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not even in the top three reasons
The hon. Gentleman accused the Government over the plight of those who have lost their pensions because of the collapse of their occupational pension schemes. The loss of peoples pensions under these circumstances is not just a national scandal but a personal tragedy for all the individuals concerned. Through the Pension Protection Fund, this Governmentour Governmenthave legislated to ensure that such a scandal could not be repeated in future. Through the newly expanded financial assistance scheme, which we introduced, we are providing help to some 125,000 people who lost their occupational pensions as a result of employer insolvency before the Pension Protection Fund was created.
Chris Grayling: The annual report that I mentioned earlierthe Secretary of State can have a copy if he wantsrefers to 1,057 people having received assistance from the financial assistance scheme. How does that square with his claim to have provided support for 125,000 people?
Mr. Hain: This is just the beginning, and it includes the set-up costs that the hon. Gentleman mentioned earlier. There will be funding to the tune of £8 billion over the period concerned. He should really welcome the fact that, as a result of the additional funding provided by this years Budget, which raises the level of the financial assistance scheme from £2.3 billion to £8 billion in cash terms, all those affected will receive 80 per cent. of their expected core pension.
Through those protections, the Government have shown their commitment to justice for all pensioners. They are protections that the Conservatives failed to put in place when they had the opportunity in government. [ Interruption . ] Hon. Gentlemen are saying, We didnt need to. That is a very revealing comment, because in a moment I shall draw the Houses attention to why those protections should have been put in place, given the complacency and abject irresponsibility of Conservative pension policy at the time.
I recognise that many people, in this House and beyond, would like the level of help provided under the financial assistance scheme to be increased further. That is why the then Minister for Pensions Reform, my right hon. Friend the Member for Stalybridge and Hyde (James Purnell)who is now the Secretary of State for Culture, Media and Sporttold the House on 18 April that we would
ensure that the funds that are available are applied...to get nearer to 90 per cent.[ Official Report, 18 April 2007; Vol. 459, c. 333.]
That aspiration means a genuine commitment to the victims of pension scheme collapse, not uncosted promises of false hope such as the Conservative proposal for a lifeboat fund. To take on directly what the hon. Member for Epsom and Ewell said earlier, I can tell the House that such a fund would require unguaranteed interest-free loans from the taxpayer without any certainty that they could or would be repaid. Without such a guarantee that there are sufficient funds with unclaimed assets to cover those loans, that amounts to nothing more than an uncosted, open-ended spending commitment that could never be delivered. Indeed, the Conservatives cannot even agree on what the cost would be. The shadow Chancellor has claimed that there would be none. On 18 April 2007, he told Sky News:
this is not an additional burden on public expenditure...We are able to get the money back from these unclaimed pension assets.
I have acknowledged, and will do so again, that in granting a loan there is a...risk of a liability to the public purse.[ Official Report, 18 April 2007; Vol. 459, c. 341.]
They cannot both be right. That risk is all too real, as the Association of British Insurers made clear on 17 April 2007. What it says is very interesting. Responding to the Conservative proposal to use unclaimed assets to pay for the lifeboat fund, it predicted that the proposals
could have serious and damaging consequences for pensioners. In a pension scheme, all assets are ultimately used to pay pensions. Unclaimed pension assets are not surplus to requirements. Stripping pension schemes of their assets would be robbing Peter to pay Paul.
Alan Simpson (Nottingham, South) (Lab): Will the Secretary of State reflect on his experience in his previous ministerial post in Northern Ireland, where the orphan funds of banks were subject to the same sort of argument? When it was made clear that the matter would be pursued, the amounts found were 10 times those that the banking and financial services sector predictedthey had claimed that only limited amounts would be available. Is it not legitimate to have similar expectations of the scale of the orphan assets that are available in the rest of the UK?
Mr. Hain: As we discussed before the debate, I am always impressed by my hon. Friends diligence and ingenuity in many policy respects. I am happy to pursue his suggestion with him, but I want at this stage simply to describe why I do not believe that the Conservative proposalalbeit made sincerelystands up.
Mr. David Laws (Yeovil) (LD):
I urge the Secretary of State at this early stage not to box himself in through denying the possibility of extending Pension Protection Fund benefits to those in the financial assistance scheme. After all, the Government have made major concessions on that in the past couple of years. Does he know that, according to the Departments figures, the cash costs of extending PPF benefits range from £9 million to £28 million in the
next six years? Will he ascertain whether he can find that in his departmental budget?
