|Previous Section||Index||Home Page|
A key reason for changes to pension provision has been the fluctuating performance of stock markets
around the world over the past 15 years. That has been mentioned time and again. High returns in the 1980s prompted complacency and the feeling that the sun would shine for ever. That obviously was not the case.
Between 2000 and 2002, stock markets around the world experienced sharp fallssomething like $8 trillion of assets were lost in the US alone in that period. The NASDAQ dropped to as low as 1,108.49, a 78.4 per cent. decline from its all-time high of March 2000, a result of the bursting of the dotcom bubble, and the Dow Jones lost 26 per cent. of its value between 1999 and 2002you can tell that I am a chartered accountant, Mr. Deputy Speaker. Given the openness of the UK economy and the central position of London in the worlds finance markets, it is inevitable that this country would feel the brunt. Between 1999 and 2002, the FTSE 100 fell by 43 per cent., knocking some £250 billion off the value of pension fund assets. Yet pension fund deficits have reduced markedly over the past few years, reflecting the stock market improvement in recent months and years. Last month, Deloitte, a firm that I used to work for, forecast that the total deficit for the final salary pension schemes of the UK top 100 companies is currently £21 billion, with 25 per cent. of schemes now having a surplus.
The first three months of 2007 have been a roller-coaster ride. In the last week of February, deficits rose by £20 billion in one week as world stock markets fell dramatically. However, a combination of a recovery in the stock markets and a fall in the price of bonds has reduced deficits to a five-year low, showing the close correlation between stock market performance and the health of pension funds. If the Conservative party were determined to secure a consensus on this subject, that close correlation would be recognised.
I began by saying that providing for retirement is one of the biggest problems facing this country. Difficulties and challenges are being prompted by an ageing population, an end to paternalism, social changes, lower stock market performance and annual returns, and a wish for companies to transfer the risk of retirement away from themselves towards employees and the Government. There was an opportunity for Opposition Members to pledge consensus and seek to find appropriate ways of securing stability and reassurance for pensioners in the face of those massive global changes, but they failed to do that.
The use of terms such as pension crisis and the wording of todays Opposition motion, however brief it is, further undermine confidence in a pensions system that is still trying to recover from the likes of Maxwell, mis-selling and Equitable Life. As was pointed out by the hon. Member for Putney (Justine Greening), who is no longer in the Chamber, that puts people off. People are reluctant to save for their retirement through pension contributions, believing that it is not worth doing. That will do nothing to help those with occupational pensions who find themselves unfairly caught up in major global forces.
Today the Conservative party has ignored an opportunity to talk constructively about the long-term future of the countrys economy and provision in retirement. Instead, it has focused on distorting history for their own narrow, short-term political advantage. No change there, then!
Mr. Graham Stuart (Beverley and Holderness) (Con): It is a pleasure to join in the debate, which has been an interesting one, and to follow the hon. Member for Hartlepool (Mr. Wright). I have never served on a Committee with him, but I like him a great deal and admire him enormously as a hard-working constituency Member. [Hon. Members: But] But [Laughter.]
The hon. Gentleman suggested that some form of party politics was being played. I think that holding the Chancellor to account on an issue that is of major importance to the future of the country and to so many people in itnot least those who have the leastas the handling of pensions is an entirely legitimate thing for the House to do, and that it is entirely legitimate for the Conservatives, as the party of opposition, to put that issue before the House and indeed the nation.
As Members have pointed out, this debate was triggered by the revelation of information whose emergence into the public domain the Chancellor resisted for years. I considerwith respect to the hon. Member for Hartlepool, and to other Labour Membersthat two main charges have been levelled at the Chancellor and his handling of pensions so far. One concerns the impact of the pension tax raid on the long-term value of pensions; but I think the stronger concerns the fact it was done in an underhand way, with no openness or transparency. Today, 10 years on, we were treated to a speech from the Chancellor that again failed to be honest about the reality of what is going on. That, more than anything elsethe lack of openness, transparency and honestyis the reason for peoples loss of confidence in the pensions system.
In his first Budget, the Chancellor started as he meant to go on. He was underhand, imposed extra burdens on hard-working people, and drove millions into dependency. He did that by his removal of the tax credit on dividends, with little explanation in his Budget speech.
One way of judging the decency of a society is to judge the way in which it treats older people. One way of judging the decency of a Government is to judge the way in which they support and encourage people to be financially independent in old age. Communities with a social conscience revere their elders, respecting the contributions that they have made for so many years. Those societies protect, look after and cherish those who no longer work. In Browns Britain, however, far from being valued as independent citizens, older people are sucked into his labyrinthine world of credits, benefits and state dependency.
one of the strongest pension provisions in Europe?
even £150 billion may still be a conservative estimate.
This raid has betrayed Britains pensioners, and makes a mockery of what the Chancellor promised in 1996. I do not think it has yet been mentioned today that in 1996when he was a wannabe Chancellor rather than the man who cannot get out of the post quickly enoughhe said
I can give this pledgefairness to the pensioners under Labour.
