituency who was a victim of the failed Henlys pension scheme. Some people not only paid for many years into that scheme but transferred large lumps of other schemes into it, in some cases only months before it failed. They are advising their relatives and friends not to invest in the future but to spend the money on bricks and mortar, or even on holidays.
Alan Simpson: The hon. Gentleman is absolutely right.
Let me dash quickly through what I think we should be doing. What is required is a sum of, say, £150 million a year that needs to be put in place now and remain there for the foreseeable future. How could we do that? First, we could take a scoop out of the unallocated budgets for the Department for Work and Pensions for the next six years; it would not even be noticed. That would provide ample time to establish a trust fund, with whatever forms of partnerships in it, to make secure the ongoing provision of that £150 million.
Secondly, we could pursue the initial proposal of my right hon. Friend the Member for Birkenhead (Mr. Field) and use a sliver of the money that we propose to take out of orphan assets from banks, building societies and insurance funds. That would easily cover such provision.
We could consider our direct Government responsibilities and acknowledge that if we took a fraction of the £10 billion-a-year taxpayer subsidy that we currently allocate to higher rate tax relief, £150 million out of £10 billion would barely scratch the surface. It would not be much more of a pinch out of the £10 billion of taxpayer support that goes into the payment of contracting-out rebates. It is not as though we are short of existing taxpayer subsidies for doing the wrong things.
If we can afford to tax-subsidise the pensions of the rich and those who contracted out rather than remained within, we should be able to find the £150 million to do the decent thing for pensioners whose only crime was to believe us when we told them that their pensions were secure.
We are considering a worse problem than that caused by Maxwell, which affected 32,000 pensioners. The current problem affects 120,000 to 125,000 pensioners. Then, the Government acted quickly and properly. Today our response is partial, parsimonious and reluctant. My plea is to give Parliament the opportunity to decide for itself, on an affirmative resolution, whether we believe that we should exercise that responsibility to pensioners who acted on our assurances and were misled. If we fail to make that stand, not only will we be made to look foolish and shallow by the courts, but any future generation of pension schemes that we devise will simply fall off the table of credibility. We owe it to ourselves as much as to pensioners to redress the error.
4.57 pm
Mr. David Laws (Yeovil) (LD): I congratulate the Chairman of the Select Committee, the hon. Member for Cannock Chase (Dr. Wright), on the Committee’s report and his opening speech, which clearly set out the case for the prosecution.
All contributors to the debate so far have considered how we hold the Executive to account in this place. It is reassuring to know that at least one of the Select Committees on which the House relies is doing its job effectively. The hon. Member for Cannock Chase, who is an independent-minded and effective Chairman, deserves some credit for that because the nature of Select Committees depends much on the individuals who chair them. It is a telling achievement to have produced such a critical report on a cross-party, unanimous basis.
The Chairman of the Select Committee began his comments by paying tribute to the ombudsman and her hard work. I should like to do that on behalf of my party. I also pay tribute to those of all parties who have campaigned hard inside and outside Parliament on behalf of those affected by the loss of occupational pensions in the past few years. That applies not least to Ros Altmann, who has been a strong and powerful voice outside the House, and several Liberal Democrat Members, including my hon. Friends the Members for Chesterfield (Paul Holmes) and for Sutton and Cheam (Mr. Burstow), both of whom are present.
The debate is important for three reasons. The first is the most obvious. As the hon. Member for Nottingham, South (Alan Simpson) reminded us, the problem affects 120,000 or 125,000 people, who have lost savings that, in many cases, they built up over many years. As the hon. Gentleman also said, the debate is important because the Government’s handling of the matter will have a great impact on people’s confidence in saving in future. On Tuesday, the Minister for Pensions Reform will launch a White Paper on personal accounts and he will try to persuade individuals who have not been saving for their retirement to do so in future. But he seems to be launching that policy in a hole-ridden boat, because
confidence in pensions has been eroded by a number of developments in the past few years. It has undoubtedly been eroded by what has happened to these occupational pensions and, most significantly, by the way in which the Government appear to have walked away from their responsibilities to the 125,000 pensioners involved.
A further reason for this brief debate today being so important was touched on by the hon. Member for Cannock Chase and by the right hon. Member for North-West Hampshire (Sir George Young); it is also central to the Select Committee’s report. It is that the way in which the Government have handled this matter is directly relevant to the role and credibility of the ombudsman process. We heard today how there has been only a small number of occasions—perhaps four or five, since the ombudsman service was established—on which Governments have ignored the conclusions of an ombudsman’s report. In her evidence to the Select Committee the ombudsman expressed her serious concern about the way in which the Government had decided to treat her report, following a highly consultative process that led to the information that she gave to the Department for Work and Pensions.