Mr. Hain: Indeed. That is what we have to find to provide for a scheme that is funded and capable of being delivered, not simply an empty promise. The latter would be indefensible, given that individuals have suffered so badly. However, I agree that we must show all the ingenuity that we can. I am trying not to box myself in, but to attain the equivalent level of 90 per cent.or as near to it as possiblethat my right hon. Friend the Member for Barrow and Furness (Mr. Hutton) promised when he was Secretary of State for Work and Pensions.
Chris Grayling: I am sure that the Secretary of State is aware that the scheme that we propose is almost identical to that which was used at the time of the Maxwell pension collapse. There is therefore a clear precedent, which worked. However, I expect to meet several pensioners who are affected in the next few weeks. Is he saying that he rejects the option of a lifeboat? Is that the message that I should convey to those people?
Mr. Hain: As my right hon. Friend says in his helpful intervention, we want one to float, not a lifeboat that will sink. We will provideas we have already providedunique assistance to those pensioners and individuals, and we want to do better and improve that assistance. I shall shortly describe the solution that the hon. Member for Epsom and Ewell should convey to them, and it is not his solution, which is proposed for sincere reasonsI do not doubt thatbut does not stand up. Our solution has a chance of being successful.
Mr. Frank Field: Is it not true that before the Conservatives tabled the motion, there was agreement across the House that we should use the unclaimed assets of banks and building societies? For some reason, which they have not explained, the Opposition thought that they should use what they call the unclaimed assets of insurance companies, where there are ownerseither the policyholders or the shareholders. The Conservatives have unnecessarily muddied the waters and risked breaking up the coalition that was putting considerable pressure on my right hon. Friend. Although he says, rather sadly, Isnt a pity the Conservative proposal doesnt stand up?, is he not rather pleased that the Conservatives have messed up their hand?
My right hon. Friend, in his usual razor-like way, has put the matter in the lap of the Conservatives by showing that their proposal does not stand up. They should genuinely seek a consensus with us about how to resolve the matter. That is what the hon. Member for Epsom and Ewell should tell the individuals who suffered so badly. I know from my constituency, and many others in Wales, just how tragic those cases are. For example, I have talked to former employees of Allied Steel and Wire in Cardiff. They
can use no word to describe their horrendous predicament other than robberythe robbery of their pensions, for which they had paid through deferred pay.
I genuinely welcome ideas from all parties, but the lifeboat fund proposal is not a viable solution. However, I believe that there are others and I invite hon. Members, including the hon. Member for Epsom and Ewell, to contribute to the current review that Andrew Young of the Government Actuarys department is conducting. I extend the same invitation to my hon. Friend the Member for Nottingham, South (Alan Simpson).
The focus of the review is on making the best use of the remaining assets in pension schemes that are winding up underfunded. The review is considering the way in which those assets, or other unallocated sources of non-public expenditure funding, could be used to increase assistance for affected scheme members.
I assure the House that if I can increase the amount of assistance available, I will. We must do all we can to help, but we must also ensure that anything we do is viable and sustainable. To propose something that cannot be delivered is not to support those robbed of their pensions, but to sell them short.
The hon. Member for Epsom and Ewell would have people believe that the Government inherited, then squandered, one of the best pensions environments in the world. That was the burden of his speech. Let us test that claim right now.
In 1997, some 2.7 million pensioners were living in poverty, many facing the indignity of living on as little as £69 a week. If there has ever been a crisis in pensions, it was surely then. Many women were prevented from building a state pension entitlement in their own right; carers were similarly mistreated by a system predicated on a 19th century view of working lives and social relationships; millions were without access to occupational pensions; and the mis-selling of private pensions, overseen by the previous Conservative Government, was a national scandal.
Meanwhile, the exceptional equity returns of the 1980s and 1990s allowed many defined benefit schemes to ignore the rapid rise in the underlying cost of their pension promises. That was compounded by botched policy such as the minimum funding requirement introduced by the right hon. Member for Richmond, Yorks (Mr. Hague), the current shadow Foreign Secretary, which failed to encourage employers to fund their pension schemes properly.
Many firms took the decision in the 1980s and 90sdespite rising liabilitiesto take contribution holidays, believing that a bullish equity market would be a long-term trend. Indeed, the Conservative Government believed that, too, as demonstrated by Nigel Lawsons decision effectively to cap pension fund surpluses in 1986. As the Pensions Commission noted:
The deep dip in contributions seen in the period 1988-91... almost certainly reflects the impact of this policy.
This was no Tory utopia, but a Tory fools paradise, with the Government irresponsible, reckless and complacent in encouraging employer pension holidays. To quote from the 2004 Pensions Commission report:
When the fools paradise came to an end...companies adjusted rapidly, closing DB schemes to new members. A reduction in the generosity of the DB pensions promises which existed by the mid-1990s was inevitable.