Even given the Chancellors rather stilted delivery, I think that that pledge was fairly clear. But is it fair that 20 per cent. of pensioners in the United Kingdom are living in poverty because of a state pension of just £84.25 a week and a humiliating means-testing system that many proud older peopleas many as 1.5 millionsimply refuse to enter?
Was it a sense of fairness that led the Chancellor to try to prevent The Times and its readers from knowing the advice that he received 10 years ago, or that led him to release the information in a parliamentary recess and while he was abroadin Afghanistan? Is it fair that the poorest pensioners are the hardest hit? According to the released papers, Treasury advisers told the Chancellor that his tax change would
lead to a reduction in pension benefits to the lower paid,
quite clearly any loss of pension could be difficult for someone with a small income to cope with.
Hugh Bayley: The hon. Gentleman asks whether it is fair to have a means test, but why did his party have a means test for pensioners? Also, is it fair that the means test that operated when his party was in power provided poor single pensioners with a weekly income of £68? Is it not fairer that under our system of pension credit that sum is now £117 a week?
The link with earnings was broken in 1980. The Chancellor claimed today that he had brought it back. That was another of his little slips with the truthhe never quite gets it. He has not brought that link back; he has said that if it can be afforded it might be brought back in 2012. Ever since I have been involved in parliamentary politics, I have campaignedas, I am glad to be able to say, has my partyto bring back that link, because it is important that we restore dignity to people in old age. We must minimise the number of people who are forced to rely on means-tested benefits. The means-tested benefit has been allowed to grow de facto with earnings and yet the basic state pension has risen merely in line with prices, so the number of people who have been drawn into means-tested benefits has increased. The predictions for the period to 2050 are truly horrifying. That is why the House needs to look ahead on a consensual, cross-party basis and find a better way of dealing with our pensions system than we have had in the past, particularly in the past 10 years when this Chancellor has failed. One of the purposes of this debate is that, by bringing the Chancellors record to account, we can help outline the reality of the position in which we find ourselves today, and when that is properly observed and understood we can move forward on a cross-party basis and find a solution to our pension problems.
Fairness is the last word that Members or anyone else would wish to apply to the Chancellors attitude to pensioners. That brings us on to the subject of the Chancellors character. What sort of person takes advice from industry, independent experts and his own Treasury
specialists that suggests that the pension tax would cause great damage to the countrys economy and the poorest pensioners and then goes ahead with it in any case? Perhaps only someone with breathtaking arrogance would do that. What sort of person would announce such a change in such an underhand way and seek to cover his tracks so assiduously? I will leave the House to decide on the answer to that for fear of breaching the rules on parliamentary language.
If we cannot expect fairness from our Prime Minister-in-waiting, what can we expect from him? Unfortunately, the answer to that is: more underhand behaviour. Members noted that the Treasury papers came out on 30 March when Parliament was in recess and the Chancellor was in Afghanistan. That chain of events might not have been quite as extreme as another example of a good day to bury bad news, but that clumsy cover-up is symptomatic of the manipulative relationship that the prospective Prime Minister has with Parliament and with pensioners.
Fairness and openness have been dismissed as qualities that we can expect from the Chancellor if he succeeds to higher office. He maintained todayas he has done since 1997that the removal of tax credit from pensions has boosted investment and performance. The suggestion that taking money away from pension funds was somehow going to boost investment has been commented on by many Opposition Members. Many colleagues have referred to the figures, but it is worth giving the precise figures. When Labour came to power in 1997, business investment was 11 per cent. of GDP. Now, according to the 2006 figures from the Office for National Statistics, it is 9.1 per cent. That shoots that particular fox.
The other fox that has been set runningI do not suggest that it was done on any organised basis, as I am sure that many Labour Members have been sitting up half the night reading thick tomes on the subject of pensionsis the idea that the Conservatives were cutting that tax relief anyway and would have abolished it themselves. However, we have heard the most compelling evidence today from the former Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), and from the former Financial Secretary, my right hon. Friend the Member for Charnwood (Mr. Dorrell), that Ministers in that Conservative Government considered the issues, listened to the representations from Treasury officials and others and concluded that it would damage pension funds and the economy, and that it would hurt those with least. The members of that Conservative Government decided not to abolish that 20 per cent, advance corporation tax or dividend tax reliefwhatever it is called. That shoots the Chancellors other fox.
We are debating the Chancellors handling of occupational pensions. Let us look at what has happened to occupational pensions on the Chancellors watch, because that would seem the most obvious thing to do, rather than only obsessing about the tax grab. The truth is that more than 60,000 occupational pension schemes have wound up or begun the process of winding up since Labour took office in 1997. Labour Members have suggestedin the peculiar Brownite way of picking dates that do not sound very naturalthat the schemes were all collapsing anyway, but five sixths of the final salary schemes that have closed have done so since
2000. The idea that they were collapsing under the last Conservative Government is entirely false: it has happened on the Chancellors watch. The pension schemes have collapsed, they have closed to new members. As my hon. Friend the Member for Putney (Justine Greening) so powerfully set out earlier, we have seen the opportunity of a secure old age through their pensions, hope for the future and confidence in those who govern them removed from young people.