Mr. Paul Burstow (Sutton and Cheam) (LD): When my constituents, Mr. Barrett and Mr. Sloane, who are members of the Acroelectric pension scheme, read the report of this debate, they will want to know one thing more than anything else. In 1995, they were promised safe pensions that were assured, and they want to know when that promise is going to be fulfilled. They will also want to know, after the three counts of maladministration cited by the ombudsman and a Select Committee report endorsed by all its members, when they will get the justice that they and many thousands of other pensioners across the country want. When will the Government implement a sensible scheme to resolve this injustice?
Mr. Laws: I am grateful to my hon. Friend for raising those points. His constituents share the view of many people outside the House who have seen what the hon. Member for Nottingham, South called a “three-strikes-and-you’re-out” process in relation to the Government’s position on this issue. We find the Government still determined to resist the conclusions of a three-stage process. First, the ombudsman prepared her report in a way that fed back to the Department her developing conclusions, but that did not persuade the Government. Then we had the highly critical report from the ombudsman, and now we have a unanimous and extremely critical report from a cross-party Select Committee.
We could continue to rehearse some of the detailed debates that the ombudsman and the Select Committee reflect on in their reports, but that would be difficult to do in the detail that some of the issues deserve in the 50 or so minutes that we have left. It is worth reflecting, however, on the strength of the conclusions that the ombudsman and the Select Committee have reached. The Chairman of the Select Committee reminded us of the terms in which the ombudsman put her conclusions. She concluded that the Government had provided information to the people who had lost their pensions which was “inaccurate”, “incomplete”, “unclear” and
“inconsistent”. It is hard to imagine a more decisive, unambiguous and critical description of the information provided by the Government.
The ombudsman’s report went on to state:
“I have found that maladministration was a significant contributory factor in the creation of financial loss...Nothing in DWP’s submissions persuades me otherwise.”
That was a conclusion from the first part of her process. She went on to reinforce the point about her own position when she said that
“Parliament has decided that it is my role—and not that of any party to a complaint—to determine what constitutes maladministration.”
That is a fair point. Many of us would feel that the Government had a responsibility, after a process in which they had been given every opportunity to comment on and refute the allegations and concerns that the parliamentary ombudsman was looking into, to take far more seriously the conclusions that the ombudsman has reached, and which have been reinforced by the Select Committee.
Despite being a cross-party body, the Select Committee has produced a report that echoes the criticisms of the ombudsman and, I believe, sides entirely with the ombudsman on every major point of dispute. It states:
“We agree with the Ombudsman that maladministration occurred. Government information about pensions was deficient and reasonable people would have been misled... the Government should have considered the Ombudsman's recommendations properly, rather than immediately assuming that they would place large burdens on the public purse.”
In language whose critical tone is similar to that used by the ombudsman, the Select Committee points out that it has conducted its own investigations and taken its own evidence. It also states:
“We believe that the Government is being, at best, naïve and, at worst, misleading.”
That is a very strong conclusion for a cross-party Select Committee to reach, particularly given that—as many of us who have served on Select Committees know—in circumstances of this kind Committee members representing the governing party are often under pressure to water down conclusions that are especially critical of the Government. The terms of the report and its conclusions show that there must have been a very strong conviction among the Committee’s members about the Government’s handling of the matter.
The Committee also reflected on the way in which the Government had decided to deal with the ombudsman’s conclusions. In the ninth of its conclusions and recommendations, it says:
“We share the Ombudsman's concern that the Government has been far too ready to dismiss her findings of maladministration. Our investigations have shown that these findings were sound. It would be extremely damaging if Government became accustomed simply to reject findings of maladministration”.
As the hon. Member for Nottingham, South said, the Government have undergone a three-strikes process involving the initial consultations with the ombudsman, the ombudsman’s report and a cross-party Select Committee report. In the light of that, I
would expect the House and the Select Committee to be immensely disappointed by the Government’s response to the Committee. On the issue of the ombudsman’s position, they respond thus to the criticisms made of them:
“The ombudsman has, and will continue to have, the total and unqualified respect of the Government.”
It is one thing for the Government to respect the ombudsman; it is another thing for them to cast aside and ignore major recommendations affecting thousands of people when an ombudsman’s report has trailed through all the evidence, and has been reinforced by a Select Committee of the House. If the Government are going to take future reports by the ombudsman seriously, they cannot afford to give the impression that advice in such reports will be accepted in small cases in which small issues and small amounts of money are at stake, while conclusions with a much greater impact on Government finances can simply be cast aside.
In their response, the Government repeated the highly questionable—if I may describe it in that way—allegation, or assertion, that the financial assistance scheme is a good enough replacement, and the changes to it debated in the other place yesterday an adequate back-up, for the individuals who have lost their pensions. The response says:
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