The stock market fall reduced the market value of pension scheme assets by some £250 billion between 1999 and 2002, and the effect of the package of tax changes on which the Opposition seek to pin the blame was entirely marginal.
Furthermore, the closure of defined benefit schemes and the shift towards defined contribution was not a UK phenomenon brought about by changes made by the present Government. Far from it. Accelerated further by record demographic changes, the effects of the changing environment have been felt right across the world. In the US, for example, the number of defined benefit schemes has halved in less than 30 years, while direct contribution schemes have tripled. Australia has seen an 80 per cent. reduction in the number of workers covered by defined benefit schemes since the 1980s.
Unlike the Conservative party, this Government have led the way in responding to the challenges that our pension system has faced since 1997. First, we tackled pensioner poverty. Thanks to the pension credit, winter fuel payments and a 9 per cent. real-terms increase in the basic state pension, we have lifted more than 2 million pensioners out of absolute poverty. The measures in our Pensions Bill will take us even further, with a new settlement for women and carers and a restoration of the earnings link that was removed by the Conservatives in 1980.
Secondly, we took action to tackle the loss of confidence in the private pensions market; one reason for that loss of confidence was the pensions mis-selling scandal that we inherited from the Conservatives. In 1997, less than 2 per cent. of pension mis-selling cases had been satisfactorily resolved; by the end of 2002, more than 99 per cent. of consumers with mis-selling claims had been compensated, with total compensation reaching £11 billion. That £11 billion was the bill for Tory incompetence and Tory injustice over pensions mis-selling.
Sir John Butterfill: I cannot let the right hon. Gentleman get away with his point about 2 million pensioners being lifted out of poverty without pointing out that his definition of poverty is founded on a 1996-97 basea base that is now 11 years old. If we revert to the current definition of poverty, preferred by the present Prime Minister when he was the Chancellor, only 200,000 rather than 2 million have been lifted out of poverty. It is all smoke and mirrors, I am afraid.
Mr. Hain: I agree with the hon. Gentlemans distinction between absolute and relative poverty. If we take the relative poverty comparison, however, I think I am right in saying that more than 1 million pensioners have benefited.
Through the Pension Protection Fund, the pensions regulator and the financial assistance scheme, the Pensions Act 2004 is helping to respond to the problems experienced by defined benefit occupational pensions and to boost security for scheme members. It is worth noting that the deficits for the 200 largest schemes fell by 40 per cent. in the past year alone.
Sustainability and affordability lie at the heart of the long-term settlement in our Pensions Bill and our programme of long-term reform that meets the challenges of supporting an ever-ageing society. The programme offers tomorrows pensioners the opportunity to plan
and save for a secure retirement, and gives todays pensioners the dignity, security and justice they deserve.
I had hopedand I continue to hopethat hon. Members on both sides of the Chamber, including the hon. Member for Epsom and Ewell, would join us in strengthening a lasting consensus around this long-term reform. However, tonight we have learned only one thingthat in reminding the House of their appalling pensions record in government, and by exposing their basic lack of substance on the issues that matter to the British public, the Opposition have shown that they are not yet ready for government. They have demonstrated the emptiness of their promises, and their crocodile tears will fool no one. It is time that the Opposition were pensioned off. Pensioners know where they will get justice. It is where they always have got it from: from Labour, and Labour alone. I invite my hon. Friends to reject this opportunist motion, and to vote for the amendment tonight.
Alan Simpson (Nottingham, South) (Lab): It is quite sad that neither the motion before us nor the amendments on offer are particularly worth voting for. However, they all raise important points relating to our present framework of meaningful pension provision that need to be addressed. There are also points that need to be dismissed. I am saddened that the Conservatives continue to run with the idea of the £5 billion stealth tax on pension funds without making any reference to the far greater loss and act of theft that took place in 2002, when a complete collapse of stock market values wiped £250 billion off the value of UK pension funds. It was not accidental that we got into that mess, as I shall explain in a moment, and we must ensure that it is not repeated.
Part of the muddle that we are now in is predicated on the legacy of pension contributions holidays. Those holidays were never on offer to workers themselves. A perverse contribution system was created whereby the Conservative Government introduced a pay-if-you-wish basis into pension schemes. That fundamentally broke the contractual linkthe social contractthat had existed more or less since the end of the war, when it was assumed that it was an employers duty to contribute to high-value, quality final salary pension schemes in the UK. The erosion and disappearance of that sense of duty alarms me, and that issue must be part of any new approach to a meaningful pensions framework for the 21st century. Unless we take that into account, we will find ourselves once again locked into the muddle that was created in 2002.
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