Mr. Stuart: If the hon. Gentleman had spent more time in his place during the debate, he would not keep repeating points that have already been made. The policies of Her Majestys Opposition will be made clear before the next election. So many schemes have closed. The destruction has happened, and that may mean that when the next Conservative Government comes in 2009 or 2010 we may have to find alternative ways of promoting saving and encouraging the young people who have lost so much confidence and can see no positive future. However, it is above my pay grade to say exactly what we will do.
When we consider the record of this Chancellor and Government on occupational pensions, we see that 12.7 million UK workers, or 45 per cent., have no pension provisiona rise of 5 per cent. since 1997 or 2.1 million more people. More thoughtful Labour Members will find that a sobering thought. At a time when the economy has broadly done quite wellif not as well as the Chancellor likes to make outand this country has grown richer and had a period of stability, thanks to the foundations laid by the last Conservative Government [ Interruption. ] Ministers may scoff, but when they rest their heads on their pillows tonight, they cannot be proud of the fact that in that timewhich has not been an economic disaster2.1 million more people do not have occupational pensions. Far from growing, under this Chancellor private pension provision has suffered an underlying decline.
The Opposition have made a strong case against the Chancellor. We have used the evidence provided by many specialists to lay out the figures, but they are not precise: I have repeatedly asked Ministers to give us their estimate of the impact on pension funds of the abolition of dividend tax relief, but it has not been forthcoming. I should be delighted if the Secretary of State for Work and Pensions, when he winds up the debate, were to give us an honest assessment, but I expect that he will refuse to answerjust as the Government refused to give the papers to The Times until forced to do so.
We have made the case that pension funds have suffered a great loss as a result of the tax change. Although stock market fluctuations and various other factors have had an effect, we believe that the Chancellor, when he took away £100 billion or £150 billion from the pension funds, inflicted a mortal blowto them, and to peoples confidence in them.
An even more damaging charge against a man who would be kingI am sorry, I mean Prime Ministeris the fact that he never acts openly. For the Chancellor, transparency is an alien concept, and that is what upsets people the most. As many colleagues have said, Governments have to find tax revenue somewhere, but
to extract tax in an underhand way that puts at risk the security of people in old age is irresponsible and reprehensible, and renders the Chancellor unfit for higher office.
Mr. Philip Dunne (Ludlow) (Con): It is always a great pleasure, and an increasingly frequent one, to follow my hon. Friend the Member for Beverley Holderness (Mr. Stuart). He spoke with his customary vigour, both in his main contribution and in his several robust interventions earlier.
This is a very important debate, for various reasons but not least because it will have an impact on a great many people outside the House. The hon. Member for Hartlepool (Mr. Wright) made a very thoughtful and welcome speech, in which he set out some of the demographic matters that had not been mentioned before. It is a fact that 18.5 per cent. of this countrys population are over the age of 65, yet many people, until approaching retirement, have no real understanding of the significance of pension arrangements. Moreover, a great many of the people who have retired have suffered the shock of discovering that their pension schemes have closed.
As we have heard, more and more people find themselves in pension difficulty as each year goes by. I am especially worried about that, because so many people choose to live out their retirement days in my constituency: 26 per cent. of my constituents are over 65, and the proportion is expected to rise to 30 per cent. by the end of the decade. One reason I was especially interested to join the Work and Pensions Committee when I came to the House was that, during the last general election, a great many people raised their concerns with me about the pensions crisis developing under this Government. In my constituency, members of pensioner groups and the local senior citizens forums regularly ask me what can be done to put right the damage inflicted on pensions.
Generally speaking, people have lost confidence in their retirement prospects, but that is not entirely due to the decision to abolish dividend tax credit. I do not intend to argue that that was the sole reason, as the problem has several contributory factorsone of the most fundamental being that the savings ratio has halved over the past 10 years. This is an argument for which the Government take no responsibility, but it is a fact that savings have declined significantly partly because people do not believe that it is in their best interests to save for their retirement.
Returns from pensions have been cut, as we heard just a moment ago, with the decline in the number of defined benefit schemes. Only a third are now open to new members compared with the number in 1997. The income from final salary schemes is falling across the country. Defined contribution schemes, for all their attractions to the funders, are not expected to provide the same level of income in retirement as the final salary schemes that they replace.
Another major issue that is having a big impact on peoples confidence in retirement has been the threat of means testing. There was a big discussion about that earlier, which I will not repeat. I recognise that a large part of the measures in the Pensions Bill is aimed at reining back the spread of means testing. I welcome that because otherwise, as Lord Turners report demonstrated, 70 per cent. of the population would be on means-tested pension benefits.
|Next Section||Index||Home Page|